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Monday Money Report

| February 27, 2023

The stock market has seen its shadow, and we’re in for continued volatility. While inflation is still coming down, it’s not declining as fast as analysts predicted. This makes it more likely that the Federal Reserve will increase rates not by the expected quarter of a percent in March, but by an additional quarter of a percent in May as well. On the flip side of this gloomy news, the S&P 500 is still up year to date, and on a two-year basis.

Something that does affect us all beyond just market returns is financial literacy. As a country, we have failed, and failed abysmally, at teaching financial literacy. And what’s worse, is that the areas we need to know about keep increasing. It used to be that you worked somewhere your whole life, maybe you had a savings account, and retired for a few years with a pension and Social Security.  If you had health insurance, you had one option. Mortgages were pretty basic, too.  And now? It’s a full-time job for me to know what I know about all of these things. 

This means it is more important than ever to teach your children how money works. We offer classes here at CovingtonAlsina starting in fifth grade. But you can start even earlier. When you go to the grocery store, show your kids how you plan meals, and comparison shop. Teach them about price per ounce or unit as a way to compare two boxes of cereal. When the property tax bill comes in, explain it to them.

If you still have a checkbook, and your kids need a check for a field trip or activity, have them write out the check and bring it to you for signature. Teach them how to endorse and deposit checks. When they start to drive, review all the things that impact driving: gas, maintenance, insurance. Explain deductibles.  You can do that with health insurance as well. Sit down with an Explanation of Benefits, or EOB, and walk through how health insurance works.

Even more importantly than all of this is talking with your kids about limits around money. That money is limited, and you make choices about how you spend it, which is called a budget. We can afford this or that, but not this and that. Or that, yes, you could do that, but you have chosen to fund college accounts instead. Every time you spend money, you are making a choice.

Sometimes, you can involve the kids in a goal.  Maybe you want to take a big trip, or buy a boat, or make a large donation to a charity. Put up a picture, thermometer, or some other visual.  Each time you as a family decide not to spend money on something, transfer it to the savings account for the goal, and color something in on the picture. We came home after sports practice instead of stopping to eat.  We decided not to buy something.  Let them see how small spending, or small saving, can add up.

Once your kids are 14, or are working, it’s time for them to open a Roth IRA. We start young for a few reasons.  First, it lets the money start compounding that much sooner. Second, it starts the five-year clock for tax- and penalty-free withdrawals of principal. Third, if they can absorb early on the power of saving 10% of everything they make, they will have a huge advantage in life.

Your action item this week is to increase your savings per-paycheck. Or, if you are paying down debt, increase that monthly amount.  Even $5 or $10 can add up over time.  

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Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, contact the appropriate qualified professional prior to making a decision.