The Downsides of Bitcoin, Misleading Annual Returns, and How Millennials Make the Mortgage

Beyond the Headlines: Personal finance news and research you may have missed

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If you follow financial news, you’ve probably seen the big headlines: jobs are finally starting to come back in a big way, pumped up by stimulus checks and vaccine efforts, and business supply chains are struggling to keep up as demand is expected to surge with a more full reopening of the economy. 

Meanwhile, benchmark stock indexes are breaking new records as analysts try to predict just how soon (or far in the future) we might have to start paying the piper for all this emergency funding the government has been distributing. 

But here’s what you may not have heard, especially if you were buried in a trading app or trying to keep up with the latest twists in tax season: Did you know that herd mentality seems to be partially driving the Bitcoin craze, or that some millennials, more likely to struggle with mortgage payments than other generations, have been renting out rooms to make their payments? 

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

Bitcoin Breadcrumbs 

With Chipotle giving away Bitcoin in honor of National Burrito Day last week, it’s hard not to wonder just what’s driving the demand for the popular cryptocurrency investment, and what, if anything, are people’s fears about jumping in on the craze.

According to new research, herd mentality has something to do with it—hearing about the broad public acceptance of Bitcoin was found to drive demand in some cases—but it may also be the pandemic. That is, by speeding up the shift to digital payments, the pandemic is making Bitcoin seem like just another new form of payment rather than a speculative investment.

As for what might drive people away, the research, conducted by economists at the University of Hannover in Germany, examined how retail investors reacted to being warned about three downsides—lack of privacy, environmental impact, and financial risk. The economists found that privacy was the biggest deterrent, according to a working paper published in March.  

Specifically, researchers told groups in Germany, Britain, France, and Italy about one of the pitfalls and then asked them how likely they were to buy Bitcoin in the next two months. 

In the case of privacy, the group was told that contrary to popular belief, the anonymity offered by Bitcoin is far from foolproof because Bitcoin payments are recorded on a public record that savvy investigators can trace back to individual users. The other warnings discussed the heavy greenhouse gas emissions created by the electricity required for all the computing power needed, and the fact that Bitcoin purchases aren’t safeguarded in the same way regulated financial products like deposits would be. (This is true in both the European Union and the U.S.)

Wealthier people were particularly deterred when they heard about the privacy issues, which led researchers to wonder if they feared online retailers would charge them higher prices or if they wanted to hide their transactions, potentially to evade taxes.

Millennials Get Creative to Pay the Mortgage

For those most impacted by the downturn in the economy, the threat of losing their home has loomed large—whether it’s a rental or a home they own. With millions estimated to be behind on their rent and mortgage payments, the government recently extended a national moratorium on rental evictions through June 30, and regulators are taking steps to prepare homeowners and mortgage servicers once various federal programs end.

Among homeowners over 35, older millennials—up to age 40—have been particularly hard hit, perhaps because their finances tend to be less established, according to a February survey commissioned by Unison, a home finance fintech.  Some 61% of the millennials surveyed said they had to take action to keep up with their mortgage payments, compared with 29% of the broader group.

The single most common step among the millennials surveyed, chosen by 38% of them, was to enter into a mortgage forbearance program—an option that only 16% of Generation Xers (ages 41-56) and 1% of baby boomers (ages 57-75) used. But interestingly, another 11% of millennials rented out part of their home to generate additional income. Meanwhile, 16% delayed home remodeling and 7% dipped into retirement savings.

Worst-Case Scenario: Lose Your Home or Your Car?

If you have more outstanding loans to pay than money to pay them with, which ones do you prioritize? After the 2008 financial crisis, there was a massive shift in favor of paying car loans over mortgages, but the trend has recently reversed itself, according to research by economists at the Federal Reserve Bank of New York. 

Their March 29 analysis—which excluded 2020 data because of all the relief available to borrowers—shows that for many years after the financial crisis, borrowers chose auto loans over mortgages when deciding which of the two to prioritize over consumer debt like credit cards. This is possibly because declining home values left homeowners with less to lose if they defaulted on their loans, the economists said. (And generally people have less to lose when defaulting on credit card bills, so the “head-to-head” examined was mortgages versus auto loans.) 

By 2020, however, the trend had reversed itself, with mortgages being prioritized more than auto loans, and perhaps for parallel reasons. The falling priority of car loans has gone hand-in-hand with a surge in so-called subprime auto debt and default rates, the analysis said. 

Households with multiple vehicle loans are even less likely to prioritize them, the economists said, perhaps because the potential loss of a second car is less devastating than the loss of one’s only vehicle.

Early Signs of a Gender Gap

The gender gap that leaves women behind men in areas including income and financial literacy starts to emerge pretty early, at least when it comes to feeling confident, according to new survey findings.

In a poll of more than 1,000 people in Generation Z—ages 13 to 20—only 21% of girls said they were confident in their personal finance knowledge, compared to 33% of boys. 

The survey, conducted Feb. 26-March 2 and commissioned by the fintech Greenlight Financial Technology, shows the confidence gap has an impact on girls’ activities, too: 46% of girls said they haven’t invested because they don’t feel confident, compared to 37% of boys. Not surprisingly, a bigger share of girls expressed a desire for more knowledge: 80% versus 69% of boys.

50% Annual Return On Investment? No Big Deal (This Year)

If you’re checking your stock fund and seeing an annual return of 50% or more, you might be pretty impressed, even a little awestruck. Not so fast, cautions investment firm Morningstar: Given where we were around this time last year, over 2,000 U.S. equity funds finished March up 50% or more from a year earlier because the market crashed after the initial outbreak of COVID-19, but ultimately recovered.

“While certainly striking, investors should take these returns with a grain of salt, and the situation highlights a major quirk in shorter-term rolling returns,”  wrote Katherine Lynch, a data journalist for Morningstar. 

Instead, it’s better to compare your fund’s performance against a benchmark and consider the longer-term picture, Morningstar advises. For example, as of March 30, Morningstar’s Small Value Fund delivered an eye-popping 101% annualized return over the previous year, versus a 9%-10% annualized return over three, five, and 10 years.