If you’ve been following financial news (or just living your life), you know that the cost of seemingly everything is going up now—grocery bills continue their relentless march, the cost of gasoline and two-by-fours is back up after a short reprieve, and mortgage rates, unfortunately, have finally caught up with the times.
Why? It’s harder to find stuff, whether it’s an airline flight, cat food, or affordable homes for sale. Supply shortages, shipping delays, and COVID-19-induced worker shortages are all taking a toll. And the turmoil is finally hitting the high-flying stock market, which had its worst week since the pandemic hit as it braced itself for the first increases in benchmark interest rate in years.
But what about what’s not on your radar, especially if you’ve been busy figuring out how to stretch your budget or protect your 401(k)? Did you know that those monthly payments parents got last year from the IRS reduced the number of child households without enough to eat by 26%, according to a new study? Or that there’s a new theory about why credit scores increased during the pandemic?
To reach beyond the biggest headlines, we scour the latest research, surveys, studies, and commentary. Here’s the most interesting and relevant personal finance news you may have missed.
What We Found
New Tax Credit Was Meaningful to Hungry Children, Study Finds
When the expanded child tax credit expired at the beginning of the year, the U.S. lost a program that cut hunger in families with children by 26%, new research shows.
When West Virginia Sen. Joe Manchin single-handedly spiked President Joe Biden’s Build Back Better domestic spending agenda late last year, he put a halt to one of the most ambitious social safety net expansions of the pandemic era: the expanded child tax credit.
The expansion boosted the credit to a $3,600-per-child maximum from $2,000 for 2021. It also made the credit’s full value available to families that previously couldn’t claim it because they earned so little money—or none at all—that they couldn’t have the credit deducted from their taxes. Not only that, but families got half the credit in the form of monthly checks of up to $300 per child, starting in July. Manchin and Republicans criticized the expansion as being too costly and for not including a work requirement to collect it.
In the brief time the credit existed, however, it made a significant impact on families struggling to feed their children, according to research published earlier this month at the JAMA Network Open, an online medical journal.
While earlier data from Census Bureau surveys indicated that food was the single most common use for the monthly payments, the latest study analyzed that data to show just how far the extra money went toward putting food on the table. The payments began in July and by August, the number of households with children reporting food insufficiency—that is, not having enough to eat—fell by 26%, according to the study.
The credit is going away at an especially bad time, the researchers said, given the economic disruption of the current surge of COVID-19 cases.
“The sunsetting of the child tax credit expansion could leave many families without enough food on the table,” the researchers wrote last week. “This support is ending just as the omicron variant of COVID-19 is leaving many families without work, child care and, in many places, child care via in-person instruction at school.”
While this research didn’t necessarily make headlines, a related study did. A paper published this week in PNAS, the official journal of the National Academy of Sciences, found that cash payments to new mothers boosted their babies’ brains. In the study, infants belonging to low-income mothers who for several years were given cash transfers of $333 per month—an amount similar to child tax credit payments—showed more brain activity associated with the development of cognitive skills than infants of mothers who received just $20 a month.
Here’s Why Credit Scores Actually Rose in the Pandemic
It’s one of the many strange paradoxes of the pandemic-era economy: Amid the layoffs and economic upheaval of its first few months, average credit scores actually improved—and they went up even more for people with low credit scores.
Why exactly did that happen? Perhaps it had something to do with those special forbearance programs that let homeowners and student loan borrowers pause payments? No, it turns out that—more than anything else—it was simply that people gave their credit cards a rest, according to a new analysis by researchers at the Federal Reserve Bank of Boston. People were able to pay down their credit cards because of government support like stimulus checks and expanded unemployment payments, and also because there was a lot less to buy during the business closures of 2020, the researchers said.
Drawing on consumer credit data from Equifax, the researchers found that 30% to 45% of the improvement in credit scores nationwide came from decreased credit card usage. Student loan and mortgage forbearance didn’t play much of a role, because relatively few households participated in those programs.
The results mean that as the economy returns to normal, credit scores probably will too, the researchers said.
Can SNAP Buy a Meal Where You Live?
There’s no getting around it: inflation has made food much more expensive lately. The price of groceries was up 6.5% in the year through December, according to the latest government data. Such price increases are especially tough on the 42 million people who live in low-income households receiving benefits from the government’s Supplemental Nutrition Assistance Program (SNAP) to help pay for their meals. That’s especially so because other forms of government aid put in place during the pandemic, such as enhanced unemployment benefits and the expanded child tax credit, have come to an end.
SNAP benefits are adjusted for inflation every October. While they did receive an unprecedented extra boost in 2021, beneficiaries will have to ride out the better part of a year’s worth of food price increases before receiving another adjustment.
Not only that, but food doesn’t cost the same everywhere in the country, or even within the same state. Benefit amounts are only adjusted accordingly for Alaska, Hawaii, and the U.S. territories. That means that in some places, SNAP benefits are more than enough to buy nutritious (albeit spartan) meals, while in others, they fall short, according to the Urban Institute think tank. The map below, compiled by the institute and last updated in November, shows how much a “modestly priced” meal actually costs in each county, and how much of that is covered by SNAP benefits.
Before last year’s increase in SNAP benefits, households in 96% of U.S. counties didn’t receive enough to cover the cost of meals, the institute researchers estimated. The increase brought that figure down to 21%, still leaving a lot of room for improvement.
“The bottom line is, you bring home less food for the same amount of SNAP benefits depending on where you live,” said Elaine Waxman, a senior fellow at the Urban Institute who researches poverty and government benefits. “You’re already assuming that this is a minimal-cost diet, so the benefits are not robust to begin with. We shouldn't have a safety net that’s based on the accident of where you happen to be born or where you happen to work and live.”
When Bonuses Can Backfire
If you’ve ever had a job with a performance bonus, you probably know how much that monetary reward often can spur you to work harder and smarter in pursuit of a bigger paycheck.
But for people who are especially reluctant to take risks, those bonuses can backfire, a recent study found.
The counterintuitive finding by researchers at the University of Vienna’s Department of Economics comes down to psychology—specifically, the phenomenon of “loss aversion,” in which people who are loss-averse usually prefer small, guaranteed rewards over bigger, riskier ones, the researchers said. Here’s how their experiment worked:
Test subjects were given a task of counting the number of zeros on several tables of numbers and were given various amounts of money according to how many zeros they correctly counted. Some were given the chance to set personal performance goals to earn a 20% bonus if they met them, and some were told to set personal goals but received no bonus pay for reaching them.
As it happened, people who were especially loss-averse—as measured by a separate test the subjects were given—set lower goals and did worse when offered a monetary bonus (versus similarly loss-averse people who set goals with no reward). Interestingly, that didn’t happen with test subjects who were less loss-averse. Overall, subjects who set unpaid goals outperformed those who were paid bonuses by 11%.
The reason for the outcome? People especially sensitive to loss aversion wanted to make extra sure they didn’t miss out on a bonus, so they set lower performance goals, the researchers said. And setting a conservative goal rather than an ambitious one actually made them put less effort into the task, doing worse at it as a result.
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