Does personal finance still work in our changing economy?
Don’t buy a car you can’t afford. Save 10 percent of your income for retirement. And, for crying out loud, stop throwing away money on lattes.
We’ve heard it all before.
Traditional personal finance advice is often tossed around in blanket statements. While the advice is sound in theory, the way we actually deal with money is much more complicated.
Our changing economy has made this a more common reality. Consumer spending is increasing and unemployment rates are low, but wage growth has been slow, some people have given up the job search and income inequality is still very much a thing. With a financial system so drastically changing — and seemingly for the worse — what can we do about money?
“I’m interested in the causes and consequences of inequality, particularly from a labor market perspective,” said Kate Bahn, director of labor market policy and an economist at the Washington Center for Equitable Growth, a research organization. Dr. Bahn argued there’s not enough emphasis on the larger structural barriers that make people’s financial lives difficult. Personal finance might further de-emphasize these barriers, she said. “Maybe that’s why I’m so frustrated.”
There is, for example, a concept called labor monopsony, which is what happens when a single hiring entity controls the work force. “So employers will take advantage and pay workers less because there’s nowhere else to go,” Dr. Bahn said. “It’s geographically remote areas where there may be only one big employer, and there’s no other company to work for, so that company can pay whatever they want because workers can’t say, ‘Screw this,’ and go somewhere else.”
Dr. Bahn’s argument is that personal finance is necessary, but not sufficient. It’s put forth as a solution when policy is what’s really needed, she said, and places priority on personal choice over issues that are, unfortunately, out of most people’s control.
Others say that personal finance remains helpful because it is a way to share information that people are often discouraged from seeking. “People have criticized financial education, saying it doesn’t work because people are still making mistakes,” said Billy Hensley, president and C.E.O. at National Endowment for Financial Education, a private nonprofit. “Education can’t help access jobs, but it can help people navigate the system as it exists.”
But it’s hard to measure the effectiveness of personal finance because so much of it is, well, personal. Rachel Schneider, a researcher and co-author of “The Financial Diaries: How American Families Cope in a World of Uncertainty,” wanted to look at how people handle money in the real world. She and her co-author, Jonathan Morduch, a researcher and professor at N.Y.U., worked with over 200 families for a year, gathering information on every dollar that went in and out of their homes.
“A huge finding was the level of volatility people experience in their financial lives over the course of a year,” Ms. Schneider said. Although she expected to find income volatility year to year, it was surprising to see how widely income varied within the year, too. A subject could be above the poverty line for the year over all, but that same person could fall below the poverty line in any given month.
“This has a huge impact on how people deal with money,” Ms. Schneider said. “The economy has been growing and the unemployment rate is relatively low and declining, yet we’re not seeing that growth and prosperity getting distributed down to the bottom.” While Ms. Schneider agrees that financial education is necessary and can be useful, she also worries that overemphasizing it as a solution to financial challenges shifts responsibility away from our economy’s major players, like banks that offer subprime predatory loans or companies that take advantage of workers.
One thing proponents and critics of financial education seem to agree on, however, is that if we’re going to help people navigate this existing system, the way we talk about money has to evolve. With that in mind, here are some new ways we can think about personal finance.
Saving is a habit, not an objective
“If your budget is dramatically different one month to the next, then a whole bunch of standard financial advice does not apply to you,” Ms. Schneider said. Most financial advice starts with making a monthly budget, but many people manage their money on a daily basis, asking what they can afford today. This makes traditional savings approaches difficult.
Traditional personal finance advice focuses on saving a lump sum, like eight months’ worth of living expenses, or $1,000 for an emergency fund. But that can be hard to plan when you have an income that fluctuates wildly. It’s better to think of saving as a habit rather than an objective, especially when you have a variable income.
“It’s very easy to fixate on a savings amount as a goal,” Ms. Schneider said. “Those benchmarks give you a goal to work toward, but it’s like trying to get in 10,000 steps on your Fitbit. You’re supposed to walk every day, it’s not like you reach 10,000 steps and then you stop walking.” For example, instead of thinking of your savings as a $5,000 goal, approach it as a habit of saving $100 a week.
Ms. Schneider’s research also found that once some savers reached their objective, they did everything they could to keep that amount intact — which sounds great, but can backfire. Even if savers had an emergency, they would pay for it with a loan or put the expense on a high-interest credit card just to maintain their savings. “It’s demoralizing for people when they have to break their savings,” Ms. Schneider said. “The data supports that people are more likely to continue saving if they think of their savings as an ongoing behavior rather than a one-time objective.”
Debt relief options are more important than ever
“The rising debt burden is a problem we should pay close attention to,” Ms. Schneider said. And it’s not just student loans, but also credit card debt, car loans, mortgage debt and, of course, medical debt. In 2018, Americans borrowed $88 billion to pay for health care.
Traditional personal finance advises people to pay off debt before making any other major financial decisions, sometimes even including investing for their retirement, but that may not be realistic for many people who are faced with years of paying off a student loan. This is why some experts now follow the 5 percent rule: If the interest rate on your debt is 5 percent or higher, focus on paying it off; but if it’s lower, invest while you pay it off because you’ll get a better return over time.
Debtors should also be familiar with opportunities for relief. Federal student loan borrowers, for example, may have forgiveness options. There are also income-driven repaymentplans, with which you can extend the life of your loan in exchange for a smaller monthly payment. Keep in mind, you’ll pay more over time, but for those who struggle to afford rent, the relief may be just what they need to get back on their feet. Some private student lenders and credit card companies also offer relief options. You can call and ask if they have any hardship payment plans. Typically, you have to qualify for these plans, and qualifications might include job loss, unemployment, divorce or family emergencies. The lender or issuer may lower your monthly payment and may also agree to a smaller interest rate or to waive your fees over a short time.
There’s also deferment and forbearance, which is sort of like hitting the pause button on your loan. With deferment and forbearance, you take a break from your monthly loan payments, and your interest is deferred or accumulated during that period. Refinancing or consolidation can also help people lower their debt, but be careful because many companies take advantage of consumers.
Refinancing is when you pay off one loan with another loan, and consolidation works the same way, but groups all of your debt into one, new loan. Either option can make sense if the new loan has better terms — namely, a lower interest rate. The Department of Education offers federal loan consolidation, but the interest rate won’t be lower. Keep in mind, if you refinance your public student loan or consolidate with a private lender, you lose those federal relief options. To see if refinancing makes financial sense, plug your numbers into a refinancing calculator. NerdWallet’s calculators are easy to use and the company has both a mortgage refinancing calculator and a student loan refinancing calculator.
The 10 percent rule is too much — And not enough
Traditional personal finance advises people to save 10 percent of their income for retirement. The problem is that it’s both unrealistic for many people but also not enough to fully fund a retirement.
People are living longer, fewer of them have access to a 401(k) and Social Security benefits are decreasing. This is why most experts now agree that 10 percent is not enough. Retirement calculatorscan be a helpful way to figure out how much you need to save based on these factors, but it can also be discouraging to see how much you should have saved, depending on your age.
Most Americans don’t have nearly the amount they should for emergencies or for retirement, and it would be easy to believe this is because they just don’t know the importance of retirement savings. But that’s not true — according to Ms. Schneider and Mr. Morduch’s data, people are very aware of how much they need to save for retirement. They simply need that money now.
“What we’re seeing when people cash out their retirement plans, or borrow from them, or fail to save for an emergency is not a lack of knowledge or awareness, but the result of people genuinely needing to spend the money today,” Ms. Schneider said.
The other issue is 401(k) leakage. Many people cash out their retirement plans or borrow from them to make ends meet. At a personal finance workshop, I once met an attendee who saved as much as she could to get a 401(k) match, but then stretched her finances so thin she couldn’t pay her bills or make her debt payments. Her intentions were good — she was only following traditional finance advice she had read. But this resulted in accrued interest and late payments, and she became discouraged from saving at all.
One way to combat this problem, Ms. Schneider said, is to encourage people to save for an emergency while they save for retirement. It can be helpful to remember that while your 401(k) match is an outstanding perk, you need a financial safety net, too. Retirement advice varies, depending on your age, but treating it as a habit and looking into individual retirement account options if you don’t have an employer 401(k) is a good place to start.
Beware of predatory financial services
Predatory financial services often operate under the guise of giving people solid financial advice. For example, I was recently driving around a different city and tuned in to a radio show dispensing financial advice. The host told listeners to cut back on retirement savings and instead invest in real estate. I couldn’t believe what I was hearing — most people don’t have nearly enough saved for retirement, and this personal finance expert was asking them to save less and put more of their eggs in one basket. It didn’t take long for me to realize this wasn’t a financial advice show at all, but a long commercial for a real estate investing course. After that spot, another show advised listeners to take out a reverse mortgage on their home. Again, the show was publicized as financial advice, not a commercial.
Dr. Bahn said that the best policies for change are the ones that give more power to workers and consumers. “We need to audit banks and employers and small business lenders to make sure they’re not engaging in discriminatory practices,” she said. Pay transparency and recent bans on asking about salary history are other policies that are meant to empower workers and tear down longstanding structural barriers.
In an era when banks and corporations seem to have more protection than people have, it’s difficult to offer practical advice on how to navigate the system and sometimes seems unfair to do so. Dr. Hensley said that policymakers and advocacy organizations are part of the solution, but contends that education is, too. In a system in which so much is seemingly out of our hands, it can take a lot of effort to feel financially empowered. The financial shame that’s implied in so much blanket money advice makes the process only more overwhelming.
“Financial education should not be, ‘Do it this exact way, or you’re a failure,’” Dr. Hensley said. “We need to humanize the topic.”
Latest Careers and Finance
c.2020 The New York Times Company
Does Hershey's (NYSE:HSY) Share Price Gain of 49% Match Its Business Performance?
If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market But The Hershey Company (NYSE:HSY) has fallen short of that second goal, with a share price rise of 49% over five years, which is below the market return. On a brighter note, more newer shareholders are probably rather content with the 46% share price gain over twelve months.
View our latest analysis for Hershey
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Over half a decade, Hershey managed to grow its earnings per share at 10% a year. This EPS growth is higher than the 8.3% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
NYSE:HSY Past and Future Earnings, January 24th 2020
More
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Hershey's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Hershey, it has a TSR of 68% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We're pleased to report that Hershey shareholders have received a total shareholder return of 49% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 11% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Be aware that Hershey is showing 1 warning sign in our investment analysis , you should know about...
Hershey is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
2020 Vision: How To Chart Your Marcom Strategy For The New Decade
Far beyond the realities of January 2010, here at the beginning of the 2020s, technology traverses all aspects of external communications and outreach. Today’s capabilities are advanced and sophisticated, making traditional domains of media relations, brand storytelling, prospecting and lead generation far more complex than with past methods and practices. The new rules compel a strategic, integrated approach that ensures consistency and demonstrates industry leadership.
The unprecedented rate of industry change we’ve become accustomed to throughout the 2010s will only continue, and perhaps even accelerate, in the '20s. Over the next few months, I’ll be offering a series of articles exploring some practical but often overlooked questions of what marketing leaders must pursue to build a successful and manageable plan for this disruptive environment. Let’s start with some foundational ideas.
Assess Your Approach To Integration
An integrated marketing approach blends facets of marketing communications for consistency of message and user experience. This cohesion can boost the ROI of your marketing initiatives, a critical measure that can no longer be ignored.
Begin by assessing your current ecosystem of assets. Knowing exactly what you have will reveal what you still need. How well are these assets working together? Do you have metrics or market feedback to assess their efficacy? If not, you’ll need some to correctly target your efforts and spend.
Next, focus on solidifying the right teams and workflow for executing an integrated strategy: content, creative design, social media, digital marketing and PR. Before embarking on any initiative, start with SEO tools that can analyze the best keywords to frame your message. Tools like SEMrush can give insight into what’s relevant now and suggest interesting topics and innovative ways to manipulate keyword bundles. They may even reveal what your competitors are writing — or not writing — about.
When you have some topics identified, start the workflow. In an integrated flow, no one team is ever holding the ball all by itself. Let’s take a simple example of publishing a thought leadership piece to promote your business.
• The content team reviews the topical suggestions, selects what is most relevant and produces a first draft of the asset. They verify content accuracy with the resident SME, who may suggest edits.
• It’s then handed off to the creative design team to make an associated eye-catching visual. In tandem, the digital marketing team runs the copy back through the SEO tool and sends feedback to the content team for more refinements that will optimize the asset for search.
• Meanwhile, public relations staff are crafting the strategy for generating media attention. And the social media experts prepare to amplify exposure.
• Shortly after publication, digital marketing runs analytics to see how the asset is performing. The content team may need to make more refinements to tune the piece for more effective search placement.
• This cycle repeats for a reasonable period of expected market attention, perhaps four to six weeks. When the next asset is published, this first one goes static but remains online for potential future interest.
The nuance in this process is applying human expertise to capitalize on the feedback and insights the digital tools deliver. For instance, a tool may assess the asset’s readability score in a way that’s not necessarily appropriate for your target audience, so the content team needs to make the call. Or, analytics from various platforms like SEMrush, Hootsuite and Google Analytics don't always line up, so a digital expert needs to make an informed judgment.
With broad digital capabilities and expert practitioners working together, new prospects can be tracked from earliest engagement through the sales funnel to direct revenue attribution, quantifying successes (and failures) of various channels and tactics while guiding future marketing investments.
Of course, getting to this "well-oiled machine" state still requires fundamentals like consistent, corporate-approved brand standards and messaging. It also requires centralized oversight to keep efforts across the company in check.
Analyze The Right Big Data To Inform Your Strategy
Big data is now the critical underpinning of successfully integrated marketing decision-making, yet it remains perhaps the least understood of currently available tools.
The power of big data analytics lies in the informed design, collection, storage and analysis of disparate datasets across multichannel initiatives. Done well, it provides marketers with unprecedented insights to inform their efforts.
The challenge is that big data is, well, big! Large amounts of data can yield all sorts of insights, but which of them are truly valuable to you? It’s important to be clear about your specific goal when you undertake analysis, or you’ll get buried in the minutiae.
For instance, suppose you want to target a message to technical executives in the San Francisco Bay Area. You set a goal of 70 clicks on a particular post. Three days after publishing, you see you got 200 clicks. But look closer, and only five were in your target market. The other 195 were in places you’re not targeting. This tells you that something in your post needs to change, and you must run it again.
Make such analyses part of your marcom planning process. Think through how you’ll measure your initiative waypoints. How will you know which particular initiatives are working or not working? How will you distill all the data you collect down to the two or three data points you actually need? Big data can be very cumbersome, so it’s critical to understand your goal and work with skilled experts who can help you extract it.
Of course, all of this takes teamwork. Balance and blend your resources. Whether your business chooses one vendor or a dozen for external marketing services, an integrated plan driven by the marketing team will keep everyone aligned to the same goals and messages that make your business shine.
In my next piece, we’ll look at some specific channels to incorporate into a successful integrated marcom program.
Comments
Post a Comment