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.