Sex, Politics, and Religion

There’s no faster way to clear a room or make people feel uncomfortable than to talk about sex, politics, or religion. These subjects are taboo to most, and they offer no middle ground. They’re polarizing topics, and in a non-politically correct world, they’re guaranteed to upset at least half of the people in your network. However, an issue more forbidden than the big three is money.

The Bible has over 2,300 verses on money-related issues, more than any other subject. God knew we were going to idolize money. He knew it would challenge us, yet we hardly discuss the topic.

Sex, politics, and religion are taught, at some level, in school. Most people probably have a working knowledge of all three subjects, not so with money. Schools have limited resources to teach kids about money, and when they graduate, their knowledge of finance is low. Credit cards, car loans, mortgages, investments, and retirement accounts are foreign and confusing concepts, especially if you have never been taught how they work.

Most of Generation Z is concerned about money as 51% of them are afraid “money issues will stop them from doing things,” and 42% of them have “unanswered questions about finances.”[1] Three-quarters of this cohort believe classes about managing finances needs to be taught in high school.[2] Despite the need, only a quarter of the students have taken any financial education classes.[3]

Financial literacy is another concern. According to the National Financial Educators Council, 54% of college students had overdrawn bank accounts, and 81% underestimated how long it would take to pay off a credit card. 70% of parents are less prepared to talk about investing than they are about having the “sex talk.” [4]

Student loan debt is another sign students and parents don’t understand money-related issues. Currently, student loan debt stands at $1.5 trillion, so it appears several of you aren’t saving enough money to pay for college or discussing the pitfalls of accumulating debt.

Do you talk about money at your dinner table? Probably not. Most of what I know about money, banking, and finance I learned on my own through reading and life experiences. Children typically follow their parents lead when it comes to managing money. I couldn’t wait to purchase a T-Bill when I was older after making several trips to First Interstate Bank with my mom and seeing the advertisements for T-Bills. My dad lost money from a Ginnie Mae investment, and for the longest time, I had an aversion to recommending them to clients. You may have a similar story on how your parents invested their money and how it formed your future investment habits.

I received my first credit card as a student in college after signing my name to a limited application. It was a Citi card with a $500 line of credit, and this was my first experience with debt. After a few charges and payments, I was “rewarded” with a more significant credit line despite not having a job. During college, my friends and I took a trip to Las Vegas, and I quickly depleted my cash, but, no fear, I had my new credit card. I made a cash withdrawal from an ATM. I wasn’t aware of the high fee for the advance and that the charge would start accumulating interest immediately.  A late-night cash advance to play blackjack in Las Vegas - what could go wrong? My debt began to climb before I decided to control my spending.

The best time to start talking about money-related issues was yesterday and the second-best time is today, so here are a few ideas to get you started.

• Open a savings account to save $1,000. When you’ve reached your goal, then aim to save 3 to 6 months of your household expenses.
• Create a budget to review your spending patterns and habits. Once you establish your budget, review your spending weekly, and adjust as needed.
• Identify your debt obligations – mortgage, credit cards, auto loans, and student loans. Start by paying off your credit cards, auto loans and student loans.
• Limit your total debt to 38% of your total gross income.
• It’s okay to use a credit card if you pay it off every month. If you don’t have the cash to pay it off monthly, use a debit card, and only buy what you need. If you can’t afford it, don’t buy it.

• Automate your payments and limit your subscription services.
• If you have children, open a 529 education account or Uniform Trust to Minors Account to start saving for college. The current annual cost for a public college is $26,000. A private college will cost you twice as much, or $52,500.[5] The current inflation rate for college costs is 6%, three times the inflation rate for other goods and services.
• If your time horizon is three years or more, buy stocks. A lump-sum deposit works best. Employ a dollar-cost averaging strategy if you don’t have money saved up to buy stocks. Saving a few hundred dollars a month will add up over time.
• Contribute the maximum to your 401(k) plan. The maximum amount is $19,000. If you’re 50 or older, you can add another $6,000.
• Contribute to an IRA. You can contribute $6,000 and if you’re over 50 or older, you can add another $1,000. Your income tax bracket will determine if you can contribute to a traditional IRA or a Roth.
• Buy a home if your time horizon is more than seven years. Buying a home will create equity, and at some point, it will be paid off. If your home is paid off in retirement, you’ll have an asset with no monthly payment. Lifelong renters will have no asset or equity, but they’ll still have a monthly rent payment.
• Give to others by donating 10% of your income to help those groups and organizations you support. In addition to donating your resources, consider giving your time. Working with those in need will provide you with perspective.

Bring money issues into the open and don’t shy away from talking about financial matters. If you’re not comfortable tackling money topics with your family, schedule a meeting with a Certified Financial Planner™ who can help you explain the issues to others.

Money is a powerful tool; use it wisely.

And my God will meet all your needs according to the riches of his glory in Christ Jesus. ~ Philippians 4:19

September 24, 2019

Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.