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Educate parents and young adults in practical money matters

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Ladies, First!

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A little more than two months before my due date, panic set in.  Though I had much experience as an aunt and babysitter, and in spite of my life-long fantasies of motherhood, the moment was quickly approaching where my life would change forever.

Change, even joyous change, can be terrifying.  In my case, a difficult twin pregnancy kept very dire possibilities hanging in the balance.  My husband was eerily calm; if I didn’t know better I would have thought he was medicated.

I spoke to my sister-in-law, whose support was always there for me like a welcoming smile.

“Were you scared that you wouldn’t be able to do it?” I asked.

“Childbirth?” she laughed.

“No.  I can’t even think about that!  What if I can’t do this job?” I was near tears.

Every twin book I read described delirium to the point of doubling up on feeding one baby, while accidentally starving the other.  Was this really something I would do?

She laughed and gave me the best advice I have ever received, “Stop reading these books because what they can’t tell you is how you will feel about your babies.  You will throw yourself in front of a moving train for them, and you won’t think twice.  It’s a lot of work and you’ll be exhausted, but your heart will be so full of love that you will be able to do things you never imagined.”

She was right, of course.

Though my sons are no longer babies, that reflex to put their needs ahead of mine is very strong (even when it is not beneficial to them, or me).  I am not alone in having mastered this “talent.”

Perhaps it is biology, or maybe it’s not, but women (in general) are too good at putting themselves second or third.  We would be smart to remember that there are no awards for martyrs — just tombstones.

The data backs it up, of course.  Women earn less than men because their careers have often taken a backseat to caregiving for children or parents.   They have less saved for retirement, because of this — yet they live longer, on average, than men.

Many times I have talked a mother out of funding a college savings plan in favor of contributing to her malnourished retirement account.  The “carrot” is for her to get financially secure and then she can eventually set up a college fund.  It’s obvious, but needs to be repeated:  There are no loans for retirement.

The often-used cliché is true — if oxygen masks come tumbling down on an airplane, parents have to put on their masks first before helping their children.  Here is what this looks like in the world of personal finance:

  • Fund an IRA or Roth IRA (maximum contribution rates are $5,500 or $6,500 for those 50 or older).
  • Participate in your employer’s retirement plan – whether there is a match or not.  If you are already contributing, work towards funding it to the maximum.  My colleague, Bill Sweet, put together a checklist that gives guidance on funding minimums among other useful information that can help you sock away more money and reduce your tax burden.
  • Set aside money every month to pay yourself first.  This can be used for an emergency fund if you haven’t established one.  Make sure any short-term funds (for goals taking place in five years or less) are kept in cash; money for longer term goals can be invested.
  • Pay off high-interest credit card debt.  Unless you have a special 0% financing deal, pay off this debt ASAP.  Reverse compounding is devastating to long-term financial health.
  • Make sure you have adequate TERM life insurance that will get your child through the college years.
  • Do not neglect basic estate planning — have a will, durable power of attorney and health care proxy established.  If your children are minors, make sure that you select a guardian (to raise them in the event of your demise) and a trustee (who will handle the finances).
  • Check the beneficiaries on life insurance policies and retirement accounts to make sure they are current and accurate.

If you’ve tackled this list – congratulations!  Now is the fun part.  You get to plan for your financial future so that your goals are not merely wishful thinking.

Mothers, if you have trouble finding the time and motivation to get started — think of your kids.  Being financially secure is not a selfish indulgence — it is most beneficial to those you care about.  If you’re not sure where to start, check out this blog that I wrote earlier in the year.

By taking these steps, you won’t need to throw yourself in front of a moving train to help your kids.  You might just be there with your feet up and a tiny umbrella in your drink guiding your daughter to be the financially savvy woman you have become.

Tell me where you are on your journey or what questions you have by emailing me: dina@ritholtzwealth.com.

 

 

 

 

Shoot the Inner, Sitting Duck

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My last post, “Nailing Financial Predators,”  may have left some feeling like an easy mark.  But what if we could take our six natural human responses to persuasion and make them work in our favor?  Well, we can.  Here are some ideas on how to proactively take charge and shoot that inner, sitting duck:

1. Authority – If we respond to the perception that someone has expertise or power over us, it’s best to make sure that that reverence is actually warranted before heeding their advice.  Seek out respected authorities on investing, such as Warren Buffett; who keeps his advice simple:

“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.”

2. Reciprocity – When someone does a kindness (even with ulterior motives), we are tempted to do something kind in return.  What if the good starts with us?  Seek out a helpful resource, such as Vanguard’s tips for becoming financially responsible and pass it on.  Doesn’t that feel good?

3. Liking – We want to do business with people we like — there is no crime in that.  Just make sure that they can: give objective advice, keep costs low, provide a plan that is thoughtfully personalized, explain everything  – including fees, and not press for an immediate commitment.  If they can make good on that, there truly is a lot to like about this arrangement.

4. Scarcity – Salespeople love to create a sense of urgency so we will be manipulated into prematurely pulling the trigger.  What if we were to make attaining our goals the urgency — and the scarcity is time?  Every day we fail to plan is one more day we lose.  Stop procrastinating, make a plan and get at it already.  The meter is running.  Tools, such as Vanguard’s When Can I Retire? can be a great way to assess the current situation and start the process of goal-setting.

5. Social Proof – Because we tend to look to others to help us make decisions, this can get tricky if we turn to the wrong person.  Luckily, facts have no feelings, nor do they lie.  The Financial Industry Regulatory Authority (FINRA) has helpful resources to protect investors.  BrokerCheck is a great tool to investigate the background of a financial professional and a firm.  Make sure to look at the firm, as well. Why do business with a company that engages in questionable behavior?  Also on FINRA’s site are the very useful Fund Analyzer and 529 College Savings Plan Expense Analyzer, which allow investors to examine the costs associated with different investment options.  Remember Warren Buffett’s advice — keep costs low!  For teachers, understanding the fees associated with their 403(b) plans can be like solving an open-ended riddle.  Two great resources to help cut through the fog of ambiguity are 403bcompare and 403bwise.

6. Commitment and Consistency – Once we commit to something, it makes it uncomfortable to turn back on our word.  Instead of committing to someone else’s agenda, what if we commit to ourselves, our goals, and the financial well-being of our families?  When these become the motivation for our efforts — when we fear disappointing ourselves more than others — we can move in the right direction.  Systematically investing every paycheck, treating investing as a bill that must be paid every single month,  and increasing the amount every year — this consistency will turn commitment into meaningful action.

These six natural responses can be our best friend or worst enemy.  The decision is ours as to whether to sit like a duck and let others take aim, or make our efforts reflect the goals we aim for.  It seems like a pretty easy choice, doesn’t it?

 

Nailing Financial Predators

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“A prize fighter in a corner is told, hit where it hurts.  Silver and gold.”   – U2*

Every time Tony and I have met with prospective clients who have come from traditional brokerage channels (literally, every single time) there is an uncomfortable point in the meeting where they are ashamed at the fact that they received no financial plan; no real coherent diversification strategy to minimize risks; no exit strategy as to when they can jump off the hamster wheel and enjoy the fruits of their labor; and no clear handle on what they are paying.

Instead, we watch as realization spreads across their faces – they were sold something they may not have needed, paid more than was necessary and still have no sense as to whether financially they are on track.

The look we get is always the same — like they just dropped their towel and we saw more than we should have.

I always try to ease their embarrassment, discomfort and anger – because these emotions can be quite damaging and may cause paralysis.  The world seems pretty scary when being talked out of your money was so stupidly simple.  Yet, sitting on the sidelines is another form of self-inflicted punishment.

For those stuck in this zone of not knowing whom to trust, I say trust yourself.  Trust yourself to find credible sources of information.  A good starting point is learning how human nature can make you vulnerable.

In “6 Principles That Predators Will Use Against You,”  (Psychology Today, September 16, 2016)   Katherine Ramsland, Ph.D., highlights six ways people are persuaded.  I’ve taken these examples one step further to show how it plays out with a salesperson trying to get over on you:

  1. Authority – Someone who seems to be an expert and who exudes confidence is more readily trusted, and even obeyed. If technical, complicated concepts are tossed around, it could easily appear that someone knows what they are talking about, when they are really reading from a sales script (I know, I used to write them. Forgive me.) Don’t assume that they are experts in anything other than getting you to buy.
  2. Reciprocity – When someone is nice, we tend to want to do something nice back. So a “free” pizza, box of donuts, lunch or dinner can make someone open an account to do a good turn. Do not partake in a freebie and you won’t feel obligated.
  3. Liking ­– A good salesperson knows how to be likable and goes to great lengths to identify how best to relate to you. This usually involves referring to personal notes made after meeting you, such as: likes golf, has three kids, son plays football for local high school.  Then, these tidbits get woven into conversation so that it appears that he actually cares about what matters to you most.  Do your best to keep conversations strictly business-like to give yourself the inside edge.
  4. Scarcity ­– Imposing a deadline for an offer or making some opportunity seem exclusive creates irrational urgency that can get you into trouble.  Recently a friend of mine asked me whether he should turn over his life savings to an annuity, but he had an hour to decide.  Needless to say, I told him to run like hell.  If someone is pressuring you to make a decision, they are in a rush to get their money (from you).
  5. Social Proof ­–  When there is uncertainty, we look for direction.  “Helpful” sales guys always have the solution and it always benefits them.  I cannot tell you how many times I have seen someone talked out of their low-cost 529 College Savings Plan that involves no commissions, in favor for an inferior product laden with fees and heavy commissions.  I let it be known that NY has a great low-cost plan offered through Vanguard at  NY Saves.   I do this not because I earn a dime from that recommendation, but because it is the right thing to do (it’s where we have our sons’ college funds).  Innocently float out a question about a respected, low-cost option, such as Vanguard or the 529 plan I just mentioned.  If you are being steered elsewhere you need to question if the “advice” you are being given is truly good for you.
  6. Commitment and Consistency ­–  People like to make good on their promises, so when you agree to one small commitment it makes it that much easier to get you to agree to something more.  I have seen this especially with teachers and their retirement plans.  A sales guy who comes in to talk about their 403(b) retirement plan options first sells a horribly expensive annuity or over-priced mutual fund to the unsuspecting victim.  Then a crappy whole life insurance policy gets sold to them, followed by infiltrating the spouse’s accounts and the kid’s college funds.  Ask for all fees and terms in writing, signed and dated.  If that is a problem, you’ve got a problem.

Not sure how to undo the damage?  Find a fee-only fiduciary, who is also a Certified Financial PlannerTM (search for one here).  Just make sure under “compensation method” you look for fee-only – which means the advisor never earns commissions or compensation for recommending certain products.  This keeps the advice objective and serving your best interests.

Now that you know, and possibly recognize what may have been done to you, you only have one choice: hit them where they live – in the wallet.  Pull your accounts and never be prey again.

And, if you want to earn good humanitarian points, pass it along.  Not because you will earn anything from it, but because it’s the right thing to do.

Don’t you wish everyone worked that way?

 

*Source: U2. “Silver and Gold.” Rattle and Hum.  Island, 1988. Compact Disc.

Matters of the Heart

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I learned, at a fairly young age, that life can change as quickly as it takes a heart to beat.

It was the day before Thanksgiving, 1973, when my father suffered a heart attack.  He was 56 and I was 8. As the sole breadwinner, I am sure all the worries he had about caring for his wife and seven kids (four of whom were minors) were pinging in his head, keeping time with his rapid pulse rate.

Thankfully, after several weeks in the hospital, he was allowed to come home in time for Christmas.  It was a gift; but frankly, the anxiety over his health issues would haunt me throughout his lifetime.  Fortunately, he lived into his late eighties; but having no way of knowing that he would be blessed with longevity, I began the egg-shell walk that would span decades.

It took me well into my adulthood before my fears eased up a bit.  Perhaps experiencing milestones that I worried might never come, like having my father walk me down the aisle, allowed me to exhale.

And now, at the age of 51, I think I have finally figured out a few things about that experience and how it shaped me and how it affects my interactions with clients.

I guess I’m a slow learner.

Discovering the up-side to this down-side has become most apparent in my profession.  It has influenced how I relate to others.  When clients come to me with their fears – real or imagined; likely or unlikely – their discomfort pulses in my stomach and I want to help them make it stop.

Though it has taken me some time to realize this, I fall into the pattern that my father had silently taught me.

He set about eliminating known threats and stresses that could undo him.  He did it without so much as an eye-blink.  He was methodical and the message was powerful:  Control what you can; prepare in advance for what you can and then do your best not to dwell.  Pay attention to new information that can change a situation and adjust accordingly, but don’t fixate.

Financial plans are all about that.  It gives me great comfort to take someone’s worries and systematically address what changes need to be made – save more, work longer, spend less, down size, work part time, start a small business … the list goes on.  I like giving them options – it puts the control back in their hands.

Even when the news isn’t as ideal as I would like, there is a sense of relief that comes from taking an honest look at a difficult situation and then making a plan.  Clients always feel better.

Sometimes, though, there is no “better” to a situation.  Over the years, I have helped clients get their affairs in order as the end of life approached.  I have ensured that heirs quickly received proceeds from IRA accounts; I have even brought paperwork to wakes and funerals so that out of town family members could sign what they needed to and I could explain things in person.  No amount of apologizing could ever make me feel like anything less than the grim reaper.

Eleven years after my father’s death, my mother passed away.  The job I had performed for many clients now fell in my lap.  There was no “me” to make it all go away.  I moved slowly, though I knew what I was doing.  It was as if dividing my mother’s assets was the final burial that I simply wasn’t ready for.

Thankfully, my siblings showed great understanding and realized that I was struggling with this morbid task.  They were more patient with me than I was with myself.

No matter how many times I have walked into a situation like this for a client, I am affected.  I can feel their sadness and uncertainty; and I think they know it.  Never once have I been met with anything but relief; they don’t want to have to worry about one more thing.

After years of doing this for others,  I finally see the gift I am able to give is more valuable than any inheritance: it is peace of mind that they are free to focus where they need to  —  on the more pressing matters of the heart.