By Bob Wood, MMNS
I begin this weekâ€™s installment with some anecdotal observations I have made, which might well serve as useful lessons to our younger friends, perhaps your children. Observing the financial self-sufficiency – or lack thereof — of too many of todayâ€™s older people provides opportunities that allow the young to learn — while they still have time to make needed changes in their own financial habits.
On occasion, I stop at a local coin shop to diversify my personal savings with small amounts of gold or silver bullion. The shop also buys scrap gold and silver from anyone wishing to sell. With todayâ€™s price of these metals much higher these days, sellers have become frequent visitors to the shop.
What concerns me is how often these sellers are older people — senior citizens, in many cases. And I canâ€™t help but wonder why they are selling small pieces of metal or silver sets that hold intrinsic value. I wonder if those small treasures are the last things of value they own — and if they are being sold to raise cash for daily living needs.
Recently, one older man showed me a set of two gold cigarette lighters in an elegant case. I assume that they were quite fancy for lighters. He said that, since so few people use lighters any more, selling them for what they might be worth seemed smart. When told that his lighters were only gold plated and worth $10 for both, he sold them anyway.
I couldnâ€™t help but wonder if he really needed that $10, maybe to buy food or gasoline, or did he sell them just so his trip to the dealer wouldnâ€™t be a wasted one? What about the others in the shop who were selling old jewelry? Were these the last things they owned that held any value and could be easily sold?
At their ages, I reasoned, they had most likely worked for many years. Yet those small items may represent much of what is left, much of what represents the net results of their lifeâ€™s work.
Having been bearish on our economy for the past couple years, I have been looking recently at shares of pawn shops as possible investments. (And speaking of bearish, by the way, with the S&P 500 index now sitting just about where it was in October 2006, I am feeling a sense of vindication for being bearish on the domestic stock market throughout the ensuing period.) Yet a news story I read this past week points out that many small pawn shops are going out of business! With the economy in the dumps and many people struggling to pay for food and gas, I never imagined that pawn shops wouldnâ€™t survive in an environment that seems tailor-made for them.
The problem, apparently, is that, while many people are going to pawn shops to borrow money against their tools, jewelry and hand guns, not enough buyers are looking for deals on items not claimed and bought back by their owners. And those original owners probably settled for prices equaling just a fraction of the true values of their possessions.
The striking part of this story is how many people are searching their homes for items of value, which can be pawned for quick cash. For many people in this country, believed to be the richest on earth, too few workers and retirees seem to have accumulated sufficient wealth to help them through hard times.
Imagine yourself among the scores of people rummaging around your home for anything of value to sell for needed cash. Where would you look, and what would you sell first? How does it feel when you think of yourself in those shoes, even if this is only as a mental exercise?
Have you seen or heard the reports, too, about the number of savers who are withdrawing money from retirement savings accounts at work, such as 401(k) plans? Iâ€™ve read that those taking premature hardship withdrawals now approach 25% of participants. What makes this especially sad, according to the last figures I saw on the amounts invested in those plans, is that the average saver over the age of 50 has about $60,000 put away for retirement. And part of that amount will be claimed by the government in the form of taxes when the owner initiates retirement withdrawal.
Even more disturbing are recent reports about the rising rate of bankruptcies among senior homeowners. That demographic has seen an increase in bankruptcy filings of more than 300% in recent months.
Can you imagine how that must feel? Can you envision going to your local court house, standing before a group of people you donâ€™t know, and explaining to a judge that the end result of your lifeâ€™s work amounts to a negative number? After working hard for 30 or 40 years, you have less than nothing to show for it?
I hazard a guess that virtually none of these people ever imagined ending up in such dire financial straits when approaching their â€˜â€™golden years.â€™â€™ How many at age 25 or 30 ever imagines that their lives will end in poverty? No one dreams of the day they will move into a run-down mobile home park, yet millions of retirees do.
I feel safe in assuming that those now in dire financial situations would speak of their regrets for failing to plan ahead for later life. How much of what they earned should have been set aside in a savings account or their company-sponsored plan? How many wish they hadnâ€™t chosen to live above their means, borrowing too much money to help pay for a bigger house than they could really afford or a big, shiny new car that made them feel good – as good as their neighbors and friends?
If I had children, I would talk with them about saving. First, I would take some time to congratulate myself for having lived through the experience of raising them, as should any of you who have them. Then I would sit down with them, look them right in the eye and make sure I had their attention.
Then I would explain the facts of financial life and what they should expect when they get older. I might take a page from those â€˜â€™scared straightâ€™â€™ programs for juvenile delinquents — where the young offenders are taken to a real jail and put in the same room with real inmates to get a first-hand look at what the future may hold for them if they donâ€™t get the message in time.
I might take my children to one of the older, run-down mobile home parks and have them visit inside a couple of them, talking to those who live there and how they came to live in such demoralizing ways. Then I might take them to the local court house to watch a dayâ€™s worth of bankruptcy hearings to see how many others find themselves in bad shape financially. I would make sure my children understood that living within their means, saving money and staying healthy were their best options for attaining happiness, self respect and dignity when they become older and too tired to keep working.
For too many seniors today, financial insolvency is real – and, I must assume, painful. Surely, those who failed regret that they did not manage their finances prudently. I am sure all of them would love a second chance to go back and start over again, armed with the knowledge they came upon far too late in life.
But your kids have that second chance now. They can benefit greatly by seeing how too many others are faring today in this, the â€˜â€™richest country on earth.â€™â€™
Teach your children about saving, budgeting and living within, rather than above, their means. Theyâ€™ll likely roll their eyes, yawn or stubbornly tell you that they â€˜â€™get it.â€™â€™ But you must make the effort. Many seniors now they wish that someone had sat them down and told them loudly about these important lessons — while there was still time to adjust their financial behavior.
The old song goes, â€˜â€™Regrets, Iâ€™ve had a few,â€™â€™ and, hey, we all do. But donâ€™t let â€œsaving for that rainy dayâ€ be among them. Teach your children now, and know youâ€™ve done your financial education job as a parent.
Have a great week.
Bob Wood ChFC, CLU Yusuf Kadiwala. Registered Investment Advisors, KMA, Inc., firstname.lastname@example.org.