The Importance of Financial Literacy for Women

At least once a week, I’m asked why I’m so passionate about the importance of financial literacy, and especially women’s financial literacy. I think some of the statistics that are circulating during this Women’s History Month/International Women’s Day make the point. While we all know that American women score a D (or lower) on financial literacy quizzes, that nearly 80% of elderly women live below the poverty line, and that women lost 5.3 million jobs with this pandemic compared to 1.8 million men, there are some deeper issues at play when a woman lacks the financial wherewithal to understand her fiscal situation.

Based on estimates from the new World Health Organization study, and considered low by social services professionals handling the issue, at least one-third of women have experienced some form of domestic abuse and those numbers don’t include the majority of the pandemic months when domestic violence has risen over 40%. What does this have to do with financial literacy? Stunningly, financial abuse occurs in 99% of domestic abuse cases (per the NNEDV) and the lack of financial literacy exacerbates this issue. If someone doesn’t understand money issues, they are far less likely to understand when they are being taken advantage of or abused.

As we move into the 2nd year of COVID (Seriously??? Year 2??), financial literacy can help someone understand how to interpret the information they are being fed by the government / the media / social media. While sources have been celebrating that COVID death rates are dropping, anyone who has even a modicum of financial literacy can easily recognize that dropping to 2,000 deaths/week only means we’ve reached levels from last summer when we were all pretty sure life was teetering on the edge of craziness. Part of financial literacy is being able to put perspective to numbers the same way we determine the value of something we are paying for. For example, I may be paying more for a pair of shoes but I know that designer makes shoes that don’t make my feet ache (and I’m not ready to give up the heels….).

Moving away from COVID and the pandemic, let’s chat about climate change / environmental pollution (because, why not hit another third rail, next up religion…No, I won’t do that to you all). Helping women better understand their finances can help them put the resources together to move away from a bad housing situation. Shockingly but not surprisingly, the Greater Rochester Area has more than its fair share of environmental clean-up areas (thank you Eastman Kodak, 3M, and DuPont) and anyone living along the Lake understands the impact of climate change. If you don’t understand finances, how can you evaluate repair quotes or wisely choose a new home that you can afford? Too many women default to “that house costs more than I’m paying now” and forget to incorporate things like additional medical co-pays from living in a situation that makes their kids sick or all the other expenses that could change with a housing move. Understanding what we’re spending is also understanding how those different categories relate to each other.

Moving on to politics (I took religion off the table, not politics…), a financially literate woman understands that no law school (at least none we could find) requires any financial or economic courses to earn a law degree so when she casts her vote for an attorney running for office (54% of Senators and 37% of House members), she is casting her vote for someone with no educational background to evaluate the financial decisions being made about the fiscal future of our country. That means her vote is now a conscious choice, which is a far more educated choice, than voting for someone simply along party lines.

So, yes, I am passionate about the importance of financial literacy. Without it, I fear that the new normal will feel a little more like wrestling with Cujo than strolling in Kansas with Toto.


From First Home to Last Home

One of the questions I get from clients who are a bit older is “can I age in place?”  “Aging in place” simply means, is your home set up so that you can maneuver around as you grow less nimble and perhaps need some mechanical assistance to get around (walker, wheelchair, etc.). This includes having wider doorways, door handles instead of knobs, a shower stall without a ledge versus a bathtub, lower countertops in the kitchen, etc. You’ll notice that I didn’t mention being all on one floor or having a master suite on the main floor. While the data is still relatively new, there is a school of thought that NOT doing stairs is actually exacerbating some aging issues here in America. Now, the study I read compared us to Europeans and that’s like comparing apples to Big Macs but there is a kernel of reality there so this will be interesting to watch as more Boomers age. Of course, some situations make one floor living more realistic but stop and think about whether it is something you “want” or something you “think you should have.”

Contrary to popular belief, size does matter – no one has ever said to me “boy, I really like maintaining this big house now that everyone has moved on – I want to buy a bigger house.”  Bigger houses just cost more and there’s more to maintain both inside and out. Take yard work as an example. While I miss the joy of driving my John Deere with the 60” deck, cup holder, and cruise control, I absolutely do not miss being tied to spending 3+ hours mowing each and every week. It now takes me roughly 17 minutes to mow my front lawn with my little 17’ battery-powered push mower, which means I can throw dinner on the stove, mow the lawn, and be back in before it finishes. Quite a difference. Before you start shopping, make a list of the things you absolutely have to have, the aspects that would be nice to have, AND the features you don’t want. This will shape your search.

So let’s talk money – Remember, a home is where you make it. Often, the hardest part of the moving question is making sure we strip out the emotional aspect of the issue so that it’s more about the financial logistics. VERY, Very, very few people in the Greater Rochester area sell their current home and clear enough to retire on, or even to shore up their retirement significantly. More often, they end up spending slightly more than they clear from their current home (either in actual home cost or in the costs of owning the new home) so the question becomes how to handle the difference. Sometimes the house itself is slightly more expensive, sometimes they move from a less expensive property tax area to a more expensive one, or perhaps it’s as simple as leaving Fairport Electric and being stunned by what the real world pays to turn on their lights. Just ask my parents about their sticker shock when they opened their first Avon water bill compared to the Penfield bill they’d been getting for 40 years (when my mom’s on a roll, trust me, it comes up even 10+ years later).

I encourage all of my “I’m/We’re thinking of moving” clients to build a cash flow worksheet as if they already live in “the new place.” For research purposes, go house shopping and pick a house you’d like.  Take a look at what you’ll pay for it versus the current town assessment and calculate what the annual tax bill is going to be. So many people forget that the tax basis resets after a sale and use the old tax costs in their projections. If a house is assessed at $175,000 but you’re buying it for $210,000, you’ll need to bump up the tax line in your cash flow worksheet by 20% from what you see on the Zillow/Realtor/Whatever database. 

What about moving costs? Are you planning on remodeling? Big project or just paint? Do it yourself or use a contractor? Keep going and pick apart everything you can think of about your current house and your projected house. Once you’ve done an armchair cash flow worksheet, you’ll be ready to start shopping.

There is so much more to this particular question but this should get you moving down the right path (or driveway, so to speak). Doing this work ahead of time might help you realize that there’s no place like home, even if it’s the home you already have.


Another Year, Another Box of Shred

With the New Year’s holiday in the rearview mirror, now is when nearly everyone’s minds begin to drift towards dealing with the annual PIA called Tax Day. Even if you are one of the lucky ones who no longer need to file, you can’t tell me that there isn’t just the faintest tickle in the back of your brain that says “oh lord, is it that time of year again?!?!?!” As part of the annual ritual, we often try to discard something (or somethings) as a way of making room for all the new stuff we need to keep. I thought it would be a good idea to do a quick rundown of what you really should keep, what’s optional, and what can hit the shred bin. 

Let’s start with what you should be keeping forever (or “permanently”). You should be maintaining copies of all of your tax returns along with records of payments for any tax liabilities and the supporting tax documents (those W2s, etc…) forever and ever. This category also includes your divorce documents, military service records, birth & death certificates, and medical records. Now don’t freak out on me – we’re really only talking a handful of papers for every year more than seven years old and I have my historical returns from 1986 to 2013 in a single Bankers Box. These days, you can scan or receive many of these documents as a .pdf. There are pros and cons to keeping things electronically though. Pros: electronic versions definitely take up less space in a small home. Cons: I know of a couple different people whose electronic backup was corrupted and all those records are gone. Of course, I also know of two different house fires that toasted the family paper documents so that’s not a perfect solution either. Me, I’m a paper gal so I’ll continue to use my “permanent records” box as a shelf for my cats to look out the window, but I am considering spending one of those free weekends everyone keeps talking about experiencing to scan some old stuff…

The next category is the things you need to keep for seven years. This time frame is somewhat deceptive since the seven years usually start AFTER a triggering event. Seven years AFTER you sell a property or investment, you can shred the documents related to that investment. Seven years AFTER you leave a job and roll your 401k, you can get rid of the old documents (although I’ll be the first to say this one’s on my list of “overkill” criteria). If in doubt, this is the time frame I encourage people to use. We can thin the ranks a little by only keeping year-end statements as long as it is a year-end summary statement, not just the December or 4th quarter statement.    

Finally, we have the short-term category (three years). This applies to mainly bank statements, to which you are saying “bank statements? I can get those on my bank’s website.” To which I say “maybe…”  Most financial institutions only keep about 18 months on the public-access sites. Longer than that, they may or may not have them and most banks will charge you for the privilege of accessing your own records (sometimes by the page).

So why do you need your bank statements? Let’s segue to a quick recap of the IRS auditing schedules: The last three years is completely open season for the IRS (three years from the return date OR the filing date, whichever is later). Now, IF you get audited and they find something hinky, they can go back another three years and root around like a pig looking for truffles. If that “hinky” turns out to be considered fraud, there is no time limit – you might as well make up the spare bedroom and invite the auditor to stay for a while (to digress, am I the only one who took a small amount of perverse pleasure in watching Wednesday’s implosion? Talking about the IRS just brought that to mind – I wonder why….). If you don’t file a return, which is perfectly legit for some people, there is no time limit on the audit period (which is why I often encourage people to file a free & easy EZ or SR form even if they don’t owe anything just to get the clock started). Should you be worried about an audit? Not in the slightest. Using 2017 stats, assuming you made less than $200k and don’t have a business, only 1 in 364 returns got audited and the majority of those were computer audits (the “our records don’t match” kind). The IRS focuses its dwindling resources on what they call the “traditionally non-compliant” and few of you are international small business owners. Does this mean you shouldn’t keep your bank statements – I didn’t say that in the slightest…  

Here is a link to download a handy set of Records Retention Guidelines.


Global and International Funds

While I’ve been trying to curb my news junkie tendencies, the staggering variety of train wrecks and car crashes to read about these days threatens to overwhelm one. What I find so interesting (well, I find a million different things interesting but for the purposes of this missive we’ll narrow that down) is that the nature of the catastrophes domestically differs somewhat in make-up from those that are occurring in other countries (or at least what’s getting coverage). And, of course, that leads me to thinking about finances domestically and internationally (penalty points to all of you rolling your eyes right now). I’m sure you’ve all heard the old gardening quip: A daffodil is a narcissus but not all narcissus are daffodils. I think that quip has some value in the investing world when we think of global investing versus international investing.

Stepping back, let’s do some definitions: for our purposes, “global” means the whole globe, all 195+ countries including the US (or “domestic” markets) whereas “international” means the whole globe except the US. Generally, a company is classified where the company is headquartered so while it may be a global company, if its headquarters is in the US then it is a “domestic” company whereas a global company with its headquarters in Ireland is an “international” company. 

Now, I know what you’re saying – why bother with investing internationally when I can just buy a global fund. Yes, that would seem logical but I think we’ve established that logic doesn’t always function properly when it comes to investing (or elections, pandemics, congressional aid, etc…). A quick survey of a half dozen “global” funds shows that all of them invest over half of their positions in domestic markets which means you aren’t really getting all that much international exposure, particularly if that one global fund only represents a portion of your investment allocation. If we are looking at target date and/or asset allocation fund (those all-in-one/one-stop-shop funds), that percentage drops to about 20% or even lower.

“Ahh,” you say, “but if I invest in a large cap domestic fund don’t I get global exposure through all those big global companies” to which I say “ahh, nice try grasshopper…” The great thing about international funds is that they invest in all sorts of companies that are doing all sorts of things that those big companies aren’t. Think of it this way – that big US company with its fingers in a dozen or more countries is like a big ole battleship. That ship isn’t going to change quickly or turn on a dime. What you are missing out on are all those little boats swooping around/in front of/loop-de-looping that big ship and that’s the exposure we want. Because of the different nature of their markets, we often see stronger dividends from those international companies (remember our conversation about the insulation dividends provide awhile back) and those other governments are doing different things to help support their economies that often mean more stable share pricing. Heap on top a dollop of completely different ways of reacting to the current pandemic and you are seeing some other countries rebound in ways our domestic markets can only fantasize about. For example, the Eurozone economy dropped way less last quarter than the US (-12.1% vs -33%) and is on track for a positive growth for the 3rd quarter whereas we probably won’t see true positive numbers for a while yet.

Now, I’m not in any way endorsing a wholesale flip to putting all of your dollars into international holdings. I’m merely saying that everything has its place in your portfolio, for one reason or another. If, after looking at your portfolio, you’re thinking of adding more international exposure, we can certainly have a conversation about your options. If you aren’t totally convinced that something international belongs in your portfolio, check out the news item about the laptop thieving boar in Germany – interesting stuff happens all over the globe and only a well -diversified portfolio has the chance to take advantage of it.


“Buy and Hold” Philosophy

Speaking with several prospective new clients over the last couple of weeks, I’ve been asked if I’m of the “buy and hold” philosophy so I thought I would expand on that a little.

Most mutual fund/ETF (Exchange Traded Funds) providers as well as a whole host of advisors endorse the buy and hold strategy for the long-haul but that’s really a simplistic view of things. In order to build solid 20 year portfolios, we need to understand who we are as investors and as people then put together a reasonably appropriate mix of investments that reflects those parameters. What simply saying “buy and hold” fails to do is take into account our changing personalities and our changing needs.  Expectations for a long-term portfolio are completely different to my 40 year old clients than they are for my 67 year old ones. Our ability to tolerate a recession is certainly different if we are working than if we have just recently retired. You’ve all heard my octopus analogy so let me take that another step and say that not only does our octopus need a variety of legs but, over time, the nature of those legs will need to change as well.

I would suggest we say “buy – hold – adjust” rather than “buy – hold – sit tight with fidgeting fingers and toes.” Too many in my industry have used the phrase “don’t worry, it will be fine/alright/platitude of the day,” which clearly doesn’t sooth any emotional needs. Yes, moving things around too often can be a recipe for disaster (at the least, a healthy dose of fees), but strategically moving things, as a result of our own introspection and adapting to our new environment (meant whichever way you choose), can be the right thing to do at just the right time. If we are aging from a time of accumulation towards one where we are going to need at least some income, then it’s time to adjust. If we can’t bear the thought of another protracted down cycle, then it’s time to if not circle the wagons, at least do a head count of our horses. If we are fast approaching the IRS’s demand for our Required Minimum Distribution then doing a little adjusting can make that hit a little less painful. If we’ve done our financial planning job well, there aren’t fires, just a candle or two that add ambiance rather than fear and panic.

Now if you’re on the young side (chronologically, not those of you who feel young at heart), have no portfolio income needs and the stomach of a hard core amusement park ride aficionado, then, by all means, buy, hold, and park the statement in a drawer (or don’t open the email depending on your choice of delivery method). But, if you aren’t all three, your portfolio is going to need some attention at least periodically so don’t be surprised if I make a suggestion here and there. The world is changing around us and our portfolios need to reflect that. Think of what our lives looked like in the 80s – seriously, would you wear your hair like that ever again??? Perhaps our portfolios should shed the blue eye shadow as well.


Oh no…not the daffodil or narcissus question!

While I’ve been trying to curb my news junkie tendencies, the staggering variety of train wrecks and car crashes to read about these days threatens to overwhelm one. What I find so interesting (well, I find a million different things interesting but for the purposes of this week’s missive we’ll narrow that down) is that the nature of the catastrophes domestically differs somewhat in make-up from those that are occurring in other countries (or at least what’s getting coverage). And, of course, that leads me to thinking about finances domestically and internationally (penalty points to all of you rolling your eyes right now). I’m sure you’ve all heard the old gardening quip: A daffodil is a narcissus but not all narcissuses are daffodils. I think that quip has some value in the investing world when we think of global investing versus international investing.

Stepping back, let’s do some definitions:  for our purposes, “global” means the whole globe, all 195+ countries including the US (or “domestic” markets) whereas “international” means the whole globe except the US. Generally, a company is classified where the company is headquartered so while it may be a global company, if its headquarters is in the US then it is a “domestic” company whereas a global company with its headquarters in Ireland is an “international” company. 

Now, I know what you’re saying – why bother with investing internationally when I can just buy a global fund. Yes, that would seem logical but I think we’ve established that logic doesn’t always function properly when it comes to investing (or elections, pandemics, congressional aid, etc…). A quick survey of a half dozen “global” funds shows that all of them invest over half of their positions in domestic markets which means you aren’t really getting all that much international exposure, particularly if that one global fund only represents a portion of your investment allocation. If we are looking at target date and/or asset allocation fund (those all-in-one/one-stop-shop funds), that percentage drops to about 20% or even lower.

Ahh, you say but if I invest in a large cap domestic fund don’t I get global exposure through all those big global companies to which I say “ahh, nice try grasshopper…”  The great thing about international funds is that they invest in all sorts of companies that are doing all sorts of things that those big companies aren’t. Think of it this way – that big US company with its fingers in a dozen or more countries is like a big ole battleship. That ship isn’t going to change quickly or turn on a dime.  What you are missing out on are all those little boats swooping around/in front of/loop-de-looping that big ship and that’s the exposure we want. Because of the different nature of their markets, we often see stronger dividends from those international companies (remember our conversation about the insulation dividends provide awhile back) and those other governments are doing different things to help support their economies that often mean more stable share pricing. Heap on top a dollop of completely different ways of reacting to the current pandemic and you are seeing some other countries rebound in ways our domestic markets can only fantasize about.  For example, the Eurozone economy dropped way less last quarter than the US (-12.1% vs -33%) and is on track for a positive growth for the 3rd quarter whereas we probably won’t see true positive numbers for a while yet.

Now, I’m not in any way endorsing a wholesale flip to putting all of your dollars into international holdings.  I’m merely saying that everything has its place in your portfolio, for one reason or another. If, after looking at your portfolio, you’re thinking of adding more international exposure, we can certainly have a conversation about your options. If you aren’t totally convinced that something international belongs in your portfolio, check out the news item about the laptop thieving boar in Germany – interesting stuff happens all over the globe and only a well -diversified portfolio has the chance to take advantage of it.


On NerdWallet: Talking about debt with your partner

Are you worried about how to talk to your future partner about your debt, from student loans to credit cards? While the conversation may be difficult, it is important that couples have honest conversations about where you both stand financially. I was recently featured in an article on NerdWallet asking how couples can work to “lay it all out on the table” and provide a strong financial foundation for marriage.


Trusts: The Cilantro of Estate Planning

Cilantro is a spice that can add a certain special something to a very specific number of dishes. However, it typically isn’t the only spice used. It’s used in partnership with other spices like salt, pepper, or even parsley. Trust are very similar. Trust are typically not the only thing we use in estate planning. They work in partnership with power of attorney, health care proxy and wills but only in certain situations. Recently, I’ve spoken with a number of clients who either had trusts, had family members with trusts, or were being told they themselves should have a trust. None of them really knew what they had or what they were considering so let’s put some perspective on things.

Trusts can be great tools to protect someone who isn’t used to money management—providing a structured income stream they can rely on. They can be invaluable for someone with a disability to help maintain access to government resources that support their ongoing care or needs. Trusts can come into use for protecting large or complicated estates from public, prying eyes (think courtroom paparazzi) or help streamline a large estate that holds unusual assets.

With that being said, a trust must be well thought-out and set up properly. For example, only specific trusts can protect assets from the costs of long-term care so it’s important to know the difference. Additionally, the strongest and smartest trusts can be a bear to manage or revoke should circumstances change and the trust was not well thought-out. Another thing to think about is that most trusts have carrying costs. There’s the Trustee (who can/will charge a percentage), the investment manager (who almost certainly will charge a percentage), the tax preparer (should the trust require its own return), and that’s on top of the legal fees the attorney is going to charge to draft the documents (usually in the several thousand dollar range).

If you are thinking about a trust, step back and begin to consider the following:

  • What is the goal? Can I reach that goal any other way? What if that goal changes; what then? Remember that you might not be the one changing the goal—often times the tax laws will be happy to do that for you at no charge (and, of course, without your input!)
  • What are the all-in costs for the trust and am I getting value for my money? How much is the attorney going to charge? Is the attorney thinking they’ll be the Trustee as well? (Hint – this may not be your best choice.) Does the Trustee provide an itemized bill for the work they are doing? How about the investment manager? Structuring a trust where the embedded Trustee and investment manager expenses eat up the income doesn’t do the beneficiary any good.

If a trust is still right for your needs, an important first step is to get objective advice from someone who isn’t trying to sell you the trust. Fee-only advisors or an objective attorney will review the situation and give you their opinion of whether or not a trust should be in your future. If it is, it’s important to shop around for a Trustee and an investment manager. Look for ones that understand your intentions, charge reasonable, well-documented fees and are preferably local (there’s nothing worse than trying to get someone on the phone in another state when you are dealing with a crisis).

Trusts can be invaluable in the right circumstances, just like that sprinkle of cilantro that provides a burst of flavor on that specialty dish. However, a poorly thought out trust is like sprinkling that herb on a delicate French soufflé—just enough to make the whole dish flop. A little careful menu planning and that cilantro trust can complement your estate plan and make it flavorful dish.



Divorce: The Biggest (Financial) Decision You May Ever Make

Divorce is often a gut-wrenching process. It is also one of, if not the, most important decision you’ll ever make. The average divorce today takes about a year, sometimes longer, to resolve and it can also cost as much or more than what you spent on your wedding (in today’s dollars). Divorce also has the potential to be financially crippling, now and perhaps even more so in the future.

According to the Journal of Financial Planning, female caregivers are estimated to lose, on average, $324,000 in lost wages, social security benefits and pension. Unfortunately, after divorce, many women find themselves in a much lower financial position than their ex-spouses. Not only is this due to the caregiving roles many women have, it can also stem from a lack of clear understanding of the marriage’s total financial situation, such as the long-term investments the family holds, the family’s tax picture and actual family income. It would be difficult for any woman to make sound decisions, especially when faced with a divorce, if she is not aware of the complete financial picture.

Step 1: Understand Your Household Finances

One of the smartest things any woman can do is understand the family’s financial well being as soon as possible, no matter her situation. To get started, seek to understand what the assets are (stocks, property, retirement), what the actual family income is, and what are the family’s expenses. If thinking of a divorce, what maintenance (alimony) and/or child support would be needed to maintain your standard of living and cover your children’s needs?

Step 2:  Understand the Financial Implications

Even if divorce is just a whisper in your head, a clear way to help you make an educated financial decision is to engage the services of a Certified Divorce Financial Analyst (CDFA). A CDFA will help you review the family finances and guide the conversation to help you understand the short-term and long-term financial implications of the decisions you will need to make.

Remember…divorce is a negotiation. Amazon didn’t buy Whole Foods without understanding their market share, profitability, and liabilities. Kodak and Xerox didn’t spin off parts of their businesses without taking into account how that was going to impact their future bottom lines. Divorce is essentially the same thing. What you need to ask yourself is what is the level of maintenance can you realistically accept/offer and what does that mean to your cash flow?  How do you split the family assets to be equitable and what are the long-term ramifications of those decisions?

Step 3: Seek a Professional Divorce Team

Attorneys have their place during your divorce as they counsel you through the legal aspects. However, most people don’t realize that the majority of attorneys and judges do not have a strong financial background (few law schools require any financial classes in their curriculum). This makes picking the right attorney for your particular situation critical. A strong attorney will incorporate the work of a financial professional into the process.

Getting divorced is hard enough, working with a team of divorce professionals can ultimately reduce the cost of the divorce and reduce the time it can take to make that divorce happen. Most importantly, before making any decisions in terms of divorce be as prepared as you can…financially, emotionally and legally. I often suggest that women check out a local divorce advice workshop like Second Saturday.

Even if you are not thinking about divorce, understanding and staying on top of your family’s finances can help you navigate whatever surprises come your way.

Kitty Bressington is a CERTIFIED FINANICIAL PLANNER™ and Certified Divorce Financial Analyst®. She is the owner of Linden Financial Consultants, a fiduciary financial advisory firm, and founding member of Foundation for Women’s Financial Education.