When it comes to managing finances, people have more choices than ever. Convenience may be at an all-time high — with financial vehicle options that fit a wide variety of needs — but this also means there are more choices that aren’t necessarily in the clients’ best interests.
The growing number of options makes it more difficult to properly analyze all of them, leading more and more Americans to take on more risk than is necessary to meet their goals. It’s become common for people to opt for a shortcut rather than taking the slow and steady route to build up their savings.
For example, credit cards have become increasingly popular since their creation in the 1960s, and it’s now become the norm to buy items now and pay later. This option gives consumers the ability to pay small monthly minimums which, when paired with high interest rates, could turn manageable debt into out-of-control debt.
The already-complicated field of finance has only gotten more complex over the past 50 years. This is all the more reason to rely on financial professionals for financial advice, as opposed to searching around online or taking guidance from a robo-advisor. It is important to regularly evaluate your financial strategy to ensure it reflects your current goals and objectives, so please keep us in mind any time you’re considering making changes to your strategy.
The average household debt, as a percentage of personal income, increased sixfold from 1946 to 2008. And while the concept of debt may not be that difficult to understand, the complicated rules that surround credit scoring are hardly intuitive. For example, leaving cards with zero balances open doesn’t hurt your credit score, but closing cards without a balance doesn’t help it.
Interestingly, while all of these financial vehicles offer people more choices, as a general rule, Americans have become more averse to change. According to a recent study, we are now less likely to change jobs, relocate to another state or open a startup business than we were 30 years ago. As a result, Financial Times reports that productivity is likely to drop in the U.S. for the first time in over 30 years.
Even seemingly smart investment choices experience volatility. It’s important to remember that investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. However, just because a financial vehicle has downsides doesn’t mean you should eschew it if it is appropriate for your situation.
Here’s one example: 529 college savings plans have become popular among grandparents who want to help their grandchildren graduate from college without student debt. However, when 529 funds are distributed to students, the next year those assets are reported as the student’s income — which, in turn, may decrease the amount of financial aid the child may receive by 50 percent. In dollar terms, that means if a student received $10,000 from his grandmother’s 529 plan, his student aid for the next year could be reduced by $5,000.
For all practical purposes, financial choices these days are boundless. We suggest that the best way to manage your options is to seek quality advice from a licensed financial professional and appropriate financial products for your situation. As always, we’re here to help.
Interested in reading more? Here are some articles that may be of interest to you:
[CLICK HERE to read the article, “Array of Financial Products is Dizzying,” Center for Retirement Research at Boston College. May 26, 2016]
[CLICK HERE to read the article, “Credit utilization rules for managing your credit score,” from CreditCards.com. Feb. 25, 2016]
[CLICK HERE to read the article, "How America Lost Its Mojo,” from The Atlantic. May 27, 2016]
[CLICK HERE to read the article, “The Best Way to Help a Grandchild with College,” from The New York Times. May 27, 2016]
[CLICK HERE to read the article, “How much $$$ do you need to start investing?” from CNN Money. May 13, 2016]
Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.