Capital Markets Spotlight: A Trip Around the Globe
August 28, 2020
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Jenine Garrelick: Hello, and thank you for joining us today with our series Your Time is an Asset. My name is Jenine Garrelick and I am a senior managing director here at MFS. We created this series with one purpose in mind, and that is to help educate women out there about their unique financial situations. Today, we're going to talk about millennials. Millennials do make up a very large portion of our population, but as you can tell, I am not a millennial. I am thrilled today that I have two of my millennial MFS colleagues, Amy and Sheridan, and Amy and Sheridan, do you mind introducing yourself and giving a brief background?
Amy Leathe: Sure. Hi, everyone. My name is Amy Leathe. I'm a market research manager here at MFS. What that means on a daily basis is that I oversee research programs where we go out and speak with individual investors and financial professionals and just try to understand their attitudes and behaviors when it comes to different financial topics and financial products, but as Jenine said, I am a millennial. I'm an elder millennial, so one of the oldest ones, but I still count myself and I have a lot of personal experience with what we're going to be talking about today. I put myself through graduate school and took out a lot of loans to do it. I recently purchased a condo on my own, and I've lived through many financial downturns. I'm excited to talk with you guys today about my personal experiences and also some of the learnings that I know from our research here at MFS.
Sheridan Culhane: Hi, my name is Sheridan Culhane. I've been with MFS now for about seven years. I'm a business development associate, so I travel all across the country, meeting with financial advisors and sharing best practice and business building ideas. One of the topics that's come up a lot over the past couple years has been women, how advisors can better address their needs because they are distinctively different than men's.
If you had told me 10 or 15 years ago that this would be what I was doing, I would have called you absolutely crazy. I didn't know the difference between the stock and a bond until I was in college. In fact, it wasn't until about my mid 20s that I was really able to wrap my head around investing and finances, and it's because two big things happened.
First, I started working with MFS. MFS is well known in our industry because we invented the first U.S. mutual fund. It was back in 1924. It's called the Massachusetts Investors Trust, and that fund is still around today. Secondly, and more significantly, what happened was my siblings, and I have four of them, we realized how much of a hole my parents got themselves into trying to pay for all five of us to go to school.
I learned about it as my parents strained their savings. They lost their house, and they were living paycheck to paycheck. I learned about it during a really stressful time when our backs were up against the wall and we really didn't think we had a lot of options, let alone any time.
That's why I'm really excited to be talking about millennials today is because they have tons of both, options and time.
Jenine Garrelick: Why don't we get it out there? There is a lot of stereotypes that we hear about millennials. I'm sure you've heard a few. The one that I recently heard that I love, especially being a mother of a millennial is the helmet generation because we just wanted to put a helmet on every activity you did, whether it was biking or skiing or horseback riding.
Sheridan Culhane: Rollerblading, I had the pads on my elbows, my wrists, my knees, I was covered.
Jenine Garrelick: Yeah, got to keep you safe. What else have you heard or been called?
Sheridan Culhane: I've heard the participation trophy generation because it didn't matter what place you came in in soccer, swimming, basketball. Everyone was a winner. Everybody walked away with that blue ribbon or trophy.
Amy Leathe: I thought I got those trophies because I did a good job.
Sheridan Culhane: You did, Amy.
Amy Leathe: Okay. All right. Yeah, I'm guilty of this one, the boomerang effect. I went off to college, moved out of mom and dad's house and then I graduated and moved right back in for a few years.
Jenine Garrelick: Well, it's not all bad, because you guys did give us avocado toast, which I love and appreciate. What are some of the positives?
Amy Leathe: We're tech savvy. I know that we're considered more open minded than generations before us. We're self expressive, we're upbeat, we're really passionate about our values and we try to carry our values into the workplace and our personal lives.
Sheridan Culhane: The reality is we are the way that we are because of what we experienced during our formative years. Has anyone here heard of the lost decade in America? Yeah, it's the period from 2000 to 2010, so just as millennials were coming of age, and what happened, we kicked it off with the tech bubble of the early 2000s, saw things recover a bit, only to see things absolutely decimated again by the global financial crisis or Great Recession of 2008 and 2009.
We saw slow growth during that time period. We saw high unemployment, stagnant wages. In fact, that decade, it had the biggest loss for the S&P 500 of any decade, including the 1930s or the 1970s. What we saw, what we actually experienced were parents getting laid off. We saw people go sideways on mortgages and lose their home. We saw grandparents delaying major life events like retiring because their portfolios were down 20%, 30%, 40%.
I had a lot of trouble finding jobs because not many companies were hiring, and those that were, it was tons of applicants going for very few positions.
Amy Leathe: Yeah, so you talked about the tech bubble of early 2000s. I was still in high school and college at that time period so not yet in the working world, thank goodness but my father had worked in the technology industry in Boston for many years and he ended up getting laid off during that period, so when I was still in school, and it took him about a year and a half to two years to find a job, and it was really kind of a formative experience for me in my early adulthood.
I just remember understanding at that point the fragility of work, so you can have a steady job one day, the next day, you're laid off, so you better have an emergency fund, you better have a plan.
I think it kind of terrified me a little bit to be honest, and so now into my adulthood, I really try to make sure that I have that emergency fund and that I maintain living within my means.
Jenine Garrelick: You also saw the rise of Kim Kardashian so I could see that it's very confusing.
Sheridan Culhane: Of course, these experiences, they impacted us, especially when it comes to things like investing, job security, debt, the markets, it did have some positive impact. For millennials, they actually have less credit card debt than any other generation, but on the flip side of that, the not so positive is that we learned the serious risk with investing throughout the last decade.
In fact, according to a study, only 20% of millennials, so a fifth of us, we have no exposure to equities inside of our portfolios, and that is a huge problem. We're not investing appropriately for our age or for our time horizon. We also tend to hold a lot more cash in our portfolios, and overall, we're invested more conservatively. It could be because though millennials say that short term spending is more important to them than their long term goals.
Jenine Garrelick: Talk to me about what that short term expenses look like.
Amy Leathe: I'll take this one. There's a lot of research that shows it just takes female millennials more money to get out the door every day. Two big reasons for this right off the top are housing costs and transportation costs. In terms of housing, we want to be safe in our home, right? We look for safer neighborhoods to live in, to rent in, to purchase homes in. This generally comes with a higher price tag.
Also, we're a little bit more safety concerned, as I said, so transportation wise, we're a little bit more apt to take Ubers or Lyfts than we are to take public transportation or walking home at night. I have my mother in my head right now saying, "Amy, don't walk home alone at night."
Jenine Garrelick: That's a good thing.
Amy Leathe: Yes, totally valid reasons to be spending a little bit more money, safety concerns, but just remember, this adds up over time. Also, we tend to spend a little bit more money on our appearance. There is a recent Groupon survey that estimates women spend on average $3,800 a year on their appearance, and this adds up to over $250,000 over our lifetime, so more money than our male counterparts are spending and we're talking categories like manicures and pedicures and anti aging creams and gym memberships. It's a lot of money being spent.
Jenine Garrelick: In the past two weeks, I have had this conversation twice with millennials about Botox.
Amy Leathe: Yeah.
Jenine Garrelick: I don't understand that, but anyways, I wear these lines with with big pride, these smile lines, but as that can add up, it shocked me how much Botox costs.
Amy Leathe: Right, so again, these are just averages but keep in mind, this is adding up over our lifetime, and we do have to make certain accommodations for it where our male counterparts don't.
Jenine Garrelick: Yep.
Sheridan Culhane: Yeah, and I completely agree with you but we can't continue to put our future financial goals on hold for those short term expenses because we cost more long term too. A lot of it has to do with the fact that we live longer than men. Women outlive men by about five years. If you look at people in their 80s and older, for every one man, there's two women. For people in their 90s, for every one man, there's three women.
If you hear or read about the longevity risk with women, this is what they're talking about is the fact that we live longer. It's called a risk, because affording those extra years living that much more time, it costs more with taxes, transportation, healthcare, food, entertainment, all of those things, they add up. As women, we have to build that into our financial plans in order to afford it for when we're going to be there.
Jenine Garrelick: Yeah, I think it's it's a good point. It's a risk, but it could sound like a real big party.
Sheridan Culhane: It's nice to be alone sometimes.
Jenine Garrelick: Yeah, yeah.
Sheridan Culhane: That's not it, right? Because I get why women, they continually put that stuff on hold, it's because life gets complicated. Life gets busy. Women, we still tend to be the caregivers for our family, whether we're talking about for children, for aging parents, or for our spouse. In fact, the Social Security Administration, they estimate that female caregivers take 12 years out of the workforce caring for a loved one, which includes parents or children. Women are also twice as likely than men to retire early due to personal or familial health reasons.
This impacts us financially because as we put our careers on hold, yes, we're sacrificing that current income but we're also sacrificing contributions to our workplace retirement plan, which can add up over time. We may have the intention of going back to work, but a lot of women don't go back. They go back part time, or when they re enter the workforce, it's at a much lower salary. These are things that we have to think about before making that decision, but there's good news for you all. This isn't all doom and gloom.
Jenine Garrelick: Yeah, I was getting kind of depressed here.
Sheridan Culhane: Because as millennials, we have an asset that other generations would absolutely kill for, and that's time, time and the power of compounding. Compounding is the ability to make money from the money that you've already made off of your investment. Think of it as interest on top of interest. Through the power of compounding, even with a small amount of money, over time, it can grow into a pretty sizable amount, and the younger you are when you start, the bigger that benefit is going to be.
For example, let's say at the age of 25, you start investing $200 into a tax deferred retirement account earning 9% but you have a friend that doesn't start doing this until the age of 45, and to catch up, they're going to double the contribution. They're going to make it $400 every single month. At the age of 65, you both would have invested $96,000 but your friend's portfolio would only be at about $268,000 while you would be sitting with a nice $884,000 nest egg.
Jenine Garrelick: All right, let's rewind that. Yes. You're telling me If two people invest the same amount but started different times, 20 years later, it's over a $600,000 difference.
Sheridan Culhane: It's because of those extra 20 years of compounding. That's what makes the big difference. Starting now and investing early, it's going to pay dividends in your future and help you afford all of these extra expenses that we as women face.
Jenine Garrelick: Yep. I'm often asked what is the biggest mistake women make when it comes to investing and I assume you're going to agree with me and it is pushing off to tomorrow what you could do today.
Sheridan Culhane: Absolutely.
Jenine Garrelick: It makes a lot of sense. Amy, let's dig deeper into some of the financial challenges facing this generation. What's the research showing?
Amy Leathe: MFS, we often conduct research among individual investors. We just fielded a survey among 1,500 individual investors in the U.S., and we just asked about their financial hopes and dreams and fears. This time around, we made particular attention to focus on the female millennial cohort. We should just say that that's anyone born between the early 1980s and the late 1990s, roughly. First, for some good news, Jenine, I know, I know you like the good news.
The female millennial cohort told us that, three quarters of them told us that they feel like they're pretty disciplined when it comes to money. They're setting a budget, they're keeping track of the budget, and they're keeping track of progress towards financial goals. That's great, but, there's always a but, despite this, 70% still are very concerned about retirement. They're concerned they're not saving enough for retirement, and they're concerned that they're not going to be able to retire on time.
(Infographic at 14:58)
Other top financial concerns include affording adequate healthcare, saving for their children's education, just budgeting for everyday expenses, and then about a third say that they're concerned with saving for their own personal education.
(Infographic at 15:17)
We know that debt weighs really heavily on this group as well, so over a half of the female millennials told us that they're dealing with home mortgages or credit card debt or auto loans. Because of all of this, about three quarters say that they're delaying significant life events,
(Infographic at 15:1)
and so this meant that they're putting off things like buying a car, like saving for their children's education, having children in the first place or buying a home, so there's a lot of concerns out there.
Jenine Garrelick: Life gets expensive.
Amy Leathe: Yes.
Jenine Garrelick: Sheridan, based on these concerns, what are some immediate action steps so we aren't just left depressed that women can take?
Sheridan Culhane: The first thing that people need to do is create a budget. You have to know how much money is coming in, and then where that money is going. For how much money is coming in, you want to take out any applicable taxes or pre payment contributions that you're making, so that income that you have, it's the amount of money that you have to spend.
I can still remember when my younger sister, she brought home her first paycheck, she called up my dad immediately, freaking out because she didn't understand where half of it went. Taxes were a tough lesson for her at the age of 21, yes.
For where your money is going, you need to know how much you're spending on a monthly and an annual basis. I would recommend starting with your credit card and debit card statements. Those are already itemized for you and a lot of times, they'll even categorize them so it makes it really easy and will save you some time. There are a bunch of apps out there that you can link your credit card and debit card to so it will automatically track this information, but you can always go old school and create your own spreadsheet as well.
Once you know how much money is coming in, and where that money is going, you now need to go through that list. You need to define what's an essential expense and what's a non essential expense. We have a piece on the console, it's called creating a household budget and it will help you define which of these is essential and which of these is not essential, but basically, it boils down to the fact that your essential expenses, those are your needs. Your non essential ones, those are your wants.
An example of a budget that you could follow would be a 50-30-20 model. 50% of your budget goes towards those needs. 30% of your budget goes towards those wants and 20%, don't forget, it goes towards those future financial goals, so 50-30-20, needs, wants, future.
Jenine Garrelick: Botox is not a need.
Amy Leathe: What about the avocado toast though?
Jenine Garrelick: Avocado, that's a need, that's a need.
Sheridan Culhane: You may want to look at that resource on the console.
Amy Leathe: Yeah.
Sheridan Culhane: There's also one other thing that you want to do, you want to make sure that you have an emergency fund just like you were talking about beforehand. It's usually recommended that you have about six months' worth of expenses saved up in case you get laid off, so make sure that you're building that up over time. It's also highly recommended that you revisit your budget at least once a year, or whenever there are significant changes to how much you're spending, how much you're earning, or how much that you want to save. Review it, don't just set it and forget it.
Jenine Garrelick: I think that's great advice but the challenge we keep hearing is student loan debt, student loan debt. How can I do all this if I still have so much student loan debt?
Sheridan Culhane: Well, we were talking about names for our generation beforehand and one of them could be the student loan generation because a lot of us feel absolutely crippled by the amount of debt. Right now, the average millennial has about $50,000 worth of student loan debt, and it's why it shows up as our biggest concern on a lot of the studies that are out there.
That being said, the big thing that you want to pay attention to with your student loan debt is the interest rate, and know that in a lot of cases, it is negotiable. You negotiated it.
Amy Leathe: Yeah, Yeah, I did. A couple years after I graduated from college, I went back and I got an MBA. I got the degree, but I also came out with about $50,000 worth of debt to pay off.
Sheridan Culhane: Right on the average.
Amy Leathe: Yeah, unfortunately, so I'd taken out a federal loan and when it came time to start repaying the loan, I was pretty overwhelmed with all the repayment plan options. There was a fixed rate that would last you 10 years or 20 years to pay off the loan and it would have been the same amount every month. There was Income Based Repayment Plan, so if you were making a higher or lower income, it would sort of peg your repayment based off of that.
There was graduated repayment program so it would escalate every couple of years and probably shouldn't admit this, but I didn't pay much attention to whatever repayment plan I signed up for and kind of blindly just paid the minimum amount for the first few years but it started getting really annoying because I just felt like I was paying interest. The principal wasn't getting knocked down.
Like a good millennial, I started doing my research. What I found that would make sense for me is that I refinanced the loan, which means I was able to get it down to a lower interest rate. I did that through a private lender, so effectively, the private lender bought my loan from the government and kind of sold it back to me. I think my interest rate went down by 1.5%, which adds up over time. I think I got it down to a five year loan and it was the happiest day of my life to date when I paid it off.
Jenine Garrelick: Congratulations. Do you want an award for that?
Amy Leathe: I do. Definitely do your research before you go trading out of a government loan because there's definitely some benefits with sticking with the government. If you get laid off from your job, the federal government is a little bit more lenient with repaying than a private lender would be. One other thing, one great resource that I found was a website called The Student Loan Sherpa. It's great resource, tons of information so check it out.
Jenine Garrelick: Now in order to refinance, credit score, you must have a good credit score to be able to do that. Do you want to talk a little bit about credit scores?
Sheridan Culhane: Yeah, so whether you get a higher rate or a low rate, it's going to be tied for interest rate, it's going to be tied to your credit score and your credit history. In order to maintain a healthy credit score, you want to make sure that you're paying bills on time, you're keeping balances low and that you only open up credit when you need it. You also want to make sure that you know your credit score, so be sure to check it. Most credit card issuers or lenders, they offer it to you, you can look it up there, or there are a bunch of websites that you can go to, so creditkarma.com is one of them. Another one is annualcreditreport.com.
You also want to be aware of the fact that there are some tuition reimbursement programs out there, your employer may have some available. Look on your HR website, see if they have something that can help you out. There are also even some cities and states out there that will help you repay those loans. I was reading an article just last week about a town in Ohio, that if you move to the town, you buy a house, they'll help you with some of those student loans so they're trying to incentivize younger people to move there and they'll help them as a benefit.
Just like you were saying, it's do your research. There are a lot of really smart and creative people out there that are trying to come up with ways to help us with this problem. It's widespread. It's national and a lot of people are dealing with it but all of that being said, we can't put paying off this debt ahead of our long term financial goals. I know that life is expensive, I get it. We have the loans, we have rent, we have car insurance, food, entertainment, all those things add up, but more often than not, it is possible to dig up an extra $25, $50 or $100 a month inside of your budget.
Keep in mind the power of compounding, that small amount over the long term, it can make a huge difference for you. Do you buy coffee every single day or do you buy lunch every single day at work? What about, you mentioned Ubers and Lyfts beforehand, how often are you opting for those rather than just taking public transportation? Could you go a little bit longer in between haircuts and nail appointments? Is there a cheaper gym that you could belong to?
I once looked at how much money I was spending on food and drinks on weekends, how much more money could you save per week just by cutting out one drink. In Boston, a cocktail is $15. Add in that tip, you're at $18 right there. Cut one of those drinks out a month and there's your retirement contribution.
Jenine Garrelick: I think that's a good point. Now I feel very guilty I didn't pack my lunch today. It's interesting because a little tip that I always tell people when you go shopping now and you look at the receipts and it used to be just your grocery bill, but it's wherever you go, whether it's pharmacy or clothes shopping, it always shows you at the end what you saved, that whatever the discount was, because the stores want to show you you got a deal. I always tell people take a look at what you saved, and then really save it. If it says $8.35, put away $8.35, really save it instead of it just sitting there and then I will save the old fashioned way. I don't spend my change.
Amy Leathe: You like your paper and your change but us millennials, we like technology solutions and I know of two great apps that can help us all in our financial journey. One is called Mint and it offers basic financial tracking and planning tools. You can link all your various bank accounts to it and it helps streamline your planning. Another great one is called Acorns, so similar to keeping the change and you link your debit and your credit card accounts to it and then for each purchase, it will round up that extra change and either invest it in a savings account or an investment account of your choosing, so two great tools to use.
Jenine Garrelick: Those are great especially since, and I am old school, it is a generation of a lot of swiping, and so if you're going to swipe a lot, that could get you in trouble so you might as well get the benefits from it.
Sheridan Culhane: That's an easy tip too is to use cash, not swipe so easily. That way you're more aware as to how much money you're spending.
Jenine Garrelick: I was just going to say it.
Sheridan Culhane: If you have $200 a week to spend, take that money out and cash and that's your limit.
Jenine Garrelick: Cash is king.
Jenine Garrelick: Amy, millennials now make up the largest population of the workforce. What tips do you have for them?
Amy Leathe: There's some great career related ways that we can set ourselves up on a great financial journey. Whether you're starting out or you've had a few jobs and are looking for a new one, one of the most important things right off the bat is knowing what you're worth and knowing what your expected base salary should be.
Do your homework, really understand for your industry, for whatever job you want, for the company you want to get hired at, for someone with your experience and educational background, what should that base salary be? A great resource for this is a website called glassdoor.com. It's very comprehensive. It kind of gives you average salaries in geographic areas for specific industries for specific companies and job titles. It's a very powerful tool.
Sheridan Culhane: That's a good one for negotiating your salary too, because at least you have a baseline for what you should be asking.
Amy Leathe: Right. Just keep in mind that salary really dictates a lot of things. Your current salary dictates how much you can save, how much you can put aside for retirement, how much your bonus might be, and it also to a certain extent dictates what your next salary might be so you really want to get off on the right foot with salary. A couple other things to keep in mind are fringe benefits that employers offer. This might be things like healthcare plans, maternity and paternity leave, tuition reimbursement programs, tuition assistance. You might not take advantage of these day one when you started a company but if you do need to take advantage of that maternity or paternity leave down the line, it's going to be extra money in your pocket that you wouldn't have gotten at another company that didn't offer such a benefit, so definitely weigh various fringe benefits as you're thinking about jobs.
Then one final one I'll note is take advantage of any one on one financial advising services that your company might offer or through your employer retirement plan.
Sheridan Culhane: Yeah, and speaking of your employer, you do want to make sure that you understand and are taking advantage of your workplace retirement plan, if they have one, especially if there's any sort of matching element to it. You're literally leaving money on the table if you're not signed up for those, so things like a 401(k), a 403(b), simple plan, SEPS. With a lot of those accounts, if you contribute something to it, your employer will match that up to a certain dollar amount, so it's a simple way to potentially double the amount going into your retirement account.
A big mistake that I see people make is they don't increase their contributions over time. They set it at 3% and then they just leave it there. Easy reminder is every single time that you get a raise, you want to make sure that you're stepping up your contributions as well. If you don't have a workplace retirement account or retirement plan, there are other options for you, a traditional IRA or Roth IRA are two perfect examples.
Jenine Garrelick: You talked about a mistake. What are some other mistakes that you see people making?
Amy Leathe: Yeah, so money on the table with the retirement plan and it's a slightly different way. You got to pay attention to your employer's retirement plan's vesting schedule, and vesting just means when the employee has ownership and access to the money within the plan, so not to scare anyone, any money that I contribute to my own retirement plan at work, I get to take it whenever I leave. I quit tomorrow, all the money that I've contributed, I'm taking with me, but the money that my employer is contributing vests.
Here's an example. It's different at all companies. Say I work for ABC Company. After two years of service, I'm vested 25% in the plan, so I get to take all of the money that I've given if I quit on two years in one day, but I only get to take 25% of the money that my company has contributed. This will escalate year over year until say I hit year five of service. If I quit on year five in one day, I get to take 100% of the money that my employer has contributed with me.
Pay attention to the vesting schedule because if you start to get antsy in your job and you're looking around, it's time to leave, don't leave right before you're going to hit a vesting benchmark. I would say stick it out, just cool your heels, deal with your bad boss for either a few more weeks or a few more months, and then leave when you can take that money or if you have to get out of there, you just can't stand it anymore, try to negotiate the money that you're going to be leaving on the table with your new employer.
Jenine Garrelick: Sheridan, with more women in the workforce and attaining more advanced degrees, as Amy mentioned, she has her MBA, what should they be aware of?
Sheridan Culhane: Before making the decision to go back to school, you need to ask yourself if it is financially worth it. Does this make sense? Can I afford it? Does the income that I'm going to make off of that degree justify the student loans that I'm taking out right now.
One of my sisters, she actually went back to school in her late 20s, early 30s to become a nurse practitioner. It took her a couple years to make the decision but what was the final tipping point for her when she realized how much more money she could make as an NP in the Boston area over the long term, her next 25, 30, 35 working years versus her current career path.
She realized that, yes, she could pay back those loans within a reasonable time 10 to 15 years, even including those current and expected future expenses, so that was definitely the right decision for her but if you're pursuing a career in some lower paying professions like social work and teachers, amazing professions. We need those people out there but the decision may not be as straightforward. You want to really tinker with your budget to make sure that you're not going to be completely overwhelmed by this debt once you graduate.
Making the decision to go back to school, that's just part one of the decision. There is part two of the decision, and that is, how should I go back to school. You can go back part time or you can go back full time and there are pros and cons to each one.
Amy Leathe: Yes, so when I went back for my MBA, I thought long and hard about full time or part time, and after I saw the average price tag for the program in Boston, I decided that the evening program would be correct for me. I got the degree. I also got the debt as we talked about earlier, but while I was in school, I was making a salary so I was able to pay for rent and pay for living expenses and pay for those drinks with friends off of my salary, not off of a loan.
Then I was also contributing to my 401(k) plan. My employer was contributing to my 401(k) plan. I had a healthcare plan, I had all the other benefits of working while going to school, so it made a ton of sense for me but as Sheridan said, some graduate school programs, you can't go back in an evening or a part time capacity. You have to go full time but just weigh the options.
Sheridan Culhane: Yeah, other benefits for going back part time, your work history for social security, that doesn't get paused either, which is a big benefit. Then you also may be able to take advantage of the tuition reimbursement program, so you pay for the classes up front, and then your employer may be able to reimburse you for some of those expenses.
Amy Leathe: Right.
Sheridan Culhane: Going back full time, the big benefit of it is that it doesn't take as long and that's always kind of a good incentive to be going back early but you want to weigh that against the things that you're going to be giving up, all those things that Amy had mentioned, the employer and employee contributions, healthcare coverage, you're going to be sacrificing that so make sure you think about these decisions before going back to school.
Jenine Garrelick: Let's transition. There's a term that I've heard, which kind of cracks me up. It's called adulting. What does that-
Amy Leathe: It's when people have to start getting real with their lives, Jenine.
Jenine Garrelick: Okay.
Sheridan Culhane: You could be getting married. You could be having kids. You could be buying a house.
Jenine Garrelick: Okay.
Amy Leathe: You might be single, unmarried so you need to make sure you have your emergency plan in place.
Jenine Garrelick: Got it. Okay, so it's where life gets real. Okay, so I think I've been in the adulting world for some time. Let's dive into that. What are some of the things we need to think about or younger folks need to think about when you're adulting?
Sheridan Culhane: Well, first of all, be aware of the fact that millennials, they are delaying a lot of these adulting things. So right now for millennials getting married under the age of 30, we're only at 23% versus it was close to 56% in the 1960s, so that's been a significant change. If you are married, or if you're getting married, know that there isn't a one size fits all when it comes to marriage and finances. It would be great if it was that easy, but what works for one couple may be absolutely devastating for another one.
We do have a resource in the console. It's called merging finances after marriage. I would suggest taking a look at that piece before you get married, but better late than never, and some other things that you may want to ask each other to help with the discussion. Three really, I think important questions. How much money can I spend without telling you? How much money can you spend without telling me? Then are these numbers or should these numbers be the same?
Keep in mind that some of the top reasons that people end up getting a divorce, money and lack of communication. I think it's really smart to make it a priority to at least talk about your finances with your partner. There was a study that was done a little while ago. It showed that 72% of married couples felt that they communicated extremely well about their finances. They communicated extremely well, but only 50% of those individuals got the other person's salary correct, and only 30% of those individuals knew how much money they had invested combined.
Talking about finances when you're married, yes, it's an important thing to do in the beginning, but it's also an important thing to make sure that you keep doing over time.
Jenine Garrelick: I think that's great advice.
Sheridan Culhane: Too often, we as women, we put other people's needs ahead of our own, and that's definitely the case with caregiving, whether we're talking about for our kids, for our aging parents, or for our spouse. For kids in caregiving, it isn't as simple as my take home income is X. I have to pay Y for caregiving, so therefore it makes sense for me to stay home. Remember that when you leave the workforce, you're giving up your income, you're giving up those workplace retirement plan contributions. Your work history for Social Security is paused. You give up any healthcare coverage if it's just you, so make sure that you're factoring in all these decisions when you make that choice.
We do have a piece on the console, it's called should I stay or should I go, and it shows you just how much money you may be sacrificing because remember the power of compounding, so take a look there, it has some good information. If you are looking to put money aside for your children to go to school, there are a lot of options for you out there. A 529 would be one option. In the console, we have another resource. It's called 529 college planning, and you can use that for elementary, secondary or even for college but I'll never forget that somebody once told me, you can get a loan for school, but you can't get a loan for retirement.
It's true, so don't put your own retirement goals on hold in order to pay for your children's education.
Amy Leathe: Yeah, so as Sheridan just said, though, a large portion of our female millennial friends are unmarried, so haven't met prince or princess charming yet. What that means for us on a daily basis is that we need to take control of our finances, we need to have that emergency fund in place which we keep on harping on I know. Have a plan for yourself, you have to be able to support yourself. Once you have that savings and emergency plan built up, you might enter a next phase of adulting, which is considering purchasing properties so you might want to buy your home or a condo. I purchased a condo last year on my own and it had some great benefits of purchasing on my own. I didn't have to compromise with anyone about location or amenities or decorations.
Sheridan Culhane: Who has the longer commute, who was the shorter one?
Amy Leathe: Right, yeah. It was awesome from that perspective. On the flip side, I was the one putting down the downpayment. I'm going to be the one paying the mortgage every month. I have to pay the taxes. It's definitely different paying rent than paying mortgage every month, but one great resource that I took advantage of right before I purchased was taking a first time home buyer's class. I took it through the city of Boston, but I know they're available in other cities and municipalities. A lot of time mortgage lenders will offer these classes as well, and it was a really great reality check for me.
It kind of got me up to speed on the whole buying process, what a mortgage is. Did I even need a real estate agent, but most importantly, how much could I actually afford and what did I want to afford, and that was a great, great resource.
Sheridan Culhane: Their employers may offer that class too, so you don't have to go out and find it on your own. Again, check with HR benefits.
Amy Leathe: Yeah. One other area that we like our single lady friends to focus on is their paperwork. Not very glamorous, but very important. When we say paperwork, we mean things like making sure you have beneficiaries assigned to your workplace retirement plans or life insurance plans and a beneficiary is who the money is going to go to if you are to pass away. Also important is establishing a will, so that dictates where your real and your personal property will go if you pass and then a healthcare proxy is also very important.
In a lot of cases, with these types of paperwork, if you are married, everything will be defaulted to your spouse, but particularly in terms of a healthcare situation, if I don't assign someone to act on my behalf, I mean, I hope I have a nice friend or family member that's going to show up at the hospital and make decisions for me, so definitely do your paperwork.
Jenine Garrelick: I think that's a good point. Most people think of healthcare proxies when you're older, but right at age of 18, those parents can no longer get access if they don't have healthcare proxy.
Sheridan Culhane: You can get a healthcare proxy for any state or a healthcare directive by going to a website. It's caringinfo.org.
Jenine Garrelick: You you mentioned having not found your prince yet, so I'll just share a little advice because I think they say you got to kiss a lot of frogs to find that prince. Then at times you find the prince and then he goes back into being a frog. We should talk just a little bit about divorce because that is something adulting that can happen.
I'll throw in there two things of advice. I think the number one mistake a lot of women make is that they don't know the financial situation of the spouse and they just want to get out of the marriage, and they make big financial mistakes that way of just getting out. It's really important to understand the whole financial situation.
Sheridan Culhane: Social security would be a big one for that. If you're married for 10 years or longer, you're eligible to receive the spousal and survivor benefit off of your ex or exes, so especially if you're in the kind of eight to nine year timeframe for your marriage, something to consider before immediately pulling the plug.
Jenine Garrelick: That's great advice. Then also to the point of credit scores, when you were talking about being a home buyer, it's another reason why you want to have that conversation before you get married and not after, to make sure you understand also your spouse's credit situation.
Jenine Garrelick: What are some takeaways that you would throw out there for our audience?
Sheridan Culhane: Mine would be, first and foremost, take a deep breath. I know that we went over a lot today, when I walk away from these things, I tend to have the attitude, which is I can take care of everything right now. I start a lot of tasks, but nothing ends up getting done. What my ask would be, what I hope that your takeaway is, is one thing, focus on just one thing. How can you do something to put yourself in a better financial situation by the end of this month? Maybe it's looking at your firm's HR site to see what benefits are available. Maybe it's increasing your contributions from 3% to 6%. Maybe it's opening up a Roth IRA or a 529 account. Maybe it's downloading Mint or reviewing your budget. Do that one thing and then move on to the next. Take it step by step, chip away at it over time.
If you focus on things this way, it makes it a lot more possible for you to actually accomplish them.
Jenine Garrelick: Amy?
Amy Leathe: Yeah, I'd say start today. As Sheridan said, we're overwhelmed. We might feel like we don't have enough money. Start today. Start small, start putting a small amount into that retirement plan each month. The power of compounding interest is real, it's going to help you but you need to start as soon as possible. Also, one thing I found helpful is you might want to kind of seek out professional advice but not know where to start. If you know that your parents or maybe your grandparents are going to a financial advisor, see if you could tag along on the visit and talk to them for a couple minutes and utilize some of their planning expertise.
Jenine Garrelick: That's great. I'm going to throw out there the budget. I think understanding where your money's flowing to can then help sock away some money to start soon. Start today and just do what you can. I do know that we have some questions from the audience.
Sheridan Culhane: Do you want to put your paper down.
Jenine Garrelick: I will put my paper, yeah. Is the font big enough for me?
Sheridan Culhane: I blew it up for you.
Jenine Garrelick: Thank you. Okay, so here to your point about the advisor, how does an advisor get paid?
Sheridan Culhane: There are three main ways that advisors get paid. The first is going to be a flat fee based on assets. You pay them a certain percentage based on the money that you have invested with them. The second way is more of a transactional fee. You pay them based on the products that they sell you. The third is a combination of the two. Keep in mind that an advisor, they can offer one, two, or all three of these fee structures, so you get to pick which one is the most appropriate for you in your situation but don't be scared to ask an advisor how they get paid. There's been so much talk in our industry about fees and expenses over the past couple years that if they get defensive or uncomfortable answering this question, I think that's a sign of a red flag.
Jenine Garrelick: How do I find a financial advisor?
Amy Leathe: Isn't there a website they can go to?
Sheridan Culhane: Yeah, it's yourtimeisanasset.com, so yourtimeisanasset.com. It's an MFS site, but it's just going to reroute you to that one, but in the upper right hand corner, it says find a financial advisor, you click there, and then you can sort through based on your neighborhood or zip code.
Jenine Garrelick: We went over a lot. Hopefully our audience took away at least one thing that they could implement today. I want to thank everyone for tuning in to our series, Your Time is an Asset and I do want to also emphasize to your point, the website, yourtimeisanasset.com that you can dig and get more materials that we talked about, and stay tuned for our next series. Thank you.
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About the survey: MFS Investment Management reexamined the research behind its Heritage Planning program by conducting a study among 1,500 individual investors in the United States.
These data presented in these three slides isolates female millennial respondents who use the services of a professional financial advisor. To qualify as part of this group, a respondent had to be female, have $50K or more in household income, own at least one mutual fund, have at least 1% of their assets under advisement (i.e., using a financial advisor), and make or share in the financial decision making for their household. Millennial refers to individuals ages 23 to 37. The survey was conducted from September 24 – October 10, 2018. MFS was not identified as the sponsor of the survey. We interviewed 109 advised female millennial investors.