On the Road Again…

I’m writing this from a hotel in Columbus, Ohio where I’m spending the night while en route to Washington D.C.  While it’s quicker to fly I enjoy a road trip because I enjoy watching the scenery roll by.

I used my smart phone to check the road conditions, determine the route, estimate the time of arrival, find a Starbucks, report a traffic incident, find our restaurant for dinner and book the hotel while in the car.

Some of you may take this for granted but for a dedicated roadmap collector like me, it’s amazing to reflect on the connectivity, functionality and convenience of the smart phone as a tool.

Deep Work

I devoured Cal Newport’s latest book Deep Work over the last two days.  He believes that in this age of technology knowledge workers, ones who make their living from creating value from the thoughts they think are increasingly replacing deep thinking through a problem with what he terms “shallow work”, logistical-style work that is not cognitively demanding with frequent breaks of distraction.  

I recognized myself for the untold number of times daily that I grab my phone to check my email, the stock and currency markets, and the latest news.  This led me to reflect on the following, “How do I consume the news?”  I love paper and when I can, that’s how I get the news.  Before the Internet that’s how I got all my news (except the weather).  Today I rely on newspapers and magazines for depth on the few stories I find interesting,  My go-to sites end up being the online sites of newspapers mostly – the NY Times, Wall St. Journal, Washington Post, Chicago Tribune, Minneapolis Star Tribune, Des Moines Register, and LA Times.

I really try to stay away from social media sites (more on this another day) because, frankly, I don’t trust those sites for news. The reporters at the major newspapers may have biases (after all, who doesn’t), but many of the feature stories are well researched and provide multiple perspectives on the issue, allowing me to think deeply about issues in a way I can’t with the information provided on social media sites.

For me, I need to have a perspective and think about the implications of what I’ve read to feel as though I’m performing deep work.


Fear of financial insecurity or financial literacy – why is it such a difficult choice?

Here it comes – every April since 2004 has been designated National Financial Literacy Month by the U. S. Government.  According to surveys that track this issue, U.S. adults are at best in the middle of the pack compared to the rest of the world when it comes to understanding basic financial concepts such as compound interest.  Yet efforts to educate Americans is hard to encourage, as evidenced by financial literacy survey results.  According to the Wall St. Journal, only 57% of Americans passed a basic financial literacy test.  For the average American the fear of financial insecurity is very real and permeates their daily thinking.  It can affect their mental health and the stress  associated with financial insecurity can lead to physical health issues as well.

Financial-Literacy-1We owe it to ourselves to become educated on financial matters because we are our financial advisor.  From monthly budgeting and bill paying to retirement planning, we are our own best advocate to ensure our financial well-being both today and in the future.  It’s not that Americans don’t want to become starter about money. Most adults wish they had financial coursework. Only 5 percent say they were taught about money by a teacher, and 40 percent say they would give themselves C’s, D’s and F’s on their grasp of personal finance concepts. A full 85 percent of American parents believe that financial education courses should be a requirement for high school graduation. And 52 percent of teenagers want to learn more about money, and they’re most interested in budgeting, saving and investing.

How to get started on the road to better financial self-knowledge?

  1. List questions you have about your personal finances.  Making a list of things you’d like to know more about allow you to free your mind and get your fears on paper and out of your head.
  2. Start a financial journal.  If you don’t know where you are you’ll never get where you want to go.  Track your spending for a month.  Then total up where you spend your money and what you spend it on.  Ask yourself if your money is going to things you truly value.  Which expenses can you do without?  Which expenses can you cut?  Is there any opportunity to save a little money, even 10% of your take-home pay?
  3. List your financial goals.  Everything from this summer’s vacation to how much you want to retire with.  This list of goals is your financial roadmap.
  4. Meet with a trusted advisor to answer your questions and discuss your goals.  For most people, an hour with a personal banker at your local financial institution will be enough time to answer your questions and help you become familiar with the products and services they offer that can help you achieve your financial goals.

The Life Cycle of a Credit Card

Credit card use has a life cycle with three distinct phases, according to a Federal Reserve Bank of Boston study of Equifax data, which plotted out how credit card debt and credit limits change over time for Americans ages 20 to 80.

Youths start out with not much credit, but they quickly gobble up most of it. From there, credit card debt starts rising, but credit card limits rise even faster.

A cardholder’s late 40s see the start of phase two, where median debt begins tapering downward. Because credit limits continue rising to a peak in people’s mid-60s, credit utilization — or the percentage of available credit being used — drops from 16 percent at age 47 down to 8 percent by age 64.

The third and last phase typically begins in an Americans’ late 60s, when credit limits stop climbing and begin to descend. With debt declining as well, credit utilization falls below 5 percent around age 74.

The study, “Consumer Revolving Credit and Debt Over the Life Cycle and Business Cycle,” by Scott L. Fulford and Scott Schuh, drew from a 5 percent sample of every credit account in the United States from 1999 to 2014 from the credit reporting agency Equifax. Demographics of the sample were determined to match the overall population very closely since the vast majority of Americans over the age of 18 has a credit bureau account.


The Internet of Things and Auto Insurance

It is becoming familiar to read about the “Internet of Things” (IoT) and how this will increasingly impact our lives.  If you think the impact will occur sometime in the future, think again.  Twenty percent of Americans participated in a usage-based auto insurance (UBI) program, according to a recent Nielsen survey.   Usage-based insurance involves using IoT devices to monitor and assess a customer’s driving activity — i.e. how likely it is that an insurance company will have to pay out a policy to a client. With this extra data, low-risk customers are rewarded for their good driving habits with lower insurance premiums, whereas high-risk customers are sometimes charged higher premiums.

My son was offered one when he insured his auto through Progressive Insurance and he took it.  Among other thing it measured his acceleration rates, speed, and braking patterns.  He said having it in the car made him more aware of his driving habits and if that made him a safer driver, all the better.  While not mandatory today, UBI auto insurance coverage will become the norm over time so that your future auto insurance rate will be primarily driven by your driver rating, as well as your neighbors’ driver ratings and the ratings of the drivers who frequent your commuting routes.

For today however, if you’re a safe driver or wish to become safer, it may be worth your time to look into a policy of this type.  Your safe driving could translate into real savings.

Other highlights from the survey:

* Between 2013 and 2015, US adoption of auto UBI rose from 13% to 20%.
* 27% of Americans say their auto insurance company does not offer UBI policies.
* 41% of American consumers still do not know if their auto insurer offers UBI policies. This was slightly up from 40% in 2013.

My time at Harvard

Last week I attended Karen Webster’s Project Innovation 2016 conference held at Harvard University.  It was first time visiting the campus and I must say I was impressed with the history the campus preserves so beautifully.

The theme of the conference was Payments on the Edge and there was much discussion among attendees about financial inclusion; the delivery of financial services at affordable costs to disadvantaged and low-income segments  of society.  The attendees heard again how difficult it is for traditional banks to serve these segments profitably due to the low dollar amount of the accounts (whether deposit or loan accounts).  They claim that compliance costs are a large part of the cost structure that makes these accounts unprofitable and unattractive for bank and customers alike.

There is a way to address regulatory concerns and increase financial inclusion, but it will take a collaborative, systemic approach to innovation and regulation.  When it comes to financial inclusion, existing regulation can hinder access to financial services.  Existing KYC requirements drive current account opening procedures at financial institutions that could be considered overzealous for a given situation.  How much verification is really required to obtain a $300 loan?

Further, existing regulations can hinder the emergence of alternative financial institutions more suited to the needs of lower-income consumers. From 1990 to 2008, over 2,000 new banks were formed, however from 2009 to 2013 only 7 new banks were formed, according to a 2014 Federal reserve Board study. In addition, high minimum capital requirements, limited funding structures, and heavy supervision further suppresses new entrants..

Fintech companies and financial institutions that partner to solve a particular problem need to prototype an end-to-end solution that addresses the risk presented to the financial system.  They also need to include regulators early in the process to educate them on the solution.  Regulators need to shift from regulating the individuals to regulating the systemic solution so the compliance burden is born only once in the system by the appropriate party.



Welcome to the new year

Happy New Year! This is my favorite weekend of the year because it holds the promise of limitless possibilities. It is also the time of year that I take stock on where I’m at in life, express gratitude for what I’ve been given, and set goals for the upcoming year. This process is relatively new for me.

Earlier in my life I would assess where I was at, make resolutions to change some aspect of my behavior and charge into the year. The results of my earlier efforts were disappointing. Most years I felt as though I hadn’t measured up to the resolutions I made – stop smoking, get healthier, work on stained glass, read more, become a better person.

What changed? Why am I more satisfied today than in the past? Today I’m taking stock and setting goals, not just assessing and resolving. I’m fact-based when I take stock. When it comes to financial matters, this means preparing a personal financial statement – a list of assets and liabilities. Truth be told, it’s sometimes been a boring exercise and at times it’s been uncomfortable, but I’ve come to find that drafting this statement is the best first step to figure out how to improve a bad financial situation.

Next, I’ve moved from making resolutions to committing to goals. The difference is a resolution is often a vaguely defined promise involving a character trait or behavioral change while a commitment often involves a very specific plan or a course of action. Financially, my goals are to pay my future self a little more by increasing my 401(k) contribution by 2% and increase my charitable contributions by $40 a month while staying on my budget.

This year I have four overall goals I will work to achieve;

  1. Share my thoughts on financial services with you at least weekly
  2. Help launch Odyssey (odysseywise.com) out to an unsuspecting boomer population
  3. Launch a new division within TMG Financial Services to help credit unions grow, and
  4. Visit Europe with my beautiful wife Karen

Along the way I’ll introduce you to people who are doing good work in the financial services industry and invite you to see what they’re up to. All the best this year and I wish you success in achieving your goals.