I had a great conversation with Beth Kobliner recently. Beth has an incredible personal finance focused CV. She’s been a columnist at Money Magazine, authored one (and soon to be two) New York Times Bestsellers (Get a Financial Life: Personal Finance in Your Twenties and Thirties), served on the President’s Advisory Council on Financial Capability, and gave financial advice to Elmo on Sesame Street (and a whole lot more too)! In this NGPF podcast, Beth shares the money lessons she learned growing up in Queens, New York as well as the motivation for her latest book, Make Your Kid a Money Genius, to be released in February. You will benefit from Beth’s insights on how to invest, use credit cards wisely and a simple test to control those impulsive purchases. Parents will find Beth’s new book a godsend in describing developmentally appropriate actions to build that financial decision-making muscle that your children need to thrive in this financially complex world. Enjoy!
Incentives matter when it comes to financial products. Hat tip to Meb Faber whose podcast I was listening to earlier today and reminded me about this 2008 research report titled “Do Managers Eat Their Own Cooking?” from Russ Kinnel at Morningstar. As the title suggests, Kinnel analyzed whether mutual fund managers actually invest their money in their own funds. Recall that the promise of active management, and the reason that investors pay fees of around 1%, is that they can beat the market (but, alas, almost none do!). Recall also that getting the market return through an S&P500 index fund costs about 0.10-0.15%. Ok, so active managers charge high fees which makes it difficult for them to beat the market. Guess what, someone has figured this out, and it’s not who you might expect…it’s the actual managers running the funds. How do I know? Well, Kinnel found the following:
“At U.S.- stock funds, 47% report no manager ownership. And it gets worse from there. Fully 61% of foreign-stock funds have no ownership, 66% of taxable bond funds have no ownership, 71% of balanced funds put up goose eggs, and
I received an email from a personal finance curriculum in my inbox this morning (nothing unusual here, I get a lot of them:). The provider was encouraging their educators to update their curriculum since they had heard some were still using their 2001 edition (Remember Friends? That was the top TV show in 2001). Yikes! Quick digression, ok, let’s call it a commercial: Since NGPF makes all of its content available online, we make real-time updates when circumstances change, such as when the FAFSA becomes available three months earlier.
I thought it would be interesting to think about how the financial services industry has changed since 2001. In other words, what are students missing if they are being taught from a 2001 edition?
- How we bank:
- Even as late as 2002, mobile banking was being defined as “making a transaction by calling a call center using a mobile device (Mobile Banking Systems and Technologies paper). How quaint!
- Today, 53% of smart phone owners with a bank account used mobile banking services (no longer defined as calling a call center from a mobile phone) based on a Federal Reserve study.
With the growth of index investing, it is imperative that your students understand the various indices and what they consist of and their similarities and differences. This infographic from the Visual Capitalist will help:
Some good laughs here but also some good messages (which I have paired with corresponding NGPF resources):
Message: With the power of compound interest, it is important to start saving as soon as possible!
- NGPF Activity: Calculate Compound Interest
Why is the infographic below so important? As educators, we need to rethink how we are teaching young people about investing, as robo-advising continues to grow. In six short years, this trend has gone from the realm of the start-up garage to a service offered by the leading investment management firms (Vanguard, BlackRock and Fidelity), who now have billions under management. How should we change our teaching methods? We will teach less about individual stock selection, P/E ratios, growth rates and competitive landscape and more about asset allocation, risk tolerance and rebalancing.
Looking for some ideas on how to incorporate robo-advising into your investing unit? Here are a few ideas from NGPF (with more on the way):
- Simulation: Would You Trust a Robot to Make Investment Decisions (NGPF Interactive Library)
- Audio Resource (from Marketplace.org): Would You Let a Robot Invest Your Money?
- Articles: Here Come the Robo-Advisors
Here’s the infographic from Visual Capitalist (hat tip to Big Picture Blog) demonstrating how much has happened in so little time:
This is a great example where your knowledge of investing can come in handy for yourself and other teachers in your building. The NY Times story shows what happens when light regulation meets rapacious financial firms. This is why financial literacy is so important! We can wait for regulation or we can arm ourselves with the knowledge necessary to avoid disasters like the story told below. Without knowing the right questions to ask or understanding the alternatives, too many teachers have seen their retirement savings swallowed by excessive fees. Actually one question may have gotten to the core of this scandal: Show me the fees (and persist until you get the answer)!