Tag: Knowledge @ Wharton

Closing the Racial Wealth Gap in Retirement Readiness

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/closing-the-racial-wealth-gap-in-retirement-preparedness/?utm_campaign=KatW_Monthly2023&utm_medium=email&utm_source=kw_campaign_monitor&utm_term=7-2-23&utm_content=Closing_the_Racial_Wealth_Gap_in_Retirement_Readiness

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Excerpt:

One factor undermining older Americans’ ability to prepare financially for retirement is the debt burden they carry. Increasingly, adults are carrying debt into retirement, according to Mingli Zhong, research associate, and Jennifer Andre, data scientist at the Urban Institute.

Their presentation on “Racial Differences in Debt Delinquencies and Implications for Retirement Preparedness” tracked some 4.8 million adults age 50+ who had credit bureau records. They found that the median debt amount for older households with debt was about three times higher in 2016 ($55,300) than in 1989 ($18,900 in real 2016 dollars).

The authors also reported racial disparities in debt levels. Compared to an older adult in a majority-white community, a typical older adult in a community of color is more likely to have any type of delinquent debt, carry a higher balance of total delinquent debt, and have a higher balance of medical debt in collections. The older adult living in a majority-white area has a higher balance of delinquent student loan debt and delinquent credit card debt, they also found.

Author(s): Olivia S. Mitchell, Sylvain Catherine

Publication Date: 6 June 2023

Publication Site: Knowledge at Wharton

So Are ESG Investments Lousy, or Not?

Mary Pat Campbell

Link: https://www.ai-cio.com/in-focus/market-drilldown/so-are-esg-investments-lousy-or-not/?oly_enc_id=2359H8978023B3G

Excerpt:

One criticism of ESG investing is that, when it shows good returns, this might be because of temporary factors that have an outsize impact. Such superior returns are  often driven by climate-news “shocks,” declared Robert Stambaugh, a professor at the University of Pennsylvania’s Wharton School, and two other academics, in a recent paper. The reference is apparently to a spell of severe drought or destructive hurricanes. The professors expressed uncertainty as to whether any future ESG outperformance can be assumed.

Of course, with climate-oriented investing now a partisan issue, a welter of claims and counter-claims has appeared. To pro-ESG folks, science is on their side, hence the opposition is just blowing smoke to confuse people.

Anti-ESG politicians appear to be convincing the public that a “false equivalence” exists between their stance and the sustainability advocates, contended Witold Henisz, director of Wharton’s ESG Initiative, in a recent article in the Knowledge Wharton periodical. He wrote that “ideological opposition [is] cynically seeking a wedge issue for upcoming political campaigns — and, so far, it appears to be working.”

Whatever the outcome of the current debate over ESG-related bans and the like, the climate change question is not going away. Says CalSTRS’s Ailman, “It will be with us for the next 50 years.”

Author(s): Larry Light

Publication Date: 8 Sept 2022

Publication Site: ai-CIO

Why Aren’t More People Claiming Government Benefits?

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/why-arent-more-people-claiming-government-benefits/

Excerpt:

When the Biden administration expanded the Child Tax Credit in 2021 with direct cash payments of up to $3,600 to alleviate child poverty, millions of the most vulnerable families never received the automatic payments because they didn’t have a digital connection with the Internal Revenue Service through a previous income tax filing online. The burden was on those families to seek out the public benefit.

To boost awareness, the government launched a messaging campaign to let families know that up to $3,600 a year was waiting for them. But months later, millions of dollars were still unclaimed.

A new study led by Wharton marketing professor Wendy De La Rosa pinpoints the reason why so many Americans left money on the table: The large amount seemed like an abstraction because people don’t think about money on a yearly basis. Through a series of experiments, the researchers found that people were more likely to collect the money if it was conveyed as a monthly or weekly amount — $300 or $69 — similar to how they budget.

Author(s): Angie Basiouny

Publication Date: 11 Oct 2022

Publication Site: Knowledge @ Wharton

Can the CDC Repair Its Reputation?

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/can-the-cdc-repair-its-reputation/

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The Centers for Disease Control and Prevention must learn from the mistakes it made during the height of the COVID-19 pandemic if it wants to win back public trust, according to Wharton health care management professor Ingrid Nembhard.

She thinks CDC Director Rochelle Walensky is on the right path to do just that. Walensky, who was appointed by President Joe Biden in 2021, has announced a major overhaul to modernize the agency and get the public messaging right.

….

Nembhard is particularly hopeful about Walensky’s focus on changing the culture at the CDC. The infrastructure to conduct the science and disseminate the information is vital, but so is the culture. Reports have surfaced that paint the agency as clunky with a risk-averse culture.

“If you have all of the structures but nobody is speaking up, where are you?” Nembhard said. “You don’t have all the information that you need, and I think that’s been one of the realities that we’ve seen them having to deal with. You really do need to have your systems in place to be flexible, to be able to manage under ever-changing circumstances.”

Author(s): Angie Basiouny

Publication Date: 13 Sept 2022

Publication Site: Knowledge @ Wharton

Immigration and America’s Aging ‘Time Bomb’

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/immigration-impacts-americas-aging-time-bomb/

Excerpt:

Anew research model from the Penn Wharton Budget Model (PWBM) has brought clarity to the immigration debate in the U.S. by analyzing the macroeconomic implications of different policy scenarios. The model is at the core of a paper titled “Immigration and the Macroeconomy” authored by PWBM experts – Efraim Berkovich, director of computational dynamics; Daniela Costa, economist; and Austin Herrick, senior analyst.

“We find that, after an initial period, increasing legal immigration improves both the government’s fiscal balance and the economy on a per-capita basis,” the paper stated. “Legalization policies [or regularizing undocumented immigrants], on the other hand, worsen the government’s fiscal balance due to increased spending, while having modest effects on the economy broadly.” Lawful immigrants receive government transfers over their lifetime such as Social Security benefits, Medicaid, and the Supplemental Nutrition Assistance Program (SNAP); if they are not sufficiently productive, they create a “retirement benefits imbalance,” the paper pointed out.

The legalization plan the paper modeled is similar to the legalization provisions in the Biden immigration plan. That plan was akin to “a one-shot legalization for people who are already in the U.S.,” said Herrick.

Author(s): Shankar Parameshwaran

Publication Date: 15 March 2022

Publication Site: Wharton at Penn

Mortgage Rates Are Low: Why Aren’t Minority Homeowners Refinancing?

Mary Pat Campbell
Mortgage Rates Are Low: Why Aren’t Minority Homeowners Refinancing?

Excerpt:

The reasons behind the racial disparity in refinancing align with documented evidence about other inequities in housing, Keys said during an interview with Wharton Business Daily on SiriusXM. (Listen to the podcast above.) Structural racism built into both public policy and the private sector has led to longstanding asymmetry in income, credit scores, loan-to-value ratios and other risk factors that inhibit refinancing for minorities.

The coronavirus pandemic is exacerbating the problem, Keys said, because Black and Hispanic households are more likely to experience job loss than white households. The U.S. unemployment rate in May dropped to 5.8%, yet it was 7.3% for Hispanics and 9.1% for Blacks.

“Some of this may be a function of just measuring incomes and employment disruptions, but I think there is another factor, which is related to just how tight mortgage credit is right now,” Keys added. “Mortgage credit is perceived as being very tight. It can be a hard time to get a loan, and there are a lot of hoops to jump through when you’re refinancing.”

Author(s): Benjamin Keys interviewed on Wharton Business Daily

Publication Date: 6 July 2021

Publication Site: Knowledge @ Wharton

Why Engine No. 1’s Victory Is a Wake-up Call for ExxonMobil and Others

Mary Pat Campbell
Why Engine No. 1’s Victory Is a Wake-up Call for ExxonMobil and Others

Excerpt:

Over the past two weeks, activist hedge fund investor Engine No. 1 scored a victory for the climate change movement by wresting three board seats at ExxonMobil with the support of the “Big Three” institutional investment firms BlackRock, Vanguard, and State Street. But the episode also marks a failure in ExxonMobil’s “corporate diplomacy” because of its inability to convincingly demonstrate that it is committed to mitigating climate risks and protecting its long-term business value, according to Wharton management professor Witold Henisz.

…

Engine No. 1 has only a 0.02% stake in ExxonMobil, but the climate risk issues it pushed for were sufficient to get the three big investment firms on its side. In explaining its stance, BlackRock stated that the energy major needs “to further assess the company’s strategy and board expertise against the possibility that demand for fossil fuels may decline rapidly in the coming decades.” BlackRock CEO Larry Fink had reiterated his company’s commitment to combating climate change in his 2021 annual letter to CEOs; in his 2020 letter to CEOs, he had said that “climate risk is investment risk.”

Author(s): Witold Henisz

Publication Date: 15 June 2021

Publication Site: Knowledge @ Whatron

The Opportunities and Dangers of Decentralizing Finance

Mary Pat Campbell
The Opportunities and Dangers of Decentralizing Finance

Excerpt:

Decentralized Finance — or DeFi — has experienced explosive growth in the past year. But in order for DeFi to fulfill its promise as a disintermediated ecosystem that helps rather than harms, “now is the time to evaluate its benefits and dangers,” write Wharton legal studies and business ethics professor Kevin Werbach and David Gogel, a recent Wharton MBA graduate, in the article that follows. Werbach is author of the book The Blockchain and the New Architecture of Trust and leads Wharton’s Blockchain and Digital Asset Project. Werbach and Gogel recently collaborated with the World Economic Forum to create the Decentralized Finance (DeFi) Policy-Maker Toolkit,  providing guidance to regulators and blockchain watchers everywhere.

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The market experienced explosive growth beginning in 2020. According to tracking service DeFi Pulse, the value of digital assets locked into DeFi services grew from less than $1 billion in 2019 to over $15 billion at the end of 2020, and over $80 billion in May 2021. Novel business models such as yield farming — in which holders of cryptocurrencies earn rewards for providing capital to various services — and aggregation to optimize trading across exchanges in real-time are springing up rapidly. Innovations such as flash loans, which are either repaid or automatically unwound during the course of a transaction, open up both new forms of liquidity and unfamiliar risks.

Author(s): Kevin Werbach

Publication Date: 16 June 2021

Publication Site: Knowledge @ Wharton

Think Twice Before Paying Off Your Mortgage Early

Mary Pat Campbell
Think Twice Before Paying Off Your Mortgage Early

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The concern with this exercise is its reliance on past returns. With interest rates near zero, significant economic growth is needed to generate market returns close to those experienced over the last 100 years – approximately 11% per annum. To explore the implications of different future investment performance, let’s repeat the process above by reducing the average return of historical stock returns while maintaining the same risk (i.e., volatility).

Panel A shows that as the return on Lena’s savings increases, i.e., we move from left to right along the horizontal axis, the value of investing the money relative to paying off the mortgage early increases. At a 3% savings return, the cost of her mortgage, Lena would be indifferent between saving extra money and paying down her mortgage early because both options lead to similar average savings balances after 30 years. Savings rates higher (lower) than 3% lead to higher (lower) savings for Lena if she invests her money as opposed to paying down her mortgage early. For example, a 5.5% average return on savings, half that of the historical return, leads to an extra $57,000 in after-tax savings if Lena invests the $210 per month as opposed to using it to pay down her mortgage more quickly.

Panel B illustrates the relative risk of the investment strategy. When the return on savings is 3%, the same as the cost of the mortgage, the choice between investing the money and paying down the mortgage comes down to a coin flip; there is a 50-50 chance that either option will lead to a better outcome. However, if future average market returns are 5.5%, for example, the probability that investing extra money leads to less savings than paying down the mortgage early is only 26%. For average returns above 6.5%, the probability that investing the extra money is a bad choice is zero. In other words, there hasn’t been a 30-year historical period in which the average stock market return was below 3%, even when the average return for the 100-year period was only 6.5%.

Author(s): Michael R. Roberts

Publication Date: 15 March 2021

Publication Site: Knowledge @ Wharton

Has the Pandemic Set Female Leadership Back?

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/pandemic-set-female-leadership-back/

Excerpt:

About 2.3 million women have exited the U.S. labor force since the pandemic began, compared with about 1.8 million men, according to government data. Many were driven out by layoffs in food service, health care, and hospitality — sectors that employ a majority of women and that have been most affected by the economic slowdown. Others left their jobs voluntarily, forced to stay home and care for children suddenly unable to attend school or daycare.

As a result, female participation in the workforce has dropped to 57%, a level not seen since 1988. The situation is dire enough that U.S. President Joe Biden called it “a national emergency.” With schools reopening and vaccines becoming more widely available, there is light at the end of the pandemic tunnel, but questions remain about whether working women will recover from such a deep setback.

Publication Date: 30 March 2021

Publication Site: Knowledge @ Wharton

Keeping Workers Safe: What Do the Numbers Say?

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/keeping-workers-safe-what-do-the-numbers-say/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2021-03-09

Excerpt:

Smith-McLallen: In a broad sense, what the nonessential business closure policy did was to create a situation that limited interpersonal contact for nonessential workers who were staying at home. But it also limited contact for essential workers who were perhaps commuting with fewer people, for example, and not necessarily exposed to all of the people who were staying at home. That secondary protective effect was very effective at reducing cases.

Another thing about that secondary protective effect is we might think that if there would have been no nonessential business closure — if the nonessential workers had gone out to work — their infection rates would have been the same as we observed among the essential workers. There would be no difference. That’s what the results of our study speak to. However, there is a real possibility that the rates for everyone would have been considerably higher, even higher than what we observed in the essential worker population, just because of the increased contact and exposure across the board.

What I think policymakers should take from this research is that with new strains of the virus being discovered, if we reach a point where we need to aggressively limit contact and transmission, nonessential business closure policies can be effective. And now we can quantify just how effective they can be.

Author(s): Hummy Song, Aaron Smith-McLallen

Publication Date: 9 March 2021

Publication Site: Knowledge @ Wharton

How Economic Recovery Hinges on the Vaccine Rollout

Mary Pat Campbell

Link: https://knowledge.wharton.upenn.edu/article/how-economic-recovery-hinges-on-the-vaccine-rollout/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2021-03-09

Excerpt:

At the current pace of around 1.5 million doses per day, PWBM said it expects economic recovery “to continue but proceed gradually through the middle of year,” with employment rising to nearly 152 million in July and four-quarter real GDP growth of around 5% in the third quarter. Averaging over the full year of 2021, PWBM projected that raising the rate of daily vaccinations to 3 million or more would increase employment by nearly 1 million and real GDP growth by about a third of a percentage point.

The effects on the labor market that PWBM projected are largest in the summer, “which is when how quickly you’re able to vaccinate people makes the biggest difference,” said Arnon. At 2 million vaccinations a day, say, by the end of the year, most of the people who want it would have been vaccinated, he noted.

Author(s): Alex Arnon

Publication Date: 9 March 2021

Publication Site: Knowledge @ Wharton