wisewomen blog

Phew…I feel a lot better now. All those in favour say “Aye”.
 

But don’t we all have our own “underminers” and “distracters” when it comes to our investments and money management?
 

We are bombarded with an avalanche of information on investing, the markets and the economy from our TV’s, computers, phones, newspapers and magazines. You can’t read it and hear it all but it can be a mighty big play on our minds that we have to keep up with everything or the world will cave in and our money with it. It all seems so incredibly URGENT!
 

Then there are those that seek to set us off course by raising their eyebrows when we happen to mention what we have invested in. Uncle Don is convinced shares are evil personified and no sane person should have them in their portfolios. Aunty Joan can’t believe you wouldn’t buy your own home because property always goes up, you know, dear.
 

Lucky for us (but not poor Julia) we don’t have to answer to anybody else (assuming if you have a spouse you are operating as a team!), when it comes to running our own little domain that is our wealth.  No-one is going to vote you out at the next tribal council because they don’t like you or your strategies.
 

We set our course by visualizing and talking about what we want, we decide on how we are going to get there (with the assistance of one or very few trusted financial advisers) and if we veer off our path, guess what? The only person really to blame is…ourselves! Oh the joys of responsibility and accountability.
 

My message here is one of focus. The world is a complicated place and making decisions about how to invest and grow our money is never so black and white that it comes with guarantees. We take the time to do our research on good advisers and what and how much to invest. We do the best with the information we have at hand and we strike out on our path. Making corrections in itself isn’t wrong but only after due consideration to the options.
 

So what is wisewomen’s views on the giving and receiving of pocket money, how much, how young can we start and on what basis do we make it available? Simple answer: Pay it! Why? To teach four important lessons to your budding consumers...

The first 2 I’ve borrowed from Malcolm Gladwell in his book, Outliers “The Story of Success”. He outlines three criteria that make a job meaningful - complexity, autonomy and a link between effort and reward. Forget the first – no parent wants a complex system, but the other 2 are pertinent in the context of a workable pocket money regime:

Much as we may resist it at times, our children need to learn to fend for themselves so they can flee the roost as well functioning adults. They yearn for independence. Paying a weekly or monthly allowance into their bank account helps them to take their first steps towards handling their finances, so that when they enter the workforce the novelty of their first pay packet doesn’t send them into a tailspin of frenzied squandering.

Don’t give them money for nothing – make it clear that the receipt of a weekly or monthly amount is dependent on fulfilling their pre-designated chores around the home. No chores, no reward. This lesson will hold them in good stead down the line and hopefully engender a strong work ethic.

The next two reasons are equally relevant to the first 2:

Ever been shopping with a pre-schooler? The nagging can drive you mad. But give them $2 and tell them they can spend it on whatever they wish and they suddenly become more discerning. It works with any age - although as they get older you may have to part with a higher amount! 

Giving children a regular fixed dollar sum that is their responsibility to manage, teaches them constructive life-long lessons in budgeting and reining in their shopping habits. Just don’t bale them out when the money runs dry as no lesson learnt there…

Saving doesn’t come naturally to everyone – like lots of things it is a discipline to be taught and learnt.   Honing the practice of “Pay-Yourself-First” (ie: transmitting a nominated amount to their online savings account first thing every month), gives them competence in the basic steps of money management and building wealth. Having these skills will help them to avoid the all too common problem of people living beyond their means and drowning in debt.

What do we want for our children?  For them to develop into measured competent adults who can handle their finances responsibly so that they can achieve their life goals. Pocket money, trivial and insignificant as it may initially appear, plays a vital role in preparing our kids for the outside world. It also opens up scope for conversations with them around responsibility, discipline, saving and budgeting.

So how much pocket money do we give them? You and YOUR budget are the only ones who can answer that question…
 

So, here we are back on deck again. The children have been packed off to school (humid and raining of course), the tan lines are slowly disappearing and February detox has begun. Somehow, despite all our best intentions, it’s hard to feel as if the working year begins until after Australia Day.
 

But get our heads back in the game, we must. So, where do things stand? I am harbouring a strong desire to take stock of where we are and to tentatively look ahead to the coming year although making predictions is notoriously difficult (even for the most highly regarded and qualified professionals in economics and finance, to which I can make no claim).
 

A funny thing happened in January. Despite the pervasive doomsday scenarios the markets actually rallied 5% in January for the first time since 2006. Can it be that the markets are looking through and factoring in all the bad news surrounding Europe and US debt crises? Has all the hand wringing and procrastination by the European autocrats in dealing with their problems left the rest of us falling asleep waiting for them to take some decisive actions and pondering if it is all as bad as it sounded at the end of last year?
 

Make no mistake, if there is a cataclysmic event in Europe the reverberations will be felt in markets worldwide. However, there are positive signs emerging in the US economy giving a few analysts something to smile about. I reiterate my statement on predictions – they are always perfect or imperfect in hindsight so I am making no bold prophecy of spectacular share market gains. It’s very much still a wait and see game.
 

All the talk has been of lower than expected inflation and the potential for further rate cuts after the RBA dropped them by 0.25% on Melbourne Cup Day and then again in December last year. I wouldn’t be betting on banks passing on full rate cuts (if any) given their long term funding continues to be higher than expected. To hedge your bets it may be better to look at shorter term deposit rates so if rates do a U-turn in an upward direction you are well poised to take advantage.
 

Again the doomsday scenarios persist (but don’t they make great copy!). There have been drops in the market, no question, however it seems to be in a rather calm and quiet manner not in the precipitous fashion predicted.
 

For homeowners looking to upsize (with the corresponding ability to finance this purchase) – it represents a good buying opportunity. The lower to median house prices have remained relatively steady. It is the premium and prestige properties (not to mention the coastal holiday home market) that have real estate agents recommending to their clients that they “meet the market” and drop their prices. All power to you if you sit in the lucky group of buyers accessing this market.
 

However, I wouldn’t be rushing out to buy an investment property on the basis of strong capital gains over the next few years. It would be a brave property forecaster who started blowing that particular horn. Rental yields have been holding and hopefully if you do own an investment property, the mortgage is not onerous. If not, take your medicine as the Europeans must, and find ways to “deleverage”. If that’s through trimming your budget or doing more on the income side (working on your own economic growth plan!) either way will help get the black cloud of debt off your shoulder. I know, I know, always easier said than done.
 

So that’s my two cents worth on the state of play for this year. Hope that gets you thinking and your head back in the game after any Christmas binge you may have had. I, for one, am certainly feeling the after effects in my purse and in my jeans. On that note I bid you adieu and head off to my 3^rd gym session for the week. Oh yes, my exercise halo has taken on a rather nice shine in the last week. More on that later.
 

The idea of letter to 16-year-old self is thought provoking. What advice to give the younger you if you could reach across the years? For some, it could be a long imploring treatise in an attempt to sidestep embarrassments and pitfalls of a best-forgotten past. Many would embrace common themes of acceptance and courage, scattered with some well-considered words of wisdom. Wisdom most didn’t possess as a naïve adolescent. Wisdom by definition hard earned through mistakes and experiences made and had along the way.  That have fashioned us into the complex and interesting people we are today. 

Jill and I have the opportunity to talk to girls in this impressionable teenage stage, and we often wonder as we walk away whether any of them will take heed of our beseeching messages: Pay attention to your finances. Start now. Take, and keep, control. These, plus other salient lessons on personal finances - just one, but nonetheless vital area of a developing woman’s journey. So we ponder: does the metaphorical penny ever drop or does each of us have to learn through painful experience? Would it be better to render our self-addressed letters to the scrapheap and allow ourselves to head through the hard times in the expectation they will hone us like steel?
 

Perhaps it is more opportune to consider what we can tell ourselves today. We do have control over the choices we have in the years ahead so let’s put aside our dwelling in the past and consider rather what the future may bring. Looking at the cards we hold now, how can we optimise our prospects? We are presented with the same problem as all those years ago – with all the options we face, the path isn’t always clear.
 

Take investing for instance; there are as many opinions on the road ahead as there are experts. Go to Cash, say the prudent and paranoid, the unraveling euro zone spells Armageddon in equity markets. Buy now, risk takers advise, easing monetary policy in China means structural growth stocks will lead the equity market higher. Stay your course, counsel the pragmatic, shares will still deliver reasonable returns in the form of dividend yield in a world where deposit rates are falling. Trés confusing and, as we know from history - no one really knows. So what to do?
 

Short of receiving an express delivered letter from your future 70 year old self, all we can do is to keep making well-informed and pro-active decisions and hold off recriminations if things don’t turn out the way we expect. There’s risk in everything we do that’s remotely worthwhile – that’s what living is about after all.  So, let’s promise ourselves: No Regrets! Onwards and upwards to 2012 - a year we will embrace to the full with all the ups and downs that life and the equity market is bound to throw at us. Until then, be safe. 
 

What’s even harder is seeing those who come out at age 50 with very little to show for long marriages and careers and a shared life. It makes the process so incredibly hard for those who find themselves literally starting all over again in their 40’s and 50’s. I have heard every permutation of how money issues causes gaping rifts in relationships as surely as sex does. It’s more than the dollar and cents – it comes down to dynamics and how each of us contributes to the subtle nuances in our interactions.
 

So, this week I am thinking about how to put my insight into helping the next generation – our children. Here’s what I think we need to tell both our girls AND our boys about being in a relationship and how to avoid the standard pitfalls.
 

Partner about to put your house up as security for their business or an investment? Find your voice and work it through together. Understand the risks. Weigh up the pros and cons. Be aware of what you are signing and what it means. It doesn’t imply you have the final say but many a good marriage has gone awry because of one person’s insistence on putting JOINT assets on the line for a risky proposition.

It won’t protect you from the consequences if you go ahead and things go bad but at least you will have had the conversation. Stand up and take some responsibility and make a stand if needs be. Just don’t be a victim and say you didn’t understand or didn’t know. No-one can force you to do something against your will and if they do then you would have to reassess that relationship in light of this behaviour.
 

You know the story. The stay at home mum hides the latest purchases from her husband to avoid a scene. He buys golf clubs but whinges every time she comes home with a pair of shoes. Come on, people, what is this? 1955? Like it or not, marriage means you are an economic unit. Whether you work in or out of the home, earn money or not, each half of the partnership has a right to the family income and assets. That’s not me telling you  - it’s the law!
 

This has boundaries of course. Decide on a spending limit that is reasonable to you both. If something is over that limit talk it over with each other. Other than that stop the power games and give each other some respect.
 

There is nothing so ugly as listening to someone say “She spent all the money I earned and she did nothing other than have lunches with her girlfriends”. No doubt at some point both parties were happy with the arrangement and if you weren’t then…SPEAK UP!
 

If your family’s finances are under strain or you want things that cost money don’t sit on the sidelines and expect someone to provide it for you. Yes, having small children is hard work and it makes sense for someone to be the main carer for a time but there is always a way for you to play your part in helping out.

Being the main provider is a huge responsibility. It’s competitive, hard work and can be very stressful when there are more mouths to feed, house and clothe let alone all the consumerist aspirations we all take for granted in this western world.
 

Doing some paid work has many unseen side benefits in self-esteem and pride that makes keeping your foot in the door a great thing. Just don’t sit there being a prince or princess wondering why you aren’t keeping up with the Jones. You are meant to be a team and each person has a part to play. Some of us are lucky to marry someone who will happily pamper and spoil you all the way but…at what price and what happens if that person isn’t always there?
 

That’s it.
 

I am sure you can all have your say on whether I am being fair or not in making these comments. Every situation and relationship is unique. It’s a cliché to say we all have faults and make mistakes along the way, both personally and in our marriages. Our differing personalities make it hard for us all to act in the best possible way all the time.
 

But…if something is going to change then we all have to look to ourselves to make the necessary alterations. Small modifications in how we react and respond to people transform our relationships. If you take away anything from my ramblings, take that.