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I am excited to introduce the latest issue of the Journal of Personal Finance. Our Spring, 2021 edition reflects traditional touch points across a client’s life-cycle diving into student debt, home equity, education savings decisions, investment strategies, and mortality salience. Our latest issue enriches professional and academic discussions for new graduates, those building wealth, and retirees.. - Editor Craig Lemoine, Ph.D., MRFC®, CFP®

Members of the IARFC can earn CE credits through the Journal of Personal Finance (JPF). Register to take the IARFC JPF Online CE quizzes and receive two for $20. Two hours of IARFC CE will be awarded to anyone who achieves a score of 13 or higher per quiz. Only one submission per member is allowed, quizzes are available as JPF issues are published. To register for a  the quiz click here.


Volume 20 Issue 1,  2021

Determinants of Parents' College Education Saving Decisions

Thomas Korankye, Ph.D, CFP®
Charlene M. Kalenkoski, Ph.D., CFP®
This study examines the factors associated with the decisions of U.S. households to save for the college education of their children using state-level data from the 2015 U.S. National Financial Capability Study. The results suggest that financially fragile households and those characterized by low income, low education, more children, no health insurance, and no homeownership are less likely to have college savings. Households who are willing to take financial risks and those with higher perceived financial knowledge are more likely to save for the college education of their children. Whereas bond- and loan-pricing literacy are the only components of financial literacy that are associated with a higher probability of college savings, the overall financial literacy score is associated with a lower likelihood of saving for college.

Student Loan Debt Letters: How Colleges Communicate with Students

Zachary Taylor, Ph.D
Gretchen Holthaus
Karla Weber
As the student loan debt crisis has continued to gain national attention from higher education leaders, education policymakers, and the media, states have begun mandating that institutions send student loan debt letters to any current or former student with outstanding student loan debt. Preliminary studies of the effectiveness of student loan debt letters have been mixed, but these studies have not analyzed how institutions have composed student loan debt letters at the word-, sentence-, and document-level. As a result, this study gathered six student loan debt letters sent by different institutions across the United States and analyzed these letters for readability, cohesion, and lexical diversity. Results suggest student loan debt letters have been written in drastically different ways and do not share common vocabulary, possibly confusing the debt repayment process for students. Implications for research and practice are addressed.. 

The Relationship Between Home Equity and Retirement Satisfaction

Blain Pearson, Ph.D., CFP®
Donald Lacombe, Ph.D. 
As life expectancies continue to climb, home equity may increasingly become a much-needed resource to finance late-life consumption. This study hypothesizes that a higher ratio of home equity relative to net worth creates resource constraints, resulting in disutility for individuals who are in retirement. The findings suggest that increases in a retiree’s ratio of home equity relative to net worth is associated negatively with a satisfactory retirement experience. The ensuing discussion highlights two important issues. The first issue is that, for many retirees, home equity is inefficient in promoting retiree well-being. The second issue is that retirees may have limited knowledge of the available tools to access home equity. Thus, arguments for increased efforts to promote the responsible utilization of home equity as a part of an individual’s plan for retirement are discussed.

Investment Strategies During the Great Recession: Who Remains Calm, and Who Panics? - The Role of Financial Planners

Shan Lei, Ph.D., CFA, CFP®
This study uses a proprietary dataset to investigate factors related to investment strategies chosen in the wake of the “Great Recession” of 2007 to 2009 and discussed the role of financial planners in particular. This study finds support for a positive relationship between investors using financial planners and following a disciplined investment strategy or portfolio rebalancing strategy. Additionally, this study also finds that using financial planners reduces the likelihood of holding the losers too long in the down market which might hurt individual investors' abilities to achieve long-term financial goals. Personal characteristics, such as gender, age, race, personal saving rate, and investable assets may present an essential part in shaping individuals' investment decisions in a recession. Potential investment bias associated with each investment strategy is discussed. Suggestions are also provided to overcome or accommodate these biases.

Mortality Salience Lowers Preferred Retirement Asset Decumulation Rates

Yi Liu, Ph.D.
Russell James, J.D., Ph.D., CFP®  
Standard life-cycle economic theory suggests that people should spend down assets during retirement at a rate maximizing their lifetime consumption. However, actual retiree behavior exhibits asset decumulation at much slower rates, not at all, or even continued accumulation. One potential factor is that decumulation requires personal mortality estimations. Previous research finds that personal mortality reminders (1) are aversive and (2) increase focus on impacting those who will survive. Correspondingly, recent research has found that (1) annuity purchases are reduced due to associated personal mortality reminders and (2) mortality reminders increase relative preference for annuities that pay less income but provide a greater bequest provision. This study investigates whether mortality salience will also influence the broader issue of an individual’s asset decumulation decisions in retirement. Using a randomly assigned experimental test, we find that increasing mortality salience increases the desire to retain assets in retirement, reducing the preferred spending rates in retirement. Understanding the role of mortality salience on decisions about asset decumulation in retirement can be beneficial to academic researchers and financial planners.



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