FAQ's

Q: Tim, with a client base that averages age 60 or older, why the sudden emphasis on young adults?

A: Well, first of all, it's not really sudden and Munkeby Financial has clients of all ages. It's true I love what I do and I'll never completely "retire." I will keep working with my clients through their Hey Days. It's probably best that Eric and Ken, primarily, work with the Gen X and Y clients due to their age: I certainly hope they outlive me. But I have always enjoyed meeting with the children of my clients. Maybe once a teacher, always a teacher? I was a secondary school teacher for 14 years.

The generation now entering the workforce will be the most "challenged" generation ever...challenged to be financial successful. They are inheriting a real mess. They have been raised in a culture that promotes spending and debt, as you can tell from the current crisis in which we find ourselves. They're being handed empty social security coffers; they'll have to pay for the health care of the 80% or so of Boomers who run out of money; they'll inherit the huge deficit that will need to be repaid...they are unwittingly inheriting this mess. They're too young and inexperienced, in general, to be motivated to do anything about it. To change their behavior someone has to make it a goal, a mission to inform...and motivate them...or they're doomed, financially.

Q: You're always talking about redefining retirement. What exactly do you mean?

A: I'm really amazed more isn't written about this. When I'm doing presentations at universities, I always ask my audience what retirement means to them. I get the same answer I've been getting for over 35 years: I'll work to age 65 or, hopefully only until 55, 60 or 62 and then stop working.

This concept comes from originally being able to collect social security at 65. Social security was a bi- product of the Industrial Revolution, in 1935, when life expectancy was about age 60. Industry owners wanted to hire younger, more productive workers. If the 65 year olds were still alive, they could collect social security and wait around to die.

Today, with a life expectancy extended by over 20 years, 65 year olds are healthier and, actually considered more productive than younger workers. They have experience and, often, a stronger work ethic in their favor. The advantage the younger generation has is they are cheaper labor. Higher salaries and health issues are what threatens ending the careers of the aging Boomers.

The 20% of the Boomers that have prepared themselves, financially, are starting their own businesses or working at things that they have a passion for without concern about income. The 80% that haven't prepared themselves are now planning on working "forever"... in other words, frequently at unfulfilling jobs, until their health fails or they get "down sized." This becomes a forced retirement and many will eventually run out of money.

I try to get across to young adults that "retirement" should be defined as "independence." They should, as soon as possible, be doing with their lives what provides them with fulfillment. Then they can be doing what they want, when they want, for as long as they want. In my mind Rich=Independence. It doesn't matter how much money one makes. Anybody, by living within their means, can be financially independent by an early age if they start off "right" right away.

 Q: The Generation Z, ages 18-25 let’s say, are being labeled as “entitled.” What do you think about this, Tim, and what are the consequences?

A: Well. First of all it’s not entirely fair to lay it all on these young adults. As I’ve said they were raised in a culture that promotes debt and excess. As children they saw between 20,000 and 40,000 just television commercials each year convincing them to buy, to want, want, want. In a sense they are unwitting dupes. Marketers have them figured out. The experts also explain that many parents were both working to support their lifestyles, and, basically out of guilt, wanted to provide their children with everything they wanted. Of course, at least a part of entitlement comes from being given things one didn’t earn. Also, since many of these young folks were lavishly provided for, they didn’t need jobs or earnings to get what they wanted. So their attitudes frequently were not that they were lucky to be employed, but that their employers were lucky to have them…not an attitude that promotes good work habits.

Of course, there’s also the issue of role models. If 50% of the parents of this generation are in debt, spending excessively, and not saving for the future, unless the Z’s receive fiscal education, why wouldn’t they follow in their parents’ footsteps? I hate to blame it on the poor parents. They’re not intentionally providing a poor model. Most parents admit they don’t’ know how to provide the proper “fiscal literacy” for their children.

The problem of debt and thus lack of “thrift” really goes back to the post – WW II years. Fearing another post-war recession or depression, Americans were encouraged to spend and to use credit. Everyone deserved a television and sales of automobiles were promoted and most bought on credit. Department stores made more on credit interest than on merchandise. So this excess of debt and spending has evolved through the last several generations, culminating in the current financial debacle we find ourselves in.

Getting out of this crisis, on top of the 80% of Boomers who are not prepared for retirement or going to be able to pay for their health care as they live longer, is creating a huge burden for the young generation. But, as I’ve said, they have one huge advantage – time. The consequence of “entitlement’ is that they don’t’ use this advantage, but continue in the footsteps of the generation ahead of them who are not living within their means…and not paying themselves/saving.

Q: Aren’t people learning from this current financial crisis that they have to cut back, revert to thrift?

A: Our memories are short. Back in 1938, Mary Hinsman Able wrote in the Journal of Home Economics: “One of the lasting changes made by the Depression is that it has shown people that they cannot live beyond their earnings.” Obviously it was not a “lasting” change.

If you’re over the age of 40, you will remember the energy crisis of the 70’s. Everyone was getting rid of gas hogs and buying smaller more economical cars. That obviously didn’t last very long. A better example of how fickle we are is more recent: In 2008, when gas prices went over $3 a gallon, care salesmen couldn’t sell an SUV or large truck. There were waiting lists for hybrids. Six months later, after gas prices receded, the car guys couldn’t keep big pick-ups on the lot, while hybrids just sat there. That’s how short our memories are. In another six months to year, if the stock market is back, and gas prices again escalate, the gas hogs will be idle and people will be waiting for their hybrids.

Certainly this “Great Recession,” which is a pretty good name for it, is altering current behavior. With all the unemployment and fear of lay-offs, with all the foreclosures and problems due to too much debt, people are, again, embracing the concept of thrift…a concept I would guess is very foreign to much of the younger generation. But for many, I fear it is just too late. If they’ve been spending more than they make, and owing more than they own, they are probably buried in debt, much of it high interest debt as with credit card debt, and therefore unable to save anything. They’ll have to hope they can work forever, which of course they can’t and more than likely don’t look forward to. If their health fails or they get downsized, they won’t have the earnings or the assets to live on. They’ll simply run out of money. It’s too late for so many to change their habits now. They’re trapped. It’s sad.

But, the lesson that must be taught is for those for whom it is not too late. Thrift, or more palatable: simply living within one’s means and paying oneself regularly is fundamental to financial success and being in control of your life and your options.

Q: Is there one major area to focus on that must be managed to be successful, financially?

A: Probably credit card debt. It amazes me. I’ve had middle-aged clients come in and ask what they can do about their 80 year mother who has amassed thousands of dollars in credit card debt. Graduating students who, on top of student loans, have thousands of dollars of credit card debt. Apparently, a current trend now is for college graduates to declare bankruptcy. How absurd is that? What a way to start a career. I’ve been hearing stories lately of students charging their tuition on credit cards.

But it’s rampant at all ages. I meet with people in their thirties and forties, highly educated, highly intelligent, highly paid and highly in credit card debt. I’ve seen interest rates near 30%; and even if they make a minimum payment, the debt grows. In 2008, the statistics say that each month credit card companies were averaging $49M in just late fees. Late fees! It’s amazing.

A few months ago I had a client in my office who was bewildered by her granddaughter. Apparently they were visiting and the granddaughter, who had a Masters Degree and a good job, was paying her bills. The grandmother noticed that she was only paying the minimum amount on her credit card bill. Grandma asked if her granddaughter minded if she inquired as to why she was only make the minimum payment. She replied that that was all she had to pay. When Grandma asked if she realized that then the debt would continue to grow that she would never pay it off, and the minimum payment would increase all her life, the granddaughter looked at her with a puzzled look on her face and said. “Oh. Really?” Duh. I really don’t understand why anybody doesn’t get that.

Anyone deep in credit card debt is unable to save anything as they are living beyond their means. They’re caught in a consumer trap many never get out of. I believe it’s best to educate the younger generation entering the workforce to start out “right,” right from the start, before it’s too late. This education may involve motivation to change life-long habits of excess and entitlement … not any easy task. This may sound a little over the top, but it almost requires a revolution. Many of the Boomers’ parents were raised by parents who were still carrying the effects of the Great Depression and so were frugal… saving for a rainy day. The Boomer generation apparently experienced an unannounced revolution against saving for the future by spending now…living for today. Tomorrow? Who knows, I may not be alive tomorrow. With life expectancy increasing they won’t only be alive tomorrow but the next and next …as well. For many, their financial plan is to wait until their parents die and they get an inheritance. Unfortunately, the Boomers’ parents plan on paying for their own extended health care...and then with no or little inheritance it will be the Boomers’ children and the generation behind them that will be paying for the Boomers’ long term care. There is “long term care insurance, “ which I believe is a good idea for those who can afford the premiums. The irony for the Boomers is that many of their parents were too frugal to pay what they felt were expensive premiums.

So, we now need these young adults to have their own announced Revolution. Maybe the timing is good with them starting their careers during these troubled times. It should be brought to their attention the burden they are inheriting; and if they don’t’ revolt – change behavior – they may well be even worse of than where we find ourselves now.

So, the main thing they have to manage and change is their attitude toward debt. They have to realize they can’t “charge” things they can’t pay for. They have to get back to living within their means and deferring some of their income now to income in the future so that they are “independent” not “dependent,” like many of their parents.