Tom Sedoric and Casey Snyder

In his essay, “Self-Reliance,” Ralph Waldo Emerson wrote something dear to the heart of all financial advisors: “The voyage of the best ship is a zigzag line of a hundred tacks. See the line from a sufficient distance, and it straightened itself to the average tendency.”

As far as we know, Emerson didn’t give much financial advice but it’s worth noting that “Self-Reliance” was composed in the midst of a lengthy and devastating economic depression that followed the burst of a massive speculative bubble in 1837. 

I believe the historical consequences, then and now, are remarkably similar as people struggle to make sense of uncertain times—this rings especially true in 2020. The understandable focus on the here and now can lead to unwise long-term decisions. I call it personal investment atrophy. 

We must focus on improving our financial literacy so that we can make strategic decisions that improve our future outlook and ability to be self-reliant.

 

A Simple Definition for Financial Literacy

As my colleague Casey Snyder wrote quite succinctly,

“Being financially literate means:

  • Having the ability to weigh the pros and cons of your goals, plan, savings, and resources.
  • Knowing how an investment manager is compensated and why.
  • Understanding that low-price choices can be a bargain but offer no assurance of achieving one’s goals.”

A few key terms in this definition stand out—goals, plans, resources. Unfortunately, we’ve seen an increasing trend moving away from financial literacy, where fewer Americans are setting savings goals or planning strategically for retirement. When they reach retirement age, many face precarious financial stability. This is reflected in a startling poll from the Economic Policy Institute that showed as of 2016, nearly half of American families had no retirement savings at all. A stark example of financial short-sightedness.

It appears that short sightedness permeates much of our culture. Our general inability to appreciate much more than 30 seconds of history limits our ability to prepare using historical knowledge as a guide. With each passing year as a culture, we reflect on history less and less.

 

Preparing for Retirement: Avoiding Financial Short-Sightedness

The reasons for delayed savings and investment often appear perfectly rational. There’s little doubt that 9/11 terrorist attacks or the COVID-19 pandemic exert a psychological impact – in other words, live for today because tomorrow may not happen. Mortality tables, based in mathematics, show a more rational story, of course. 

There’s also the very human trait of ‘why should I delay gratification because I deserve it today – I can always save later’. We’ve seen a lot of this from my generation who believe that they can always do it tomorrow.

The problem is that tomorrow comes very fast. Many Boomer’s balance sheets may reflect the tipping point of a consumer-focused economy that embraced attitudes of entitlement and instant gratification. Unsurprisingly, true financial literacy emphasizes the opposite frame of mind—patience, discipline, and a delayed sense of gratification.

 

Returning the Focus to Financial Literacy

I sense many of our peers need a better grasp and control of investment planning–no matter what their income level. Unlike prior generations before and after World War II, financial literacy has become less of an important part of our social fabric.

Credit and debit cards do not allow us to feel connected to our money – unlike the school child in the 1950s and 1960s that would open up a passbook savings account and deposit their own dimes, quarters or dollar bills. We’ve lost the learning that comes from a tactile connection with money. 

Finally, there’s what I call the ‘nanny state comfort blanket’. We improperly assume that big government will come to the rescue and take care of us. For example, the popular and costly programs of Medicare and Social Security for older generations have assumed far greater importance than originally proposed. Social Security was passed in the 1930s and it was intended to join with personal savings and pensions to provide for financial security. When Medicare was passed in the 1960s, it was never meant to be the sole source of health care.

We have lost sight of basic planning concepts which are as reliable as the tack of a sailing ship. My favorite is the power of compound interest which was lost in the get-rich quick schemes of the recent past, but the basic math is undeniable. If Emerson was writing today, it’s possible he might say “be true to compound interest for it will be true to you.” 

 

It all comes back to financial literacy and self-reliance.

 

This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. The views expressed are those of Tom Sedoric – Partner, Executive Managing Director and Wealth Manager and D. Casey Snyder, CFP® - Partner, Senior Vice President and Wealth Manager and are not necessarily those of Raymond James. 2240380