If you follow financial news (or just live your life), you will know that the cost of everything is rising now – grocery bills continue their relentless march, the cost of gasoline and lumber is climbing again after a brief pause, and mortgage rates, unfortunately, have finally caught up with the times.
Why is this happening?
It is harder to find things, whether it be a flight, cat food, or affordable homes for sale. Supply shortages, shipping delays, and labor shortages stemming from the COVID-19 pandemic are looming large. Finally, tensions are beginning to affect the high-flying stock market, which saw its worst week since the start of the pandemic as it prepares for its first hike in the key interest rate in years.
What about what’s not on your radar?
To get beyond the headlines, we look at the latest research, surveys, studies, and commentary. Here’s the most interesting and relevant personal finance news you might have missed.
What we found
New research shows that the new child tax credit had a significant impact on families struggling to feed their children. According to the research published earlier this month in the JAMA Network Open medical journal, the number of households with children facing food insufficiency fell by 26% after the monthly payments that parents received last year from the Internal Revenue Service began.
Why did credit scores rise during the pandemic?
It’s one of the many marvels of the economy in pandemic times: despite the layoffs and economic turmoil in the early months, average credit scores increased – and increased even more for people with lower credit scores. Why did this happen exactly? It may have had to do with deferment programs that allowed homeowners and student loan borrowers to suspend payments. No, the primary reason appears to be that people gave their credit cards a break, according to new analysis from researchers at the Federal Reserve Bank of Boston. People were able to pay down credit cards thanks to government support such as stimulus checks and expanded unemployment payments, and also because there was less to buy during business shutdowns in 2020, the researchers noted.
Can SNAP buy a meal in your area?
It cannot be overstated: food costs have risen dramatically lately. According to the latest government data, grocery prices rose by 6.5% in the year leading up to December. These price increases are particularly tough on the 42 million people living in low-income households who receive assistance from the government’s Supplemental Nutrition Assistance Program (SNAP) to help them pay for their meals. This is particularly relevant as other forms of government assistance put in place during the pandemic, such as enhanced unemployment benefits and expanded child tax credits, have ended.
When can SNAP buy a meal in your area?
SNAP benefits are adjusted for inflation every October. While they received an unprecedented additional increase in 2021, they will have to endure rising food prices for nearly a year before receiving another adjustment. Additionally, food does not cost the same across the country or even within the same state. Benefit amounts are adjusted accordingly only for Alaska, Hawaii, and U.S. territories. This means that in some places, SNAP benefits are more than sufficient to buy nutritious (if modest) meals, while they are insufficient in others, according to the Urban Institute. The map below, compiled by the institute and updated in November, shows how much a “reasonably priced” meal costs in each county, and how much of that is covered by SNAP benefits.
When can
Can Bonuses Be Harmful?
If you have a job that comes with a performance bonus, you likely know how motivating this financial reward can be to work harder and smarter for a better paycheck. But for people who are particularly risk-averse, these incentives can be harmful, as a recent study has shown. The reason behind this surprising result is psychological – specifically the phenomenon of “loss aversion,” where individuals who fear loss tend to prefer smaller, guaranteed rewards over larger, riskier ones, according to researchers. Here’s how their experiment worked:
Participants in the test were given the task of counting zeros in several tables of numbers and were awarded different amounts of money based on how many zeros they counted correctly. Some were given the opportunity to set personal performance goals to earn a 20% bonus if achieved, while others were told to set personal goals but did not receive any financial reward for reaching them.
As it turned out, individuals who were particularly fearful of loss aversion – as measured in a separate test given to participants – set lower goals and performed worse when offered a financial reward (compared to less loss-averse individuals who set goals without a bonus). Notably, this did not occur with participants who were less loss-averse. Overall, participants who set unpaid goals outperformed those who were incentivized by bonuses by 11%.
What’s the reason behind this result? Individuals who felt heightened anxiety from loss aversion wanted to ensure they did not miss out on a reward, so they set lower performance goals, resulting in poorer performance when a financial incentive was at stake, according to researchers. Achieving a conservative goal instead of an ambitious one actually led them to put less effort into the task, thus performing worse at it.
Do you have a question or comment or a story you’d like to share? You can reach Deacon at dhyatt@thebalance.com.
Sources:
- Congressional Research Service. “The Child Tax Credit: Temporary Expansion for 2021 Under the American Rescue Plan Act of 2021 (ARPA; PL 117-2)).”
- Journal of the American Medical Association. “Association of the Implementation of Child Tax Credit Advance Payments With Food Insufficiency in US Households.” Accessed Jan. 26, 2022.
- Proceedings of the National Academy of Sciences. “The Impact of a Poverty Reduction Intervention on Infant Brain Activity.”
- Federal Reserve Bank of Boston. “Credit Scores Since the COVID-19 Outbreak.”
- Urban Institute. “Persistent Gaps in SNAP Benefit Adequacy Across the Rural-Urban Continuum.”
- V. Gonzalez et al. “The Dark Side of Monetary Bonuses: Theory and Experimental Evidence.” SSRN. Accessed Jan. 26, 2022.
Source: https://www.thebalancemoney.com/new-child-tax-credit-cut-hunger-study-shows-5217151
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