Thursday, August 16, 2018

Knowledge Is Power, Especially When It Comes to Money



Understanding family attitudes towards money may improve financial decisions and reduce financial stress.

People inherit more from their parents and grandparents than big feet, eye color, self-discipline, a passion for sports, or an artistic bent. Most also assume their families’ ideas and attitudes toward money. Money beliefs are often passed down from generation to generation, along with great grandma’s quilts, ancestral photos, and family culture.1

Researchers call these inherited money mindsets ‘money scripts.’ These are categories of belief associated with problematic financial decisions that create chronic stress.1, 2 The authors of Wired for Wealth explained:3

“A money script is not necessarily wrong, but neither is it necessarily right. Our scripts are often skewed, exaggerated, or one dimensional, consisting of incomplete or partial truths. They are usually highly contextual, true in one circumstance but false in many others…Since our money scripts are mostly unconscious, we don’t question their accuracy or examine the degree to which they are true and work for us, yet we continue to act on them as if they were entirely true.”

Understanding the scripts that underlie financial choices may help improve decision-making and reduce financial stress. Researchers at the University of Kansas studied four factors that encompass a variety of money scripts:

1.      Money avoidance: Some money avoiders believe they don’t deserve to have money. Others think money is bad. Either way, money can be a source of fear, anxiety, or disgust. Money avoiders often sabotage their financial success. They may choose not to spend money on reasonable and essential items, or they may give money away so they have as little as possible.1, 2

2.      Money worship: Money worshippers share a “belief that more money will solve all of life’s problems and bring happiness...”2 The reward of more money becomes a carrot dangling just ahead that is never quite reached. These beliefs have been associated with compulsive hoarding, unreasonable risk-taking, gambling, overspending, compulsive buying, and other destructive financial behaviors.1, 2

3.      Money status: People whose beliefs register on this scale adhere to the idea that money confers status. They see a clear distinction between socio-economic classes, and their sense of self-worth is often linked to net worth. In addition, status scripters tend to equate success with money. Some may pretend to have more money than they do in order to appear successful.2

4.      Money vigilance: The vigilant believe it is important to work and save. They are watchful, frugal, and concerned about finances. While these traits can support healthy financial decisions, the vigilant are often anxious about money matters and wary of financial risk. Consequently, their ability to enjoy the benefits and security of money may be limited.2

Within these categories, the 10 money scripts that result in chronic stress are:3

1.      More money will make things better. Generations of families with this script may spend their lives accumulating more.
2.      Money is bad. Grounded in the belief money makes people bad or unhappy, this script may lead to financial self-sabotage.
3.      I don’t deserve money. This belief may accompany an inheritance or windfall. It may also lead to people earning below their potential.
4.      I deserve to spend money. Everyone does. However, when this leads to overspending it creates financial problems.
5.      There will never be enough money. Fear and anxiety may cause people to work long hours, neglect relationships, and fail to enjoy the benefits of their labor.
6.      There will always be enough money. A belief the universe will always provide, whether a person takes action or not.
7.      Money is unimportant. This rationalization is used to excuse poor financial decisions.
8.      Money will give my life meaning. People with this script often immediately and strongly reject it. Their actions may tell a different story.
9.      It’s not nice (or necessary) to talk about money. This attitude may be formed by the idea it is not polite to talk about money, politics, or religion.
10.  If you are good, the universe will supply all your needs. This belief is prevalent among people in helping professions and those from strong religious backgrounds.

Many people who earn substantial incomes and make sound decisions in other areas of their lives compromise their financial security by making poor financial choices. In some cases, inherited money scripts are the issue. The good news is it’s possible to change the way you think about money. First, it’s important to identify the money beliefs that may be stunting your ability to grow wealth. The next step is adopting new ways of thinking, and that often means learning more about money. Financial knowledge can be a powerful tool.2, 3

If you would like to discuss your current financial situation or explore your relationship with money, give us a call at 877-340-1717.

Sources:

Monday, August 13, 2018

3 Things to Consider Before Claiming Social Security Benefits




There are three things to consider before claiming your social security benefits: timing, spousal benefits, and work status.

Most Americans understand they can choose when to begin receiving Social Security benefits. The choices are fairly straightforward:

·         Early (age 62 to full retirement age). People who decide to collect benefits early typically receive a smaller monthly benefit than they would if they waited until full retirement age. The reduction in monthly income may be as large as 30 percent. However, they receive benefits for a longer period of time.

·         Normal (full retirement age). An American’s full retirement age is determined by his or her date of birth. For someone born in 1960 or later, full retirement age is 67 years. The amount of income a person receives at normal retirement age is determined by the amount earned during his or her working years.

·         Delayed (after full retirement age to age 70). By delaying the start of Social Security benefits, a person can increase his or her monthly benefit by accruing delayed retirement credits. For Americans born in 1943 and after, credit accrues at a rate of 8 percent each year.

While it’s important to understand timing options for Social Security benefits, choosing when to take benefits may not be the most important decision you make, especially if you’re married.

There are several different claiming strategies that may help married couples optimize their benefits and the benefits available for children who are minors or have special needs. These options should be carefully considered before filing for benefits.

Your filing decision may also be affected by your work status and income. If you file early while still working, and your earnings exceed established limits, then a portion of your benefit may be withheld. In addition, your income will help determine whether your Social Security benefit is taxable.

If you would like to discuss your options for claiming Social Security benefits, give us a call at 877-340-1717.

How Did Turkey Spark a Global Selloff?




Let’s talk Turkey!

So, how did a country that represents just about 1.4 percent of the world’s economy spark a global selloff?

Turkey was once a rising star. The country’s Prime Minister Recep Tayyip Erdogan took office in 2003 and his “conservative, pro-business policies helped pull the country back from an economic crisis,” reported Financial Times.

As Turkey’s economy strengthened, investors saw opportunity. Investments from outside the country averaged about $13 billion a year, according to World Bank figures cited by Financial Times, although investment slowed after terror attacks in 2015.

Bloomberg reported Prime Minister Erdogan has become more authoritarian since being re-elected in 2018, giving himself power to name the head of Turkey’s central bank. Financial Times reported the Prime Minister’s “…unorthodox views on interest rates…has proved disruptive for monetary policy, leaving…Turkey’s central bank, struggling to contain inflation that is running at close to 16 percent.”

Lack of central bank autonomy concerned investors. The Turkish lira began to weaken against the U.S. dollar, making it costly for businesses to repay dollar-denominated debt.

Politics have factored into the situation, as well. During 2018, negotiations were underway to secure the release of an American pastor who was arrested on “farcical terrorism charges,” reported The Economist. However, talks collapsed early in August. Asset freezes and sanctions followed, along with promises of additional tariffs on Turkish goods imported by the United States.

The subsequent steep drop in the value of Turkish lira sparked concerns that rippled through global markets. Financial Times reported:

“Turkey’s deepening crisis punished emerging market currencies and sparked a global pullback from riskier assets on Friday…The S&P 500 fell 0.7 percent in New York on Friday. Treasury yields also moved lower, with the 10-year dipping below 2.9 percent for the first time this month, as investors sought safe assets…Investors’ shift from risky assets knocked equities across Europe, with Germany’s Dax, France’s CAC 40 and Spain’s Ibex all about 2 percent weaker.”

For quite some time, investors have appeared immune to geopolitical risks. Perhaps that is beginning to change.



Data as of 8/10/18
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-0.3%
6.0%
16.2%
10.4%
10.9%
8.1%
Dow Jones Global ex-U.S.
-1.5
-5.5
1.7
2.9
2.6
1.1
10-year Treasury Note (Yield Only)
2.9
NA
2.2
2.2
2.6
4.0
Gold (per ounce)
-0.2
-6.3
-5.5
3.5
-2.0
3.6
Bloomberg Commodity Index
-0.8
-4.5
0.8
-3.1
-7.9
-7.7
DJ Equity All REIT Total Return Index
-1.5
1.7
5.8
7.7
9.2
7.3
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.