Beyond the Headlines: Born to Bargain, Credit Score Envy, and Shadow Banking

Personal finance news and research you may have missed

Beyond the Headlines illustration

Unless you have been living under a rock, or maybe too engrossed with filing this year’s unusually complicated taxes, you have probably heard that lawmakers are weighing whether to jumpstart the economy with another massive rescue bill

You’ve probably also seen yet more evidence the economic recovery from the pandemic is protracted and tenuous and know that’s why Democrats are talking about passing a relief package by mid-March. (In fact, the real unemployment rate is still languishing close to double digits, according to Federal Reserve Chairman Jerome Powell.)

And of course, you know a huge difference between the previous stimulus bills and this one is that the Democrats are in the driver’s seat this time, and the spending will reflect the priorities of President Joe Biden, including things like an expanded child tax credit and stimulus checks that pay $1,400 per child too. 

But did you know that the love of bargain hunting might be genetic or that there are deadly consequences to raising the price of prescription drugs? 

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 you may have missed.

What We Found

Were You Born a Bargain Hunter?

A measure of consumer optimism about future spending had an unusual jump in January in a sign that once the country is immunized against COVID-19, all that pent-up demand will be unleashed. One group of consumers that may be particularly interesting to watch? Extreme bargain hunters.

Known in the research world as “deal proneness,” the bargain hunting tendency has been studied since at least 1965 since those who love discounts and sales are an especially profitable group for merchants to target.

Since the behavior seems to run in families, a new study set out to determine if the tendency to clip coupons or look for sales is something that people learn from their parents or inherit? And it turns out, it’s at least partly genetic, according to 121 pairs of twins at Rutgers University in New Jersey. 

The study, published in January in the Journal of the Association for Consumer Research, used a questionnaire to measure how deal-prone the twins were, and found that the similarities in their tendencies were greater in identical twins than in fraternal twins. Because identical twins have all their genetic material in common, whereas fraternal twins have just half, the researchers concluded that the bargain hunter streak is indeed at least partly hereditary. 

Promising Credit Score Trends for Young Women of Color 

People of color have historically been disadvantaged by the credit score system, which, though colorblind in its calculations, incorporates and perpetuates the discrimination of the past, research shows. That’s one reason Biden has proposed creating a public credit reporting agency to break the monopoly of the big three private bureaus.

But luckily, not all data points signal the same problem. According to a recent survey from the credit monitoring service Credit Sesame, when it comes to millennial women, women of color tend to have better credit scores and report a better experience with credit than White women.

Though Credit Sesame’s published survey results didn’t suggest a reason for these trends, it found that some 43% of millennial women of color reported having a good or excellent score of 640 to 850, compared to only 35% of their White peers. And 30% of White millennial women had a poor or very poor credit score, compared with 18% of millennial women of color. 

Overall, credit scores pose particular challenges for millennial women, with 41% saying their credit score hurts them in life, compared with 25% of the U.S. population as a whole, Credit Sesame said. 

In fact, 44% of women overall reported never being taught to manage credit, versus 33% of men, and 10% said they would give themselves a failing grade on credit knowledge, versus 4% of men. Men also outperformed on the actual credit scores: 56% said they had an excellent score, versus 28% of women. 

The online survey of 5,000 U.S. adults was conducted in October.

Savers Put Their Money on Autopilot

People lucky enough to have escaped unscathed from the pandemic’s economic fallout are looking for ways to spend their money, with some plowing extra cash into swanky vacation homes that may be serving as the office, school, and gym too. 

But plenty of people are saving too, and increasingly, turning to technology to do the job for them, according to a new study commissioned by FICO, the credit score company. 

Consumers who want to save don’t want to be bothered to figure out how much and when, so they are increasingly relying on automated tools that analyze income and spending and even automatically move money into an account, the study showed. In fact, customers who use services such as Digit or Acorns save between $475 and $989 a year, on average, over their existing levels of savings, the study found.

The popularity of automated savings is one reason customers are turning toward “shadow banking” services from fintech providers offering more sophisticated products than traditional banks, the study found. 

"Shadow banking providers are siphoning a growing amount of business away from traditional providers, often in ways that are difficult to detect," Ron Shevlin, managing director of fintech research at Cornerstone Advisors, said in a statement. Cornerstone conducted the study and a related fourth-quarter survey of over 3,000 consumers on FICO’s behalf.

Drug Price Hikes Can Kill, Analysis Finds

Among the hot-button issues for the new Biden administration to tackle is the cost of prescription drugs, and it’s not hard to understand why Biden often pledged to make medication more affordable while on the campaign trail, looking at new research from Harvard University and Berkeley University researchers. 

When health insurers increase the out-of-pocket costs for lifesaving medicines, some consumers will respond by simply cutting back on taking them, and with lethal results, according to their working paper, published in the National Bureau of Economic Research this month prior to being peer reviewed.

By analyzing prices and specific drug-filling decisions of a sample of Medicare recipients from 2007 to 2012, the researchers found that increasing the cost of a drug by just $10.40 caused a 22.6% drop in total drug consumption and a 32.7% increase in monthly mortality. 

“Cost-sharing causes death,” was the blunt summary of the study’s results by the Physicians for a National Health Program, an organization that advocates for what its name says.

Cost-sharing is supposed to save money by encouraging patients to skip unnecessary care, but it doesn’t work that way, wrote PNHP member Don McCanne in a recent commentary. 

“The financial barrier of cost-sharing also causes patients to forgo beneficial care, and, as this study shows, they will cut back on life-saving medicines like statins and antihypertensives, with resultant premature death,” McCanne wrote. “That cries out for a change in policy.”

Raise the Wage, Reduce Inequality

There are few things economists love to argue about more than the pros and cons of raising the minimum wage, and the Democratic proposal to raise the federal minimum from $7.25 an hour to $15 has given them ample cause to renew the debate.

While the positive impact may seem obvious, particularly for the lowest-paid workers, some argue it could force employers to cut back on hiring. In fact, the latest salvo in the minimum wage wars landed when the Congressional Budget Office estimated that raising the federal minimum to $15 would lift 900,000 people out of poverty, but also cost 1.4 million jobs, a controversial assertion.

But there’s one effect of minimum wage hikes that the CBO didn’t consider in its report: their effect on racial inequality. According to a new study by researchers at the University of California, Berkeley, a minimum wage expansion in the past was highly effective in making the labor market more fair to Black workers.

When the Fair Labor Standards Act of 1966 extended the federal minimum wage to cover sectors like agriculture, restaurants, and nursing homes, it affected nearly a third of the Black workforce at the time. Earnings rose sharply for workers in these industries, with an impact nearly twice as big for Black workers as White ones, with nearly zero effect on employment levels, according to the study. 

This minimum wage expansion alone accounts for 20% of the reduction in the racial earnings income gap that took place during the Civil Rights era, the researchers wrote in the Quarterly Journal of Economics. 

Straight A’s Got Working Moms As Far As F’s Got Working Dads

Women, statistically more likely to be responsible for childcare, were hit hard with job losses early on in the pandemic, and though they recovered many of those jobs during the summer, the gains may be short-lived, new research shows. To make matters worse, according to a new study, becoming a parent boosts leadership opportunities for men but hurts them for women.

In fact, mothers who got straight A’s in school ended up managing a similar number of employees—four, on average—in their early to mid-careers as fathers who got F’s in school, according to researchers at the University of North Carolina-Charlotte and the University of British Columbia.

The study, recently published in the journal Social Forces, was based on a survey that has tracked a group of baby boomers born between 1957 and 1964, and focused on the years between 1988 and 1998, when most of the subjects were in their 30s.