Financial Advice for my Children

I’ve made a few (hundred) bone-headed financial blunders in my past, probably starting with my purchase of a poorly made Yes t-shirt in 1984, but I wish I could say my financial ineptitude ended there. Within the last two years I was late with a credit card payment (really dumb) and didn’t consider the tax implications of some of my family’s finances (also dumb, but more forgivable, unless you conclude that we should have hired an accountant years ago and called it a day). But of course blunders can be and should be avoided. Last week I wrote about the essay Neal Gabler authored in the May issue of The Atlantic, wherein he too admits to his financial gaffes, albeit in the context of a larger national epidemic of financial illiteracy. But here’s the thing: financial illiteracy isn’t a condition. It’s a choice, at least for those who know better (and Gabler certainly does). Yes, I’ve made my mistakes, but I’ve kept reading and over time have done less harm and more good for my family’s finances. 

(Of course, someone could simply argue, “You want to do good for your family’s finances? Get a fricking job!” Fortunately, my wife is not among those someones.)

But even those who've managed to do a fairly good job of staying on top of the myriad of investment choices, saving maxims and cryptic tax laws might find themselves doing a piss-poor job of passing on that education to their children. I’ve found that while my parents had good sense and certainly taught me the value of a buck, most of my education was self-initiated by way of living and screwing up royally from time to time. I would like to see if I can spare my children of too much learning by living, because it seems as though these days the stakes are a bit higher. Growth is down, good jobs are more scarce, college costs are higher, housing is through the roof. It’s all gotten a little more insane.

So, recognizing that I’m offering nothing new here that hasn’t already been stated countless times before, I offer my children my twenty pieces of financial advice.

1)      Become educated. Hey, some people might make fun of Suzy Orman, but the gal can teach. Clark Howard is also a personal favorite. There is a ton of material out there, whether on TV, radio shows, books, DVDs or simply the Internet. I started way back with the books The Wealthy Barber and The Millionaire Next Door and went on from there. Sometimes it helps to read a well-written book instead of plowing through dozens of articles on-line. Whatever method you choose, there is no excuse to be financially illiterate.

2)      Avoid dept.  Aside from a mortgage, a car, a personal business investment, and (maybe) higher education, never pay for something you can’t pay off at the end of the month. Never.  

3)      Start saving now, gradually building to an amount equal to six month’s salary for emergencies. Yes, it will take time to establish such a fund. Start saving now. Even setting aside a few hundred dollars a month for a while will be helpful. And don’t settle for the crap interest rates that your bank offers. Consider looking at online banking (Barclays is currently paying 1%) or joining a credit union. 

4)      Always pay off your credit card bills each month. Always. I’ve missed I think three in my life, and that’s three too many.

5)      Start saving for your retirement immediately. Parents, you can open up an IRA for your child and invest any money they make (and that you claim on their taxes), even if they personally keep what they earn. I opened up IRAs at eTrade for my daughters when they turned sixteen and managed to match what they earned for a couple of years. Now that they’re in college they certainly can’t afford to invest all they earn, but even a small percentage is preferable to nothing. Five percent would be a nice place to start. Once you have access to a 401K that has a company match, max out your 401k up to the point of the company match, and then invest the rest in a Roth IRA, if eligible.

6)      Once you do start saving for retirement, never, ever, ever (this is for you, Neil Gabler) take out money from your 401k for something as stupid as a wedding. By definition, spending a ton of money on a wedding, a bar/bat mitzvah, a confirmation or quinceanera is stupid. Paying for it with a 401K is beyond stupid.  It’s colossally moronic.

7)      Stop eating out so much. You have an oven and a stove. Use them. When you do eat out, if things are tight play it smart and don’t pay for a $10 martini. Go to BYOB places, or pack a picnic and watch a free concert in the park. You can live well without living like a king.

8)      Don’t indulge in every desire, and if you do want to indulge in something, have a plan. If it’s going to take six months of saving before you can buy that musical instrument or take that vacation, then save for six months.

9)      Try not to take any loans out for college, but if you have to, don’t graduate with more than $30,000 in loans, and I would argue that this should only be for majors that will definitely result in a good paying job. $30K in loans means $333 a month for ten years, before rent, before food, before insurance, before utilities, before anything else. That’s a lot of money if you’re intending to major in political science. I can’t recommended highly enough Frank Palmasani’s book Right College, Right Price and I wish many of the parents I’ve spoken to had read it before sending their kids to college that will result in a degree and $80,000 of debt. You’re not doing your kids any favors by having them graduate with whopping debt.

10)   Don’t buy life insurance unless you have people dependent on your income, but once you do have dependents, buy a long-term term life policy while you’re young and healthy.  Lock it in.

11)   Once you have a legal partner and/or dependents, suck it up and pay an attorney for a will.  Don’t leave the government in charge of your death and your assets.

12)   Don’t get divorced. Seriously. Yes, the idea of marriage being a financial partnership isn’t sexy, but if you can avoid leaving your partner, you’ll be way better off financially. Of course, if there’s abuse of any kind, get the fuck out. But if not, see if you can work it out.

13)   Speaking of marriage, don’t wait until the wedding day to find out your partner has $150K in debt (think it doesn’t matter, that love conquers all? Think again.) or wants to open up a pizza joint in Little Italy. For goodness sake, talk about some of this stuff while you’re deciding to spend the rest of your lives with each other.

14)   Budget. Back in the day my wife kept a written log in a notebook of various things we were saving for (a wedding – which we paid for – musical instruments, a down payment on a home, etc.). Of course, once I transferred this log into Excel it became my responsibility, so my next piece of advice is: don’t transfer your wife’s written log into Excel.

15)   Give to charity. You’ve got to be one sorry sack not to give some of your time and money to others in need. And I don’t mean donating your old clothing. I mean feeding the hungry, housing the homeless, protecting wildlife, teaching a child or an adult. Help someone other than yourself.

16)   Don’t lease a car and don’t buy a new car, at least not until you’re in good shape financially. You could consider leasing if you’re someone who truly gets pleasure out of having a new car and who wants one every couple of years. Most of us can get by without this.

17)   Speaking of cars, drive your car until it costs more per year to repair it than it does to buy a newer used car.

18)   And one more about cars – don’t skimp on the obvious: change oil according to manufacturer’s instructions, check brakes and tires regularly and stay on top of other maintenance issues.

19)   Of course, the same can be said for a home once you own one. Take care of it. That doesn’t mean indulging in additions and renovations you can’t afford, but at least maintain the property.

20)   Speaking of mortgages, when rates are low, lock in and pay the minimum. If rates go up at some point (and they will) lock in but pay attention and refinance when appropriate (and don’t pay for the refi). I refinanced I think seven times in nine years when we first moved to Illinois.

So there you are. I’ll probably think of another twenty in the next few weeks, but this is a good place to start. Children, read and take heed. 

Oh, The Financial Mistakes We Make (part 1)

Want to have a quick lesson in real-life economics? Check out the May issue of The Atlantic and read Neal Gabler’s essay, “The Secret Shame of Middle-Class Americans,” in which he summarizes the financial plight of many Americans – which is enlightening enough – but then boldly summarizes his own life and the mistakes he’s made that helped lead to his rather precarious financial position. I admire his candor and plan to share it with all three of my children because his story reads like a what-not-to-do manual. If you ever wonder how someone who makes good money can become a financial mess, this is the article to read.  Gabler did virtually everything wrong, and though I suspect there are many other people who’ve gone down similar paths, he may have undermined his argument by lumping his experience into those millions of Americans who’ve done everything right yet still find themselves in financial dire straight. Gabler has no such claim.

(After you finish the article, scan through the comments section over a glass of wine or two or three – some are critical, some are empathetic, some are self-righteous, but nearly all are illuminating.)

The essay begins with frightening statistics about American’s lack of savings, lack of liquidity and lack of assets. Nearly half of Americans couldn’t cover a $1000 emergency room visit or $500 car repair out of their own pockets. This should scare the hell out of all of us, because how long can a society thrive and survive when half its population is “financially fragile”? These are real problems with real ramifications, no matter what your financial situation, and I suspect it’s why we find ourselves in such a heated and unexpected political campaign this year.

But then Gabler takes the courageous step of telling us his story, and in it he comes clean. He writes, “I am a financial illiterate, or worse—an ignoramus.” He’s not joking, and it’s troubling because he – like many Americans – not only hasn’t learned from his mistakes, he seems determined not to learn from them, as if being financially illiterate is a condition instead of a choice. In a world where TV and radio have made mini-celebrities out of financial self-help gurus like Suzy Orman, Dave Ramsey and Clark Howard, there’s no excuse not to become at least somewhat educated on financial matters. It’s as important – hell, it’s more important – than learning how to swim or throw a curve ball or learn a Bach prelude.

As parents we need to do much more to help our kids grow up to be financially-functioning adults. I’m going to do my part by forwarding Gabler’s article to my kids and I encourage you to do the same, but I also recognize that the odds of them actually reading the article are low. So next week I’m going to write a quick summary of financial no-brainers that I hope encapsulates all the what-not-to-do’s that Gabler did (and probably many he did not do) and then discuss it with my kids over dinner.  Stay tuned for part two...

When Music Meant Going to Hell

As a thirteen year-old in 1981, I was faced with the unpleasant realization that my favorite pastime of listening to rock music was leading me into the fiery depths of hell.

Word of the subliminal message craze had reached the masses, and as a soon-to-be confirmed Lutheran, this was serious shit. I’d already worn out the black Led Zeppelin T-shirt I’d purchased in sixth grade, my copy of Physical Graffiti wasn’t far behind, and now I was being told that they were devil worshipers. Just look at the symbolism on the intricate artwork of their third album, people told me. A goat’s head! Pentagrams! When I’d purchased the album I thought nothing of stars and goats. So what? Ah, but this seemingly innocuous artwork was code for something more sinister, to say nothing of the discovery that “Stairway To Heaven,” when played backwards, invited the listener to worship Satan, and – if interpreted a certain way – when played forward notified the listener of this very fact. (“In case you don’t know, the piper’s calling you to join him.”) 

This was an unwanted addition to the growing list of concerns in my life. As if acne, divorced parents and a math teacher who entered my school straight from the Third Reich weren’t enough to worry about. Now I had to fear for my very soul.

I was a good, church-going-because-my-mom-makes-me kind of kid. Sure, I’d toilet papered a few (dozen) homes, hung out with a boy who shall remain nameless who vandalized a car, and shot off firecrackers on the front stoops of people’s homes from time to time, but deep down in my essence I was a pretty decent human being.  (This would become more apparent a decade or so later – call it a long road to maturity.) So hearing that my favorite pastime of rock music was jeopardizing my cushy afterlife was extremely troubling.

I’d avoided the overtly satanic bands like Black Sabbath and Iron Maiden. Their covers alone were enough to put the fear of God into me. But even comparatively airy fairy band favorites like Supertramp were under fire. While driving up to northern Wisconsin with my friend Todd, his brother’s girlfriend informed me that the song “Goodbye Stranger” included the line, “Say the devil is my savior/but I don’t pay no heed,” and she said this was a sign of devil worship.

I shouldn’t have paid any heed to the stupidity of that conclusion, but as a young teen who’d been taught about the very real existence of hell and who’d made the serious blunder of watching The Exorcist on network TV a year earlier, I absorbed this information with great trepidation. After all, if Satan could enter the body of Linda Blair, what was stopping him from entering me?

I soon learned about a lecture taking place at nearby Brookfield Assembly of God, where a pastor was to discuss rock and roll lyrics. I don’t know what the heck I expected. I guess I was secretly hoping he would say, “This is all nonsense.  Don’t worry about it.” Instead, I sat through a litany of offenses committed by my favorite bands. I may have been in the clear with the hard core metal groups, but the pastor went on to attack many of my favorite artists, concluding with a long dissertation about the Pink Floyd song “Sheep,” in which an alternate version of Psalm 23 is recited. The pastor found particularly offensive the use of the word “bugger,” even reading aloud the word’s definition from the dictionary (but avoiding – if memory serves – the anal intercourse meaning).

I went home distraught, wondering how I was going to live my life without rock music, knowing full well I couldn’t, which only meant one thing: eternal damnation. My mom was in her familiar perch on the family room recliner with a bowl of popcorn in her lap, our dog Butch begging for a piece from the floor. Noticing the apparent look of dread on my face, she asked me about the evening. When I shared with her my concern, she responded with something along the lines of, “You’re a good kid.  I don’t think what you listen to matters all that much.” This was from a woman who to this day is a God-fearing Lutheran. 

Chalk one up for level-headed parenting.

I’ve learned since that lyrics are a slippery thing, often meaning little if anything at all, sometimes meaning much more than they would suggest. Just yesterday I listened to the song “Dance Hall Days” by Wang Chung, reading the lyrics to the song for the first time ever, and was floored to learn that the line isn’t “We were cool on Christ” as one of my Christian friends told me back in high school, but rather, “We were cool on craze.” 

Hey, whether it’s craze or Christ, I’m cool with all of it. Whatever. You aren’t the words you listen to, and in my case, I’m not even the words I sing, as I’m now a Jew who in my classic rock band sometimes has to sing, “Jesus Is Just Alright” from The Doobie Brothers.

As Rick Davies of Supertramp sang, “I don’t pay no heed.”

The Lure of Living in the Past

Even if nostalgia isn’t your thing, you might be hard-pressed to escape it in the 21st Century. Susanna Schrobsdorff writes in this week’s TIME Magazine that living in the past is not only easier than ever now that our lives and so much pop culture have become digitized, it’s practically impossible to escape. Our last ten years have been better documented than any other decade, archived with countless digitized photos, videos, blog entries, emails, texts, and Facebook and Twitter comments.  Schrobsdorff writes:

“All that evidence of what we really said (in the past) messes with the version of ourselves we’ve created.” 

After all, if you've managed over time to smooth out your rough edges, you might not be so keen on dredging up your formal self. I cringe when I think of the worst episodes of my past, and if those moments had been documented and broadcasted over the Internet, I wouldn’t be able to get up in the morning. Today’s generation gets no such slack. Those who participate in social media and other digitized forms of communication may never be able to escape their pasts, no matter how hard they try. 

For many, nostalgia is a comfort, a pleasant way to revisit the better moments of our lives. At a Super Bowl party last Sunday I admitted to a few friends that I’d recently rewatched a DVD of Super Bowl XXXI (Guess what? The Packers won!), and while I was initially made fun of for living in my Packer Past, my friends soon confessed that they’d relished the recent news stories commemorating the 30th anniversary of the Bears’ Super Bowl victory. Nostalgia can be fun. It’s why we reread books, rewatch movies, listen to old records, collect items from long ago, thumb through yearbooks and photo albums, read history and tell stories. It’s also why people are shelling out $80 to see the upcoming Carol Burnett tour (I’m one of them!), why Antiques Roadshow and Ken Burns are PBS mainstays, and why WDCB in suburban Chicago broadcasts old radio shows every Saturday on “Those Were the Days.”  

Nostalgia can also be a bit dangerous. Mae West popularized the quote, “Keep a diary and someday it’ll keep you,” and I’ve thought of this often as I go through boxes of old letters, yearbooks and tickets stubs, edit family videos and rearrange my vinyl.  I could spend the second half of my life doing little more than reliving various moments from the first half of my life. I’ve always been a nostalgic guy, and I’ve met others who share the same sensibility, the kind of people Ben Folds makes fun of in his song “Bastard.” (“You get nostalgic about the last ten years before the last ten years have passed.”)

But at the same time, I admire those who have no interest in revisiting yesterday’s playground: guys like Woody Allen, who’s career code is to work and continue to work, never looking back to watch his films once they’ve been completed; Peter Gabriel who’s refused to do a Genesis reunion; Tom Trebelhorn, the former Milwaukee Brewers manager, who once quipped (I’m paraphrasing here, but I believe it came from Milwaukee Magazine, July 1987, Volume 12, Number 7) that cemeteries should be bulldozed into golf courses. There’s something freeing about moving on to the next big adventure and eschewing the past. It’s what allows humanity to progress. But the sort of person who wishes to look to the future might have a tough time living today. Like Jimmy Buffett’s pirate, he may have been born too late.

For the rest of us, we might need to work a little harder at balancing our lives, substituting the comfort of yesterday for the unknown, resisting the lure of living in the past, or else – as Schrobsdorff aptly puts – at some point our past “…becomes a memory of remembering.”

The Big Short and Being Human

Back in the late 80s when I attended UW-Madison, I had a conversation with a fellow student and expressed my opinion that the way we value a nation’s economy is going to have to change – that we can’t continue to measure economic growth largely by how much of its natural resources we’re expending. In essence, I argued that the entire world economy is a one giant Ponzi scheme (though I didn’t know the term Ponzi scheme until Bernie Madoff entered the picture). I still believe this to be the case. After all, a stock’s price is supposedly the present value of all future earnings, but we know that most companies that exist today will one day disappear and be sold for peanuts (Pan Am, Blockbuster, Enron, Woolworths, Tower Records), and the present value of a string of zeros is zero, so we’re really betting on short-term earnings. Even Amazon founder Jeff Bezos who has a rare long view when it comes to business success recognizes that his company will one day be disrupted and perhaps no longer exist (watch 13:20 of this 60 Minutes video).

It’s one thing to have this viewpoint about a system that’s largely on the up and up: that’s run by smart people with good intentions but who sometimes fall short or make mistakes. It’s quite another to discover that the people driving our economy are incompetent, greedy, short-sighted, ruthless criminals. If you’ve seen The Big Short or read the Michael Lewis book upon which the film is based, you’ll likely spend some time rethinking your investment strategy. After all, does it make sense to invest your retirement savings in corporations run by buffoons? The answer: what choice do you have? If you could earn 5% guaranteed in CDs you might do so, but you can’t, so if you’re like me you’ll throw the dice and hope that the pyramid scheme of the U.S. economy can hang in there for a little while longer.

I tried reading The Big Short a few years ago and had some difficulty. It does get complicated. But having a visual helps me enormously, and the film’s director Adam McKay (of Anchorman fame) does a marvelous job of acknowledging the complexity of the movie’s subject while helping the audience along the way. I still left the movie with a few lingering questions (that I hope to answer by giving the book another shot), but generally felt more informed than when I arrived, while still being entertained in between. 

No small feat.

Michael Lewis has a terrific piece in the week’s Vanity Fair that describes the minor miracle that any of his books have been made into movies (and successful ones at that: Moneyball, The Blind Side), least of all a film about credit-default swaps and collateralized debt obligations. You’ll also learn what you likely already knew: that incompetence and greed are as prevalent in Hollywood as they are on Wall Street. 

If only it ended there. But it doesn’t matter whether it’s Wall Street, Hollywood, government agencies, the Chicago police force, horny priests, Oregon ranchers or religious zealots: we as humans seem to be preprogrammed to abuse power, blur the lines between right and wrong, desire more even when we have enough, sacrifice long-term benefits for short-term gains, and hurt people for our own benefit. So why is it when we read about our brethren behaving badly we feel smug about it and think we would never fall into the same trap despite history telling us otherwise?

There are different schools of thought here. My own viewpoint is that religion – for all its faults – helps ground us in humility and gratitude, two essential ingredients to keep from following our worst instincts. Perhaps the people running our biggest firms would do well to spend more time in the pews or our nation’s religious institutions and less in the office.

But then how do you explain the clergy sex abuse scandal? Yeah, that's tricky. After you see The Big Short go watch the marvelous film Spotlight and then tell me your faith in mankind hasn’t been just a wee bit shaken.