Archive for the 'Economy' Category

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The Data Invasion and Financial Health

Published by JS Wolff on March 30, 2009 in Economy and Financial Education. 0 Comments Tags: , , .

Seems like a repeat question that keeps coming up in my financial wellness sessions is, “what was different about the Great Depression than what we are experiencing now?” How about for a start…communication and data!

On January 27th, 1927, two years before the US economy fell off a cliff, inventor Philo T. Farnsworth applied for a patent that is now considered the official birth date of the television. Because this medium was still in its infancy in 1929, radio and newspapers were the only tools with the ability to reach the masses. But as we know, all of these mediums are only good for moving information one way.

Consider October of 1938, when the voice of actor Orson Welles was heard over the radio as he described a devastating Martian attack on the earth in the now infamous “War of the Worlds” broadcast. Over 1 million people, 20% of the listening audience believed this was actually occurring and literally panicked, some even contemplated suicide.

Probably not likely to happen in today’s www.world . If Orson tried to throw that same spiel our way, instantly, we could access vast resources and communities to verify that the Martians never left Mars and assure us that we will live to fight another day. Likewise, doesn’t the Web put us in a much better position to battle our way through this current economic invasion? Yes and no.

According to comScore Marketer, searches for several terms related to the economic downturn showed dramatic gains during the past year. Among the most notable increases were searches relating to the deteriorating job market, including searches using the term “unemployment” (up 206 percent to 8.2 million searches) and “unemployment benefits” (up 247 percent to 748,000 searches). Meanwhile, terms relating to personal asset situations, including “mortgage” (up 72 percent to 7.8 million searches), “bankruptcy” (up 156 percent to 2.6 million searches), and “foreclosure” (up 67 percent to 1.4 million searches) also grew strongly.

So I decided to throw myself on this pile and did a search on the word, “mortgage” Up popped a short list of 172 million entries. So yes it was helpful that I could access topical information so quickly, but on the other hand, without some way to filter this stuff, am I really that much further ahead? I don’t know about you, but I am not energized by 172 million options, quite the opposite, like those in 1938 who ran from the imagined Martian attack, I start to run for cover.

But all is not lost…this is an opportunity in all this. The key is to be equipped with some simple, personal financial frameworks that help us quickly sift through information and facilitate sensible decision making in good times and bad. I will cover some ways to get this done in my next entry.

Financial Health and Toxicity – Mutually Exclusive

Published by JS Wolff on March 23, 2009 in Economy and Financial Wellness. 1 Comment Tags: , , .

This week the government announced a new plan to rid the financial system of so-called “toxic assets”, a general term for assets that have exposed their holders to large losses. It is these assets that have paralyzed both the credit markets and the investor community from moving forward because, to date, no one has been able to determine the extent of their poisonous reach. So to restore some semblance of confidence, the government is proposing to build an entity to capture, hold and somehow try to sell these blemished instruments.

It looks like their overall framework for economic recovery encompasses two strategies. First, remove these black hole assets from institutional balance sheets to facilitate systemic solvency, focus and confidence. And secondly, refine the regulatory environment to support prudent lending practices going forward.

While no one’s sure if these measures will ultimately work…I do buy into the framework. It’s both reactive…dealing head on with the current crisis and proactive…creating an environment where it is less likely to happen again.
At a more personal level, there are certainly indicators that economic toxicity is trickling into our workplaces.

Early this year, the Society for Human Resource Management (SHRM), surveyed its members and confirmed the effects of economic stress.  In the previous 12 months, members had seen a 26 percent increase in employees having their wages garnished by collection agencies; a 39 percent increase in requests for 401 (k) plan loans; a 20 percent increase in requests for pay advances; and a 14 percent jump in employees reporting having lost their homes.

This is obviously not just somebody else’s problem. I recently asked a Fortune 1000 SVP of Human Resources if she believed the money worries were affecting the productivity of her workforce. Her response was swift and direct, “absolutely… I have no doubt that we are being negatively impacted.” And just as swiftly she has recently led her company to install a cutting edge financial wellness program. With this kind of win-win leadership, it’s no wonder that they are consistently named on all those “Best Places to Work” lists.

A Personal Stimulus Package – Sanity and Financial Health

Published by JS Wolff on March 16, 2009 in Economy, Financial Wellness and Investment. 1 Comment Tags: , .

They are telling us that, after months of horrendous news, hints of a return to economic stability created sustained euphoria during last week’s market run-up. The word sustained is used loosely here…it means more than one day. Some large and previously battered financial companies, namely Citibank, Bank of America, and JPMorgan Chase reported that were profitable during the first two months of the year. And, investors all over the globe, who are still licking their wounds after being pummeled by the same market that ruthlessly hacked their personal wealth, now want to quickly make up their losses by getting back on the same airplane that essentially crashed in stormy weather.

Well, maybe it’s time for a sanity check. Have you ever talked with someone who lived through the Great Depression? If you ever get a chance to do so, it’s enlightening. My dad, who was 7 years old in 1929 was the son of a very prosperous retailer, Walter Wolff , whose department store occupied nearly an entire city block in downtown St. Louis. My dad clearly remembers housekeepers, nannies and drivers…in other words, a very privileged life. And from his recollection, it was all gone in a day.

It’s interesting that once a commercial pilot qualifies for his or her license that, from that point forward, about 80% of their training time is spent on simulating emergencies and only 20% on normal flying activities. Maybe it’s time that instead of blindly jumping back into the market on the first and maybe fleeting bit of good news, that we consider the lessons learned over the past 14 months and compose a more “all weather” plan. The airplane we call the stock market may be capable transportation for very long distances but, as we have found, for shorter journeys, not so much.

The Current Chaos and Personal Financial Health

Published by JS Wolff on February 22, 2009 in Economy, Financial Tools and Spending Habits. 0 Comments Tags: , .

These days as I slog through my daily Wall Street Journal, by the time I get to the lone cartoon buried somewhere in the back of the paper, I feel like I have been mauled by dozens of bears. What’s scary is that I am now almost numb to the pain because the daily mauling has been going on for well over a year. The Wall Street whispers of, “stay the course” and “invest for the long term” are ingrained in my thinking but it’s hard not to feel that what is going on now is different than the downturns of the past.

For whatever transgressions or chain of events we now have a scenario where the government is moving into an unprecedented roll of intervention. The Wall Streeter’s and major US businesses are being treated as naughty school children who were given too many toys, misused them and grew exceedingly selfish. Now the well-resourced head master who, by the way, has never worked in the real world, is coming on scene to set things straight and make sure that these naughty children are transformed into model citizens of the business community and, of course, run model businesses. I’m struggling with how this is going to work.

With so many economic concoctions that have never been tried before along with the unfathomable quantities of dollars being injected into the system, it seems that consumers are responding by running for cover. Some of this is actually good. US household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008. In the same quarter, U.S. consumer spending growth declined for the first time in 17 years.

What’s happening here is that we are looking at life differently from a financial perspective. Often, when conducting a corporate financial education course, I encourage the class to categorize their spending habits in very simple ways, rather than working for hours on a detailed budget, which most find less sustainable than a diet. I suggest that, for two months, they note each expenditure with either an “E” for essential or “NE” for non essential. These respective stacks are typically quite revealing and may lead to discovering more about what I call your “Financial Persona”.

For example…

- How you define the word, “essential” when it comes to your spending habits? This may change over time if it hasn’t already.

- Shifting through the non-essential stack, which of those items add significantly to the enjoyment of life and which do not.

- Do you see any opportunities for changing or reprioritizing the contents of the respective stacks?

To put this exercise in context, given what we don’t know about what may be in our economic future, you may want to strongly consider building up a cash account that is equivalent to 6-8 times the sum of the “E” stack. That is, if you find it “essential” to get a good night’s sleep.

Facing the Fear Factor

Published by JS Wolff on January 23, 2009 in Economy, Financial Education and Financial Wellness. 0 Comments Tags: , , , .

In all my years of being hanging around with professionals that consider themselves to be financial experts, I’ve never found anyone who could provide a logical explanation for how and why markets move in one direction or another? But it seems that either a general climate of confidence or fear are certainly leading indicators.

For example, it is interesting that the markets pay close attention to a concept that is anything but logical or analytical. It’s called “consumer confidence.” Webster’s dictionary tells us that confidence is “a state of confident hopefulness that events will be favorable.”

As I write this entry, consumer confidence is challenged. In fact, on January 20th, ABC News released its weekly index on consumer confidence in the United States. In the last week, the Consumer Comfort Index fell to -53, from -49 in the previous week. The index ranges from -100 to +100 and its record low is -54, reached in the week to Dec. 1, 2008.

While this may seem like the bleakest of times, the need to communicate confidence to your workers has never been more important. It’s time to find innovative, not necessarily expensive, ways to instill confidence and clarity. With the collapse of Wall Street, plummeting real estate values and the general uncertainty of our economic system, staying focused at work becomes more challenging every day. Especially for those who have nagging questions about money issues and whether or not they will be ok.

In response, many HR and Benefits professionals have integrated leading edge financial wellness programs to help de-stress their employees during these tough times. In fact, a recent survey of employers conducted by the International Foundation of Employee Benefit Plans found that 43% of U.S. respondents offer financial education literacy programs for their workers.

Decisions like these speak to being proactive, playing offense…not just defense. They are decisions that confident HR/Benefits leaders make when the workforce is battle weary and distracted.

In his inaugural address, our new President alluded to such leadership in our first President, George Washington whom he quoted…

“Let it be told to the future world…that in the depth of winter, when nothing but hope and virtue could survive…that the city and the country, alarmed at one common danger, came forth to meet [it].”

What is Financial Wellness?

Published by JS Wolff on November 17, 2008 in Economy and Financial Wellness. 0 Comments Tags: .

We all have a pretty good idea about what it means to be physically and mentally well. While we may not be perfect physical specimens, aside from the typical periodic aches and pains, everything is working reasonably well and we are able to handle even the unpredictable events that each day brings. For some, being financially well could mean doing lunch with Warren Buffet on the Learjet next week. For the rest of us Financial Wellness could very simply mean…that we are prepared. And when you think about it, most personal money diseases occur because, for whatever reason, we are not.

The definition of prepared is, “made ready or suitable beforehand”. When I was younger and in Boy Scouts (their motto of course is “Be Prepared”) this always felt like I needed to be prepared for being lost in the woods and knowing how to start a fire with a piece of flint. No question, this is great stuff to know but I haven’t been in the woods too much lately.

As I moved through life, the concept of being prepared actually became linked to enjoyable events. For example, taking our kids to Disneyland was a lot more fun when we had the money for the trip in the bank, the family vehicle had been well maintained and ready for the 300+ mile drive and we had an ample amount of vacation days to keep our income flowing while away.

While the economic times that are upon us may feel for some of us like we are lost in the woods, it is a great time to assess our Financial Wellness. Were we prepared for the Wall Street curve balls of the least 12 months? Did our short and long term money plans hold up well under stress? In fact, are we in a position to prosper, potentially acquiring bargains when everyone else is headed for the exit?

Hmm… about that lunch with Warren.