Author Archives: admin

Americans in Debt

Posted on by

“U.S. adults carrying debt hold an average of $23,325, exclusive of mortgages

Most Americans carry some form of personal debt. In fact, 77 percent of Americans have debt, according to the 2018 Northwestern Mutual Planning and Progress study.  And, if you have significant levels of debt, you need a financial plan to manage your debt and get out of it. That’s because debt can cost you money, potentially a lot of money for a long period of time.

In fact, if you take the time to tally how much you’re paying in interest over the life of your debt, it might just be the motivation you need to finally make a big push to pay off your debt so you can spend that money on something you enjoy or can invest in your long term financial freedom.

The Northwestern Mutual’s 2021 Planning & Progress Study showed that among U.S. adults aged 18+ who carry debt, they hold an average of $23,325 excluding mortgages. This represents a downward trend of over 20% since 2019.

While overall debt is on the decline, 30% of Americans’ monthly income on average goes towards paying off debt other than home mortgages.

Far and away, the top source of debt after mortgages is credit cards, accounting for more than double any other source, according to the study:

  • Credit card bills – 19%
  • Car loan – 8%
  • Education loans – 7%
  • Home equity/lines of credit – 4%

Debt under control, or controlled by debt?

“78% of Americans say debt has impacted their ability to achieve financial security.”  Northwestern Mutual’s 2021 Planning & Progress Study

When prioritizing debt versus savings, the interest rate on your debt is a key consideration. The higher the rate, the more you stand to save by paying off the debt.

But also consider the type of debt. A debt can be “secured” or “unsecured”. A secured debt is backed by an asset, also called collateral. Auto loans and mortgages fall into this category: Both allow the lender to repossess the asset if you stop paying the loan. In other words, they can take what you bought with the loan and sell it to get their money back.

With debt consuming nearly a third of monthly budgets on average, many people also say that it has negatively impacted their ability to pursue other financial milestones. Because of Americans personal debt:

  • 29% delayed making significant purchases
  • 18% delayed saving for retirement
  • 14% delayed buying a home
  • 8% delayed having children
  • 7% delayed marriage

Having to pay down debt also carries weight in the way people feel about their long-term financial stability – 78% say that debt has impacted their ability to achieve long-term financial security.

“The latest numbers show steps in the right direction compared to previous years, but we continue to see debt hindering many Americans from having the financial freedom to make other important decisions in their lives,” said Christian Mitchell, executive vice president & chief customer officer at Northwestern Mutual. “Having a plan of action to manage debt and stay on top of payments is critical to achieving future financial goals.”

Although debt is holding some back from major decisions, there are positive indications that people are looking ahead to manage and reduce their debt. Two-thirds (66%) of those with some debt say they have a specific plan to pay it off, and have a timeline for doing so:

  • 45% only expect to be in debt for 1-5 years
  • 20% say for the next 6-10 years
  • 14% say between 11-20 years
  • 9% say for the rest of their lives

The cost of debt can add up quickly. Thus, it’s important to manage the amount and reduce the cost of your debt, and get it paid off. That way you can put that money to work for you financial freedom or toward something more fun, like your next vacation or retirement.

“Rather than lamenting you have too much debt, imagine how much better your life would be with less.”

There’s almost no better way to reduce your expenses and save money than unloading credit card debt. Ridding yourself of this high-interest debt offers returns that few investments can match over multiple years. Even though the S&P 500® has long-run average annual returns of 10%, most people should only expect to earn about 6% a year on average because they’ll hold a mix of assets (including bonds) that lowers their overall risk (and expected returns).

Here are several recommendations to assist you manage your debt and to think through what’s best for you and your money, according to Northwestern Mutual:

  1. COME TO GRIPS ABOUT SPENDING – Debt can pile up for all kinds of reasons. Paying it down should be pretty straightforward — but for that to happen you have to be honest about your spending. Putting your spending into perspective can help you manage and develop a plan to get yourself in better financial shape.
  2. GIVE IT A POSITIVE SPIN – Rather than lamenting you have too much debt, imagine how much better your life would be with less or none. Then set specific financial goals with a focus on debt reduction and elimination.
  3. AUTOMATE YOUR PAYMENT PLAN – Put as many of your credit card and/or loan payments on auto-pay from your checking or savings account. That way, you’ll be sure to avoid any unnecessary late fees.
  4. PRIORITIZE, PRIORITIZE – If you can’t pay all your debts each month, prioritize what you can pay. Give high priority to debts secured by a house or car, necessities like utilities and debts you can’t discharge, including student loans and unpaid federal taxes. Then tackle unsecured debt like credit cards. You’ll want to identify the credit card with the highest interest rate and pay that one off first. That way, you’ll save yourself money by avoiding unnecessary and excessive interest rate charges over the life of your debt.
  5. PAY AS YOU GO – It may seem old fashioned, but avoid paying with plastic and start using cash, check or debit card instead. Sure, it will take a little extra planning to make sure you have sufficient cash in your wallet, but doing so can help you clearly connect to where your money goes each day. It may also help you avoid impulse purchases and other unwise spending.
  6. MAKE MORE OF YOUR INCOME – Many people believe they don’t have enough money to put toward debt reduction. Ask yourself: Do I really need a latte every morning, or special cell phone services? Sticking to a budget isn’t easy, but if you save small amounts, you’ll be able to pay off your debt that much faster.
  7. DON’T LOSE SIGHT OF RETIREMENT – Paying off debt isn’t a free pass to put your retirement savings on hold, especially if your 401(k) at work offers a company match. Even if you’re paying off a high interest rate on your credit card debt, the employer match on your retirement savings makes your retirement plan contribution the better deal.

When it comes to your retirement, you want to make your money work for you. That’s where investing becomes most important. Sometimes, saving and investing makes more sense than paying off debt. With the interest rate on your debt below 6%, you may want to pay off that debt on schedule rather than making extra payments.

As an added incentive, the tax advantages of investing through retirement accounts like 401(k)s and IRAs can help your money go further over time than it would by paying off debt early.

Plus, you can only contribute so much each year to retirement accounts. Every year you don’t contribute is a missed opportunity to save. With many workplace plans, you also miss a chance to earn matching contributions—i.e., free money—from your employer. And thanks to compounding, the earlier you save, the more your investments could grow over time.

Personal debt has its purposes and financial benefits until it becomes unmanageable and you have trouble paying it off. In the worst case scenario, debt can result in you going bankrupt if you’re unable to make your monthly credit card or mortgage payments.

The pandemic has put some Americans behind and has allowed others a chance to gain some ground on their debt. Specifically, 34% say it will take them longer than expected to pay off their debt because of the pandemic, while 23% expect to be able to pay it off sooner.

When it comes to paying off debt or saving money for emergencies, retirement and other goals, your financial priorities will depend on several factors. These include the types of personal debt, their interest rates, your disposable income and your long-term goals. You can weigh your options, depending on how much debt and how much money you already have saved for the future and invested to for the long term.

References:

  1. https://news.northwesternmutual.com/2021-08-25-Northwestern-Mutual-Study-Finds-Americans-Personal-Debt-Has-Dropped-More-than-20-Over-the-Last-Two-Years
  2. https://news.northwesternmutual.com/planning-and-progress-2021
  3. https://www.prudential.com/financial-education/how-to-pay-off-debt-and-save
  4. https://news.northwesternmutual.com/2018-08-14-New-Data-Personal-Debt-On-The-Rise-Topping-38-000-Exclusive-Of-Mortgages
  5. https://article.smartasset.com/financial-advisor-secrets-1/

Financial Planning and Investing

Posted on by

“Take control of your finances, savings and wealth building with a financial plan.”

Whether you have short-term financial needs — such as planning for an upcoming vacation or holiday spending — or long-term plans like retirement, financial planning can help you organize your finances by evaluating your expenses and income. Yet, a 2020 Northwestern Mutual study found that 71% of U.S. adults admit their financial planning needs improvement.

Futhermore, the Northwestern Mutual research finds a third (32%) of Americans say their financial discipline has improved during the pandemic, and 95% say they expect their newfound habits will stick after the health crisis subsides.

Among the financial behaviors that people say they’ve adopted as a result of the pandemic and expect to maintain going forward are:

  • Reducing living costs/spending (e.g., cancel subscriptions, eat out less, etc.) – 45%
  • Paying down debt – 34%
  • Increasing investing – 33%
  • Regularly revisiting financial plans – 29%
  • Increasing use of tech/digital solutions to manage finances – 28%
  • Increasing retirement contribution/savings – 25%

A financial plan can show if you’re on track to meet your money and savings goals. Financial planning can include strategies for paying off debt, starting an emergency fund, saving up for a large purchase like a house, or building wealth.

Investors who stick to a financial plan have an average total net worth that’s 2.5 times greater than those who don’t follow one, according to Charles Schwab. Financial planning helps you understand where you are today. It also creates a roadmap to get you where you want to be in the future.

Investing is key to building wealth.

Time is on your side and key when it comes to building your wealth. That’s the magic of compound interest. Compound interest is interest earned on interest. Basically, it’s the reason why investments earn more money over time.

But before you start investing, it’s crucial that you’re financially prepared. Consider these four signs you’re ready to invest:

  • Have a long-term financial plan and strategy.
  • Have an emergency fund.
  • Research and prepare to invest.

Investing all depends on tim ane in the market and your unique financial situation. These signs are a good step to getting your finances in order. But consult a financial professional for comprehensive investment advice.

As a result of the personal finance challenges experienced by Americans during the pandemic, the 2020 Northwestern Mutual study found that  there was mounting interest in personal  financial planning that may be here to stay. “Personal finance is a lifelong journey; it’s not something you look into once and say, ‘OK, I checked that box,’ and move on,” explains Matthew Pelkey, OppUs’ director of financial education. “Just the simple act of looking into things you can do to be more deliberate in your financial life will give you that agency over your finances — and create the habits that are really what produce good financial health.”

Financial planning can equip you to handle life’s many unexpected financial twists and turns. Although, it will vary, depending on your stage in life. You don’t need to know everything — but knowing and planning for the essentials will provide a solid foundation. Always remember the adage:  “Failing to plan is planning to fail.”

  • References:
    1. https://news.northwesternmutual.com/planning-and-progress-2020
    2. Strategic Business Insights, MacroMonitor 2018-2019 Report, February 2019.
    3. https://www.opploans.com/oppu/articles/financial-planning/

    Black Wealth Summit

    Posted on by

    Receiving a College Degree Accumulates Wealth for Whites and Not For Blacks

    Wealth managers investing billions of dollars toward racial equity are confronting disparities that are growing worse in some ways even as there are some notable signs of change, according to the Black Wealth Summit. For example, the typical White family has eight times the wealth of the typical Black family, according to the 2019 Survey of Consumer Finances (SCF). The research showed that long-standing and substantial wealth disparities between families in different racial and ethnic groups were little changed since the last survey in 2016.

    Wealth is defined as the difference between families’ gross assets and their liabilities.

    During the Black Wealth Summit, John Rogers of Ariel Investments cited studies by the St. Louis Fed showing that white households with college degrees tend to build wealth while net worth often declines among Black college graduates. The median and mean wealth of Black families is less than 15% of White households’ wealth, according to the Fed’s latest figures from last year.

    John Rogers launched the nation’s first Black-owned money management and mutual fund firm when he was only 24 years old. His firm has reached nearly $17 billion in assets under management.

    Signs of change amid widening disparities

    The data confirms prior research on the role of parental wealth in the transmission of lasting economic advantage: Less-wealthy parents, mostly Blacks, are less able to financially help their adult children, making it more difficult for the next generation to accumulate wealth.

    In addition, Black college-educated households are far more likely than their White counterparts to give financial support to their parents. These parents may have entered the workforce at a time when their only employment provided no pension or retirement savings benefits, or even Social Security.

    In contrast, parents of White college-educated households have mostly benefited from employment-related retirement benefits. Thus, the pattern among White and Black college-educated households is the opposite: Young college-educated White households are more likely to receive financial support from parents and at considerably higher levels

    The findings confirms prior research, which shows that the typical Black college-educated household does not have the same opportunities to add to their family wealth building as their White counterparts, who report large wealth gains at least up to the Great Recession.

    Understanding factors such as inter-generational transfers, homeownership opportunities, access to tax-sheltered savings plans, and individuals’ savings and investment decisions contribute to wealth accumulation and families’ financial security.

    References:

    1. https://files.stlouisfed.org/files/htdocs/publications/review/2017-02-15/family-achievements-how-a-college-degree-accumulates-wealth-for-whites-and-not-for-blacks.pdf
    2. https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm

    Difficult Financial Conversations

    Posted on by

    The financial realities of being a woman — 4 out of 10 people—men and women alike—do not realize that women need to save more for retirement. Life expectancy, the pay gap, health care costs, and career interruptions due to caregiving are all contributing factors, according to Fidelity Investments Women Talk Money.

    Video: 5 Investing Conversations to Have Now with guest: Anna Sale, host of the podcast “Death, Sex and Money” and author of “How to Talk About Hard Things”
    Hosted by Lorna Kapusta, Head of Women Investors at Fidelity Investments

    “Money is like oxygen. It’s all around us. We can pretend it’s not but we need it to breathe. When you don’t have enough you really feel it.” Anna Sale, host of the podcast “Death, Sex and Money” and author of the book “How to Talk About Hard Things”

    “Money is at once a tool which is the choices we make around money, what we spend it on, how we save it”‘ says Anna Sale. “And money is also a symbol which brings up all these questions about am I enough, am I worthy enough, am I living up to all these expectations for myself. When we talk about money as a tool, sometimes the symbolic ways that money kind of makes us feel lots of big feelings can distort those conversations about money being a tool.”

    References:

    1. https://www.fidelity.com/learning-center/personal-finance/women-talk-money/investing

    Metaverse

    Posted on by

    Metaverse, the next generation of the internet.

    What is the Metaverse, you ask?

    A metaverse, to put it simply, is a space where individuals can participate in a shared virtual universe. Meta’ is a prefix that means ‘beyond,’ and ‘verse’ comes from ‘universe,’ making the word ‘Metaverse.’ The term can refer to digital spaces which are made more lifelike by the use of virtual reality (VR) or augmented reality (AR).

    The Metaverse, with a capital M, is the idea that there will be one single virtual reality that individuals will become avatars in. These individuals will engage in this shared virtual reality space, talk to each other, hang out, play games, watch movies, even browse the web. It will be a new internet.

    The Metaverse will have texture, dimension and color, according to the website cryptonews.com. People will meet, watch shows, hang out, visit virtual museums, ride virtual parks, go to websites all within the same Metaverse.

    Investment bank Jefferies defines the metaverse as “the convergence of physical and digital in a way that is persistent, real-time rendered, and infinite in its ability to offer shared experiences allowing for a total sense of presence to the point where it embodies us.”

    Metaverse might use AI, AR and VR technology to create artificial world

    Think of the metaverse as an artificial world created by new technology like artificial intelligence, augmented reality and virtual reality. It’s a virtual world that looks, feels, tastes and smells like the real world.

    The movie Matrix depicted a storyline where a future society is unknowingly trapped inside a metaverse called the Matrix, which intelligent machines have created to distract humans while using their bodies as an energy source.

    Facebook (FB) founder and CEO Mark Zuckerberg intends to rebrand the FB enterprise with a new name that focuses on the metaverse. And, Zuckerberg expects FB to be seen primarily as a metaverse company and not just a social-media company in the coming years.

    At its heart of the rebranding is the concept that by creating a greater sense of “virtual presence”, interacting online can become much closer to the experience of interacting in person. The metaverse has the potential to help unlock access to new creative, social and economic opportunities.

    No one company will own and operate the metaverse, Facebook reported. Like the internet, its key feature will be its openness and interoperability. Bringing this to life will take collaboration and cooperation across companies, developers, creators and policymakers, Facebook explained.

    Currently, the metaverse is extremely speculative concept. It will take significant time, corporate collaboration, financial and technical resources to create and to make operational.

    References:

    1. https://cryptonews.com/guides/what-is-the-metaverse.htm
    2. https://www.barrons.com/articles/metaverse-facebook-tech-stocks-51634943295?mod=past_editions
    3. https://www.nasdaq.com/articles/best-stocks-etf-for-the-trillion-dollar-metaverse-2021-08-16
    4. https://www.equities.com/news/what-is-the-facebook-metaverse-think-of-the-matrix-movie-jeff-kagan
    5. https://about.fb.com/news/2021/10/creating-jobs-europe-metaverse/

    Quote: Freedom Involves Risk

    Posted on by

    “To laugh is to risk appearing the fool,

    To weep is to risk appearing sentimental,

    To reach out for another is to risk involvement,

    To expose feelings is to risk exposing your true self,

    To place ideas and dreams before the crowd is to risk their loss,

    To love is to risk not being loved in return,

    To live is to risk dying,

    To hope is to risk despair,

    To try is to risk failure,

    But risk must be taken because the greatest hazard in life is to risk nothing. The person who risks nothing, does nothing, has nothing, and is nothing. He may avoid suffering and sorrow, but he simply cannot learn, feel, change, grow, love and live. Chained by certitudes, he is a slave, he has forfeited freedom.

    Only a person who risks is free.”

    Author Unknown

    “Freedom is never free. It requires risk taking.” Nassim Nicholas Taleb.

    Preventing Scams and Cybercrime

    Posted on by

    Fraudsters and cybercriminals are getting sneakier – sometimes even claiming to be your bank or financial institution. Outsmart scammers with these tips.

    With more than 2 billion people worldwide accessing the internet through smartphones, hackers have never had greater incentive to devise new scams. Getting scammed is an unpleasant experience, but you can be one step ahead.

    For example, you look at your phone and you have a new text message saying it is from your bank or financial institution. The message tells you to click this link and download a new app to secure your identity or customer account. It’s strange because you’ve never received a text from your bank at this number before, and you already have your bank’s app downloaded, or at least you thought?

    STOP! Don’t click that link. There are a number of red flags to watch out for to recognize a phishing attack. Although this trick is commonly employed over email, savvy thieves are now trying to install ransomware or steal your financial or personal information by impersonating a bank, credit card company or service provider by phone calls or even text messages. Phishing is when a fraudster tricks a consumer into providing their personal information through a fake app or website. The site may appear have a copy of your bank’s or another company’s logo and appears legit. So how do you tell it’s not?

  • With increasing number of cases related to cyber frauds or online scams, it’s recommended that you follow these tips to detect a scam by text and protect your identity:
      • Check the number and search for how your bank has texted you in the past. Are they different? Don’t click the link!
      Is this message irregular? If you have not recently conducted business, used your cards or logged into your bank via the app, mobile or desktop, it may feel out of context to be receiving this request. Don’t click it!
      Are they using the right terminology for you and your account? Does your bank refer to you as a member but this text message says “customer.” Don’t click it!

    REMEMBER: Do not download any software or click on unknown links sent to you by email or text! Banks will typically never ask you to download software in an email or while you are on the phone with us..

    Emails

    There are some easy ways to ensure the email is from bank. Bank emails typically include a Security Zone to help you distinguish a legitimate email from a fraudulent one. Here is what to look for to help identify authentic emails:

    • Always hover over the sender’s email address to verify who it is from. Banks will only send emails from an address that clearly indicates it is from your bank.
    • To be effective, you must verify the spelling of your first and last name and the accuracy of the last four digits of your USAA member number every time you receive an email from USAA.

    Phone Calls

    RING, RING, RING

    The caller ID says your bank across the top. It’s not a 1-800 or a 1-877 number, but when you answer, the caller says they are with your bank and now asks for your customer service identification number to verify you. The caller may offer to assist with installing software you need for your financial services … what do you do?

    STOP! Don’t share your personal information before verifying the caller. If your bank is calling you, they typically will never ask for your “customer” identification number, credit card number or other personal information.

    Follow these tips to detect a scam by a phone call and protect your identity:

    • Do not share security or personal data: Your bank will never call you and then ask you for your one-time verification code, PIN, password or other personal identification details.
    • Always realize that you can call your bank to determine if any request for information is valid. When you call us, know that we’ll use the multifactor identification code from your phone to verify you.

    “Grandpa, I need your help. My car won’t start. Please send me money using this app…” OR

    “Hi, how are you? I can’t deposit any money into my bank account because I am deployed. Can you send me some money for my phone card so we can continue talking? I really miss you.”

    STOP! Imposters have many tricks up their sleeves when they are trying to access your information or steal your assets. As discussed above, it could be by impersonating a company through a phone call, email or text, but now they are even trying to contact you on third-party social platforms, like Facebook or Twitter, or through dating apps and sites.

    Follow these tips to avoid a grandparent or romance scam:  

    • Never send money to someone you don’t know in real life, especially using a third-party app like Zelle, CashApp, etc.
    • If someone claims to be a family member, verify with that family member by calling them directly! If you think your grandson needs help, call him or call his parents before sending money unintentionally to a scammer.
    • Do your research. If you are getting to know someone online, make sure you look them up, validate they are who they say they are. Some also claim to not have access to common resources overseas because they are serving, which is often untrue.

    If any of these situations should happen to you, reach out for advice before giving out any personal information. And, if you get a suspicious email, text, instant message or phone call, you can report it to your bank or to the Federal Trade Commission at ftc.gov/complaint.

    If a scam does trip you up in real life, get help! The FBI has an Internet Crime Complaint Center at ic3.gov. You can also report identity theft to the Federal Trade Commission to 1-877-ID-THEFT (84338).

    There are also some easy ways to ensure a text message is from your bank.  Based on your request, many banks may send a one-time code as part of its multi-factor authentication process. If you suspect fraud, you should:

    •  REPORT! Even if you didn’t share personal information or click a questionable link, if you suspect fraud, let us know so we can help prevent it to protect you and other members in the future.
    • If you receive a suspicious call from someone claiming to be your bank and is requesting account information or security credential information, hang up immediately!
    • If you provided any personal identifiable information prior to hanging up, alert your bank.
    • If you did not provide any information, you should still send an email to your bank reporting the phone number or text message and message details. This helps them to actively work to shut down fraudulent callers, sites and emails.

    Imposters can come from the least expected places and they are constantly changing their tactics. That’s why it is so important to always be on alert. While financial institutions can use sophisticated detection processes, they are most effective in fighting fraud when they work together with their customers.

     

    Global Inflation Worries

    Posted on by

    “Inflation will be higher and more persistent than people expect.” Mohamed El-Erian, Allianz & Gramercy Advisor

    Higher and more persistent inflation may now be an unavoidable economic fact of life for Americans, and it’s starting to make a lot of economists, investors and public leaders worry. They, specifically economists, collectively believe inflation is primed for rapid growth domestically as trillions in federal stimulus spending is layered on top of the Federal Reserve’s loose monetary policy.

    This level of unadulterated fiscal spending could mean that investors will have to get used to inflation, higher interest rates, more market volatility and lowered returns on invested capital.

    In conjunction to domestic and global inflation concerns, there exist two significant global economic worries for individuals and investors:

    • Global supply chain constraints which are significant and will get worst whether it is disrupted supply chains or labor worries, and
    • Global tightening of monetary conditions and less liquidity.

    But, major shocks to the economy tend to be caused by either a major policy mistake or market accidents. Yet, we’re unlikely to witness double digit inflation in the United States.

    The Federal Reserve and the Biden Administration contend that the elevated inflation readings will prove transitory. The Fed and Administration view that the current inflation stems chiefly from temporary factors such as supply bottlenecks and a spike in post-pandemic consumer demand.

    The August inflation report showed that prices increased by 5.4% year over year in July. Wages increased, too—but not by enough to offset inflation.

    And, Americans know inflation when they see it: retail shops and restaurants are raising their prices on consumers, and prices of used cars and trucks were 32% higher in August than they were a year earlier, and workers are discovering bargaining power over wages for certain positions for the first time in years, according to Barron’s. “Inflationary pressures are likely to rise because everyone is spending—including the government—and it becomes a self-sustaining cycle,“ says Karen Karniol-Tambour, co-chief investment officer for sustainability at Bridgewater Associates.

    “When you live in a world of abundant liquidity, investors tend to take on too much risk.” Mohamed El-Erian

    Congress has assigned a dual mandate for the Federal Reserve: Foster maximum employment and maintain price stability. The FOMC has interpreted maintaining price stability as keeping inflation growing at about 2% a year over the long-term.

    Over the past two decades, the Federal Reserve has been unable live up to its two percent inflation mandate. Using the Fed’s preferred gauge of inflation, core Personal Consumption Expenditures (PCE), which tracks price changes over time without volatile energy and food costs, inflation has remained stubbornly below the Fed’s 2% annual target since the 2007 – 09 Great Recession, except for a brief stretch in early 2012 and much of 2018.

    Going from a disinflationary world to an inflationary world

    Evidence that some of the issues that might spur inflation could abate ahead, particularly some of the supply chain issues. Additionally, unit labor costs remain low, meaning that companies still aren’t spending substantially more for productivity, which also could tamp down inflation.

    Federal Reserve Chair Jerome Powell has been resolute in his commitment to seeing the whites of inflation’s eyes before raising rates or paring back quantitative easing. But some market observers believe the Fed is being too lax.

    “Financial conditions should remain quite accommodative for a while and in our view risks an overshoot,” said Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income.

    The drivers of global inflation are many and complex. They include global economic and policy forces as well as domestic. Yet, it’s important to keep in mind that the rise in inflation isn’t necessarily life altering. Although, policy makers can’t hold on to the “mystical attraction of transitory inflation” when the facts on the grow indicate the contrary, according to Mohamed El-Erian. Given the extraordinary level of fiscal and monetary economic stimulus, inflation may be less transitory than previously thought.

    References:

    1. https://www.forbes.com/advisor/investing/inflation-worries/
    2. https://www.cnbc.com/video/2021/10/25/mohamed-el-erian-were-not-anywhere-near-risk-of-hyperinflation.html
    3. https://www.pimco.com/en-us/insights/viewpoints/want-to-mitigate-inflation-take-a-portfolio-approach
    4. https://www.barrons.com/articles/government-economy-stock-market-51633705211

    Financial Health

    Posted on by

    “Despite positive financial health trends at the national level, the majority of people in America are still not financially healthy.”

    U.S. Financial Health Pulse, we find that more people in America were Financially Healthy as of August 2020 than they were in 2019.

    Building upon the foundation of a strong pre-pandemic economy, it appears that an array of stimulus policies, debt relief measures, economic shutdowns, and consumer behavior changes have temporarily blunted the worst effects of the economic crisis for many people.

    But a majority of people in America (67%) are not financially healthy; these individuals have little financial cushion should relief measures subside and economic conditions worsen. Among those who are struggling financially, millions of people are experiencing extreme financial hardship. We also find that profound disparities in financial health have persisted, and in some cases widened, across race, income, and gender.

    From the U.S. Financial Health Pulse, we find that more people are Financially Healthy in 2020 than they were last year. But many people are still struggling financially and there is evidence that financial health disparities have widened over the past three years.

    In the long-term, solutions that address systemic barriers to financial health – such as policies that ensure pay equity, living wages, workplace protections, affordable healthcare, and access to high-quality financial products and services – are necessary to ensure equitable financial health outcomes for all.

    • Indicator 1 – Spend Less than Income – As of August 2020, 57% of people in America said their spending was less than their income over the last 12 months, a significant increase from the 54% of people who reported this in 2019 and the 53% of people who reported this in 2018 (Figure 6). This increase is likely the result of strong economic
      growth over the past two years, combined with a confluence of recent interventions and events that have increased people’s income, while reducing their overall expenses over the last few months. On the income side, the stimulus payments, the additional $600 in federal unemployment insurance, and the Paycheck Protection Program loans temporarily increased many people’s disposable income over the spring and summer.11
    • Indicator 2 – Pay Bills On Time:  As of August 2020, 69% of people in America said they paid all of their bills on time over the past 12 months, an increase from 2019 and 2018, when 66% and 64% of people reported this (Figure 9).17  This upward trend is likely the result of the confluence of factors discussed in the previous section: economic growth prior to the onset of the pandemic, government stimulus measures, forbearance and relief measures, state lockdowns, and changing consumption patterns have left people with more money to put toward bill payments. In fact, as of May 2020, nearly half of people (45%) who had received a stimulus payment by May said they used the funds from that payment to pay their rent, mortgage, or utility bills (Table D5)
    • Indicator 3 – Liquid Savings:  As of August 2020, 59% of people in America said they had enough savings to cover at least three months of living expenses, an increase from 53% in 2019 and 55% in 2018 (Figure 12). The upward trend over the past year is likely the result of strong economic growth since 2018, the recent stimulus and relief measures, and a reduction in consumption during state lockdowns.24 These self-reported trends align with reports from the U.S. Bureau of Economic Analysis showing that the U.S. personal savings rate hit an all-time high in April 2020.25
    • Indicator 4 – Long-Term Savings:  As of August 2020, nearly half of people in America (47%) said they were confident they were on track to meet their long-term financial goals, a significant increase from 2019 when 39% of people reported this, and 2018 when 40% of people reported this (Figure 15). These sentiments are supported by national data from Fidelity showing that average balances in IRAs, 401(k)s, and 403(b)s grew significantly during the second quarter of 2020 as the stock market soared.29
    • Indicator 5 – Manageable Debt:  As of August 2020, more than half of people in America (55%) said their debt was manageable, an increase from 2019 and 2018 when 52% and 53% of people reported this (Figure 16). A decrease in overallhousehold debt is likely driving people’s improved perceptions about the manageability of their debt.  According to the Federal Reserve, total household debt decreased by $34 billion from April to June 2020, as people cut back on their expenses, reduced new borrowing, and focused on paying off outstanding debt.30 Mortgage payment deferrals and the federal moratorium on student loan obligations may have also contributed to improved sentiments about debt manageability.31
    • Indicator 6 – Credit Scores:  In August 2020, nearly seven in 10 people in America (69%) said they had a prime credit score, an increase of 3 percentage points from previous years, when 66% of people reported this (Figure 22). These figures align with nationally representative data from Experian showing that VantageScores generally improved in the early months of 2020.36 While credit score calculations are based on a variety of inputs, an overall reduction in household debt (pg. 27), changes in credit reporting requirements per the CARES act, and a reduction in credit utilization may be driving improvements in credit scores nationally.37
    • Indicator 7 – Adequate Insurance:  In August 2020, 52% of people in America said they were confident they would have sufficient insurance to manage an emergency, a significant decline from the 58% of people who reported this in 2019 and the 61% of people who reported this in 2018 (Figure 23). This indicator was the only one of the eight financial health indicators that declined between 2019 and 2020. Some of this decline may be due to a change in survey logic preceding the question used to measure this indicator.38 However, some of the decline may beexplained by a longer-term trend in declining rates of health insurance ownership
    • Indicator 8 – Planning Ahead:  As of August 2020, 64% of people in America said their household plans ahead financially, a significant increase from the 59% of people who reported this in 2019 (Figure 24). While it may seem counterintuitive that more people are planning ahead during such a volatile time, it may be precisely the uncertainty of the current moment that makes planning so compelling.41 Without knowing when the next round of stimulus and relief measures will arrive, many people continued to keep their expenses low, even as states began to reopen their economies. Much of the decrease in spending has been driven by people with higher incomes (as we discuss on pg. 25), but people with lower incomes have attempted to reduce their expenses as well.42

    Return on Equity (ROE)

    Posted on by

    Return on Equity provides insight into how efficiently a company’s management is using financing from equity to operate and grow the business.

    Return on Equity (ROE) is the measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity. It is a simple metric for evaluating investment returns and it brings together the income statement and the balance sheet, where net income or profit is compared to the shareholders’ equity.

    “ROE is a way to think about how much money you are getting back from an investment,” says Mike Bailey, director of research at FBB Capital Partners in Bethesda, Maryland

    The number (ROE) represents the total return on equity capital and shows the firm’s ability to efficiently turn equity investments into profits. To put it another way, it measures the profits made for each dollar from shareholders’ equity.

    It is a ratio that investors can use to compare firms operating within the same industry to assess which one presents better investment opportunities.

    Comparing ROE for different companies in the same industry helps investors to see which ones have generated the highest rate of return. ROE is a useful metric for service-based businesses.

    A sustainable and increasing ROE over time can mean a company is good at generating shareholder value because it knows how to reinvest its earnings wisely, so as to increase productivity and profits. 

    “ROE tells you how good or bad management is doing with your investment,” Bailey says. “Higher ROEs generally stem from profitable businesses that enjoy competitive advantages within a given industry.”

    In contrast, a declining ROE can mean that management is making poor decisions on reinvesting capital in unproductive assets.

    In short, Return on equity measure, of how efficiently a company is using shareholders’ money. Efficient companies tend to be more profitable companies, and more profitable companies tend to make better investments, investors like companies with higher ROEs.

    For capital-intensive businesses that require a larger investment in assets, like those in manufacturing and telecommunications, return on invested capital (ROIC) is a more useful measure, as it takes into account their capital expenditure.

    Return on Invested Capital is calculated by taking into account the cost of the investment and the returns generated. Returns are all the earnings acquired after taxes but before interest is paid. The value of an investment is calculated by subtracting all current long-term liabilities, those due within the year, from the company’s assets.

    The cost of investment can either be the total amount of assets a company requires to run its business or the amount of financing from creditors or shareholders. The return is then divided by the cost of investment.

    References:

    1. https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-return-on-equity-roe/
    2. https://money.usnews.com/investing/articles/what-is-return-on-equity-the-ultimate-guide-to-roe
    3. https://capital.com/return-on-equity-roe-definition