Friday, April 22, 2016

The Frugal Planner's Weekly Dispatch: Financial Planner Advises Shorter Life Span

From: Chuck Donalies, CFP® [] On Behalf Of Chuck Donalies, CFP®
Sent: Friday, April 22, 2016 2:46 PM
Subject: The Frugal Planner's Weekly Dispatch: Financial Planner Advises Shorter Life Span

The Frugal Planner's Weekly Dispatch

Financial Planner Advises Shorter Life Span

Volume 2, Issue 16
April 22, 2016
As financial products have become more complex, Americans' financial literacy has declined.

I know you're impressed with my graph-making skills.

The Correlation Between Complex Financial Products, the Decline of Financial Literacy, and Financial Stress

My wife told me no one would read this week's Dispatch if I lead with the topic listed above. As usual, she's probably right, but stick with me and I'll get back to the topic in the subject line.

This week I read an
article in The Atlantic titled "The Shame of Middle-Class Americans". The primary subject of the article concerns the findings of a recent study by the Federal Reserve Board, which suggests that only 47% of Americans would be able to cover a $400 expense by borrowing or selling something. Basically, many Americans who appear to have their financial ducks in a row do not.

That subject is indeed troubling, but I wrote about
the importance of having an emergency fund back in Volume 1, Issue 3. Instead, I'll focus on the results of a different study titled "Financially Fragile Households: Evidence and Implications". The researchers discovered that "in general, the more sophisticated a country’s credit and financial markets, the worse the problem of financial insecurity for its citizens." They believe that "as the financial world has grown more complex, our knowledge of finances has not kept pace. Basically, a good many Americans are 'financially illiterate', and this illiteracy correlates highly with financial distress."

Here's a real-world example: My grandfather and many other people of his generation had pensions. They worked hard and trusted their employers would manage the pension funds responsibly in order to guarantee a comfortable retirement. Fast-forward several decades and pensions have all but disappeared. Many workers still have retirement accounts, but they have to set their own contribution levels and decide how to invest their savings. Unfortunately, financial education in the U.S. is lousy or non-existent, which leads to financial insecurity.

The work of financial psychologist Brad Klontz has found that “financial insecurity is associated with depression, anxiety, and a loss of personal control that leads to marital difficulties.”

My point is today it is more important than ever to be financially literate, so kudos to all of you who continue to invest time and resources needed - even when dealing with financial issues is the last thing on your to-do list.

Another Option

On a lighter note, I present you with another option to consider this weekend (courtesy of America's Finest News Source, The Onion). 

TUCSON, AZ—After reviewing his client's income, assets, and personal budget Tuesday, Morgan Stanley financial adviser Henry Dalton determined that Jason Hutchinson, 43, could make the best use of his portfolio by dropping dead at the age of 62. "Taking account of inflation and the rising cost of living versus the projected direction of the economy in the coming decade, I told Mr. Hutchinson that he could significantly reduce his spending by simply living less," Dalton said. "After looking at his investments, I calculated that he really shouldn't live a day over 62—or 59 if he wants a funeral." In order to help his client plan for his financial future, Dalton presented Hutchinson with several of the company's comprehensive suicide packages.

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