The Danger of Comparison

We’ve been trying to “Keep up with the Jones’” since before 1879 when a comic strip with that title first appeared. The phrase refers to the comparison to one’s neighbor as a benchmark for social class or the accumulation of material goods. Fast forward 137 years and the Kardashian’s have left the Jones’ in the dust. This phenomenon is neither new, nor is it going anywhere anytime soon thanks to things like Instagram and Facebook.

 

As the saying goes, we’re always looking to see what others are doing and making comparisons. Good or bad, we all do it.   This type of social comparison led to two things: Conspicuous consumption and materialism.

 

Those two things led us to desire more, better and different things than the things we had or didn’t have. Those desires led to the ability to purchase via credit, which then led to consumer debt, so on and so on.

 

Consumer debt had been steadily building since the introduction of credit until finally slowing after 2008’s meltdown.

 

The recovery of the past eight years has brought it back. In reality and to be fair, the Jones’ are not completely to blame according this report by NerdWallet.

 

The report tells us part of the problem is that household income has grown by 26% in the past 12 years, but the cost of living has gone up 29% at the same time. And some of our largest expenses like medical care, food and housing have significantly outpaced income growth.

 

The danger of comparison is that it can lead to discontentment. That discontentment can lead to overconsumption, which can lead to debt. Debt limits our ability to fully pursue our passions because we’re stuck in a rat race trying to make money to pay that debt off.

 

Let’s get a sense of where we are. Not just in our neighborhoods, not just in our country. Let’s take a global perspective.

 

Compared to the most of the world, we are wealthy. You are wealthy.

 

What’s most important in your life? To your family? Keep that in mind the next time you catch yourself falling victim to comparison.

August’s Message

Paper or Plastic?

It’s been said that life is a game of inches and little bits add up.

Here’s a question: “Are you more likely to be on track for retirement if you paid with cash instead of a card when eating out?” Remember, on track means saving 10 to 12% of gross income for retirement

 My assertion is the majority of Americans would more likely be on track for retirement if they paid cash for everyday purchases like eating out instead of using credit or debit cards.

Some research on American’s use of credit cards:

30% of credit card users are “dormant,” a term credit card companies call people who have a card but don’t use it. 30% are “transactors,” or people who pay off their balance every month. The remaining 40% are “revolvers,” designated as people who use the card and carry their balance over month to month.

“I like the rewards I get from my credit card” is a common reason people give for credit card use. If you’re successfully being a “transactor,” please carry on and enjoy your rewards. For those who are “revolvers,” there is a substantial penalty.   The average American consumer is spending over $2,500 a year on credit card interest according to a recent article.

It’s safe to say most Americans are misusing credit cards.

A second realty is that you overpay when you use plastic versus cash. This is sometimes called the “Monopoly Money Effect” and is illustrated by looking at our behaviors when eating out. Wendy’s estimates customers spend 40% more when using plastic versus cash. Let’s put that into perspective:

Households earning more than $70,000 per year, spend nearly $10,000 on food and eat out 45% of the time or $4,500 a year. If you used cash instead of plastic and didn’t spend as much, say 20% (a more conservative estimate than the 40% example from Wendys research), you’d save $900 a year. That’s not a lot you might say, but many Americans don’t even have that much money in a retirement account.

Specifically, the EBRI reports that more than a quarter of all Americans have less than $1,000 in retirement savings, excluding their home. So, if you paid cash when you ate out for a little over a year, you’d have more than then a quarter of Americans have.

I understand that when you eat out, you’re not always going to Wendy’s, but ask yourself this: Do you tip more or less when paying with cash versus when you fill out a credit or debit card receipt?  Can you think of other instances when the Monopoly Money phenomenon could occur?

Let’s review

$900 saved from paying cash versus plastic while eating out and $2,600 saved from not paying credit card interest. That total of $3,500 going into your retirement account and getting you closer to the desired 10 to 12%, all by simply changing your purchasing behavior from plastic to cash.

Little bits add up. Are they adding up in your favor?

Briefly: Kids and Money

If you were able to look into the future and see your child at age 22, how would you picture them? Could an ideal situation be this?

 

  • A college graduate
  • Debt free
  • Gainfully employed
  • Saving money
  • A contributing member of their community

 

Impossible? Probably not. With the right skills and habits, this situation is very possible.

 

Our habits define us. If someone is in the habit of exercising and eating right, they’re likely a physically fit person. If someone is in the habit of saving money every month, they’re likely in a decent financial position.

 

Rich and poor families alike produce kids with bad money habits. It’s not the parent’s financial situation that determines this; it’s the parent’s ability and willingness to teach and instill good habits.

 

When parents make it a point to teach their kids the value of work and saving money, those kids will probably practice good financial behaviors as an adult. The reality is, no one else is going to do it. Fundamentally, this is less about paying your kids for a clean room or cutting the lawn and more about the value of work and managing the money they earn.

 

Here are some ways you can prepare your family to have these conversations and set your kids up for financial success:

kids-allowance-pic1

Step one: Ask yourself: Do you have a budget? You can’t transfer what you don’t own, so if you’re not currently budgeting, you can’t expect your kids to, as well. (Contact us for help on starting budgeting).

 

Step two: Start talking with your kids about money around age four or five about the following concepts.

 

  • Allowance versus Earned Income. This is a simple but important difference. We know that money doesn’t grow on trees, but kids may not. Don’t give your kids an allowance. Instead, pay them Earned Income for the completion of tasks. For kids at this age, five weekly tasks is Pay them $1 for each. If they don’t complete the task, don’t pay them the money. Pay them on the same day and time every week. Sunday afternoon works well.

 

Spend/Save/Share: These are the three things you can do with Earned Income. Have three clear jars labeled with these categories and put 40% of the money into “spend,” 40% into “save” and 20% into “share.” If your kid earns $5 for the week, $2 goes into “spend,” $2 goes into “save” and $1 goes into “share.” The money in “spend” can be used for anything at any time. The money in “save” should be used to save for larger purchases. The money in “share” should be used to teach your kids about giving. Keep this program going until they become teenagers.

 

Step 3: Help your teens understand their financial footprint and ensure they begins working outside of the home.

 

  • They’ve been earning income and saving money for years. Now, it’s time to teach them about balance sheets: how much do their lives actually cost? Share with them the monthly costs of food, their activities, the mortgage, insurance, and more—essentially your household budget.

 

  • Make sure the job is outside the home. Having a boss and coworkers teaches valuable lessons. If they start their own business, even better!

 

  • If they don’t already have a checking account, it’s time to open one. This will introduce them to banking. On a side note, do not allow your kids to have a credit card.

 

For major purchases or expenses like a car or college, consider matching your kids’ savings. This can make larger sums more attainable and promote increased long term saving. For example, if they want a $5,000 car, they save $2,500 towards it and you contribute the other $2,500.

 

Why take the time and make the effort to do all of this? Because practical money matters don’t get taught in school and they are fundamentally important. Contact us for more in depth information about talking with kids about money.

 

 

 

 

 

 

 

 

Your Screen Test

The smart phone was a legitimate innovation and it’s changed our lives. Next came tablets and soon we’ll have virtual reality. What’s the impact?

In an article entitled Children Spend Six Hours or More a Day On Screens by Jane Wakefied, she introduces these findings:

The amount of time children spend glued to a screen has risen dramatically in the last 20 years, a new report suggests.

  •  Children aged five to 16 spend an average of six and a half hours a day in front of a screen compared with around three hours in 1995, according to market research firm Childwise.
  •  Teenaged boys spend the longest, with an average of eighthours.
  •  Eight-year-old girls spend the least: three-and-a-half hours, according tothe study.
  •  Screen time is made up of time spent watching TV, playing gamesconsoles, using a mobile, computer or tablet.

    While I can’t say this information surprised me, the numbers are concerning. Eight hours a day (the number of screen time for a teenage boy) works out to be a third of one’s life. And when you consider that the amount of screen time has more than doubled since 1995, what will that number be 20 years from today?

    There are certainly a lot of positives the internet and technology have brought us and it’s not my intention to say the current behavior of our young people (and grown ups for that matter) is all bad. But I’m curious: is it healthy to consume media, ads, information and messages for large percentages of our waking hours?

    I’m certain that one of the greatest gifts we can give to ourselves and to one another is our full and complete attention: a gift that cannot be given in the presence of any type of screen. Don’t believe me? Ask yourself this: is it possible to be fully present while watching YouTube? Do you check your phone immediately after you wake up in the morning? Are you Facebooking while you’re standing in line at Starbucks?

I advocate the importance of getting and keeping a sense of where we are, also known as being mindful; essentially the opposite of screen time.

Here is the definition of mindfulness from Psychology Today:

Mindfulness is a state of active, open attention on the present. When you’re mindful, you observe your thoughts and feelings from a distance, without judging them—good or bad. Instead of letting your life pass you by, mindfulness means living in the moment and awakening to experience.

Because this is a financial blog, let’s bring it back to money. Does media affect the self-image and spending habits of adults? Can that influence be negative? I believe the answer is yes.

Will this increasing screen time have a similar affect on young people? How could it not?

In closing, work every day to get a sense of where you are and to be mindful. Screen time isn’t going away, so in next month’s edition we’ll get into how to talk with young people about managing it.

Impacting Your Purpose

Depending on the study you read, anywhere from 60% to 70% of our fellow Americans are not engaged in their work. “What does that mean?” you ask? It means they are doing or thinking about something other than what they are being paid to do or dreaming about being somewhere other than where they are. That something used to be solitaire, now it’s fantasy football. That somewhere is still is still anywhere else.

 

All the while, it also seems many of us are trying to find our purpose.

In the hope of finding my purpose, I searched Amazon for a book on the topic and found over 200,000 titles. That’s a lot.

 

It struck me that we are focusing on the wrong problem, or seeking the wrong solution: like having a leaky roof and opening an umbrella in the living room.

We need to stop focusing on purpose and start focusing on impact.

It’s possible for every one of us to have a positive and real impact in every aspect of our lives: in our work, in our communities and at home. It’s a choice.

It doesn’t matter what your job is, you can have an impact.

 

One of my favorite stories is about the janitor working at NASA during the Space Race. President Kennedy approached the man and asked him what he was doing, to which the man replied “Well, Mr. President, I’m helping put a man on the moon.”

 

I believe changing the way we look at our work can have a positive impact on the other aspects of our lives. Simply looking at your job as a means to earn money has many destructive byproducts. When we change the lens through which we view work, we have the ability to change our lives for the better.

 

This message may not apply to you, but either way, start pressing yourself. Start learning and improving yourself. Start consciously making an impact. Become the best possible version of yourself. I believe if we are able to embrace this, we’ll be more grateful for the things we already have.

Same Day Fulfillment

A big part of my work as a financial advisor involves figuring out new and different ways to get people to save more money because the majority of Americans are not saving enough for retirement.  At first, I thought this problem was caused by procrastination (“I’ll save more tomorrow.”) But I’ve come to realize that, for many Americans, at the end of the month, there’s no money left to save.  We’re too busy over-consuming, accumulating debt, buying homes that are too big, and cars that are too expensive. There’s nothing left over for savings.

 

I think a lot of the problem stems from a lack of contentment.  For too many Americans, our work leaves us unfulfilled.  Gallup’s “State of the American Workplace” tells us that 70% of American workers are not engaged at work.  So I decided to study fulfillment in order to see what speakers and experts have to say about the concept.  I went to YouTube (which I find to be a limitless source of valuable and less than valuable information) and typed fulfillment into the search bar. Over half of the search results were about Amazon.com’s warehouses “fulfilling” orders.  That is, taking our online orders that we as consumers make from our phones, tablets or computers and delivering that stuff to our homes, often on the same day.

 

The irony was almost too much to bear.

 

The fulfillment I’m talking about is a feeling when we do something good for someone else.  Many of the most fulfilling experiences of my life have come from charitable work, community service, or times when I’ve done work for others and expected nothing in return.

 

It’s time to get back to the original definition of fulfillment.  It’s time to focus more on enriching our own lives and the lives of those around us.

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