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That Nagging Quest

That Nagging Quest

June 15, 2019

   We are seeing a thirst for information, even instruction, about personal finances.  Some is for specific goals such as retirement or paying for college; some is simply to learn how to make ends meet or to become more confident or wealthy. 

    The reigning “Infotainers” are out in force, especially Suze Orman & Dave Ramsey, darlings of late-night television and the well-paid lecture circus.  Unlike CPA Ed Slott, they are not licensed or regulated and aim at those on lower incomes with their glib, sometimes witty, advice.  While I question their credentials, no-one can doubt their sincerity.  Unfortunately, they hide their true sophistication under mantels of mass appeal.  I wish they would speak less and listen more.  Slott, on the other hand, appeals to the Middle Class and above with careful, measured advice not likely to cause rash or unintended consequences.  He avoids the quick-response venues and would not dare to practice in public. 

    A question put to Suze at one of her appearances left me furious when the questioner was advised to eliminate debt rather than purchase a home.  Ramsey alarmed me when he avowed he could earn 12% year in and year out using mutual funds.  The incomparable Peter Lynch is the only money manager I know who came close.

   Their appeal reflects our lack of confidence regarding personal finances.  Who is to blame?  I think a fair answer is both parents and the school systems.  The latter offer no “Personal Finance” curriculum and probably no deep discussion of economic systems, such as Socialism versus Capitalism and Communism.  The former, depending on their own experience, often assume such information will be ‘absorbed’ or taught in school. 

   Of course, a great way to learn is to earn a wage and enjoy the fruits of such labor.  Unfortunately, fewer teens and pre-teens are expected to do so any more.  (I was proud to get a job and earn a weekly wage when I was eleven.  Nepotism helped; I washed small engines for my uncle.)  We may also want to rail quietly at the media that implies “getting rich” is easy.  Supposedly, anyone can do it.  So, if you are not doing well financially, you are a failure.  Such a belief fosters a severe loss of self-confidence.

    Aside from the obvious, a return to “Home Economics” that taught family budgeting and preached thrift, we need to continue to emphasize the importance of allocating income and the difference between “needs” and “wants.”  -- I may need a car to get to work; I want a sports car.   Also, expectations of new college graduates as to pay, benefits and advancement are woefully misinformed:  Joining the Board after five years is NOT realistic.

   Our clients’ difficulties most often arise as the kids see how well their parents have done, but not the hard work it took to get there. Of course, Mom and Dad want Junior and Missy not to have to work summers or to forego pleasures to afford necessities. The unintended consequence has become coddling and unrealistic expectations.

    I have heard of several curricula designed to provide Financial Literacy but have seen none successfully in action. We need more. We need to be willing to experiment.  I strongly support Junior Achievement, an exercise in the creation and operation of a business that cannot be beat.  STEM courses, especially math and algebra taught using practical, believable applications, such as real financial problems, can help.  One observer of the K-12 curriculum suggests classes in grades 3, 6, 7, and 8 that target how money works on a practical level including coinage, making change, saving for postponed gratification, and basic budgeting.  Upper grades would include the theory of money (what is it? Why does it work? How?) and study the various economic systems.

    College curricula are diverse and do not address personal finances unless a student studies for the Certified Financial Planner[CFP] designation.  However, basic Economics should compare the various economic systems as well as their political consequences (Cuba, USSR, Venezuela).

    Lastly, as citizens of the greatest capitalist nation on earth, we need to be vigilant.  We need to remind politicians of the failures of Government interventions.  We must be mindful of the fact that almost 20% of our population pays no income taxes and thus has no incentive to rein in government spending.  Over 25% of the tax bill is paid by the top 1% and almost 70% is paid by the top 20% of wage earners.  It seems that ignorance of the ‘big picture’ is spurring a lot of skepticism about taxes and responsibility. That part of our financial system will have to change as government expense continues to grow. 

    We “Financial Professionals” try to spread the gospel of early financial education.  Maybe Home Economics sounds sexist or dated, but it served its purpose well when it came to budgeting, saving and frugality:  Not a bad message for any age.  We also spew blogs and frequent videos to highlight financial topics from home buying to investigating insurance or reducing taxes. I wish there was a single comprehensive text we could tell our clients to read. My list is long and no tome is complete enough.  I threaten to publish the list in the near future, however voluminous. 

    Meanwhile, success in personal finance requires an inquiring and discriminating curiosity to both listen to and question all the advice thrown your way.  And yes, even mine.

Originally published 5/2019 in the Morning Star Business Report