Well-a, beat the drum and hold the phone,
The sun came out today.
We’re born again, there’s new grass on the field.
A-roundin’ third, and headed for home,
It’s a brown-eyed handsome man,
Anyone can understand the way I feel.
Ooooh –
Put me in coach, I’m ready to play today
Put me in coach, I’m ready to play today
Look at me, I can be, Centerfield
John Fogerty, Centerfield
OVER THE last few days, the weather has finally turned warm here in Israel, a sure sign of spring. Another sure sign? Baseball is back and it’s “Opening Day.” For all of you baseball fans out there, nothing compares to Opening Day. It means a new season where, for a day or two, everyone has an equal chance of winning the World Series. Optimism reigns supreme. Here in Israel with all that we have gone through these last six months, we sure could use a healthy dose of optimism. Forget about the last-place finish last season and focus on this year’s potential. It’s also a sign that summer is right around the corner.
Reality bites
What does the beginning of the baseball season have to do with your finances? Well within a few weeks, for most teams the optimism fades, reality strikes and it’s back to “waiting ‘till next year.”
A few years ago Charles Schwab surveyed young people’s approach to money. The results showed that they are both very optimistic and very unrealistic as to their finances. Carrie Schwab-Pomerantz writes: “While more than 80% of young people surveyed saw their parents experience financial hardship during the recession, 76% believe their financial future will be better. The behavior of this same group isn’t so positive. Average savings is a pretty impressive $1,600 but unfortunately, average debt is more than $8,000 – with Millennials saving only 15% more than Gen Z while accruing 169% more debt.”
The two stats don’t quite compute because creating a secure financial future means managing your money wisely in the present.
A few other misconceptions are also cause for concern. For example, according to the survey, young people expect to retire at age 60 – seven years before they’d be eligible for full Social Security benefits (and ten years before they would get the largest payout). Plus, more than half believe they’ll receive an inheritance from their parents, which is increasingly less likely with longer life spans.
Eric Reed of Smart Asset writes, “On average, American households inherit $46,200, according to the Federal Reserve data. But this figure is inflated by top-tier wealth and belies the fact that many households inherit no money at all. Of those that do receive a bequest, most receive a small fraction of the average.
“The top 1% and 10% of households by wealth receive so much that their estates pull the average up. This creates the impression that many, if not most, households receive a comfortable nest egg. Very few do. While less than a third of all households inherit any money, between 70% and 80% of households receive no inheritance at all.”
Turn bad into good
Not everything in the survey was bad. One issue that stuck out was their desire to learn about money management. The fact that they don’t believe that they know all that there is to know about managing money is huge. It means that with the right education, there is plenty of time to right the ship and get them on the path to financial security. I would suggest a few tips to turn their optimism into something productive.
1. Discuss your money mistakes
We all make mistakes, and our kids are the first ones to notice. As such, turn those mistakes into a teaching moment. Discuss one or two things you did that were costly and admit that you screwed up. Have your kids participate and have them figure out what the mistake was and how to rectify it.
2. Have them set goals and make a plan
I am constantly writing about the importance of defining your short- and long-term goals and then creating an investment plan to achieve those goals. Do the same thing with your kids. Have them define something, financially, that they would like to accomplish and have them map out their plan, with your help, to achieve the goal.
3. Education
This goes for everyone. Keep reading about financial management. There are always new tools available to make life more efficient that can translate into a lot of money earned/saved down the road. It’s certainly okay to keep the basic principles of no debt, living within your means, and saving and investing, as your guiding light. But stay educated as to all the new information available.
Let’s use optimism, before reality strikes, to get them on the path to financial independence. It’s a win-win: They become financially secure, and we don’t need to support them.
Play ball!
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com, or email aaron@lighthousecapital.co.il.