Archive for the 'Financial Wellness' Category

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The $4.5 Billion Productivity Drain – Employee Financial Distress

Published by KKitani on August 10, 2009 in Financial Wellness and for Employers. 0 Comments Tags: , .

A recent BusinessWeek article “Helping an Employee in a Personal Financial Crisis” had a number of eye-opening estimates about the effect of financial distress on employees and employers.  The article sites the Personal Finance Employee Education Foundation estimating the cost of personal financial woes to corporations at $4.5 Billion annually and a Chicago consultant estimating a financially unstable worker can cost a company as much as $480 per month.

As a company focused on improving the financial health of employees, it’s good to see BusinessWeek covering small business examples, as it shows the depth of the problem.  While larger companies like IBM, Pepsi and Home Depot have received good press coverage over the past few years for their financial education and literacy programs, smaller companies are also taking notice and implementing programs.  I think this section from the BusinessWeek article sums it up the problem well:

As the recession grinds on, more companies find themselves managing workers facing personal financial crisis. And while employers like Humanix treat workers like family, taking care of them makes business sense as well. “I don’t want to make it Pollyanna,” says Humanix’s Nelson. “If an employee has a stressful financial situation at home, they’re not going to be fully engaged in their job.”

Raising Financially Responsible Kids Accidentally

Published by JS Wolff on July 6, 2009 in Financial Education and Financial Wellness. 0 Comments Tags: , .

Recently after conducting a financial education workshop for a high tech company, a young lady in her early 20’s wanted to get together to discuss how she could retire early. She had seen an infomercial that described the beauty of passive income and decided it was her ticket to an early exit.

Unfortunately, just after learning of her financial ambitions, she informed me that she had maxed out several credit cards and financed two cars (one for her boyfriend) to the tune of a significant five digit debt.  Even though she was making a good salary as a Human Resource professional, she was unable to pay her monthly bills and had stopped contributing to her 401(k).

Further, responding to the stress, she had just contracted with a credit repair outfit (another TV ad) to whom she had already paid $1,500 for services she was unclear about.  The only thing she knew was that the $1,500 somehow did not offset any of her debt.  Needless to say, it didn’t seem like passive income was going to happen anytime soon.

I wish I could say that I was a perfect dad when it came to teaching my kids about money, I wasn’t. But it looks like my three 20-something kids are avoiding the financial sabotage described above. In hindsight, I think the best idea we transferred as parents was that you don’t keep it all for yourself.  And though none of this was premeditated, the encouragement to give money away resulted in several hoped for financial behaviors and character qualities.  To name a few…

  • Although we were inconsistent about doling out an allowance, our kids figured out ways to make money and still chose to give some of that away. Seemed like it was more meaningful to give money that they had actually earned.
  • Don’ think the word “budget” was ever mentioned but  they seemed to pick up the idea on their own…they only spent what was left over after giving so they had to think more intently about financial  trade-offs early on.
  • The practice of giving apparently drew their attention to needs outside themselves, two of them have spent time working with non-profits and third world countries.

This blog entry is as close to a “raising financially responsible kids” book as you will ever get from this me.  Anything good that happened was purely by accident. But the best part is that accidents can sometimes have surprisingly decent outcomes.  And, as you probably noticed, I think my kids are cool.

As a final thought in keeping with our recent celebration of Independence Day, Thomas Jefferson spoke to the younger generation of his day regarding the wisdom of maintaining personal financial freedom…

“But I know nothing more important to inculcate into the minds of young people than the wisdom, the honor, and the blessed comfort of living within their income, to calculate in good time how much less pain will cost them the plainest stile of living which keeps them out of debt, than after a few years of splendor above their income, to have their property taken away for debt when they have a family growing up to maintain and provide for.”

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.

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.

Listening to your Money and Financial Wellness

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

I’ve heard it said that you can tell a lot about a person by what they do with their wallet. In our life, I would say that’s pretty accurate.   A few years ago if someone went through our checkbook and debit card receipts, there is would be a pretty consistent pattern tracking what we value most highly.  Repetitive expenditures after essentials are traveling to hang out with our adult “kids”, charitable stuff and keeping my wife’s horticultural degree in bloom by regular visits to the local nursery.

After 2008, although our values didn’t change, it seemed time to be more intentional with our money.  While we didn’t want economic fear to dictate our lives the reality was, things were different. Both as a family guy and professionally, as a financial educator, I found myself wanting to reassess the foundations of my core money beliefs.

This led to researching and compiling four different tools to look at several personal financial indicators. And since collectively, the data really felt like a good reading of our financial vital signs, we started calling the suite of tools, “Money Pulse”.  Descriptions follow:

  • The Personal Financial Wellness Scale – Wanting to gauge our current level of financial stress we found this simple eight question survey authored by Dr. E Thomas Garman, a Virginia Tech professor.  The resulting composite score also benchmarks our results against national averages.
  • Risk Tolerance Assessment – most of us have done have taken one of these but we wanted to find one that was not associated with any financial provider.  We found one that was sort of fun to take and yet had a fairly deep scientific approach. It was developed by another Virginia Tech finance professor, Dr. Ruth Lytton at Virginia Tech and Dr. John Grable at Kansas State University.
  • Essential Spending – We use Quicken but it still can get complicated to track where our money is going. So we built a simplified spreadsheet that only provided two categories of expenditures designations …Essentials and Non Essentials.  We wanted to find out how little we could live on if need be and where we could save on non-essentials.  Hmm, in which column does a latte’ belong?
  • Dream Survey – With all this hunkering down talk is there do we have to give up our financial dreams? Good question but in the process of trying to answer it, we found out our money dreams were not very well defined.  So we came up with a few questions that prompted our thinking about a hoped for future …and chart a better course to reach our destination.

Going through the Money Pulse process required digging a bit deeper into our money beliefs and practices, but given that financial issues seem to weave into our lives on a daily basis, it felt right to better understand the story our money was telling us.

More About Sleeping at Night…a Personal Financial Stress Test

Published by JS Wolff on April 27, 2009 in Financial Education and Financial Wellness. 0 Comments Tags: , .

All of us have a distinct financial personality or what we call our “Money Pulse”, that is probably different than anyone else’s.  What you do or don’t do with your money in tough times says a lot about your core financial beliefs.  Often we get caught up in a herd mentality and we gravitate toward what others are doing. Consider Bernie Madoff and the famous people who invested millions without asking fundamental questions.  An economic crisis is not a time to follow the crowd…it’s a time to know yourself extremely well.

Very few of us have ever trained for or thought through a financial emergency…or any emergency for that matter.  My wife is a chaplain for the local county Sheriff’s department and through her experience, I have gotten a taste of what it means to be mentally and physically equipped for tough situations.   Last year, after 4 months of preparation, she was a part of the response team at a simulated school shooting.  Everything was planned to look like a real event.  Yes, it’s tragic that this kind of training is necessary and all involved hope they never have to use what they learned that day, but she is convinced that lives will be saved if…

Similarly, commercial pilots spend about 80% of their training time on emergency procedures. A recent example is the remarkable “Miracle On the Hudson”, where 155 airline passengers were saved in January due to Captain “Sulley” Sullenberger’s superior preparation and crisis management skills.  Sullenberger drew upon four key attributes during that eight minute flight which we can borrow to help us manage our money in tough times.  More about those in upcoming posts.

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.

Financial Decision Support Frameworks – an Estate Planning Example

Published by JS Wolff on April 8, 2009 in Financial Education, Financial Tools and Financial Wellness. 0 Comments Tags: , .

Last week, I mentioned that two of the clear differences between our current economic crisis and the Great Depression are the interactive ways we now communicate and the staggering amount of data that is literally at our fingertips via the Web. Collectively these phenomena contribute to what I termed the, “data invasion”, meaning that, unless we have a way to filter, simplify, and personalize financial information we will probably not be much better off than they were in the 30′s… sort of dazed and confused.

In discussing the topic of Financial Wellness with the HR Director of a prominent Silicon Valley tech firm, she commented her employees had an almost universal reaction to the economic fallout of 2008… they were more or less frozen. That is, they didn’t know what to do, therefore did nothing and were financially stuck. In fact, she noted that they still are. This is precisely what happens when we don’t have a plan or framework to help us process the inevitable unpredictability of our financial life.

As a specific example, I’ll use what most of us would agree is a complex financial topic… Estate Planning. Responding to employee questions from corporate Estate Planning workshops over many years, common misconceptions about Estate Planning include that it only is a pertinent topic for wealthy people or that it is something that only needs to be addressed by the elderly. Both of these assumptions are just flat out incorrect and, of course, create barriers to take needed action.

So how can we build a simple Estate Planning framework that will help create the momentum we need to move forward? Start with the broadest questions. There are the three basic components that need addressing.

  1. Living Care – I’m still alive but I need care and management of my financial affairs
  2. Dependent Care – Whether alive or dead, I can’t care for those who depend upon me, who will and how?
  3. Assets – Who gets what and when?

These high level broad questions are the essence of Estate Planning and for that matter, building helpful frameworks. For example, if you don’t have documented, written answers to these Estate Planning questions, it is hopefully somewhat disturbing and should spur you to want to know the next steps. I recommend going one step further to own and internalize the required actions. How about, “whether alive or dead, I can’t care for my daughter, Tess… who will and how?”

Next week, a framework to help us with money management in tough times.