Money Minded Families. Stephanie W. Mackara

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СКАЧАТЬ created the first 401(k) plan.

      Based on Benna's work, in 1981 the IRS issued rules that allowed employees to contribute to accounts through salary deductions; this created efficiency and scale and jumpstarted the widespread rollout of the plans in the early 1980s (Source: 401(k)—Forty Years Later, Ted Benna).

      There was a great deal of concern that pensions would go away, and in fact they did, not because of the 401(k), but in spite of it. In just a few short years from its creation, large companies began to offer the 401(k) plans, mainly because it was less expensive than funding pensions and was more predictable to fund. Over the years the contribution amounts an employee is able to save through deferral have increased, including a catch-up contribution for those over 50. Starting in 2020, the total employee deferral can be up to $19,500 with a catch-up of $6,500; so those over 50 can put as much as $26,000 into their 401(k) accounts.

Many companies not only provide the 401(k) plan, they also match or contribute 4% or more of the employee's savings. For instance, for an employee earning $50,000, if the employee participates in the plan, most employers will offer to match the first 3% of their salary deferral amounts and then 50% up to 5%. Confusing, but simply, if the employee defers 5% of their salary toward the 401(k), the employer gives them 4% of their salary in savings—we call this free money! In total the employee is now saving 9% or $4,500 a year.

      This is a great way to start saving, but it cannot be the only place one saves toward retirement. In the above example, savings of 5% with a company match earning $50,000 over 35 years with a 6% return will get you approximately $538,000 to use for retirement income. This is a nice nest egg, but if it is your only leg of the stool, it most likely can't sustain your entire retirement income needs. Instead, save more, save early, and save often (more on that later).

      As I write this, I am a 45-year-old financial advisor. As a financial advisor, I see that even many educated people with great means are not in control of their own financial situations and their spending, and savings are not on track to being able to retire comfortably. This could be because we as a nation simply have not focused on teaching the basics of becoming financially healthy—honestly, because most of us never had to. Now, as I look to the future, I fear not as much for my mom or her peers, or even for myself, but for my son and his friends, cousins, and peers—for our children and the next generation. Today we are faced with an unprecedented culmination of events. As a nation, we are woefully unprepared for the effects this will have on our schools and communities. The three-legged stool has been flipped on its head by a three-headed monster:

       Personal debt or consumer debt is at $13.86 trillion, primarily school loans, which are second only to mortgage debt.

       National debt: according to the New York Times just the interest payments on the US national debt will overtake Medicaid costs in 2020 and the Department of Defense budget in 2023.

       Decreased corporate and government support for retirement: in 2018, for the first time since 1982, Social Security will pay out more than it takes in, with a projected date to run out by 2034.

      Our country's financial foundation is no longer stable and the only way to fix it for ourselves and future generations is to take charge and DIY (do it yourself). The financial changes our country is faced with make it so important for us to shift our thinking from allowing our children to take minimal personal responsibility and acquire limited financial knowledge, to consciously increasing the level of education our children receive relative to financial matters. The next few generations don't have the luxury of waiting until age 50 or 60 to pay attention to their financial wellness and money management habits.

With so many factors beyond our control and so many new financial complexities offered as solutions—such as investment products and potential debt offerings solutions—taking financial control can feel completely overwhelming. Yet instead of burying our heads in the sand and wishing, hoping, and maybe praying that someone or something will solve the financial puzzle for us, we must take control. We cannot rely on government or private corporations so we must grab the bull by the horns and take it for a ride. The silver lining is that by creating good habits and being disciplined, you can succeed at becoming financially well. By starting your children off with positive financial habits at a young age, you'll help them have a greater chance of absorbing and implementing those habits in their adult lives. Learning to save, spend, share, and invest wisely, along with positive financial socialization and a positive relationship with money, are the key ingredients to your personal (and your child's) financial wellness and future retirement.

      There is a movement that started that you may have heard of called FIRE. It stands for Financially Independent Retire Early. This movement was led by a Canadian named Peter Adeney, whose pseudonym, Mr. Money Moustache, has a cult-like following. He retired at the age of 30 and shares his wisdom with others to help them do the same. There are lots of naysayers about the FIRE movement. The two biggest gripes I have heard is that the group tends to make work sound bad and the sooner you can stop working the better, and that it’s practices require extreme frugality. Though participants within the FIRE movement tend to be more frugal than most, the group is made up of all different kinds of people in many different circumstances and in fact, though Mr. MM started the trend, there are now many different factions. And, about the “not working” concept—this isn't at all what the movement is about; it's about being financially independent. Financial independence doesn't mean the end of a working career. In the words of Mr. Money Moustache himself, it means “complete freedom to be the best, most powerful, energetic, happiest, and most generous version of You that you can possibly be.”

      This movement isn't for everyone; in fact many find it to be too constricting in terms of spending. I am lucky enough to be in a few groups with people who are part of the FIRE movement and what I most enjoy about them is they all come from different backgrounds, with different experiences, but they are all very curious and active when it comes to making smart financial decisions and they are always, always willing to share and support and celebrate each other. Being frugal used to be labeled as depriving yourself; this group has turned being thrifty into liberation. Though not for everyone, its mere existence is evidence that we as a society are taking the bull by the horns and developing strategies to make sure one can be financially independent and not rely on a government or a corporation to dictate when and what our retirement will look like. Though my lifestyle isn't perfectly aligned with the FIRE movement, the message it sends is one I can get behind. We control our financial destiny and as a result must be a mindful, active participant.

So, what will the big R look like for our children? Will we return to the preindustrial age where retirement didn't even exist or will only be available to the 1% as a luxury? Or will we find new and different ways to earn money, spend money, and save money? Will there be new ways to age, new algorithms to better plan for retirement, new government or social supports to fund our lifestyle once we stop working? Will we change the way we work, searching for purpose instead of a paycheck? Will there be stages to our “end of working years”? All of this is unknown, but what we do know is that technology will surely make it easier to continue to earn money in ways we haven't even considered today—in ways that may incur less stress or physical burden on our bodies, much of the reason people stop working today. Will the idea of retirement change completely? Perhaps, but no matter the changes, our children will still need a strong financial foundation in order to help them live their best lives.

      We are facing a great burden for our children, one that none of us have experience with, but one that we must prepare for. I have great hope that educating our children on matters of both financial wellness and financial literacy while preparing them for the burden that lies ahead will allow them to change the tenor of their future and of future generations. There is so much to fix, but it is fixable. There is much work to be done and we as parents are privileged to help our children get it done.

3 Financial Socialization: Creating Spending, СКАЧАТЬ