Thursday, January 28, 2021

Interesting Insights and Timely Tips


For many people, 2020-2021 will be the most trying years of our lifetime. For almost a year, my COVID-19 coping strategies have revolved around 6Ws: Working, Walking, Writing, Watching (television news and friends and family on Zoom), Wondering (what comes next), and Webinars.

I love to learn and online access to free webinars has provided many useful educational opportunities. During the past month alone, I attended dozens of presentations from a variety of program sponsors related to COVID-19, financial education, and personal finance. Below is an eclectic summary of my key take-aways:

¨      Financial Education is Critical- High-quality financial education changes lives. It helps people see different life paths and is vital for a secure financial future, especially for young adults. Financial literacy research validates policy initiatives (e.g., state personal finance education mandates) and shapes curriculum content. Since 2014, there has been an increase in financial literacy research with randomized control methods. Parents can be advocates for financial education by asking schools “Why are you withholding this from my child?”

¨      Cryptocurrencies Have Many Risks- Digital currencies like Bitcoin are not for the faint of heart. They can be used as an investment or a payment method but, primarily, the former. People buy cryptocurrencies by opening an account on a cryptocurrency exchange like Coinbase, the largest U.S. platform. Ownership is validated through a “private key” which is a long string of numbers and letters. Lose your key and crypto assets cannot be recovered as a German man who forgot his password and stands to lose $220 million recently found out.

¨      The Pandemic Caused a She-Session- Four times as many women than men have dropped out of the labor force. Many worked in industry sectors with high layoff rates or they needed to be home with children who are schooling from home. Many people also lost sources of financial, social, and care-giving support. Job losses have been particularly hard on low-wage workers, many of whom are people of color.

¨      Interest Rates Will Remain Low- One webinar presenter noted that the stock market is pricing in low interest rates, possibly for as long as 2025. This is good news for borrowers but bad news for those with money in cash equivalent assets. Financial markets are also looking ahead to the time when a large number of Americans are vaccinated and herd immunity against COVID-19 starts to develop.

¨      Pre-COVID Savings Rates Almost Doubled- A large amount of savings was “parked” in checking accounts during 2020 as lockdowns and safety concerns curtailed discretionary spending and reduced or eliminated commuting costs. Many observers are predicting that there could be a burst of spending later this year or next due to “pent up demand” (e.g., travel).

¨      Pre-COVID-Financial Fragility Worsened- Stimulus or tax breaks may be needed for years to address the needs of people who get left behind. The best programs, from a return-on-investment perspective, would have productivity-enhancing gains (e.g., infrastructure improvements and job training). People in financial distress have four lines of defense: 1. Money in savings (if any), 2. Money from family and friends (social network), 3. The financial system (e.g., loans and credit cards), and 4. Everything else (e.g., selling things).

¨      Blaming and Shaming Do Not Help- It does nobody any good to dwell on past consumption (“you should have bought a cheaper car”), inadequate emergency savings, and job choices (“you shouldn’t have chosen the tourism industry”). COVID-19 was a once in a century event and “the dice came up against us.” Helping professionals, friends, and family members need to meet people in financial stress where they are.

¨      Payday Loans are Costly- The average payday loan amount is $375 and the average annual percentage rate (APR) is 396%. About 1 in 5 borrowers take out 10+ loans, which is analogous to getting into a taxi for a cross-town taxi ride and paying for a cross-country road trip. Financial educators need to handle this topic with sensitivity, though, to avoid making students (or their parents) appear stupid. Focus on lower-cost alternatives.

¨      The 4 L’s of Later Life Financial Planning- Planning is essential for a successful retirement and should reflect your current reality. Things to focus on are Lifestyle, Liquidity, Longevity, and Legacy. Key action steps are reviewing your estate plan, deciding when to claim Social Security, managing your income tax bracket to pay less tax over time, and making financial decisions holistically.

Thursday, January 21, 2021

COVID Fatigue: Expert Tips to Release Helplessness, Frustration, and Anxiety


I recently attended two programs about COVID-19, one by a large investment company about financial impacts and the second by a hospice educator at a local adult education center about social and emotional impacts. While the two programs were entirely different in their content, there was one thing they had in common.

Both programs stressed the importance of controlling what you can. With finances, this can be done by monitoring spending and diversifying investments. Controllable lifestyle actions include physical activity and grieving losses.

Below are my ten key take-aways from the two COVID-19 programs:


¨       COVID-19 Impacts Will Linger- The investment firm predicted that financial impacts from the pandemic may not be behind us until 4th quarter 2021. The speed of economic recovery will depend on the speed of vaccinations and herd immunity and “fear factors” (i.e., when people start to feel comfortable going out again).

¨       Long-Term Scarring is Evident- There will soon be millions of people out of work for more than one year as well as companies out of business, and empty offices impacting commercial real estate markets. Pandemics are local, as well as global, and recoveries will be different in different parts of the country.

¨       Unknown Risks are Part of Investing- Unforeseeable events are a fact of life. COVID-19 was a big one. Investment diversification is the best defense against unknown risks. Experts recommend holding some stock and “riding out” market downturns. If you are not in the equity market, you risk loss of purchasing power in bonds and cash assets.

¨       Many People Feel Helpless and Frustrated- COVID-19 upended Americans’ lives and schedules. Several class members said they felt like “hamsters on a treadmill,” on a continuous Merry-Go-Round, or that every day was “Groundhog Day,” the 1993 film where characters get trapped in an endless time loop. Know that you are not alone.

¨       Healing Starts by Identifying Losses- Class participants were asked to write down the number of losses they thought they experienced as a result of living with COVID-19. I wrote down 5. Then we were given a worksheet developed by Opus Peace with a list of 50 losses grouped into five categories (see below). When asked if their “number” increased after completing the worksheet, every hand in the class went up. We all lost more than we originally thought.


Physical Losses- Includes loss of physical health, energy, sound sleep, income, housing, and independence.

Professional Losses- Includes loss of teamwork among colleagues, social interaction, and personal space.

Mental Losses- Includes loss of brain capacity, routine, ability to make decisions, and a sense of normalcy.

Spiritual Losses- Includes loss of role in life, beliefs, innocence, spirit/vitality, and ability to feel gratitude.

Emotional Losses- Includes loss of self-esteem, stability/certainty, social interaction, and planned future.


¨       Americans Experienced a STUG- As a result of COVID-19, we all experienced a Sudden Temporary Upsurge in Grief (STUG). Research indicates that “those who grieve well, heal well” and that “you can’t heal what you don’t feel.”  According to Opus Peace, “hope begins when we grieve the losses we have experienced.”


¨       “Numbing” is a Frequent Response- People often try to “numb” themselves in stressful times. Numbing agents include shopping, alcohol and drugs, work-work-work, TV and video games, doing too much for others, stoicism, and staying busy. The problem with numbing agents is that people do not address their losses and grieve.

¨       Movement and Action are Powerful- There are ways to address fear, helplessness, chaos, and anger resulting from COVID-19 including singing, drawing, dancing, exercising, and writing. It is also OK to cry. Crying is healing. Don’t be a passive bystander and get squeezed out of your own life by the pandemic. Recognize good things that happen even if they are not what you planned. It is possible to experience peace and pain at the same time.

¨       Gratitude Helps People Heal- Research has shown that gratitude is powerful. It has been shown to improve physical and mental health, improve relationships, and even help people sleep better. One often-overlooked group of people to be grateful for is people who have lost their jobs. They have paid a terrible price to keep the rest of us safe.

¨       Words Matter- Poor word choices to use with family, friends, clients, and students include “just get over it,” “suck it up,” “it is what it is,” and “just stay positive” or to scold them for their anger or despair. A much more caring and effective approach is to say something like “tell me how you are hurting right now and how I can help?.”

Wednesday, January 13, 2021

Retirement in a Pandemic: Key Factors to Consider


One of the most significant transitions in a person’s later life is exiting a long-time career. For this, there is no “one size fits all” decision. A lot depends on someone’s goals (e.g., traveling), and lifestyle decisions (e.g., where to live and whether to continue working), as well as available resources such as savings, a pension, and employer-subsidized health insurance.

Other key factors to consider are health status and family responsibilities (e.g., caring for aging parents or grandchildren).

COVID-19 has added to the complexity of later life financial planning. It put many travel plans and experience goals on hold and caused some people to reconsider relocating far away from family and friends when it is difficult to get together.

Other issues that arose during the past year are potential home sellers’ reluctance to sell houses, downsize, and move during the pandemic and some people exiting the workforce sooner than planned due to layoffs and health concerns.

All of these factors have prompted many older workers to consider whether they should retire or continue to work longer (assuming they have a choice) to save more money and/or because their planned lifestyle (e.g., traveling and/or moving) is currently not in the cards, anyway, due to COVID-19. Below are nine general planning tips to consider:

¨       Define Your Future Lifestyle- Some people can live happily on half their pre-retirement income while others require 100% (or more!). For many people, 70% to 80% is a realistic income replacement percentage. Inflation will increase expenses over time, however, so an inflation rate (e.g., 3%) should be factored into retirement savings calculations.


¨       Learn “The 4% Rule”- A frequently cited guideline, based on a 1994 study, is to withdraw 4% of retirement savings (any amount) annually and adjust it for inflation so savings lasts about 30 years. Thus, it would take about $300,000 of savings for a $1,000 monthly withdrawal ($300,000 x .04 = $12,000/year). This rule assumes a portfolio with 50% stock.


¨       Tweak “The 4% Rule”- More recent research has suggested withdrawing a lower percentage of assets than 4% due to prolonged low yields on fixed-income securities. In addition, conservative investors with less than half their money in stocks should probably withdraw less than 4% while new retirees in their 70s can probably withdraw more.


¨       Prepare a Retirement Budget- Track current living expenses for several months before you exit the work force. Next,  identify expenses that will end or decrease in retirement (e.g., commuting costs and mortgage payments) and those that are likely to increase (e.g., travel, medical and dental expenses, and health insurance premiums).


¨       Prepare for Non-Financial Aspects of Retirement- Consider the three pillars of retirement life: leisure activities, work, and volunteerism. Experts caution against retiring without giving thought to the type of lifestyle desired and activities that will fill the time that a job once occupied. A successful retirement requires much more than money.


¨       Get Help- Check out retirement planning worksheets and online calculators. Monte Carlo analysis is a simulation of possible investment outcomes used to predict the likelihood of sustaining a certain withdrawal rate for, say, 30 years. Consider hiring a certified financial planner® on an hourly basis to review your plans and answer your questions.


¨       Try to Pay Off Housing Debt Before Retiring- Entering retirement free of a mortgage and/or home equity loan provides financial “breathing room” by eliminating a household’s largest monthly expense. Various online calculators can help you time your last mortgage payment with your anticipated retirement date.


¨       Consider Downsizing to a Smaller Home- Moving to a smaller, less expensive home provides a number of financial benefits including profit from the sale of a larger, higher-priced home as a source of savings, lower property taxes, lower utility costs, and less home maintenance.


¨       Consider “Geographic Arbitrage”- Moving from a high-cost area to one with lower taxes and living costs is another way to cut expenses. This is a very personal decision, however. For many people, family and/or community ties trump tax breaks, better weather, and other advantages. COVID-19 has definitely added a new “lens” to relocation decisions.


There are many other decisions to make and factors to consider in later life. A detailed description of 35 later life transitions can be found in my book Flipping a Switch: Your Guide to Happiness and Financial Security in Later Life. The book is organized into three sections for financial, social, and lifestyle transitions with many topics that people don’t often talk about such as determining if certain purchases are “lasts.”

 Flipping a Switch is available from Amazon (print and Kindle versions) and in many bookstores.

Thursday, January 7, 2021

Identity Theft Risk Reduction Practices from a Twitter Chat


I recently participated as a panelist in an Experian #creditchat about identity theft, which is the stealing people’s personal identification information (PII) to defraud them in some way. 

Identity theft is typically not a “stand-alone” crime but, rather, part of another crime such as credit card, bank account, health care, or income tax fraud. 

Commonly stolen pieces of PII include Social Security numbers, credit card numbers, and driver’s licenses.

Since much of Americans’ PII is in the hands of employers, government agencies, and merchants, it is virtually impossible to eliminate the risk of becoming an identity theft victim. This risk can be reduced, however, by following prudent risk reduction practices. 

Below are ten ideas that were shared:

¨      Break Risky Habits- Avoid “over-sharing” personal information on social media, leaving personal information within view and accessible for misuse by others, unsafe internet connections (e.g., public wifi), weak passwords, and not shredding documents with sensitive data (e.g., Social Security and account numbers).

¨      Guard Your Mail- Use a locked mailbox or promptly remove mail from the mailbox following delivery and deposit outgoing mail at the Post Office or in collection mailboxes- not in unsecured mail receptacles.

¨      Just Say No- Never provide personal information over the phone to unsolicited callers. Ditto for e-mailed requests with suspicious links. Tell yourself “no, this is not a legitimate request” and simply hang up or delete.

¨      Know the Warning Signs- Take immediate action if any of the following events: a request for payment for purchases you did not make, suspicious entries in a credit report, contact from the IRS, declined credit cards, denied medical services, and erroneous bank or credit card statements.

¨      Pay Cash in High-Risk Situations- Do not let your credit card out of your sight and let anyone take it away from you to swipe it and possibly skim, photograph, or record the numbers. Similarly, consider paying cash for gas to avoid the risk of having a skimming device attached to the pumps.

¨      Travel Light- Empty your wallet and do not carry around extra credit cards and unnecessary ID cards. Do not carry around a Social Security number or passwords in a wallet or purse. Memorize them and/or leave them at home in a secure location. Some people also use a password manager program to secure their data.

¨      Review Your Credit Report- Contact each of the “Big Three” credit bureaus (Experian, Equifax, and TransUnion) annually for a copy of your credit report that might provide evidence of identity theft (e.g., accounts opened in your name and fraudulent purchases).

¨      Keep Good Records- Save credit card purchase receipts and match them against monthly bills. Ditto for bank deposit and withdrawal slips to check against monthly statements. Make a list of credit card billing dates. If a billing statement is late, follow up promptly with the creditor.

¨      Be “Internet Cautious”- Never enter PII on a public wifi system (e.g., at an airport) and always check for the letters “htpps” in a web site address and a closed lock icon to indicate that a web site is secure. If you absolutely must get a message with personal data out immediately, activate the wifi hotspot on your cell phone.

¨      Consider a Credit Freeze- This is an anti-fraud measure that restricts access to your credit report to thwart fraudulent accounts. Credit inquiries are denied so fraudsters typically cannot get new credit in your name. Remember, however, that you will need to “thaw” your credit for new credit, bank accounts, and utilities.

A key take-away is that effects of identity theft can last years, even decades, including a drop in a victim’s credit score and the emotional effects of feeling “violated.” The bottom line is that we can never let out guard down. 

Risks for identity theft will always surround us and vigilance is required at all times.

Loud Budgeting: A Financial Discipline Strategy

  Have you heard the term “loud budgeting?” It started gaining traction earlier this year on TikTok (where else?) and has been covered by fi...