One Month and Two Days

In one month and two days, it is time for Personal Finance Symposium IV.  This year’s lineup of speakers is expected to be interesting for both consumers and financial planning practitioners.  Following a welcome from MIZZOU, we will begin the program with a longtime friend of the department, John Qualy, to share his perspectives on our role in creating financial success both for ourselves and the broader economy.  Following John, Matt Chiccuarelli is traveling from the Boston area to teach us more about the role of annuities as a tool in managing our longevity risk – the risk of living longer than our money.

 

After lunch (one reason why we have to charge to attend), we will open with Margie Carpenter, who I heard speak at the Financial Planners Association meeting in San Diego.  Her research is focused on emerging market equity investing (investing in rapidly developing countries).  The historical approach she employs in visualizing the world we are witnessing take shape is enlightening.  Thus, she is coming from Cleveland to share it with our Missouri friends.  Finally, a prior faculty member of our department and acclaimed teacher, Craig Israelsen, is traveling from Provo, UT to share his published work on investment portfolio diversification – so easy you can do it yourself (or, do it for your clients).

 

We have to rent space in the Alumni Center, print advertisements and programs, pay for lunch, as well as the transportation of our speakers.  Thus, there is a cost: $10 for students, $30 for the non-student public, or $50 which includes payment for four hours of continuing education credits for Certified Financial Planners®.  To be honest, the department loses money on the symposium but our return is in knowing we are bringing this program to you, as a resource for your financial and professional well-being.  Information on how to register follows the outline for the day’s activities:

Personal Finance Symposium IV

“Money Maze: Amazing Money”

April 25, 2012

9:30 a.m. – 3:30 p.m.

Reynolds Alumni Center, University of Missouri

Columbia, Missouri

 

Program

9:30 Welcome and Introduction:

Robert O. Weagley, Ph.D., CFP®, Chair Personal Financial Planning, University of Missouri

 

Welcome to MU - Natalie "Nikki" Krawitz, Vice President for Finance and Administration, University of Missouri System

 

10:00 John Qualy, CLU, “Financial Freedom: Victor or Victim”, The Qualy Agency Northwestern Mutual Financial Network, St. Louis, MO

 

11:00 Matt Chiccuarelli, “Navigating the Variable Annuity along the Road to Retirement”, Annuity Research Consultant, Commonwealth Financial Network^®, Waltham, MA

 

12:00 Lunch

 

1:30 Margie Carpenter, CFP®, CIMA®, “Allocating to Emerging Market Equities: Why, How, and How Much”, Bell Tower Advisors, LLC, Cleveland, OH

 

2:30 Craig Israelsen, PhD, “Asset Allocation:  Building a Better Balanced Portfolio”, Brigham Young University, Provo, UT

 

3:30 Adjourn

 

Sponsored by:

Personal Financial Planning Department, University of Missouri

            Office for Financial Success

            Center for Economic Education

College of Human Environmental Sciences, University of Missouri

 

Leaders:

Mid-Missouri Estate Planning Council, Columbia, MO

Shelter Insurance

National Association of Insurance and Financial Advisors, Columbia, MO

Society of Financial Service Professionals, Columbia, MO

 

Donors:

Bank of Missouri

Craig and Tammy Israelsen

 

~RSVP Required~

 

Registration:

$30/person, includes lunch

$50/per person with four hours of CFP^® continuing education credits (include CFP number with payment), includes lunch and registration

$10/student, includes lunch

 

For more information or to make your reservation, please contact Amy Sanders at (573) 884-5958 or sandersal@missouri.edu .

Mail check (payable to University of Missouri) to 14 Gwynn Hall, Columbia, MO 65211

 

Survey of the States 2011: The State of Economic and Personal Finance Education in our Nation’s Schools

"Just as it was not possible to live in an industrialized society without print literacy – the ability to read and write – so it is not possible to live in today's world without being financially literate. To fully participate in society today, financial literacy is critical."
-Annamaria Lusardi, Denit Trust Professor of Economics and Accountancy at the George Washington University School of Business

On March 12 the Council for Economics Education released the seventh Survey of the States. The Survey of the States is a biennial report that brings attention to the critical importance of economics and personal finance education by documenting its status in the fifty states and the District of Columbia.

 

The recent economic downturn has brought nationwide attention to the dangers of a financially illiterate society. The 2011 Survey shows that while there has clearly been progress since the first Survey in 1998, that over the last two years, the trend is slowing and in some cases moving backwards.

 

Key Findings

·         The number of states that now require students to take an economics course as a high school graduation requirement increased from 21 in 2009 to 22 in 2011.

·         However, only 16 states require the testing of student knowledge in economics, 3 fewer than in 2009.

·         No improvement has been seen in the area of personal finance. The number of states that require students to take a personal finance course (or personal finance included in an economics course) as a high school graduation requirement remains at 13.

·         Only 2 more states now require that personal finance content standards be implemented, bringing the total to 36.

The full report can be found here:

http://www.councilforeconed.org/wp/wp-content/uploads/2011/11/2011-Survey-of-the-States.pdf

Ryan H. Law, M.S., CFP^(r), AFC

 

Personal Financial Planning Department

Office for Financial Success Director

University of Missouri Center on Economic Education Director

 

162 Stanley Hall

University of Missouri

Columbia, MO 65211

 

573.882.9211 (office)

573.884.8389 (fax)

 

529 College Savings Plans

by Lucy Schrader

 

If you are looking to save for your child’s college, a 529 plan can be a place to invest.  Following is some general information about the 529 plans and information about the Missouri MOST 529 plan and their matching grant program (if you qualify and get approved, your contributions can be matched dollar-for-dollar, up to $500 per year for a lifetime maximum of $2,500).

 

Many 529 plans offer easy ways to enroll and low minimums to contribute.  For example, in one plan you can open an account with $25, and you can make future contributions with a minimum of $25.  Grandparents, relatives and friends can make contributions to the 529 plan, too (which can make great birthday or holiday presents).

http://www.savingforcollege.com/intro_to_529s/what-is-a-529-plan.php

 

Saving for College and Missouri MOST give the following information:

529 plan history

A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future higher education costs at eligible 2- to 4-year colleges, postgraduate programs, or secondary trade and vocational schools.

Funds from a 529 plan cover qualified education expenses such as tuition and books, plus certain room and board fees. It is named after Section 529 of the Internal Revenue Code.

State plans can be used for out-of-state colleges

529 Plans can be used to meet costs of qualified colleges nationwide. In most plans, your choice of school is not affected by the state your 529 savings plan is from. You can be a CA resident, invest in a VT plan and send your student to college in NC. Check to see if your institution is eligible under 529 rules.

Which states offer 529 plans?

Every state now has at least one 529 plan available. It's up to each state to decide whether it will offer a 529 plan (possibly more than one) and what it will look like, meaning 529 plans can differ from state to state. You should research the features and benefits of your plan before you invest, research state 529 plans and even compare between plans.

Tax Benefits

As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant. See the top 7 benefits of 529 plans. Some states (but not all) offer tax incentives to investors as well. Research your state's tax treatment.

 

For the Missouri MOST 529 plan, you can get federal and state tax savings.  Earnings are exempt from federal and Missouri state income tax when used to pay for qualified higher-education expenses.** (Withdrawals may also be free of state income tax for residents of other states.) Missouri taxpayers can deduct up to $8,000 in contributions ($16,000 if married, filing jointly) in computing Missouri adjusted gross income each year.***

 

** Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.

 

*** Contributions to the plan in a tax year are deductible from Missouri state income tax up to certain limits, but may be subject to recapture in subsequent years if you make a nonqualified withdrawal.

 

Missouri MOST 529 plan and their Matching Grant Program

The Missouri MOST 529 plan currently offers a matching grant program (https://missourimost.s.upromise.com/content/planbene_grants.html).  If you qualify and are approved, your contributions will be matched up to $500 per year (for a lifetime maximum of $2,500).  You must reapply each year.

How do I qualify?

• Applicant must be a parent or legal guardian of the beneficiary.
• Both you and the beneficiary must be Missouri residents.
• You must be the account owner of a MOST 529 Plan account.
• The beneficiary must be 13 or younger (when you are first approved for the matching grant).
• Your household Missouri adjusted gross income must be $74,999 or less (see chart below).

How does the program work?
If you qualify and are approved for the program, contributions to your MOST 529 Plan account will be matched dollar-for-dollar, up to $500 per year. There is a lifetime maximum of $2,500, and account owners are required to reapply for the program each year.

Details of the match are shown in the following table:

Household Missouri Adjusted Gross Income	Match Rate	Maximum Match per Year	Lifetime Maximum Matching Grant
0 to $74,999	$1 for each $1 contributed	$500	$2,500

How can I apply?

• Read the Matching Grant Program Instructions.
• Download and complete a MOST Matching Grant Program Application.
• Mail your application and required materials (to the address listed on the application) between March 1 and June 30.
• You'll be notified by August 31 if your application is accepted.
• If approved, matching funds will be applied in January based on the previous year's contributions.

 

As you save for college, small amounts add up over the years and make a difference!

 

For more information

Missouri MOST 529 plan

https://missourimost.s.upromise.com/content/home.html

 

Saving for College

http://www.savingforcollege.com/intro_to_529s/what-is-a-529-plan.php

 

Lucy Schrader
HES Associate State Specialist and
Building Strong Families Program Coordinator
University of Missouri Extension
162 Stanley Hall
Columbia, MO  65211
573-882-4071
SchraderL@missouri.edu

 

The most important investment...

We spend a lot of time writing and talking about financial issues.  Investments, insurance, budgeting, credit, taxes all are important.   None, however, are as important as the investments we make in ourselves, our human capital, which allows us to earn money and reach toward the American Dream.

 

I recently read the article “Education and Synthetic Work-Life Earnings Estimates” published by the U.S Department of Commerce in September of 2011.  (The full article may be accessed here.)  It examines the earnings of workers, whether full-time and full-year or part-time and part-year, to see what characteristics make a difference in earnings ability.  To me, the most interesting table was Table 4, where a regression analysis allows us to see the “independent” effects of workers’ characteristics on their earnings.  The broad characteristics that were controlled are education, gender, race/ethnicity, age, citizenship, language and region of the country in which they reside. While not earth shattering news, it may just help one young person in our readership make a better choice in the future, if we summarize the findings.

 

First, there are regional variations in earnings, as the cost of living varies across our country.  While controlling for the other factors, workers in the Pacific and New England regions, on average, earn greater incomes.  Earnings increase with the age of the worker and reach a peak in the age category of 45-49 years old.  This familiar hill shaped age/earnings profile results from workers’ experience adding to their productivity when they are younger, only to be overcome by depreciation and obsolescence as they pass middle age and move toward retirement.  (For me, a soon to be 60 year old, this was hard to write.)

 

Unfortunately, civil rights questions remain in our labor market.  While holding educational level, age, citizenship, language and region constant, we continue to find males, on average making over $1,000 more each month, than their female counterparts.   Additionally, all non-white races make less than their comparable white neighbors.  Clearly, more work needs to be done to assure that our 21^st Century labor market provides equal opportunity to all.  To make a difference in labor market discrimination, those who can need to act to reduce discrimination across society.

 

As expected, greater levels of education enhance earnings.  Compared to a high-school graduate with the same characteristics on all other factors, those with higher levels of education earn more, with a professional degree having an average advantage of $63,643 per year.  Not surprisingly, those without a high school degree, earn over $4,000 less than those with a high-school degree.  A bachelor’s degree adds slightly less than $2,000 per month to the income of a household, when contrasted to an otherwise similar high school graduate. It cannot be said loud enough, or often enough, that the greatest equalizer in our country is education and, thankfully, it is something that is under the control of the one who seeks the education.

 

It is of interest to note a couple of other results.  One is quite intuitive, while the second quizzical in nature.  The greater the ability to speak English is found to increase average annual earnings or, rather, the inability to speak English lowers annual earnings.  This is quite intuitive, as communication is a key to working relationships and the dominant language in the United States continues to be English.  Not as intuitive is the result which indicates that those workers who are not citizens earn significantly less income (about $200 less per month) than do native-born citizens.  Surprisingly, at least to me, was the result that native-born Americans earn, on average, $100 less per month than a United States citizen who has become a naturalized citizen since arriving in our country.  Admittedly, this is not a huge amount of money but it does cause one to reflect on our new citizens.  They work hard in support of their freedom to seek financial success.  Their efforts need to be remembered by many of us, as a way to reinforce our continuing engagement with our country’s economy.  

 

How to Look Really Smart in Front of Your Friends

by Ryan Law

 

As you’re driving home in the evening or watching the news you probably hear the reporter say something like, “The Dow closed up a fraction to finish up the day at 12,988 while the S&P lost 12 points to finish up at 1370 and the Nasdaq advanced 12 points to finish at 2971.” As they are saying that do you know what they are talking about?  If not, after today you can look smart in front of your friends and say something like “Wow – I expected the Dow to peak over 13,000 today – it did earlier in the week. I imagine it will do that soon, though. I really should call my broker in the morning. What do you guys think?”*

 

What are stock market indexes?

 

The Dow, S&P 500, Nasdaq – what does it all mean?

 

Each of these represents a group of stocks, or in other words, they represent companies. They are meant to represent either how the overall stock market is doing or how a certain segment of the market is doing.

 

Here are five of the most common indexes you might hear about:

 

Dow Jones Industrial Average (also called the Dow, Dow Jones, the Dow 30, DJIA): The Dow was created in 1896 by Charles Dow (hence the name – the “Jones” part came from Dow’s friend and business associate, Edward Jones). The Dow has 30 stocks in it, all of which are major corporations in the global economy and most of which you will know – names like 3M, Coca-Cola, Wal-Mart, IBM, Disney and Chevron. These companies do change occasionally – for example in 2008 Kraft replaced AIG. GE has been the longest one on the index. For the full list see the Wikipedia article in sources, below.

 

Standard & Poor’s 500 (also called S&P 500): The S&P 500 was created in 1957 and contains 500 stocks, which represent the 500 largest companies in the United States and 75% of the stock market (there are a few non-US companies, but just a handful). For this reason it is, along with the Dow, the most widely quoted and compared stock index. A lot of people see how well their portfolio did in comparison to the S&P 500. To fill up space in this week’s article, I am going to list all 500 companies below (just kidding! If you want to see the full list, see the S&P link below).

 

Nasdaq: The Nasdaq is actually a stock exchange, rather than an index, but it is often reported as an index. It was founded in 1971, and there are about 2700 stocks traded on the Nasdaq. While the Nasdaq has a variety of stocks, it is often seen as being representative of technology stocks.

 

Wilshire 5000: If you were on a game show and they asked you how many stocks are in the Wilshire 5000 you might be tempted to answer 5000, but you would be wrong and might just lose the game show because of it.  Since you read this, though, you will know it is a trick question – there are actually about 4100 stocks in it (to be fair, when it started in 1974 it did have closer to 5000 stocks). The Wilshire 5000 is intended to cover most publicly-traded companies that are headquartered in the United States. Because it is larger it gives a broader measure of the overall US market and includes a number of medium and smaller sized companies.

 

MCSI World: MCSI has 1600 stocks from developed countries all over the world and is often used as a benchmark for how the global stock market is doing.

 

What do the numbers mean?

 

When the news reporter says the Dow was up 12 points, what does that mean? Look at it this way - if you had an index made up of 5 stocks that were worth $100 today, and tomorrow it was worth $110, it went up $10, or 10%, so you would say “My index went up 10 points today to close at 110.” The next day if it went down to $103, you would say “My index went down 7 points today and closed at 103.” You’re still up 3% overall, though, from the original date.

 

That’s an oversimplified example, but it gives you the basic idea. Different indexes use different formulas, but remember this rule of thumb: If the numbers go up and you have investments similar to the index, you should have made money that day.

 

Great – sign me up!

 

Now you know all about indexes so you want to invest in one? Well, too bad, you can’t invest directly in an index. After all, it’s simply a number that represents the underlying stocks. There is good news, though – you don’t have to go out and research which 4100 stocks are in the Wilshire 5000 and purchase them yourself. That would get expensive and time-consuming. There are mutual funds that have created index tracking funds, and there are also stocks that are traded on the stock exchanges that also follow a certain index. If you want to follow the S&P 500, for example, instead of you purchasing the stocks you purchase shares of a mutual fund, and then they combine your money with a bunch of other investors and buy the 500 stocks. A number of mutual fund companies sell index tracking funds, including Vanguard, T. Rowe Price and Fidelity.

 

I hope that you have learned something today and that on your drive home you will tune in when the reporter talks about the stock market. Really, though, it’s all about looking smart in front of your friends!

 

Sources and Further Reading:

 

·         Dow:

http://www.djaverages.com/?go=industrial-overview

http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average

·         S&P:

http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--

http://en.wikipedia.org/wiki/S%26P_500

http://en.wikipedia.org/wiki/List_of_S%26P_500_companies

·         Nasdaq:

http://en.wikipedia.org/wiki/Nasdaq

http://www.nasdaq.com/

·         Wilshire 5000:

http://en.wikipedia.org/wiki/Wilshire_5000

http://www.wilshire.com/Default.aspx

·         MCSI World:

http://en.wikipedia.org/wiki/MSCI_World

http://www.msci.com/

 

*If one of your friends says that you could come back with “Well, yes, but the housing market is still flat and interest rates are poised to stay low for at least the next year, according to Bernanke, so I think it still might be a little high. I think we will see it hold steady by the end of the fiscal quarter, given the circumstances.”

 

Ryan H. Law, M.S., AFC

 

Personal Financial Planning Department

Office for Financial Success Director

University of Missouri Center on Economic Education Director

 

239E Stanley Hall

University of Missouri

Columbia, MO 65211

 

573.882.9211 (office)

573.884.8389 (fax)