Some Scary Statistics and What They Mean

Paul Winkler: And welcome. This is “The Investor Coaching Show,” Paul Winkler. Talking about the financial world, helping educate investors, and also just talking about stuff that you are talking about out there.

And as we’re at that time of the year—you know that time of the year, October 31, scary stuff time—I saw a slide presentation that I thought I’d share with you.

I think it was in one of my financial planning magazines online. You know how everything’s online?

You get the magazine; you get it in paper form. But they don’t really want to send you the paper if they can avoid it.

They’d rather you watch everything online and addict you to getting things there so that they don’t have to send you stuff through the mail.

And I get it, but I’m still this paper guy. I just like having paper and a highlighter.

And I don’t know if I’ll ever go revisit this stuff again, but I certainly won’t revisit it if it’s in digital form. My likelihood of going back and reading things that are digital form is pretty slim to none.

I may have other stuff stick. I do that.

I tend to sit there reading things maybe, and seeing things that I’ve read before, and go, “Oh yeah, I remember that. That’s really good,” if it’s in paper form.

Scary Things in the Financial World

But anyway, this was on digital form. Well, it was getting into scary things that—if you look at the 13 scariest things out there in the financial world right now.

They probably didn’t even hit the things that you’re thinking about that I might be.

Think scary things. Maybe Congress and taxes might be the first thing on your list.

But these were just things that are scary regarding Americans’ preparedness for the future. Just check this out.

Credit Card Interest

Credit card interest alone. Credit card interest alone amounts to more than a hundred billion dollars a year.

Just put your mind around that. A hundred billion dollars per year.

Just mind-boggling how much credit card interest people are paying.

And a credit card, what is it? You’re paying for something before you can afford it.

How some people get in that situation, they end up in a situation where they can’t afford medical payments and those types of things.

And it might be insurance wasn’t proper, and now they’re having to go into debt because maybe they didn’t have disability insurance. They didn’t have health care insurance that was proper.

I talked about this in a workshop recently where I gave an example of a lady that I tried to sell health insurance to a million years ago when I sold health insurance.

And she just didn’t want anything to do with it: “My company’s got a high rating. I don’t really need this.” Blah, blah, blah.

And I said, “Well, okay, here’s my card. If you ever need to talk to me, just give me a call.”

Never expected to hear back from her.

Did hear back from her, and it was the very thing that I pointed out in her policy that was a problem, which was a schedule where, “Hey, if you have cancer, we’ll only pay $3,000.”

I remember the number. It was $3,000. “That’s all we’re going to pay if you have cancer.”

And guess what? That’s all her insurance company paid.

Now, it had a very high rating with the Better Business Bureau. And I explained to her, I said, “Well, as long as they do what they say they’re going to do, then they can get a high rating, and they may be telling you that they’re going to do something that isn’t great for you.”

And that’s in essence what happened.

And you have, a lot of times, disability. People don’t have disability insurance, or they have improper disability insurance, or maybe they have only their insurance that they have at work.

If they’ve got it at work, that’s great, but it may only pay 60% of your salary. And then it’s going to be taxable if the employer paid the premium.

There are all kinds of things that can get you into debt that aren’t just due to being irresponsible and buying things before you can afford them. There’s just a lot of things that happen.

And it may be that, “I just didn’t understand how this policy worked.” A lot of times that happens is, you buy something from somebody selling you something, and you don’t understand how it works.

I mean, Lord knows, I talk about that quite a bit when it comes to investing: how people buy investment products, and they don’t have a clue how they work until it’s too late and it’s backfired on them.

And then they find out how it works. You just can’t do that.

So credit card—it just blew my mind that that was the amount of money that is going out of people’s pockets just for interest. I mean, good grief, huge, huge.

And the number is expected to grow, they said. Total interest paid was expected to go up to $122 billion, another $9 billion more than the $113 billion that’s already being paid annually.

And it was interesting because this is a brand-new presentation, but that was data from the year before last. You think about it.

And what is it now? I mean, especially after a pandemic.

Good grief. And so that was one thing.

Debt Collections

A third of Americans have had debt collections. Urban Institute reports that of about 35% of Americans who have a credit file, some 77 million people have debts that have gone into collection.

That’s a huge number of people. And they owe an average of about $5,178, and it’s a median of $1,349.

It involves non-mortgage bills, such as credit card balance, medical utility bills more than 180 days past due. There are a lot of people that are out there dealing with, struggling with, debt apparently.

Wages vs. Inflation

Another thing that they found in here, another thing that’s kind of a scary thing out there: the raise in wages this year couldn’t keep up with inflation.

I’ve talked about this some, where if you look at social security and the expenses that come with it, that the increase is great and everything.

But if you look at cost of medical expenses and expenses in general, is it transitory? That’s the big question right now.

Is it something that’s short-term, short-lived? Is it something that’s going to be with us for a while? Nobody really knows.

A lot of people conjecture. And conjecture is going to be all over the place.

Good grief. Election year coming up. There are going to be people telling you that the sky is falling.

And you look at it and go, “There are a lot of reasons to believe that there are issues.”

And the funny thing is, people go, “When we look at stock markets, and we hear negative news, why isn’t it being … ?”

Well, the stock market doesn’t look necessarily at what’s going on now in the short run. The market looks two, three, four, five years into the future.

It’s future-oriented, and that’s why you can’t predict it. Anyway, I digress.

A Lack of Savings

A fifth of Americans save nothing at all. One-fifth of Americans save zero.

You wonder why people are having problems with finances. Well, if they’re not saving anything …

And you hear often—I will quote some of my advisors in here, Arlene’s the one that first came up with this—10% of everything you earn should be saved. 10%.

Ten percent saved for just regular stuff. Maybe emergency fund, maybe buying cars, maybe paying cash for them, whatever.

Ten percent should be going toward retirement planning. Maybe more if you’re a little bit older and you’re behind.

Ten percent for giving.

But a lot of people don’t save anything at all. And if they do save, a lot of times it’s very little.

Zombie Debts

Zombie debts can pursue you if you don’t track your credit. Debt collectors can revive old debts that have been paid or have expired.

And that’s according to NerdWallet. And they said to combat this sort of revenant, you need to be vigilant about examining your credit report and battling the would-be creditors that would try to collect the same debt over and over again.

I never heard that one before, but that’s interesting.

The way you do that, just as an aside, is you go to annualcreditreport.com. You can actually go get that once a year.

The three credit reporting agencies, they have to give you your credit report free. And you can do that every four months because there’s three of them, and 12 divided by three is four.

And you can do it every four months. You can get your credit report free from the various agencies: TransUnion, Equifax.

And you can go do that just online. Annualcreditreport.com.

Financial Illiteracy

Financial illiteracy is a monster hiding underneath the bed, they said. And I’ve talked about this before.

If you look at the research when they’ve given tests to people—the American College of Financial Services actually did this, and that’s where I have seven designations, financial planning designations. And I’m a big fan of that college.

And they go out, and they do these surveys, and they ask people.

And they’re not even that difficult of questions. And they find that people just don’t really get financial issues.

They don’t really understand. And they think they understand.

That’s the interesting thing. They think they know more than they do.

Then when you start to ask them questions, you realize they don’t know quite what they think. And that’s a big problem because the investment industry can take advantage of you if you don’t know anything.

That’s been my mantra for 20 years plus here on this radio show, is that there’s stuff that just understanding a little better …

We talk about interest rate direction, and we talk about bonds and how they respond to interest, and different types of bonds and different types of investment products.

It’s a very product-related industry, very product-oriented. In other words, if you got a problem, we got a product to fix it.

Which sounds really, really good, but it is a very sales-oriented process. I can go and fix.

And really, financial planning is a process.

And a lot of times, we’re kind of struggling. We were talking this week about this, and we were talking about investing.

And somebody comes in with an annuity. Well, what’s that? Basically based on fixed-income investments.

And then somebody comes in with a real estate investment trust to sell to you. And what’s that? Well, it’s based on real estate.

Then somebody comes up, and they have a dividend-paying stock fund or something like, well, what’s that? They’re a bunch of distressed companies because distressed companies tend to pay higher dividends.

And then somebody comes in with a life insurance policy as a savings vehicle. Number one, really bad for expense reasons, but number two, really bad because you’re going to be dealing with these indexed universal life policies, which are really popular right now.

It’s just a fixed-income investment. Doesn’t have a prayer of keeping up with inflation.

And all of these things are product-oriented solutions to the problems. An annuity is a product-oriented solution to the problem.

If you look at that and go, well, in reality, it’s—financial planning’s process—it’s kind of like thinking about the diet industry.

Or I don’t want to say the diet industry. The dietary guidelines that we have, for lack of a better word.

We have guidelines of the four food groups, I guess. You have the food groups, and you got the grains, and you’ve got fruits and vegetables.

And you take these things together, and you put these different food groups together, and we got a healthy diet.

Well, if we look at the financial world, it would be going, “Okay, no, I’m only going to take one food group.”

“I’m going to take bananas. That’s going to be my diet from now on.” Or the grapefruit diet or something like that.

Then after a while you end up unhealthy because you don’t have any balance.

It’s the same thing, when it comes down to it, is if you’re investing in any of these vehicles, you’re getting a single asset class because that’s what those companies are doing.

They’re investing in single asset classes, with value stocks being one in that one example.

Another one is fixed-income bonds. Real estate being another one.

If you think about it, I’m not balancing. I’m looking at this as a product approach, not a process approach. And it’s a problem.

Financial illiteracy lets this continue on because the less you understand about how a portfolio ought to be put together, how to determine the expected return of your portfolio …

I mean, good grief, you got Nobel Prizes awarded for this. Nobel Prizes awarded for how to do this.

And it is so often just completely ignored by the investment industry, because as Arthur Levitt, who is a former SEC chairman—at one point, I think he was the longest-running SEC chairman. I don’t know if that’s the case anymore—but he said, “I believe, fund companies believe, the less educated investor is a more profitable investor.”

And even the leadership in the regulatory bodies know this is what’s going on.

But it’s America. We’re free to do this. We’re free to sell.

And you don’t have to be free to jump in the system. You don’t have to do what they tell you to do, though.

You don’t have to play the game.

Too many people just choose to play the game of “Go with whatever the big investment company, whatever the big mutual fund company says. Go with whatever the big financial … “

“They got ‘financial advisor’ after their name, they must have a lot of education.” No, not necessarily.

You can call yourself “financial advisor” and have literally almost no education. Very little.

One of the guys in my office actually passed the Series 65, which was required to call himself a Registered Investment Advisor, somebody that actually worked within a registered investment advisory firm here.

Passed it in three weeks, took the task, bam. Three weeks later, I’m a financial advisor.

Now, of course, I made him go through getting a financial planning degree and actually getting another. He’s actually working on another advanced degree in income planning.

I never let anybody stop at that around my place. That is the exception to the rule.

Really, you don’t see that often. So illiteracy, it’s a problem.

No Retirement Plan

Number eight, retirement plans. For 80% of Americans: keep working.

Keep working. That’s their retirement plan.

Just keep going. Can’t stop. Don’t have the ability.

According to Employee Benefit Research Institute’s 2019 retirement confidence survey, 80% of workers think that they’ll be able to work for pay in retirement yet only 28% of retirees report that they have actually done this.

Planning work that just vanishes like a ghost after retirement will haunt you if you don’t have a plan B.

And that is something that people do. They typically go on to work to some extent, and then they realize, I can’t work.

And I think that’s what they’re getting at here is they get the point where they go, “I was planning on working, but I had no idea the health issues that I’d be dealing with with the spouse, the health issues that I’d be dealing with with myself and the fact that I would actually have to slow down and stop and just go, okay, yeah, I don’t have enough money to do everything I wanted to do. I don’t have enough money to live comfortably. But I can’t work anymore.”

And I think that’s what they’re getting at here, because that’s what I see so often with people is, you got a great group of people in America that you don’t see them.

I mean, you go out to stores, you don’t see them anywhere. Why don’t you see them?

Because they can’t afford to go out, so they sit at home. And I think it’s a big reason.

There was something I saw in Reader’s Digest about loneliness. The amount of loneliness with people, it’s off the charts high because they can’t get out and get with other people.

I might have something to say about that a little bit later because I have another article that actually led me to thinking about that to some extent. Guy that had studied retirement his entire life and then just had some surprises when he actually went into retirement.

I’ll get into that in a second.

Consumer Debt

Consumer debt topped $14 trillion. That was another one.

And again, another debt issue, just showing that there’s just a ton of it out there.

Student Loan Debt

Boomers. Baby boomers have the second highest student loan balances.

And we hear a lot about that. That’s a huge problem right now, is that they have these huge loan balances.

There are a lot of things that are a little bit scary out there. But most of these things, if you think about it, they’re actually overcome with just becoming engaged and just making sure …

I’m not talking about getting engaged to get married or anything. I’m talking about getting engaged in the process of planning.

Retirement is going to be the longest vacation you ever take. It’s going to be by far the longest vacation you ever take.

And the reality of it is most people don’t plan for it. And I’ve thought through this a lot.

Why is it that people don’t do planning?

And I think a lot of it comes down to, they’re just, “I don’t know how to trust. I don’t trust anything. I don’t trust anybody, so I put my head in the sand.”

Or, “I don’t want to think about the future.” That’s another one. And I get that.

When I made that point about how few advisors actually go and get degrees in financial planning, that to me, that’s a huge problem.

I mean, who would trust the medical community if you had nobody that got nursing degrees? You had nobody, or very few people anyway, that got “doctor” after their name? That they didn’t have to?

If they didn’t have to go become doctors, they didn’t have to go become nurses, it’s a good shot a lot of people wouldn’t take the time to study and work.

It’s one of the things I love about school. School just forces you to learn.

It forces you to do work. It forces you to do papers.

And the reality of us, most of us would be too lazy to do that, so I’ve always stayed in school.

I mean, that’s why I have so many designations and degrees, and I’m working on another one, a master’s now. Why? Because it just keeps me engaged.

I constantly have to be doing something and forcing myself to get better and become more valuable to society, I guess, is one of the things that I’ve always looked at.

Education, understanding, knowledge makes you more … Now you may be at the point you don’t need to be valuable to society from a standpoint.

I’m not retired. I’m still working.

I’m still trying to grow. And that’s why I’ve always grown.

But the reality of it is, is that the investment industry, they’re not forced to do it, so therefore they don’t.

I mean, by and large, they’re … and that’s growing. Hopefully, that problem will change. Hopefully, it will.

A lot of times people go get designations, and the designations they get are just lightweight.

And I always tell people, unless somebody’s got a Certified Financial Planner, Chartered Financial Consultant, those two designations at their base, those two things I think are really, really important.

Personal Financial Specialist is one. You don’t see that one that often. But that’s a decent one as well.

But Chartered Financial Consultant is the one that I chose to get for me just because of the level of education, and I just like the program.

Certified Financial Planners, certainly great stuff, and then it’s got a comprehensive exam. And a lot of my people have chosen to get that one.

I’m indifferent between the two of them. But then they stop there, and I’m like, “No, keep going.”

Go get other designations as well. Get a designation on retirement income.

Go get designations on senior planning. Go get designations on fiduciary responsibility.

Go get designations on the academic asset management.

Wealth Management Certified Professionals is another designation that I picked up that I loved. It’s all academic.

But that to me is the big reason that you have this problem. It’s that it’s an industry that is full of this stuff.

And for you, the reason to become educated is not to know everything everybody knows, but it helps you be discerning as to whether you’re doing things properly or not.

If you understand a little bit, there are a few things that if you understand, then you’re an investor that doesn’t just blindly trust. And you know whether things are going the right way.

And engaging in the planning process is part of that. Going in and saying, “Okay, I want to just get involved in this. I know this is going to be a big deal. I know it’s kind of a pain to get together for a few meetings.”

But you share your goals, your dreams, what you want to see happen with a good, confident planner, and you’d be amazed the load lifted off of you when you do that.

To me, it’s a tremendously important reason for making sure that you engage in that process.

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