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Thursday, May 13, 2021

Miscellaneous Insights From Recent Webinars-Part 3


As I mentioned in two previous posts, I love learning new things and often attend webinars and podcasts to gain knowledge and/or continuing education credits for my CFP® and AFC® as well as to connect virtually with others. Below, in no particular order and on a variety of topics, are nine financial “nuggets” that I heard recently:


¨       Older Adult Concerns- Surveys indicate the following health and financial issues weigh heavily on the minds of older adults: outliving savings, physical and mental well-being, health care costs, taxes, inflation, interest rates, market volatility, longevity, and cognitive decline. Research also reveals knowledge gaps. For example, people think $250,000 is a lot of savings and don’t realize how little income it translates into on an annual basis (about $10,000 per year). Those with fewer assets and less education have more retirement knowledge gaps.


¨       Technology Pros and Cons- Tech tools provide many benefits including virtual connections, “always on” resources, and streamlined Q&A experiences such as calculating monthly payments on a loan or the amount of savings needed for retirement. A downside is that people often have very granular, personal “how to” questions and technology cannot usually provide that personalized a response. At this point, a financial advisor can be very helpful.

¨       Encouraging Meta-Analysis Results- A meta-analysis (i.e., a study of existing evidence) published in 2020 examined the causal effects of financial education programs by reviewing 76 randomized experiments published in top tier journals with a total sample size of over 160,000. Financial education was found to be, not only effective, but cost-effective, with positive effects on both financial knowledge and “downstream financial behaviors” (i.e., financial actions that people take in the future like saving money and repaying debt).

¨       The Importance of Trust- Guilt and shame sometimes result inadvertently from financial education programs. Teachers should proactively try to never make their students feel like they (or their parents) “messed up.” Instead, create a “safe space” and start where people are to take them where they want to go with information that is relatable to their life experience. Everyone needs to aspire to things in life and financial education can help “level the playing field.” It really comes down to trust which, research studies show, can positively affect retirement plan participation and savings rates.

¨       Credit Histories Change- A person’s credit history is not permanent. It can change. There are hundreds of different credit scores that are proprietary to different lenders. The most common (FICO) score scale ranges from 300 to 850. The Experian “Boost” service allows consumers to add positive information to their credit history about payments to utilities (e.g., gas, electric, water) and streaming services to raise their credit score.

¨       Small Successes Add Up- Start chopping away at big goals with an hour a week or 10 minutes a day of positive action. Use a whiteboard or “to do” list to stay on track. Keep “plugging away.” Small triumphs provide practice and perseverance to reach goals and also build grit and motivation. There are two types of financial goals: 1. Small repetitive things that people do daily and 2. Big, lofty goals from which people work backwards to develop action steps. Financial empowerment cannot be taught. It has to be experienced as a result of small successes.

¨       Layoffs Can Have Benefits- As a result of COVID-19-related layoffs, some people have created new career paths and given themselves permission to “take the plunge” to do something new, even if their paycheck is initially smaller than it was before. If you continue to do work in a field that you love, you can bring all of your past career skills and networking contacts with you. Leveraging relationships and obtaining certification credentials are two keys to success.

¨       Possibilities Foster Action- Decisions that people make in life are all about how they see the possibility of things. Seeing is believing. Belief drives action. Doing things (action) makes a difference. There are two finite resources that people cannot make more of: land and time. People need to take action during ~40 years of earning to finance ~30 years of living. Wealth is built by investing over time, preferably via payroll deduction and other automated methods (e.g., checking to saving transfers). One webinar presented advised “Set it, forget it, and you won’t regret it.”

¨       Portfolio Pointers- Investors should review their asset allocation and investment holdings periodically as many people “collect accounts” over time. Another key thing to review is “asset location” (i.e., the types of accounts- taxable and tax-deferred- where money is placed). Tax-loss harvesting can be used to strategically take losses to reduce taxable capital gains. Be careful not to run afoul of the “wash sale rule,” however, to assure the IRS that you are not just moving money around. Take-away: you cannot buy a substantially identical security 30 days before or after taking a capital loss.

Thursday, May 6, 2021

Financial Education: Benefits and Best Practices


Last week wrapped up Financial Literacy Month (FLM) 2021. Each April, financial education advocates promote this nationally recognized campaign to increase awareness of the need for financial education for youth and adults in grades K-12 and at colleges and in workplaces. Financial education is an essential skill that people need to fully participate in society and a recent meta-analysis of existing studies indicates it is both effective and cost-effective.


Hundreds of FLM events (podcasts, webinars, virtual conferences) were held nationally last month and I participated virtually in about a dozen of them. Below are eight take-aways from the FLM events that I attended:


¨      Financial Independence is Powerful- Financial education can be life changing. It can empower people to save and invest to ultimately achieve financial independence . When people are financially independent, the world is a better place. They don’t live an accident or illness or paycheck away from financial ruin. Financial education also provides people with hope for a better future and a path forward to achieve their personal goals.


¨      Budgeting is Key- While there is no “one size fits all” approach to managing money, everyone needs some type of budget, whether it is hand-written or prepared using a computer or app. Budgeting is especially important as a result of COVID-19 as income and expenses might have changed. For example, many people have been spending less on gas due to reduced commuting and more on utilities by working/schooling at home.

¨      Financial Education is Foundational- High-quality programs teach foundational knowledge and practical applications. Financial education is not a panacea, but it is a key resource to draw upon throughout life. Financial columnist Beverly Herzog noted that financial literacy is “like reading a map so you know how to get somewhere. If you know your destination, looking at a map (OK, Waze) helps you avoid making wrong turns.”

¨      Trust is the Key to Success- Financial educators need to show their target audiences that they care about them and listen to their stories. Other keys to success are candor, simple language, transparency, and very granular “how to” information with a series of process steps. People also need to know that “all hope is not lost” with respect to their finances. For example, any small amount of savings is better than not starting to save at all.

¨      FinTech is Complimentary- Financial technology (fin tech) is a compliment for financial education programs-not a substitute. People still crave personalized financial information and a human being to ask questions to. Lack of financial expertise is consequential and accounts for about a third of wealth inequality according to research. Both financial education and fin tech can help people make better life decisions.

¨      There are Many Positive Impacts- Participants in a recent #creditchat (Twitter chat) noted the following results from increased financial literacy: financial success and independence, better life choices, awareness of tools and resources for decision-making, closing wealth gaps between demographic groups, opening people’s eyes to alternative ways to manage money than what they have experienced so far, and a better future.

¨      There are Significant Obstacles- Access is a big issue. According to research by Next Gen Personal Finance (NGPF), only 1 in 9 high school students receive financial education and even less in schools with a “majority minority” student population. Other obstacles include school budgets, lack of state personal finance course requirements, and language barriers. Fortunately, free curricula and teacher professional development are addressing some of these issues.

¨      Doing Nothing Has Significant Costs- Negative impacts from lack of financial expertise include forgone savings and investment opportunities, high-cost debt, higher prices than necessary paid for goods and services, and dashed expectations. That said, financial education is not a panacea and it is sometimes “oversold.” It cannot fix structural and historical barriers to financial success that prevent consumers from making good choices. For that, policymakers and financial institutions must create better choices for people to make.

CNBC senior personal finance correspondent Sharon Epperson noted on a NGPF podcast that there has been an increase in students saying “we want financial education.” They are vocal, well-spoken, organized, and want to be financially secure. We owe it to all American youth to prepare them for a financially successful future. Every child needs a chance and financial education can help level the playing field, especially in underserved communities.

Thursday, April 29, 2021

Budgeting: The Gateway to Financial Success


Budgeting is a fundamental financial planning practice. Without a budget, it is hard to manage other aspects of personal finance including credit, insurance, saving, investing, and achieving goals such as a new car or a comfortable retirement. Financial goals cannot be reached if there is no money set aside for them.

Budgeting has also been found in research to be associated with performance of positive health and financial practices. People who budget their money may be inclined to “budget” their calories and self-restrict their food consumption and/or adjust their physical activity to stay within their daily calorie “allowance.”

Below are ten things to know about budgeting:

¨      Positive Cash Flow is the Goal- A budget is a plan for future income and expenses, including savings. The goal is positive cash flow, i.e., income greater than savings. Ideally, a budget should be hand-written or computer-generated with specific categories of income, spending, and dollar amounts.

¨      Individual Factors are Important- Examples include individual needs and wants, whether you have a stable income (the same amount in each paycheck) or a variable income that fluctuates every month, and whether you prefer to use a “paper and pencil” worksheet, an Excel spreadsheet, or a budgeting app.

¨      Savings is a Fixed Expense- How much you need to save per month or per paycheck to fund future goals should be set aside as a fixed expense that stays the same from month to month in a budget. A general online financial goal-setting calculator can determine the correct amount to save. There are also specialized calculators for specific financial goals such as educational expenses and retirement.

¨      Budgeting Methods Vary- Many people use the same budget format from year to year, adjusting for changes in income and expenses. For example, twice a year, I project income and expenses for the next six months and work in irregular income and expenses. What matters most is that you have a budget, not how you budget.

¨      COVID-19 Impacted Budget Priorities- Many people are working less (or not at all) and are struggling to make ends meet. Others have earned as much or more than they did pre-COVID-19 and/or are saving more money due to decreased spending. Not surprisingly, there is increased interest in beefing up emergency funds.

¨      Unexpected Expenses Always Occur- It is not a question of “if,” but “when,” unexpected expenses happen. For this reason, financial experts recommend including a “fudge factor” dollar amount (a.k.a., a “miscellaneous budget category) in household budgets. If the money is not needed, it can be rolled over into savings.

¨      Expenses Can be Trimmed- Experts recommend starting with flexible expenses such as heating/cooling, subscriptions, streaming fees, food, and memberships. Also, look for less expensive shopping options (e.g., thrift shops), do more cooking at home, and consider ways to reduce fixed expenses such refinancing a home mortgage, selecting a less expensive apartment or car, and shopping around for insurance policy discounts.

¨      Income May Be Able to Increase- Options include increasing human capital through degree and certification programs, “leaning in” (i.e., asserting oneself professionally) to get promoted, and/or starting a “side hustle” or getting a second job as long as it does not violate your primary employer’s outside employment rules.

¨      Benefits Can Supplement Income- People who are struggling financially can receive public benefits (e.g., utility assistance or food from a food bank), if income qualified. This frees up income for other expenses. Other ways to increase income are to barter goods and services in lieu of spending cash and to sell unneeded items.

¨      Budgets Affect Credit Scores- A budget can prevent negative credit report data by including funds to repay debt as a fixed expense. Also, if followed, a budget can help avoid overspending on credit, which reduces a credit cardholders’ credit utilization ratio, worth about 30% of a FICO credit score. Finally, a budget can include funds to build an emergency fund so people are less likely to use credit in emergencies.

To start creating your own personal budget, track your income and expenses for a month or two to get accurate data and use this Spending Plan Worksheet from Rutgers Cooperative Extension.

Thursday, April 22, 2021

More Miscellaneous Insights From Recent Webinars


As I mentioned in last week’s post, I love learning new things and often attend webinars and podcasts to gain knowledge and/or continuing education credits for my CFP® and AFC® as well as to connect virtually with others. 

Below, in no particular order and on a variety of topics, are seven “nuggets” that I heard recently:


¨      Retirement Spending- Spending in later life is not a scientific process. It is a human endeavor grounded in behavioral finance biases. Many theoretical assumptions and expert retirement recommendations are not embraced by retirees. The biggest reason that older adults do not spend down assets is saving for unforeseen costs (e.g., long-term care or LTC) according to research by the Employee Benefit Research Institute. Another factor is bequest motives. A suggested work-around is earmarking chunks of accumulated savings for specific purposes (e.g., LTC or bequests) so you can see that you have enough and can feel comfortable spending.


¨      Alzheimer’s Disease- 5.8 million Americans are living with Alzheimer’s and there is no current cure. The biggest risk factor is age and, after age 65, risk doubles every five years. Warning signs include an inability to calculate a tip, struggling to find words, and reading something and immediately forgetting what you read. No two individuals progress the same way. Lifestyle factors can reduce a person’s risk of disease and “things that are good for your heart are also good for your brain” (e.g., diet, exercise, sleep, and social engagement).

¨      Investment Fraud- According to the FINRA Investor Education Foundation, studies have found that social isolation can make people susceptible to fraud for several reasons. First, isolated individuals are separated from social networks and community resources to run details about questionable “opportunities” by. Second, loneliness has been found to correlate with lower levels of cognition, which increases scam susceptibility. FINRA research also found that short video and text messages (as outreach methods) can help reduce fraud.

¨      Retirement Planning- Retirement is the most expensive purchase people will ever make. People can live 20 to 30 (or more) years in later life without a paycheck versus attending college, typically for 4 or 5 years. In addition, people cannot take out “retirement loans” to cover their living expenses. For many people, two or three “legs” of the proverbial “3-legged stool” (savings, employer pension, and Social Security) are wobbly or non-existent. What to do? Any savings is better than none. If need be, start small and increase the savings amount by 1% or 2% per year. Lifestyle adjustments like working longer or downsizing may also be needed.

¨      Women and Money- A new documentary film, Savvy, explores why it is critical for women to take control of their personal finances instead of abdicating control to others or ignoring key financial decision-making topics such as credit and investing. The film features a mixture of financial experts and case studies. A key message is “when women are financially independent, the world becomes a better place” and viewers are encouraged to “be the CEO of your financial life” rather than “live one accident or illness away from financial ruin.”

¨      Later Life Time Use- A common error is viewing retirement as a “20-year vacation.” Another is thinking you can “just wing it.” People crave meaning and structure, especially “control freaks” who are used to planning and those whose identity is strongly tied to their job. People receive five things from a job, besides a paycheck: identity, status, purpose, structure, and socialization. A key challenge in retirement is answering the “who am I now?” and “what do I do?” questions, which takes thought, planning, and practice. One good place to start is to remember what you enjoyed doing when you were younger according to Joe Casey from Retirement Wisdom. Another planning strategy is talking to people who are doing things that you want to do in the future.

¨      COVID-19 Retirement Impacts- The pandemic rocked people’s worlds, including their finances, and changed many personal plans to retire. Some people decided to work longer because they could work remotely and avoid long commutes, while others were laid off or decided to leave their jobs earlier than planned. Research by the American College of Financial Services found that Americans, on average, have a poor understanding of the amount of annual or monthly income than a certain amount of savings translates into. Financial educators and counselors should highlight this more in their interactions with clients. Also, focus on things that people can control: spending, gifting, saving, their investment risk profile, and tax management. Things that cannot be controlled include longevity, market returns, inflation, and the economy.

Thursday, April 15, 2021

Miscellaneous Insights From Recent Webinars


As I have mentioned frequently in previous blog posts, I love learning new things and often attend webinars to gain knowledge and/or continuing education credits for my CFP® and AFC® as well as connect virtually with others.


Below, in no particular order and on a wide variety of topics, are eight “nuggets” that I heard at recent webinars:


¨      Memes in Financial Education- Memes (pronounced “meems”) are a piece of media- often humorous- that spreads rapidly through the internet, particularly social media. They are a fun and useful financial education method to spark students’ creativity and recall of topics. As Next Gen Personal Finance noted in a recent webinar, teachers can provide memes, have students write financial captions for them, and debrief the activity.


¨      Professional Brands Take Planning- Professional brands are what people are known for or stand for. If you don’t shape your own personal narrative, someone else will. Successful branding requires paying attention to audiences (e.g., what tasks do they need performed or questions answered?), competitors, and social media profiles, especially LinkedIn. Search engine yourself to see what others are seeing about you.

¨      Financial Education Teaches Decision-Making- A key outcome of personal finance classes is teaching learners to make good choices. This is much more important than memorizing facts or definitions. Students don’t need to have a lot of money to put financial education to use. Rather, educators need to meet people where they are and give them tools to navigate their life. Every small win that “moves the needle” is progress.

¨      Imposter Syndrome is Common- Many people experience feelings that they are “not good enough” or “not qualified enough,” which decreases their self-confidence. Imposter syndrome can be overcome, however. The antidote is embracing the fact that you will not- and cannot-know everything. You do not need to know all the answers about particular topics. Rather, you simply need to know where to look or who to contact to find them.

¨      Working From Home and Taxes- Many employees worked away from their employer’s office in 2020 (at home or another remote location) and may owe income tax in two states. They also incurred expenses to set up an office and purchase supplies. While workers may feel that they are owed a tax break for these cash outlays, a Wall Street Journal webinar repeatedly stressed that there is no home office deduction for 100% employees. Only self-employed workers and those with “side hustles” can take a deduction using Schedule C.

¨      Day Trading and Income Taxes- People who traded stock frequently during 2020 can expect complex tax returns this tax season with multiple short-term capital gains on securities that were held a year or less. Short-term gains are taxed at the same rate as ordinary income. Tax returns also now have a very prominently-located question on Form 1040, which is signed under penalty of perjury, about taxpayers’ use of cryptocurrencies.


¨      Gambling and Personal Finance- Gambling has the highest suicide rate of any addiction according to Dr. Lia Nower from the Center for Gambling Studies at Rutgers University. People can generally hide it longer before they “crash and burn.” Insurance does not pay for gambling addiction unless it is comorbid with something else (e.g., depression). Youth gambling rates are generally twice the general adult population and problems peak at 18-24. Parents should “de-glamorize” gambling (e.g., don’t buy lottery tickets as “stocking stuffer” gifts).

¨      Ticking Time Bomb” Retirement Accounts- Some people funded retirement savings plans for decades and they have grown substantially. However, traditional individual retirement account (IRA) and 401(k) or 403(b) savings is technically not all theirs. They may only really have two-thirds (or less) of what they think they have after required minimum distributions (RMDs) starting at age 72. It may make sense for those with significant savings to pay some tax at an earlier age at lower tax rates. Qualified charitable distributions (QCDs) from traditional IRAs are another tax-saving option. With advance planning, retirees can help control their tax rate.

Miscellaneous Insights From Recent Webinars-Part 3

  As I mentioned in two previous posts , I love learning new things and often attend webinars and podcasts to gain knowledge and/or continui...