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Financial Lessons from Grandpa

2.4 million times per month, Google is asked, "How do student loans work?"  2.3 million times per month, the search engine is asked, "What is a mortgage?" 28% of Americans have no savings to speak of, and 63% don’t have enough to cover a $500 emergency. The average household debt in our country, although off of the highs during the great recession of 2009, is still 136% of household income.  

Our personal financial literacy in America is, in a word, subpar. In Pennsylvania, we’ve been tracking the state of financial literacy in our high schools going back to 2013. In 2016 we had 75 schools that required some level financial literacy course to graduate. That was more than double the number of schools we had in 2015, which is tremendous progress, yet it still only represents 15% of the school districts in our commonwealth. We’re not alone. By the end of 2018, there were only 17 states in which a personal finance class was required for graduation, and in our Nation’s capital, it’s not even part of the education standards.

I’d like to see all of that change. I don’t know how to jump through all the red tape that it would require to make it part of everyone’s core curriculum in high school and/or college. I don’t know the budget for such a project.  I do know it’s essential. I do know I’d be willing to share anything I’ve learned about the subject over my fifteen-year career to anyone that would be interested in learning. I also know it’s a little like weight loss.  Everyone has a “method” or a “system.”   

I count myself lucky to have been born into a finance family. If you weren’t as fortunate to have finance passed down in your family on the back of the tractor or at the dinner table, allow me to share five lessons from my grandfather that might help you.

Grandpa will be 90 years old in September and was raised on a farm not far from our North Hills office, so maybe these sound old-school and simple to you. Then again, perhaps old-school and simple is what works.

1. Don’t go into debt for more than one thing at a time. Most of us have a mortgage and then maybe some student debt or a car loan.  Beyond that, if the dishwasher breaks and the washer/dryer break at the same time and you don’t have the cash to purchase both without debt, you need to decide if you’d rather hand wash dishes or clothes for a while.  10% of our disposable income as Americans is currently spent on debt service alone.

2. People that understand interest … earn it. People that don’t … pay it.  The average U.S. household has $16,061 in credit card debt.  At 29.99% interest that equates to $401 a month of interest alone. $401 per month would go a long way to filling up a Roth IRA contribution.

3. If your outgo exceeds your income, your upkeep becomes your downfall. Chew on that one for a minute as an 8 year old kid on the back of a truck.  Just hand me my ice cream cone please grandpa!  

4. Luxury is no longer a luxury once you’re accustomed to it. I call it "lifestyle creep." Controlling spending is just as important as having a couple of nice things. Balance is important. You don’t have to skip the $6.00 coffee if you like it, make sure there’s $2.00 or $4.00 or $6.00 being saved for the future version of yourself to have a cup of coffee too.

5. Save part of what you make. Simple to say. Very simple to agree with. Harder to put into practice.  When you get a raise, save a portion of it.  When the birthday money falls out of the card from Grandma, put some of it away. The personal savings rate in America peaked in 1975 at 17.3% of disposable income. It has ebbed and flowed since then but we’ve never been higher than 12% since.  Currently, we sit at 6.1%. We’re living longer than we did in 1975 and Social Security and Medicare are in worse shape than they were in 1975. Save part of what you make.

In his book "Zero to One," the founder of Paypal,  Peter Theil says "we cannot take for granted that the future will be better, and that means we need to work to create it today." The future version of yourself will thank you for the way you treat your finances today. 

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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Hefren-Tillotson Inc. is a leading diversified financial services firm providing investment and retirement plan management and comprehensive, financial planning through MASTERPLAN® for individuals and businesses. The firm’s wealth management services are administered by Certified Financial Planner (CFP) professionals, Chartered Financial Analyst (CFA) Charter holders, attorneys, Chartered Life Underwriters, and CPA/PFS’s. Hefren-Tillotson offers corporate services including 401(k) retirement planning, executive financial counseling, fiduciary reviews and workplace financial planning seminars. Founded in 1948, the firm is headquartered in Pittsburgh and has offices located in Pittsburgh, Butler, Greensburg, North Hills, and South Hills. MEMBER SIPC.