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How a Person’s Age and Personal Risk Feelings Might Affect the Decisions of Investments and Planning

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Personal finance is a term that covers managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning

The term often refers to the entire industry that provides financial services to individuals and households and advises them about financial and investment opportunities. Personal finance is about meeting personal financial goals, whether it’s having enough for short-term financial needs, planning for retirement, or saving for your child's college education. It all depends on your income, expenses, living requirements, and individual goals and desires—and coming up with a plan to fulfill those needs within your financial constraints.

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United States’ households, institutions, and domestic businesses saved almost $1.9 trillion in 2013. Where did that savings go and what was it used for? Some of the savings ended up in banks, which in turn loaned the money to individuals or businesses that wanted to borrow money. Some was invested in private companies or loaned to government agencies that wanted to borrow money to raise funds for purposes like building roads or mass transit. Some firms reinvested their savings in their own businesses. In any market, the price is what suppliers receive and what demanders pay. In financial markets, those who supply financial capital through saving expect to receive a rate of return, while those who demand financial capital by receiving funds expect to pay a rate of return. This rate of return can come in a variety of forms, depending on the type of investment. The simplest example of a rate of return is the interest rate. For example, when you supply money into a savings account at a bank, you receive interest on your deposit. The interest paid to you as a percent of your deposits is the interest rate. Similarly, if you demand a loan to buy a car or a computer, you will need to pay interest on the money you borrow. Let’s consider the market for borrowing money with credit cards. In 2014, almost 200 million Americans were cardholders. Credit cards allow you to borrow money from the card’s issuer, and pay back the borrowed amount plus interest, though most allow you a period of time in which you can repay the loan without paying interest. A typical credit card interest rate ranges from 12% to 18% per year. In 2014, Americans had about $793 billion outstanding in credit card debts. About half of U.S. families with credit cards report that they almost always pay the full balance on time, but one-quarter of U.S. families with credit cards say that they “hardly ever” pay off the card in full. In fact, in 2014, 56% of consumers carried an unpaid balance in the last 12 months. Let’s say that, on average, the annual interest rate for credit card borrowing is 15% per year. So, Americans pay tens of billions of dollars every year in interest on their credit cards—plus basic fees for the credit card or fees for late payments.

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Retirement is a time of life that has grown ever longer in the developed world, and the number of pensioners has increased accordingly, questioning the strength of Social Security systems and the social safety net in general. Financial Planning for Retirement (FRP) consists of the series of activities involved in the accumulation of wealth to cover needs in the post-retirement stage of life. The negative short-, mid-, and long-term consequences of inadequate Financial Planning for Retirement do not only affect individuals, but also their extended families, homes, eventually producing an unwanted impact on the entire society. The Capacity-Willingness-Opportunity Model has been proposed to understand FPR, combined with Intentional Change Theory, a framework for understanding the process, antecedents and consequences of FPR. From this perspective, we propose this promising model, but there are a large number of variables that have not been included that offer novel ways to deepen our understanding of FPR. A focus on each dimension of the model, the role of age and psychosocial variables associated with demographic indicators such as gender, health status, and migration, allow us to provide a proposal of scientific advancement of FPR. From a societal standpoint, population aging in the developed countries has intensified pressure on public pension systems (Annink et al., 2016). It now seems clear that society will not be able to guarantee quality of life in retirement unless people save on their own behalf including private (i.e., corporate) pensions leading governments to adopt increasingly active policies designed to involve citizens in Financial Planning for Retirement (FPR). FPR consists of the series of activities involved in the accumulation of wealth to cover needs in the post-retirement stage of life

It is necessary because of the high, mid- and long-term, negative impact of poor planning (Choi and Jang, 2016; Ekici and Koydemir, 2016). At the same time, this activity is complex for several reasons. Firstly, most people do not possess the necessary knowledge to make optimal savings and investment decisions. Secondly, individual planning is subject to many factors, such as income, professional career, or health, which, moreover, interact with each other.

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Generally speaking, to stay on top of your wealth and sign up for Personal Capital’s free financial tools

With Personal Capital, you can track your cash flow, x-ray your investments for excessive fees, and make sure your retirement plans are on track. For more stable investment returns, take a look at Fundrise, a top real estate crowdfunding platforms for non-accredited investors. It’s free to sign up and explore. If you have dependents and/or debt, it’s a good idea to get term life insurance to protect your loved ones.

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Annink, A., Gorgievski, M., and Den Dulk, L. (2016). Financial hardship and well-being: a cross-national comparison among the European self-employed. Eur. J. Work Organ. Psychol. 25, 645–657. doi: 10.1080/1359432X.2016.1150263

Choi, Y. C., and Jang, J. H. (2016). Relationships among social policy factors, national competitiveness, and happiness. Appl. Res. Qual. Life 11, 1189–1205. doi: 10.1007/s11482-015-9429-4

Fasbender, U., Deller, J., Wang, M., and Wiernik, B. M. (2014). Deciding whether to work after retirement: the role of the psychological experience of aging. J. Vocat. Behav. 84, 215–224. doi: 10.1016/j.jvb.2014.01.006

García-Gallego, A., Ibáñez, M. I., and Georgantzis, N. (2017). Editorial: personality and cognition in economic decision making. Front. Psychol. 8:848. doi: 10.3389/fpsyg.2017.00848

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