It’s been a crazy week to follow financial news: As if the wildly careening price of stocks like GameStop and AMC wasn’t enough, Harriet Tubman is fixing to oust Andrew Jackson from the $20 bill, and Bernie Sanders announced a bill that would raise the federal minimum wage to $15 an hour, vowing to push it through whether or not Republicans go along.
Meanwhile, there was evidence that an end-of-the-year lapse in unemployment benefits may have potentially affected millions of people despite lawmakers’ last-ditch scramble to avoid it. And one more glass ceiling was demolished when Janet Yellen became the first female Treasury secretary, bringing with her big plans for government stimulus for the economy.
Plus, we learned that homes continue to be in ridiculously high demand, with the average new mortgage loan hitting another record high at over $395,000, buoyed by ultra-low interest rates.
But did you know that some researchers estimate 41% of the U.S. lives lost in the pandemic could have been spared if the federal government had forbidden rental evictions all along? Or that all this paying without cash we’re doing means we’re more likely to eat junk food?
To reach beyond the biggest headlines, we scoured the latest research, surveys, studies, and commentary to bring you the most interesting and relevant personal finance news.
What We Found
Risky Trades More Likely in the Palm of Your Hands
It’s no wonder that traders using mobile platforms have been upending the financial world: It turns out that if you put a smartphone and a trading app in the hands of an investor, they are likely to turn trading into a lottery, purchasing riskier assets and chasing trends, according to a new study.
As if to underline the study’s results, the very week that it was released, investors wielding smartphone trading apps and organizing themselves on Reddit and other social media platforms sent stocks such as GameStop on wild rides by treating trading like a video game in defiance of all sound financial advice.
To test how smartphone apps affected the behavior of investors, researchers from Indiana University and two German institutions looked at how customers at a bank traded stocks while using smartphones versus when they used personal computers. The results of the study, which has yet to be peer-reviewed, showed that the middle-aged, German, experienced investors in the sample made riskier trades with smartphones.
The psychological lure of risky trades is one reason experts warn everyday investors against mistaking Wall Street for Las Vegas. “Speculation is fun,” Sarah Newcomb, a behavioral economist at Morningstar, wrote of the GameStop frenzy on Wednesday. “It's why a lot of people love investing, and if you speculate with only moneys you can afford to lose, events like these can be exciting and sometimes profitable.
Still, if you are new to investing, don't understand the difference between fundamental value and market price, or you are considering putting money on the line that you need for your present or future security: stop, breathe, and walk away. No crowd of anonymous Redditors deserves your life savings, period.”
Trying to Avoid Junk Food? Dig Out That Cash
Those forthcoming Harriet Tubman $20 bills might turn out to be handy for health-conscious shoppers, if a recent study is correct.
It turns out that cashless payments—which have skyrocketed in popularity since the pandemic made face-to-face contact more dangerous—make people more likely to load up on treats and junk food, according to a study published in the Journal of the Association for Consumer Research.
The reason is rooted in how we experience loss: psychologically, it hurts a little to part with cold, hard, cash, triggering an effect dubbed “the pain of paying,” the study’s researchers said. But forking over digital dollars is a much less vivid experience. The pain of paying makes us perk up and pay attention to the risks we are taking, the theory goes, and without it, our guard is lowered. (The effect was absent for less-educated shoppers who the researchers said were not aware that cookies and candies were worse for them than fruits and vegetables in the first place.)
“To help consumers regulate their unhealthy consumption, popular press and policy makers should educate consumers about the unintended detrimental effects of cashless payment,” the researchers wrote.
More Eviction Bans, Fewer Infections and Deaths
One of Joe Biden’s first executive orders as president asked the Centers for Disease Control to extend a ban on rental evictions through at least March 31 and he’s pushing for an additional six months after that. But what if evictions had been prohibited back at the onset of the COVID-19 pandemic?
Because losing housing reduces a person’s ability to abide by social distancing orders and maintain proper hygiene—key to warding off the spread of the infectious disease—researchers at Duke University attempted to quantify the impact of eviction limitations on infection and death rates. What they found is startling.
The Centers for Disease Control and Prevention did not issue a national moratorium on evictions until September 2020. But local policies that limited evictions reduced COVID-19 infections by 3.8% and deaths by 11%, the researchers found. Even more eye-opening? Had the federal government adopted such a policy nationwide from early March through the end of November 2020, COVID-19 infections could have been reduced by 14.2%, and deaths cut by 40.7%, they estimated. The researchers’ non-peer-reviewed working paper was recently published by the National Bureau of Economic Research.
Bachelors Are Richer Than Bachelorettes
Janet Yellen may be the first woman to lead the Treasury, but women still aren’t on equal financial footing with men.
Not only is there still a gender pay gap, it turns out there’s an even bigger problem, especially for never-married women: the gender wealth gap. Never-married women have just 71 cents in net worth for every $1 owned by their male counterparts, researchers at the Federal Reserve Bank of St. Louis said in a January report, citing data from the Federal Reserve’s Survey of Consumer Finances. Overall, women had 91 cents on the dollar compared to men.
The gender pay gap is well documented, with women in 2019 earning 82 cents on $1 compared to men. Since 2004, the figure has hovered between 80 and 83 cents, but the wealth gap is lesser known.
Studying the gender wealth gap is challenging because most surveys are conducted at the household level, and couples often share finances, the St. Louis Fed said. To get around this, the researchers counted the wealth of each household as belonging to its most financially knowledgeable member.
The gender wealth gap they found is significant, and “potentially consequential for current and future generations,” the researchers wrote.
Women-Owned Businesses Feel the Pandemic Weight More
As if the wealth and pay disparities weren’t enough, the pandemic had a disproportionate effect on small businesses owned by women.
Compared to small businesses owned by men, women-owned small businesses took three-times longer to start to normalize after the pandemic disruption, according to a study conducted by business accounting software company FreshBooks.
Invoice revenue for businesses owned by men dipped out of a normal range for just three weeks in the spring while women-owned businesses declined more than normal for 10 weeks—until early June—before experiencing a more modest recovery.
The reason? Lockdowns and social distancing restrictions have had more of an effect on women-dominant industries like education and health care, FreshBooks said, not to mention that women are more likely to have taken over child care responsibilities when schools shut down.
In fact, businesses owned by women, on average, still have not recovered to pre-pandemic levels, unlike those owned by men, FreshBooks’ data showed. To conduct its study, the company collected proprietary data from its platform between July and September, as well as surveyed 2,200 self-employed men and women.
Even in an industry like construction, which has largely returned to normal, women have it harder. While the construction industry at-large is “booming” by FreshBooks’ standards, the data shows that women-owned construction companies are not seeing the same spike as those owned by men.
And women are aware of the situation. Nearly 60% of women surveyed by FreshBooks said they expect it will take more than six months for their business to recover compared to 47% of men.