Archive for the 'Economy' Category

Mercer: Benefits Communication Foremost Solution in Turnover

Published by SAsmar on July 19, 2010 in Benefits, Economy, Solutions and for Employers. 0 Comments Tags: , , , .

Benefits communication used to engage and retain employees as economy improves

Mercer recently announced the results of their Attraction and Retention Survey, covering over 320 employers this year. These are their most valuable findings:

Better economy means higher employee turnover. As the economy and job market continue to improve, 62% of companies think employee turnover will increase as well. When employees have more options, they are less likely to be loyal unless their company puts effort into keeping them.

Companies are expanding again. The economy is picking up and so is hiring. Nearly all companies surveyed are hiring. In fact, only 3% are reducing their workforce. Nearly one-third (27%) of companies are expanding, up from 12% shown in the 2009 Unprecedented Times Survey. This is a clear sign of companies’ confidence in the economy.

Companies are concentrating on engagement to retain employees. Employee engagement has increased in 47% of companies in the last 12-18 months, likely thanks to companies’ specific efforts. Engaged employees are less likely to stray and have higher performance levels, according to a Mercer principal. Retention is as important as expansion, when other employers can lure good talent away.

Benefits communication is the highest contributor to increasing employee engagement. Organizations have increased non-cash rewards as a means of retaining and engaging employees in the past 18 months. The reward most often used was benefits communication, which companies have used 27% more. Even as the economy improves, non-cash rewards serve as an important means of curbing turnover. Non-cash rewards are a good way of communicating confidence and appreciation for employees. It is also much cheaper to implement rewards programs than to hire new replacement employees. If employees don’t understand, value, or even know about these rewards then they won’t merit much. That’s why benefits communication has become such a vital resource for companies to keep employees engaged and loyal.

Financial Wellness for 2010 & Beyond – Plastic Revisited

Published by JS Wolff on February 2, 2010 in Economy and Financial Education. 1 Comment Tags: , , , .

Just last week, the Senate approved legislation increasing the federal government’s borrowing limit by $1.9 trillion.  When signed into law the federal government will be able to borrow more money than at any time in our country’s history, making our total national debt a mind numbing $14.3 trillion.  And this will only allow us to pay our bills through 2010!

Using credit for money

Putting this into perspective, according to the Heritage Foundation the federal government will take in an estimated $2.19 trillion of taxes in 2009.  Simple math tells us that owing $14.3T while collecting “only”$2.19T is not a recipe for fiscal health. So last week’s vote was essentially the Senate’s way of literally, passing the buck.  Recent groundbreaking election results indicate that American’s are telling elected officials to stop this madness.

But maybe leading by personal example is the best way to initiate national change. Instead of raising our personal credit card limits and unsecured debt as many Americans have done in the last decade; let’s consider taking a retro approach to plastic. Prior to the introduction of the binge inducing revolving card, the standard plastic issued was known as a “charge card”.  And now this concept is coming back.

What’s the difference? As opposed to revolving credit cards, most charge cards require payment in full at the end of each month.  If you can’t pay, typically a late fee is charged.  So while old habits are hard to break, after a few late fees you start to think long and hard before putting something in the shopping cart.

Charge cards can be less risky for both consumers and card issuers.  For the consumer, it’s obviously more difficult and painful to accumulate debt. Issuers like them because there’s less chance than with a revolving card that someone will be unable to repay them. There’s a much shorter leash.

So go ahead, buy anything you want and put it on the charge card, as long as you can pay for it by the end of the month. And then call your Senator to convey clear grass roots message…”I’m not buying stuff that I can’t pay for in 30 days, repeat after me!”

Rethinking the 401(k) Pitch

Published by JS Wolff on September 14, 2009 in Benefits, Economy, Financial Wellness and Investment. 0 Comments Tags: , , , .

For nearly 30 years, employees have been coached that the best way to save for retirement is to take advantage of tax deferred investing, most prominently through their 401(k) plans. This strategy has always been anchored in the hope that lower tax brackets await us during our retirement years. But current economic realities are causing many in the financial community to question whether tax deferred saving remains a healthy long term strategy for employees.

When 401(k) plans were first rolled out in 1981, the income tax rates and bracket structure were very different than today.    The top federal tax rate was nearly 70% and there were 15 different income tax brackets separated by just a few thousand dollars of income (See Tax History).  Given those conditions 401(k) contributions presented a great opportunity to both avoid high current rates and reduce W-2 income in the contribution year just enough to move into a lower bracket.  So it seemed like a double win, lower taxes in the contribution year and in the future, when the Plan was accessed during retirement.

Since 1981 the sustained effects of “Reaganomics” led to a steady decline of both tax rates (highest federal bracket from 70% to 35%) and the number of brackets (from 15 to 6). During this period, with few exceptions, the US economy experienced robust economic growth.  401(k) Plans got even better as a result. To attract and retain employees, employers with healthy bottom lines began to offer generous matching incentives linked to 401(k) participation.

But the length and depth of the current recession is now changing the outlook for today’s 401(k) savers in two significant ways. First and most importantly, the government funded stimulus packages and propensity to grow overall government spending must be paid for at some point. This future “balance due” can only offset by higher taxes or a devaluing of the dollar (inflation).  The second effect of the current recession is that many companies have cut back or eliminated matching 401(k) contributions.

So the question for the employee now becomes, “if I no longer receive any company matching, and I may have to pay higher taxes on withdrawals in the future, is the 401(k) still the right way to save?”

Enter sound savings principles and the Roth 401(k) to the rescue.  Match or no match, automation and consistency are two key factors in any saving’s strategy.  401(k) plans are still great because the money is automatically deducted from every paycheck before it can get spent.  The recently introduced Roth 401(k) addresses the more daunting issue of higher taxes in the future by allowing after tax contributions now and tax free retirement withdrawals in retirement.

So rather focusing on the now suspect virtues of tax deferral, maybe it’s time to pitch the 401(k) as primarily a great way to save, period.  Wise portfolio allocations and a balanced approach between the Traditional 401(k) and the Roth 401(k) will address the constant winds of change that remain outside of the investor’s control.

Financial Wellness and Unintended Consequences

Published by JS Wolff on June 8, 2009 in Economy and Financial Wellness. 0 Comments Tags: , .

If my brother-in-law was lined up with 10 people and you were asked to pick out the economist, he would be easily identified. In the 35 years I’ve known Mitch, he has never cared a lick about the clothes he wears or the car he drives.  There is no pretense or image thing going on whatsoever.  He’s just a solid, albeit quirky guy who happens to be intellectually brilliant. And doing things his own way,  he retired early, owns a free and clear home in beautiful La Jolla, CA (my sister’s influence) and accumulated a fair amount of wealth, while never wavering from his extreme aversion to risk.

Since I’m in the financial education business, you can imagine that our conversations have touched on current economic events from time to time. He generally replies like the university professor he once was, exploring all the possible outcomes and remaining specifically non-committal. However, I was a little surprised by his very direct response to my most recent question…”What will be the most pronounced effect of the government’s stimulus package?”  “Inflation”, he replied.

While we don’t always agree, I totally concur that the recent government bailout actions will have inflation as their unintended consequence.  And if we think that a 40% market correction is bad, couldn’t a 40% devaluation of the dollar create the same effect?  The principles I learned in Econ 101 taught me that you can’t just print trillions of dollars and inject them into an economy without devaluing the underlying currency.  And it even feels more intuitively uncomfortable that we are using this “monopoly money” to buy assets that nobody else wants.

As Warren Buffet stated last month when commenting about where the bailout resources will come from, “I haven’t had my taxes raised,” said Buffet, “My guess is the ultimate price will be paid by a shrinkage of the value of the dollar.”

There are recent examples of country’s running into problems in this same way. In the early 90′s, the Yugoslavian government ran a budget deficit that was financed by printing money. This led to a rate of inflation of 15 to 25 percent per year.  The numbers actually got worse as they were dealing with other problems like socialism and rampant corruption… that are hopefully not part of our future.

Please hear me clearly, I don’t think the government should have stood idly by while the markets were imploding and institutions were failing at an alarming rate last year.  But for main street folks like you and I, it’s a good time to be thinking about measures to combat the potentially devastating effects of inflation.  Warren, Mitch and I are apparently not the only ones who are on this track. You may want to peruse this Journal article to learn more about some inflation fighting “vitamins” for your personal consumption. 

Financial Wellness and Home Ownership

Published by JS Wolff on May 31, 2009 in Economy and Financial Wellness. 0 Comments Tags: , .

There’s a difference between reading about the national housing crisis in the newspaper and actually seeing one of your neighbors lose their home. That’s just what occurred two doors down from us.

My neighbor, a hardworking guy with a nice family did what he thought was the right thing at the time. After all it was 2004 and with local real estate prices spiraling upward, it seemed to him that it was now or never to own a piece of California real estate. He plunked down most of his savings for the down payment and fatefully was directed to an “option ARM mortgage” (which as early as 2006, were referred to in Business Week as a “nightmare mortgage“).  In addition, he didn’t quite have enough for the down payment and borrowed the remaining amount from a family member.

All was going according to plan. The following year, the home’s value had escalated and he tapped a home equity line to pay back the family member and consolidate a few other bills. But just a few years later, the perfect storm of 2008 arrived.

By the time the dust had settled, not only did they owe more than the home was worth, gone were the low payments which marked the first five years of his “creative” mortgage plan.  If he wanted to stay in his home which was still dropping in value precipitously, it was going to cost him another $1000/month.  He literally handed the keys back to the bank.

For every disturbing story like this, there are many out there who will vehemently make the case that home ownership has been vital to the growth of their personal net worth. Yet, as I previously suggested in the midst of the stock market meltdown, the best time to study an asset class is when the thrill is gone, or at least on pause.

There have recently been some astute articles which challenge the validity of viewing our homes as long term wealth builders. Notwithstanding that housing prices nationally have reverted to 2002 levels, the question is, should I see my home as an investment or merely a great place to live? Last week Wall Street Journal Columnist, Brett Arends, concluded that, by his calculations, the real return on buying a home is lower than buying government bonds.
Over the years, anxious young homebuyers told me that they were justifying their home purchase because taxes were eating them alive.  Homeownership was a wise move because the tax deductibility of their new mortgage interest was going to net their payment to the near equivalent of renting.  Their logic was flawed by a significant omission…property taxes. In fact, I have calculated for many, at least in California, that the mortgage interest deduction benefit is just about totally offset by the annual property tax expense.

Sounds like I am anti-homeownership, but the truth is, I own one.  But having lived 19 years in the same house (not really the same house, we gutted the place 8 years ago and added a 2nd story), I have learned that, just like stocks, the residential real estate market is cyclical.  I’ve just talked myself into not caring.  It’s been enough that our house has served as a stable headquarters for the wellbeing of the family. With respect to its monetary value, let the chips will fall where they may, if and when we ever move.

What’s in Your Financial Constitution?

Published by JS Wolff on May 25, 2009 in Economy, Financial Education and Financial Tools. 0 Comments Tags: , .

Voters in the state of California spoke loudly and angrily last Tuesday. After years of convoluted budget fixes, exotic borrowing schemes and skirting tough issues, Californians just said “no” to another series of band-aid fiscal ballot measures that just seemed like more of the same. Voter frustration has risen to such new levels that now there is even a movement to completely rewrite the State’s constitution to prevent the politicians from operating like credit drunk consumers.

“No Gold In State” was the title of this week’s article about California in The Economist magazine.  The article chronicled, “At one point during his desperate campaign for six ballot measures meant to reduce California’s gaping budget deficit, Arnold Schwarzenegger, the governor, pleaded with voters not to make California ‘the poster child for dysfunction.’ But on May 19th they did exactly that.”

The sludge-like layers of complexity that have become the California budgeting process all seem rooted in the inability of politicians to grasp the flow of money….basically economics 101.  And yet, when was the last time we heard someone running for office talk about their financial education or their qualifications for office because of their responsible economic track record?

Setting better boundaries by rewriting the State’s constitution may be a good start but I’m thinking our future depends upon something a little more homespun.  Let’s get this money thing right in our families. First, raise financially responsible kids and then later as adults we can send them off to run the government.

So parents, consider rewriting your family’s “constitution” to lend the same emphasis to money smarts as you do reading and math smarts. And the sooner, the better.  Scores of college kids get bushwacked by loans and credit card debt before they even graduate. A study conducted by The Project on Student Debt indicated that nearly half of all graduating college seniors enter their careers with 5 digit debt.

Helpful websites are popping up that simulate real life money situations and are targeted at the younger set.  A good example is Savings Quest which looks like it’s directed at the pre-teen – teen crowd.  In a colorful, narrated eLearning format, it walks the viewer through choosing a job, building a budget and saving for both short and long term goals. And importantly, even though it sort of feels game-like, the choices and resulting consequences can create some real life feelings.

Did I think it’s appropriate for pre-teen to teens? Sounds about right for those legislators in Sacramento.

Have Financial Baggage?

Published by JS Wolff on May 18, 2009 in Economy and Financial Wellness. 0 Comments Tags: .

A few weeks ago I referenced the “Miracle on the Hudson” and how Captain “Sulley” Sullenberger’s Flight 1549 heroics can guide us during financial emergencies. You may recall that Sullenberger safely landed a commercial airliner on the Hudson River after hitting a flock of geese and losing both engines. I was intrigued by his success enough to study a few of the attributes that led to this amazing outcome.

All of us have baggage, some good and some not. Sulley packed incredibly good baggage for Flight 1549.  In his bags were years of serious and specific training. While he had no idea of how the events would unfold, the resources he packed proved perfectly suited for the situation. When the engines blew out two minutes into the flight, Sulley drew upon among other things:

  • 42 years of pilot training, he obtained his pilot’s license at age 14
  • an Air Force military jet fighter background
  • glider pilot experience- the US Airways airliner was essentially a glider after its total power loss
  • he was a flight safety expert – Sulley operated a flight safety school and had personally studied emergency cockpit behavior under stress.

In his own words… “One way of looking at this might be that, for 42 years, I’ve been making small regular deposits in this bank of experience: education and training…and on January 15, the balance was sufficient so that I could make a very large withdrawal.”

Financially speaking, 2008 was a wakeup call giving us insight into some of our baggage.  As it happens with almost any sustained market run up, the ascent that occurred from 2004 – 07 seemed readily sustainable.  The tech bubble was in the rear view mirror, a distant memory.

But while pilots like Sullenberger spend 80% of their post-licensing training simulating emergency situations, we tend to learn little from past financial 911′s. Anxious to make up the losses from the last crisis, at the first break in the clouds we open up the throttle and let her rip down the tarmac once again.

Maybe going forward we can learn to leverage some our experience to navigate a soft landing the next financial crisis. The first and most important step is to realize that it will happen again.  Perhaps keeping a percentage of our assets in a tax advantaged, conservative position equal to our age is how we should pack our investment bags going forward.

Historical Worst Case Financial Planning

Published by JS Wolff on May 12, 2009 in Economy and Financial Education. 0 Comments Tags: , , .

I’ve talked to some pretty nervous investors recently…even with this latest uptick they’re not sure if they can ever trust the stock market again. With their fears being totally understandable, I decided to research an historical worst case scenario to help them evaluate the length of time they needed to be in the market to be reasonably assured that they wouldn’t  lose money.

This was accomplished by portraying someone who had decided to invest in the stock market just before the onset of the The Great Depression.  If we could ascertain how long it took this unfortunate soul to get their money back including the worst market years ever experienced, then it may be helpful to of us who are nervous to get back in the game.

First let’s look at some the characteristics of the Depression era market.  Interestingly, in the three years after the initial sell-off, there were five “bear market rallies” where the market rose more than 20%. All of these stock market highs were higher than the previous highs, and the following lows were lower than the previous lows.

So this must have been really frustrating and disorienting. Adding to the disorientation is that an average investor lost 35% of their assets six different times is the same three years.  Tragically, the final damage after all was said and done from 1929-1932 was a loss of over 90%!

Looking at this historical worst case, if someone had the great misfortune of buying into the market just before 1929 crash, it took someone about 10 years to get back to where they started. There have also been some great 10 year windows in the last 100 years. For example, there have been three 10 year periods that have produced annual average rate of returns of +18%.

Contrast this with an investor getting in just before 1929 but had only had a 5 year horizon, their average annual return would have been a loss of 16.4% per year!

So for those of us who want to make market decisions based upon the historical worst case, we might want a window of no less than 10 years as a minimum “time in the market” to feel comfortable we have little chance of getting out less than we initially invested.

Sleeping Financially Well

Published by JS Wolff on April 21, 2009 in Economy and Financial Wellness. 0 Comments Tags: , , .

According to the 2008 American Psychological Association’s Stress in America survey, money is often on the minds of most Americans. In fact, the results revealed that money and the state of the economy are two of the top sources of stress for 80 percent of Americans. And symptomatically, one third of Americans reported losing sleep over the economy and personal finance concerns, according to a recent poll by the National Sleep Foundation.

Know that we have a problem and understanding what to do about it are miles apart… and even further removed can be actually changing our behavior.

Some believe that we should start making better financial citizens before they enter the workforce. Sharon Lechter, a member of the President’s Advisory Council on Financial Literacy is on a mission to see that every student receives some form of financial education. Her goal seems closer with the recent introduction of a Congressional bill that would require every college and university receiving federal funds to provide a four-hour course on financial literacy.

This strategy and may provide much needed money sanity for the next generation and prevent future financial meltdowns, but what about those of us who don’t have time to go back to college? Let’s get real simple…

In last week’s entry we talked about four buckets of money

- Essential, Now (less that 5 years)
- Non Essential, Now
- Essential Future (more than 5 years)
- Non-Essential Future

This week’s post addresses why did I selected five years as the tipping point between now and later. It has to do with the trust level I have for where I park the money and how much chance is there to lose it versus the opportunity for growth.

For example, there is historical evidence that I can’t trust the stock market to park my money for less than a 5 year period. To illustrate, let’s take a quick look at the best and worst stock market periods over 1, 5, 10 and 20 year periods.

Best Worst
1 Year +61% -39%
5 Years +30% -4%
10 Years +18.5% -1%
20 Years +18% +5.5%

Although this data is historical and not necessarily a predictor of future market activity, there is a huge difference between the 1 and 5 year swings. While I’m not willing to take the possibility of a 39% loss for money I need in the near term, the risk of a 4% loss over a 5 year period seems more palatable.

So how does this help me? Concluding that exposure to the stock market will only be for money uses outside of the next five years, I can concentrate on more conservative vehicles for near term needs and wants… and be one of the poll respondents who actually can get a good night’s sleep.

Beyond Financial Literacy

Published by JS Wolff on April 13, 2009 in Economy, Financial Tools and Financial Wellness. 0 Comments Tags: , , .

Turns out April is “Financial Literacy Month” and the National Foundation for Credit Counseling is weighing in by releasing the initial results of their third annual Financial Literacy survey. As this is currently a hot topic nationally, Congress will be briefed with the full report later this month.  They will hear, among other alarming statistics, that fully 41% of respondents gave themselves a grade of either “C, D or F” when it comes to understanding money and/or making good money decisions.  We are definitely not making the Dean’s List here.

So what’s the problem? Evidence suggests that economic and financial stress is damaging health across gender lines but apparently affecting women to an even greater degree. According to 2008 American Psychological Association’s Stress in America survey more women than men (84 percent to 75 percent) expressed fear about the economy, and many reported new physical and emotional symptoms, such as headaches, irritability, insomnia, fatigue, overeating and chest pain.

With this kind of evidence, why aren’t we more proactive in preventing this stress from taking such a toll on our health and wellbeing? We know that the medical side of the health/wellness movement took a dramatic turn as they discovered it was both healthier and less expensive to prevent disease than to treat it after onset. Similarly, ask anyone who has ever tried to dig themselves out of a financial hole, it is always more stressful and expensive to dig out of a money pit that stay out of one in the first place.

I’m convinced that much of the problem can be attributed to a couple of reasons…first, there’s too much financial information for us to process and secondly, the communication of money concepts are often overly complicated.  In the past few weeks, I have been discussing pros and cons having tons of data within clicking distance.  Information, and even education, is only valuable only if we have a simple way to determine its relevance to our personal situation and forge a confident, clear path toward decisive action.

So taking off from last week’s example where we looked breaking down a complex topic like Estate Planning by forming a few simple, high level questions, let’s consider something similar for managing money in tough times.

The big picture money questions in tough times are:

  • Do we need money for an essential expenditure or a non-essential expenditure?
  • Am I going to spend within the next 5 years or beyond the next 5 years?

I will explain the five year timeframe in the next blog, but with these simple questions we can create four buckets of money and form very straightforward action plans for each. The four buckets are…

  • Esssential, Now (less that 5 years)
  • Non Essential, Now
  • Essential Future(more than 5 years)
  • Non-Essential Future

Next week… walking through simple money management strategies for each of these buckets.