National Financial Literacy Month: How Is Your Financial Literacy?

Evan Barnard: It is a gorgeous day, and so I am going to start the show.

Exciting Time To Be an American

This is going to be a fun show. I probably will nerd out a little bit here and there, but it’s always fun to have these weeks where, gee, there’s just nothing going on in the world.

We’ve got war, what’s going to happen with interest rates, all this kind of stuff. And we’ll deal with that.

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Frankly, spoiler alert, don’t worry about all that kind of stuff. If you’re diversified, it’s not really a problem. 

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But want to deal with a couple of things early. Just to let you know, those of you that are multitasking this weekend, Rory McIlroy is still 12 under, and Haotong Li caught up. He eagled eight, and so he’s now only three behind.

And so I’ll frankly keep an eye on that throughout the show. I didn’t take two days off like Matt Murphy did to watch the round, but I wanted to keep you in the loop there.

And then last night at 7:07, I think Eastern Time, 6:07 our time, I believe, the four astronauts are home safely. Just a testament to the great country that we live in. The teams that are created, whether it’s NASA, whether it was at General Dynamics or I forget who was the prime contractor. I don’t think it was General; I think it’s McDonnell Douglas.

But just getting all of that stuff to work, and just even simple things like seeing those three orange parachutes open, knowing, okay, at least the capsule is safe, the astronauts are safe. We’ve been hearing them talk on the phone. And so that’s an exciting time. It’s an exciting time to be an American, frankly.

Are we perfect? No, but we’re better than any other country on the planet. That’s my position, and I’m sticking to it.

Nutella in Space

However, during the space flight, just being the capitalist nerd that I am and that most of us here in the firm at Paul Winkler are, I had a great article. Some of you have maybe seen this video. I think it ultimately did go viral. I should have pulled it up.

It probably has millions of views at this point. But this is an article from The Wall Street Journal, “The Nutella Seen All Over the World — and 252,756 Miles Away: A floating jar of Nutella on the Artemis II livestream was the stuff of marketing dreams. The brand was just as surprised as the rest of the planet.”

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Having your brand associated with something that gets tons of exposure is always a double-edged sword. 

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Bud Light found that out. But NASA is particularly sensitive about not sponsoring products. I mean, we live in a world where the Super Bowl is sponsored by XYZ company, and this thing is sponsored by whatever, Exxon, and the golf tournament sponsored by Bank of America, whatever. But NASA historically is just loath to be associated with a particular product.

And again, that could cut both ways. What if something had happened on the mission, and now all of a sudden, people associate Nutella with this tragedy? And so they just don’t talk about it.

Interestingly enough, they were getting together … I’ll just read from the Wall Street Journal article: “As millions of people all over the world watched the Artemis II lunar fly-by this week, they were minutes from seeing astronauts travel the farthest distance ever from earth when they were suddenly captivated by another majestic site. It floated through the spacecraft, tumbled right past an astronaut’s head, and drifted across NASA’s livestream, leaving those of us roughly 250,000 miles away with the same question: ‘Wait, was that a jar of Nutella?’”

Back on Earth in New Jersey at their headquarters, the executives of the parent company, Ferrero, were sitting down for an operations meeting, and they started getting X posts and texts of, “Hey, did you see the Nutella on the spacecraft?” And so they have been very quick to capitalize on that. They’ve already posted a clip of the NASA footage in slow motion set to the theme “2001: A Space Odyssey” with the tagline, “Nutella is out of this world.”

And so being capitalists, we always talk about stock picking, and new information is what changes the price of a stock. You can’t forecast or predict the news.

So I quickly Googled Nutella and said, “Okay, who owns them?” Well, unfortunately, as an exercise in not stock picking, they’re privately held by a family, the Ferrero family. They also own Ferrero Rocher. They actually own Fruit Loops and Frosted Flakes and a whole range of things.

So I couldn’t see if they had a spike in stock price, but typically that’s the kind of thing that you would see. Again, that cuts both ways. Bud Light saw a price decline very quickly.

And if Nutella was publicly traded, probably we would have seen some significant uptick for a candy company, but you wouldn’t have known that 10 minutes before that video made it across the world. So you just can’t forecast or predict any of this kind of stuff to use that from an investment philosophy or anything like that.

Creating a Budget

So this is financial literacy month, and I’m going to touch on just a couple of basic things, and won’t totally nerd out on financial literacy, but we are going to talk about that some over the next few weeks. And financial literacy doesn’t have to be complicated. It doesn’t have to be hard. At the end of the day, yeah, terminology can sometimes get you into trouble.

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A lot of the terms that cause problems are probably things you shouldn’t be doing anyway. 

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It’s like my kids asking me where the drug dealer is. I’m not going to tell them, because they shouldn’t be doing that.

So it’s just a simple function of, get a piece of paper. You don’t need a computer, you don’t need an app. There’s plenty of those things out there. If you’re a tech hound, great, do that.

But you could do this on a legal pad, and just literally do the basics. We call it a budget. Societally, I think people view “budget” as a negative thing.

So if you want to call it a cash flow statement, fine. If you want to call it a spending statement, fine. Call it whatever you want, but just get it on paper.

And I would do this by month to start with. The top line is, okay, what do I bring home a month? A lot of times, you’ve got Social Security or 401(k) contributions and things like that coming out of your check, and so what am I bringing home for month, and put that on the top line because that’s what’s available safely to be spending the rest of the week or two weeks or month, however frequently you get paid. I would total it for the month to do that.

Then write down your bills, your stuff that you have to pay monthly that isn’t a choice, so whether that’s a mortgage, whether that’s rent payment, cable bill, phone bill, utilities. And yes, utilities can vary, so just estimate. Crunch your last six utility bills and divide it by six just to get a decent average.

All of those kinds of things, you would want to put something in there for groceries, all that, and then see what’s left over. Subtract all of that from your income. Pretty straightforward.

You could do this if you’re 15, you could do it if you’re 65. If the number is negative when you subtract all of those things from your income, that’s a problem. And so you either need to raise your income or find a way to cut expenses, whether that’s get a roommate, cancel cable, Netflix, whatever.

But that’s really the basic thing that you want to get down is just, where am I at on a monthly basis? Do I have money left over or not?

Oftentimes, when you go through this exercise, you’re going to see on paper, “Well, hey, I’ve got, whatever, $265 leftover or $2,600 leftover.” Just depends on your income and expenses.

And so you’ve written down all these bills and you say, “Wait a minute, I’m supposed to have $2,600 leftover. I don’t have that.” Okay, that’s the next step is to start looking for, where is all of that money going?

And it may take looking at your debit card online, credit cards if you use those, Zelle, PayPal. There’s a lot of places to check transactions anymore. Used to, you could just get your bank statement and see everything that was going on.

What Is a Stock?

So sometimes it’s terminology that causes people confusion. I’m going to hit three or four just really basic terms.

If I get really rambunctious, I may give out my cell phone number and you could text me a question of just a financial term that you’re curious about. Please don’t turn this into Stump the Guest Host while Paul is out of town.

But it’s important. We always talk about how the more informed investor is the more confident investor. So if we can just cover some of the basics, great. You’re better prepared.

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So what is a stock? A stock is simply a portion of ownership of a corporation. 

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It could be a really big corporation. It could be a really tiny corporation. It could be a privately held corporation. You might work for a private corporation.

I don’t think they’ve gone public, I should know this, but Publix was a private company, but they have shares of stock. And Publix doesn’t trade, I don’t think, but they’re a larger local employer. And that means if I have a share of stock, I have a claim on a portion of the assets and a portion of the profit, or loss, of that corporation.

And so that’s all stock is. If you have a big percentage of the stock ownership of a company, obviously you have a bigger claim to the assets and the income.

I think Warren Buffett — who retired, stepped down earlier this year, formally announced it last year — I think at one point he owned like half of Coca-Cola. So I mean, you might have a big percentage of a company, or you may just have five or 10 shares in your 401(k) plan or half a share. But all it means is I’ve got a claim on the profits and the assets of the corporation.

So what do you think happens to a stock price? Well, if the corporation looks like it’s going to make more money, people think it’s going to earn more, and typically the stock price would increase. Not always, but that’s generally what happens.

And if there’s a new piece of news, “Oh, the ceasefire broke and now we can’t get tankers through the Hormuz Strait,” well, then the stock price might go down because people think it’s not going to be making as much money. And it is just that simple.

If you’re in a very diversified portfolio, you’d be walking around any store, Walmart, Kroger, Publix, Galleria is probably a better example because there’s a bunch of different stores, you may be a part-owner of half of the stores that you walk by. And so if you go in and get a pair of shoes, you might be benefiting a stock that you own in a mutual fund that’s in your IRA and your 401(k) at work or so forth.

And that’s just how capitalism works. So that’s a stock. Stock is something you own.

What Are Bonds?

Frankly, other than this show, you just don’t hear a whole lot about bonds, unless you watch Fox Business or CNBC or something like that, but we don’t talk about it as much. But bonds are three times the size of the stock market in terms of the dollars that are moved around. And a bond is simply a loan.

So if you were going to buy a house or buy a business car, whatever, and you don’t have enough to pay cash, you typically would go to a bank or lender and say, “Hey, I need to borrow $50,000 and buy a car.” If it’s a truck, you’ve got to borrow $100,000 to buy a truck now. But you can go to one bank, and they can withstand, if you defaulted, they can figure out a way to get the truck back and make off with the $50,000 that you owed them.

But if you’re a corporation and you need to borrow $100 million or $2 billion to build a data center, to build a new manufacturing plant, a single bank typically isn’t going to be able to write a loan like that, and so you go to the bond market. And all you’re doing is borrowing from thousands or tens of thousands of individuals, 10,000 here in terms of dollars, $50,000 bonds, and now all of a sudden you have your $100 million to build a new plant.

And if you default, then all of those people might be out of luck, but they’re out of luck with $10,000 or $20,000, and no one had a single loss of $100 million. So a bond is simply you’re loaning money to a corporation or a government.

We’ll talk a little bit later, maybe even in the second hour, on TIPS. That’s a Treasury Inflation-Protected Security. Inflation has started to rear its ugly head, and we’re starting to see more press on TIPS.

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But the easiest thing to remember: stocks, something I own; a bond is simply a loan.

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And then the last category is cash, just in the financial sense. Not talking about real estate or commodities or anything. But just cash to us is any guaranteed instrument that’s pegged to $1 even, whether it’s a CD, savings account, checking account, or money market account. To us, all of that we just kind of consider cash.

So I do want to give you one resource, particularly if you have children still at home. The Council for Economic Education has a really good curriculum. Some of it’s oversimplified, but it is age-appropriate. They have it broken down into four categories from like K through 2 and 9 through 12 and so forth. But you could check that out at councilforeconed.org, or just Google Financial Literacy Month and it may come up in the search anyway.

Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.