Category Archives: Financial Literacy

Financially Ill-Prepared and Ill-Literate| Financial Literacy

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Financial literacy represents a significant area of financial wellness. Thus, the teaching of financial literacy must go beyond the basics of creating a budget and avoiding credit card debt. It must deliver real-world skills and knowledge about the challenges of debt and taxes, investing in the stock market, taking advantage of an employer’s 401(k) plans, managing credit and mortgages, accumulating wealth and many other financial topics.

Definition of Financial Literacy

The National Financial Educators Councils (NFEC) states, “A lot of people know what they should do; however a good majority freeze up when it comes time to make a financial decision. Most have the knowledge but lack the confidence to make the right decision and take action in a decisive manner. Since money is directly tied to peoples emotional state we feel including this component in our financial literacy definition is critical.”

Thus, we must take action now to combat this real world threat resulting the lack of financial literacy to Americans financial security. The National Financial Educators Council’s defines financial literacy definition as:

“Possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual’s personal, family and global community goals.”

Successful Investors are disciplined and patient, have developed good financial and investing habits, demonstrate positive financial Mindset and exhibit a belief in themselves.

Conversely, the principals of basic financial literacy and money management are not that complicated. The basic money management concepts are simple and once you have it down, you can apply the concepts for the rest of your life. Considering, the world that high school and college graduates will enter revolves around inherently money.

“The single biggest difference between financial success and financial failure is how well you manage your money. It’s simple: to master money, you must manage money.” T. Harv Eker, author Millionaire Mind

A 2009 Sports Illustrated report found that almost eight out of 10 former NFL football players suffer from financial stress within two years of their retirement. What’s more, the National Bureau of Economic Research estimates that one in six will file bankruptcy.

What is Financial Literacy

Basically, financial literacy is about effectively managing one’s money. It is an essential personal skill that will benefit individuals throughout their lives – and it is not skill that everybody learns.

With money, such as wages, coming in and expenses going out, with due dates, finance charges and fees attached to invoices and bills, and with the overall responsibility of making the right decisions about major purchases and investments consistently, managing money can be challenging for most Americans.

Americans would think that because the financial stakes are so high and the skills of managing money are so essential that this would be a skill that gets taught in high school or even college. Unfortunately, personal finance is not taught in educational institutions at any level in the United States. It is not taught in K-12 education, undergraduate or even post graduate levels unless an individual is majoring in finance.

Financial literacy and managing money require a fundamental understanding of personal cash flow, net worth, debt, inflation, the purchasing power of money, and a willingness to embrace personal responsibility. That means paying bills in a timely manner, saving for emergencies and retirement, and avoiding excessive debt.

It is important that individuals accept the fact that sometimes they have to sacrifice immediate demands and gratification for long-term financial security.

Americans Falling Behind

According to Money magazine, nearly half of American workers have saved less than fifty grand ($50K) for retirement, and fifteen percent (15%) had not saved a single cent. This means that for many Americans, their senior years will not be so golden and a majority of those will struggle financially due to their lack of financial literacy.

In the 2018 National Financial Capability Study (NFCS), almost half (46%) of survey respondents have not set aside in an emergency or ‘rainy day’ fund sufficient to cover expenses for three months in case of sickness, job loss, economic downturn, or other emergency according to FINRA Investor Education Foundation

More than half of millennials (about 54 percent) say debt is their “biggest financial concern.” according to a recent Wells Fargo Study.

“A compelling body of evidence demonstrates a strong association between financial literacy and household well-being. Survey after survey shows that households that demonstrate low levels of financial literacy are those that tend not to plan for retirement, borrow at high interest rates, and acquire fewer assets.” Shawn Cole

Taking Responsibility

A majority of Americans appear to have not taken responsibility for their financial security during their working lifetimes, after retirement or have done much retirement planning before retirement.

Forty-one percent of respondents have tried to figure out how much they need, their number, to save for retirement, while 54% have not. The act of planning for retirement remains a ‘strong positive indicator’ of retirement wealth, according to FINRA.

According to Dave Ramsey, the goal behind teaching financial literacy is to help people develop a stronger understanding of basic financial concepts—that way, they can handle their money better.

Ramsey considers financial literacy a worthy goal, especially when you consider a few stats about how the typical American handles money:

  • Nearly four out of every five U.S. workers live paycheck to paycheck.
  • Over a quarter never save any money from month to month.
  • Almost 75% are in some form of debt, and most assume they always will be.(1)

Additionally, there’s a $6.6 trillion gap between the pensions and retirement savings of U.S. households and what they should have to maintain their living standards in retirement – and the gap is growing. Retirement Income Deficit report by Retirement USA tells us that:

  • 41% of baby boomers expect their standard of living to decrease in retirement. Transamerica Center for Retirement Studies.
  • Only 14% of baby boomers have a written retirement strategy. Transamerica Center for Retirement Studies.
  • 83% said that personal financial challenges had a large impact or some impact on overall employee performance. Society for Human Resource Management
  • 46% of Americans have less than $10,000 saved for retirement. Employment Benefit Research Institute
  • Student load debt exceeds $1.1 Trillion. Fastweb and FinAid

“The number one problem in today’s generation and economy is the lack of financial literacy.” Alan Greenspan, Former Chairman, Federal Reserve

Financial Literacy must become a priority in our high school classrooms and college campuses across our great country. Too many Americans are being left behind financially due their inability to effectively manage their money and control their personal finances.

Over the past decade, the U.S. economy has witness the longest period of economic expansion in it history. Yet, a majority of Americans failed to participate in the expansion as measured by the widening income, wealth and retirement gaps evident in the country.

And, you can conclude that the lack of financial literacy is a major reason behind the gap.

Sources:

  1. https://www.usfinancialcapability.org/downloads/NFCS_2018_Report_Natl_Findings.pdf
  2. http://www.retirement-usa.org
  3. https://www.daveramsey.com/blog/what-is-financial-literacy

Accumulating Wealth

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The wealthy accumulate wealth by being frugal

Frugality – a commitment to saving, spending less, and sticking to a budget – is a key factor in accumulating wealth, according to DataPoints’ founder, Dr. Sarah Stanley Fallaw.  Dr. Fallaw is also the co-authored “The Next Millionaire Next Door: Enduring Strategies for Building Wealth“.

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In an University of Georgia’s financial planning performance lab research paper examining the topic of “what does it take to build wealth over time”, the key findings were that those who were successful at accumulating wealth frequently exhibited the following behaviors:

  • Spending less than they earned
  • Having a long-term outlook on their financial future
  • Maintaining sound financial records
  • Keeping up with financial markets
  • Saving regardless of income level

Essentially, her research shows that anyone can accumulate wealth if they know the right steps to take. And, if individuals possess a certain set of characteristics, they may be more likely to become wealthy, according to Dr. Fallaw, who is also director of research for the Affluent Market Institute.

In her research, she found that six behaviours, which she called “wealth factors,” are related to net worth potential, regardless of age or income:

  • Frugality, or a commitment to saving, spending less, and sticking to a budget
  • Confidence in financial management, investing, and household leadership
  • Responsibility, which involves accepting your role in financial outcomes and believing that luck plays little role
  • Planning, or setting goals for your financial future
  • Focus on seeing tasks through to their completion without being distracted
  • Social indifference, or not succumbing to social pressure to buy the latest thing

In order to accumulate wealth, it is imperative for investors to understand that their underlying financial behavior and habits matter significantly. DataPoints research supports the notion that, “…individuals who successfully accumulate wealth often engage in basic and identifiable productive financial management behaviors.” And, they are often “socially indifferent” to the latest “must haves” and they resist the “lifestyle creep,” which is the tendency to spend more whenever they earn more.

To properly build wealth, financial experts recommend saving 20% of your income and living off the remaining 80%. Many wealthy individuals, who religiously follow this principle, espoused the freedom that comes with spending and living below their means.

Reference

  1. Grable, J. E., Kruger, M., & Fallaw, S. S. (2017). An Assessment of Wealth Accumulation Tasks and Behaviors. Journal of Financial Service Professionals, 71(1), 55-70.
  2. https://www.datapoints.com/2017/04/06/tasks-of-wealth-accumulators/
  3. https://apple.news/A4YIQ2ahsSKqzUG3rh1PmTQ

Seniors Are Stressed About Income in Retirement. What To Do. – Barron’s

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A large number of American workers closing in on retirement are showing anxiety not just over how much they’ve saved but also over how to manage their different income sources during their post-career lives.

A new study by Charles Schwab found that most pre-retirees—defined as those within five years of retirement—have at least one fear about their income in retirement. The findings were gleaned from a survey last summer of 1,000 Americans aged 55 and older with $100,000 or more in investable assets, half of whom fell into the pre-retiree cohort. 
— Read on www.barrons.com/articles/most-seniors-stress-about-income-in-retirement-heres-what-theyre-most-worried-about-51582977602

Integrity in College Athletic

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“Conduct reveals character, and we best understand integrity when we see it lived out in a person’s life.” Charles H. Dyer, Character Counts

On the competitive fields, pitches, courts and arenas of college sports, what role and responsibilities do university presidents, athletic directors and coaches hold to teach or emphasize integrity in behavior and conduct to college age young men or women student-athletes.

On many competitive playing fields, courts or pitches around America college sports, there appears to be the prevailing mindset from college coaches and athletes alike to win at any costs.

Winning overrides apparently playing with integrity–being honest and having strong moral principles– on the playing field.

How many occasions have you observed a college football wide receiver trap the ball against the ground or the ball obviously hits the ground, and the receiver jumps to his feet proclaiming adamantly that they caught the ball.

Or, how many occasions have you observed a college football coach setting a bad example by going apoplectic on a game referee because a perceived missed call or a call going against their respective team.

Or, how many occasions have you witnessed a college soccer player execute a dramatic flop to the ground writhing in apparent agony when brushed by an opposing team’s player to obtain a temporary competitive advantage or yellow card penalty’s.

“When it comes to our own behavior, we sometimes display an integrity gap between what we believe and how we behave.” Bob Stone, The Ethics Challenge

In the recent past, there has been no or little consequences have befallen these college student-athletes or head coaches when they apparently attempt to mislead, omit and obfuscate during collegiate athletic competitions.

Integrity in athletics appears to have taken a backseat and is often not in the vehicle when it comes to college sports. The pressure to win at all costs appears to have become the norm.

College presidents and athletic directors must lead from the front. They must address strongly the growing questionable and less than acceptable conduct originating from their head coaches and students-athletes.

In the words of President Franklin Roosevelt, “Knowing what’s right doesn’t mean much unless you do what’s right.”

References:

  1. http://www.ncaa.org/about/what-we-do/fairness-and-integrity

3 mistakes to avoid during a market downturn | Vanguard

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Following a decade-plus of generally rising markets, a meaningful downturn in stocks may finally be here. We don’t know how bad it will be or how long it will last.

We do know that some investors will make costly mistakes before prices rise again. Here are 3 common errors worth avoiding.
— Read on investornews.vanguard/3-mistakes-to-avoid-during-a-market-downturn/

Ditch Debt and Start Saving | Fidelity Investments

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Balancing paying off debt and saving can be tricky. Here’s a step-by-step guide.

BY STAFF WRITER, FIDELITY – 06/28/2019

Key takeaways

  • Save for an emergency—consider saving enough to cover 3 to 6 months of expenses.
  • Consider a health savings account if you’re eligible, and contribute to your workplace retirement plan.
  • Pay down debts with the highest interest rate first.

Student loans, credit card balances, car loans, and mortgages—oh, my. You probably have a variety of debt—most people do. So which should you focus on paying off first? And how can you save at the same time?

Of course, make sure to pay at least the minimum required—and on time—to keep all loans in good status. After all, defaulting on credit cards, car loans, student debt, or home mortgages can destroy your credit rating, and risk bankruptcy.

Before you tackle debt, pay yourself first. Make sure you:

  • Use tax-advantaged accounts like a flexible spending account or a health savings account if you have a high deductible health plan. That lets you pay for medical bills using pre-tax money.
  • Save enough in a workplace retirement savings plan to get the match from your employer—that’s “free money.”
  • Set aside some cash for emergencies.

Assuming you are meeting those primary obligations, here’s a link to a guide to help you pay off debt while saving for emergencies and long-term goals like retirement. It may seem counterintuitive, but before you tackle debt, make sure you have some “just in case” money and save for retirement.

— Read on www.fidelity.com/mymoney/ditch-debt-and-start-saving

Virgin Galactic Chairman Palihapitiya says stock isn’t a bubble, points to $2.4 billion ‘pipeline’ | CNBC’s “Squawk Box”

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“There’s a setup [in the market] where there’s no real growth, there’s no unique stories and there’s nothing that can give you long-term outlook.” Chamath Palihapitiya

KEY POINTS

  • Virgin Galactic Chairman Chamath Palihapitiya identified a combination of factors as driving the stock’s recent rally, including current U.S. market conditions.
  • “There’s a set-up [in the market] where there’s no real growth, there’s no unique stories and there’s nothing that can give you long-term outlook,” Palihapitiya said.
  • Palihapitiya quantified the interest from potential Virgin Galactic customers, saying the nearly 8,000 people saying they want to fly to space translates to about $2.4 billion in future revenue for the company.
  • “There is a clear winner in electrification,” says Chamath Palihapitiya, one of Facebook’s first executives and the founder of hedge fund Social Capital.
  • People are focusing too closely on the “window dressing” of Musk’s behavior and not enough on the “main course,” which is Tesla itself and its competitiveness in the marketplace, he says.

Virgin Galactic Chairman Chamath Palihapitiya thinks the recent rally by Wall Street’s favorite speculative stock is not the sign of a bubble, pointing instead to the space tourism company’s growing demand from possible customers.

Shares of Virgin Galactic have tripled since the beginning of the year. But, asked whether he thinks the stock is getting ahead of itself, Palihapitiya identified a combination of factors as driving shares higher, including the current U.S. market conditions and the demand Virgin Galactic is seeing from potential customers.

“There’s a setup [in the market] where there’s no real growth, there’s no unique stories and there’s nothing that can give you long-term outlook,” Palihapitiya said on CNBC’s “Squawk Box” on Wednesday.

Palihapitiya added that this setup for Virgin Galactic’s stock rally “also applies to Tesla,” saying “those two things are the most similar stories.”

“When a company comes along that has a unique narrative and is trying to do something that is differentiated, high margin and could theoretically grow for 10 years … these things get re-priced in ways that are non-traditional,” Palihapitiya said.

Virgin Galactic as a business is “making amazing progress,” he said, although the company’s timeline for beginning commercial operations appears to have been pushed back. The company told investors ahead of its October stock debut that commercial flights would begin in the first or second quarter of this year, setting a target for 16 flights in 2020. But that schedule has slipped, as often happens in the space industry, with CEO George Whitesides telling shareholders on Tuesday that the company’s main goal this year is to safely fly founder Sir Richard Branson to space. Generating significant revenue this year, then, is not the company’s current focus.

Tesla

“Betting against entrepreneurs who are changing the world has never been a profitable endeavor.” Chamath Palihapitiya

Demand for Tesla cars is strong and exceeds other players in the electric-car market.

Palihapitiya states that, “All of that stuff doesn’t matter. It doesn’t change the fact that tens of thousands of consumers are buying that car faster than they can get their hands on it. It doesn’t change that as soon as you sit inside that car, your definition of what is expected is altered forever,” he said.

“At the end of the day, whether you like his [Elon Musk] style or not, his substance is irrefutable,” Palihapitiya said. “People are betting against his style. Betting against entrepreneurs who are changing the world has never been a profitable endeavor.”

In the end, Palihapitiya is taking a long view on Tesla.

Read on: https://www.cnbc.com/2020/02/26/virgin-galactic-chairman-doesnt-think-spce-stock-is-a-bubble.html

https://www.cnbc.com/2019/04/30/chamath-palihapitiya-musk-is-the-clear-winner-in-electric-cars.html

Your first loss is your best loss

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Rule Number One: “Your first loss is your best loss,”

Good trading, no matter what it’s based on, technicals, fundamentals, or the news, requires a level of discipline that goes against human nature.

We are taught to be patient, to let things work out, not to be hasty, yet none of that works when it comes to trading. You have to be willing to cut and run, to use that “flight,” not fight, instinct that we supposedly are born with but suppress as we are grown up.

The general trading rule “your first loss is your best loss” is a critical financial adage to embrace because it addresses two trading issues: (a) Getting on the right side of a trade; (b) if one is on the wrong side, one should get out.

Most option or stock trades need to work almost immediately for them to be right. You must be willing to put a trade on and take it off immediately even if it doesn’t feel right. There’s a simple reason for doing so, trade for points, or for at least a point. Less than that is too hard.

But if you’re willing to have a trade go more than a half of a point against you, then it will be almost monumental to get back to even. So be discipline to stop yourself out quickly.

This is a very difficult lesson to learn, but we all need to work on our ability to recognize when we need to take the “first loss” and not try to push/force/manipulate/etc. the situation to create an outcome that will never come to pass.  

The next time you are facing a tough situation that might produce a challenging “loss,” pause for a moment and ask yourself if this is might actually be a good “first loss”.

So, the next time you are hesitant to close a trade or position that is going against you, ask yourself if you will achieve any better result by waiting or holding the position. If you can’t think of what that better result could be, then make the decision to close a position quickly and decisively, and move on. Once it is off your plate, you will be free to go out and do what you do best—make money .

References:

  1. https://www.thestreet.com/static/command2.html
  2. https://onlinelibrary.wiley.com/doi/10.1002/9781119202080.ch7
  3. https://lbmjournal.com/your-first-loss-is-your-best-loss/

Democratic Socialism on the Rise in America

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“The strongest argument for socialism is that it sounds good. The strongest argument against socialism is that it doesn’t work. But those who live by words will always have a soft spot in their hearts for socialism because it sounds so good.” Thomas Sowell

Despite winning the 2020 Nevada Democratic Caucuses by a wide margin, most Americans fail to appreciate that Senator and Presidential candidate Bernie Sanders (I-VT) is not a liberal Democrat or a registered member of the Democratic Party. He is a registered Independent and an unapologetic self-professed Democratic Socialist.

However, as a Senator, he caucuses and aligns himself with the Democrat minority on the floor of the U.S. Senate. And, in the 2020 Presidential primaries, he campaigns and runs as a Democrat in his grassroots attempt to win the party’s nomination.

Additionally, billionaire Democratic Presidential candidate Mike Bloomberg, during a debate stage attack, stated that Senator Bernie Sanders is, “the best known Socialist in America”, and is a multi-millionaire who owns three houses (one in Washington, D.C. and two in Vermont).

According to Roger Altman, Evercore Founder and Senior Chairman, he conveyed on CNBC recently conveyed that under Bernie’s proposed socialist policies:

  1. If you have an employer provided health insurance plan, you’ll lose it.
  2. If you want to decriminalize the southern border, so if individuals are crossing the border illegally, they’ll get the equivalent of a traffic ticket.
  3. If you believe like Bernie that everyone in prison should have the right to vote, then he is your man.
  4. In the important battleground state of Florida, the philosophy of socialism carries very negative connotations and distasteful visceral reminders to many in the Cuban-American, Venezuelan, and Puerto Rican communities within the state.

Only something like ten percent of Americans believe in those Sanders positions. Maybe magic will happen. Record of prediction is unblemished with success.

“Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.” Winston Churchill

World history demonstrates that global Democratic Socialists in the Western Hemisphere have often abandoned the “Democratic” part of their byline and replaced it with authoritarian actions like in Venezuela and Nicaragua. Although, this is believed highly unlikely with the many safeguards guaranteed in the U.S. Constitution.

If elected, Americans should not be surprised when a potentially future President Sanders attempts to steer the country down the path of the failed programs and policies common within socialism. But, socialism has been successful in bringing “shared economic misery” to the citizens of countries like Cube, Venezuela and the former Soviet Union and East Germany.

References:

  1. https://www.nytimes.com/interactive/2020/us/elections/bernie-sanders.html
  2. Roger Altman, Evercore Founder and Senior Chairman, CNBC Squawk on the Street

10 Money Lessons He Wished Heard — or Listened to — When Younger | MarketWatch

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Updated: February 23, 2020

Jonathan Clements, author of “From Here to Financial Happiness” and “How to Think About Money,” and editor of HumbleDollar.com., is the former personal-finance columnist for The Wall Street Journal. He has devoted his entire adult life to learning about money.

That might sound like cruel-and-unusual punishment, but he has mostly enjoyed it. For more than three decades, he has spent his days perusing the business pages, reading finance books, scanning academic studies and talking to countless folks about their finances.

Yet, despite this intense financial education, it took him a decade or more to learn many of life’s most important money lessons and, indeed, some key insights have only come to him in recent years.

Here are 10 things he wished he’d been told in his 20s—or told more loudly, so he actually listened:

— Read on www.marketwatch.com/story/10-money-lessons-i-wish-id-listened-to-when-i-was-younger-2020-02-12

1. A small home is the key to a big portfolio. Financially, it turned out to be one of the smartest things he had ever done, because it allowed him to save great gobs of money. That’s clear to him in retrospect. But he wished he’d known it was a smart move at the time, because he wouldn’t have wasted so many hours wondering whether he should have bought a larger place.

2. Debts are negative bonds. From his first month as a homeowner, he sent in extra money with his mortgage payment, so he could pay off the loan more quickly. But it was only later that he came to view his mortgage as a negative bond—one that was costing him dearly. Indeed, paying off debt almost always garners a higher after-tax return than you can earn by investing in high-quality bonds.

3. Watching the market and your portfolio doesn’t improve performance. This has been another huge time waster. It’s a bad habit he belatedly trying to break.

4. Thirty years from now, you’ll wish you’d invested more in stocks. Yes, over five or even 10 years, there’s some chance you’ll lose money in the stock market. But over 30 years? It’s highly likely you’ll notch handsome gains, especially if you’re broadly diversified and regularly adding new money to your portfolio in good times and bad.

5. Nobody knows squat about short-term investment performance. One of the downsides of following the financial news is that you hear all kinds of smart, articulate experts offering eloquent predictions of plummeting share prices and skyrocketing interest rates that—needless to say—turn out to be hopelessly, pathetically wrong. In his early days as an investor, this was, alas, the sort of garbage that would give him pause.

6. Put retirement first. Buying a house or sending your kids to college shouldn’t be your top goal. Instead, retirement should be. It’s so expensive to retire that, if you don’t save at least a modest sum in your 20s, the math quickly becomes awfully tough—and you’ll need a huge savings rate to amass the nest egg you need.

7. You’ll end up treasuring almost nothing you buy. Over the years, he had had fleeting desires for all kinds of material goods. Most of the stuff he purchased has since been thrown away. This is an area where millennials seem far wiser than us baby boomers. They’re much more focused on experiences than possessions—a wise use of money, says happiness research.

8. Work is so much more enjoyable when you work for yourself. These days, he earn just a fraction of what he made during my six years on Wall Street, but he is having so much more fun. No meetings to attend. No employee reviews. No worries about getting to the office on time or leaving too early. he is working harder today than he ever have. But it doesn’t feel like work—because it’s his choice and it’s work he is passionate about.

9. Will our future self approve? As we make decisions today, he think this is a hugely powerful question to ask—and yet it’s only in recent years that he had learned to ask it.

When we opt not to save today, we’re expecting our future self to make up the shortfall. When we take on debt, we’re expecting our future self to repay the money borrowed. When we buy things today of lasting value, we’re expecting our future self to like what we purchase.

Pondering our future self doesn’t just improve financial decisions. It can also help us to make smarter choices about eating, drinking, exercising and more.

10. Relax, things will work out. As he watch his son, daughter and son-in-law wrestle with early adult life, he glimpse some of the anxiety that he suffered in my 20s and 30s.

When you’re starting out, there’s so much uncertainty — what sort of career you’ll have, how financial markets will perform, what misfortunes will befall you. And there will be misfortunes. he’d had my fair share.

But if you regularly take the right steps—work hard, save part of every paycheck, resist the siren song of get-rich-quick schemes—good things should happen. It isn’t guaranteed. But it’s highly likely. So, for goodness’ sake, fret less about the distant future, and focus more on doing the right things each and every day.

You can follow Jonathan Clements on Twitter @ClementsMoney and on Facebook at Jonathan Clements Money Guide.