Teaching Money and Credit Management - Whose Responsibility is it anyway?

In the United States, our school system requires all children to take and pass Reading, Writing, Arithmetic (I hated Geometry), a foreign language, Social Studies, Science, and in some schools they still require Physical Education.  However, it still baffles my mind that Money and Credit Management Education is NOT required. 

There may chapters that teach the denominations and how to count currency in elementary; as well as a little bit of finance education in high school.  And yes, there may be a financial management class offered in college as an elective.   Huh?  An Elective?   Yes, I use Reading and Writing every day of my life.  The other required courses … maybe on occasions or for fun, but I deal with MONEY EVERYDAY OF MY LIFE.  As a matter of fact, I dealt with money before I could read or write when my grandfather gave me a dollar bill when I was 2 or 3.

So, the question of the day is… Who is responsible to teach a child how to manage money, to leverage its potential wealth building power and to avoid ending up in tremendous debt and bad credit?

…I hear someone in the audience yell… The Parents!  OKAY…  And who taught the Parents?   

Many parents don’t teach their children about how to manage money because they either assume that the schools are doing it or because they don’t know or weren't taught themselves.  They may have “Colorful Credit” and could be drowning in debt.  They probably were never taught how to balance a checkbook properly.  “Checkbook?  Who uses checks nowadays?  We have debit cards.”  HINT: you still must balance your account when using your debit card. 

So, the second question of the day is…If the Parents don’t or can’t teach their children how to manage money & credit, who is now responsible to teach the child?

…I hear someone else in the audience screaming, “The Church!”  The Church is its people.  Most of those people have not been taught and are seeking financial counsel.

I do believe that Financial Institutions, such as banks and credit unions, are the most qualified to teach the world how to manage money.  Makes cents (sense) right?  “Herein lies the rub…”

LACK OF RESOURCES TO EDUCATE THE MASSES

IF the financial institutions teaches money management to the communities it serves, it may not have the resources to share the information to every consumer that needs and wants it.  Some financial institutions, do share money matters information to communities, organizations and schools, when they can get in there; but that is a small drop in a large bowl.  BUT…it’s a start!

CAN’T TEACH THE UNWILLING

You can only teach a person that wants to learn.  There are thousands of resources online, in the communities, independent professionals, etc. that provide some form of Financial Education.  However, reality check… the target audience may be set in their ways and probably afraid or unwilling to make necessary changes or sacrifices to help their financial situation.  Money & Credit Management should be taught before bad habits are formed. 

  

IT JUST DOESN’T PAY!

Here is the Oxymoron Answer to this million dollar questions (Pun intended):  It is frankly not advantageous for financial institutions to educate consumers on money management.  Consumer ignorance is a multi-million dollar business. Financial Institutions make money off of financial ignorance, poor money management, and financial irresponsibility of consumers.  Those consumers should take a close look at their monthly bank statements or check out the interest rate on their loan.  The less educated/informed and disciplined a consumer is with their money, the more money they will pay in fees and interest.  Simple math. So… if that is the case, is it really advantageous for financial institutions to have a massive Financial Literacy Campaign for the world?   

I believe that  1) it is the responsibility of the schools to provide the information as a core class from Elementary through Higher Education, 2) it is the responsibility of the Parents to reinforce the information by modeling the behavior of proper financial management for the child and instilling discipline, and 3) it is the responsibility of the Financial Institutions to provide the Financial Educational resources for the Parents to learn more and continue to be informed and fiscally responsible consumers.

Call me a Dreamer or Optimist!  I believe that Financial Knowledge is power. And … Hopefully one day the US Board of Education will understand the significance of and require Money and Credit Management Education as a curriculum in all schools.  Until then…Private Schools / Charter Schools…here is your opportunity to including Money and Credit Management Education to your curricula. (I'm Just Saying!)

For more information about money and credit management curriculum for your school, contact Madam Money at info@tarrajackson.com.

  

(c) 2010 Tarra Jackson Enterprises

DOLLAR TOP, COMMODITY BOTTOM APPROACHING

While I suspect this is probably the furthest thing from what most investors expect, I think the dollar index is very close to forming another major top, and once it does it should release oil, gold and the rest of the commodity index from their extended corrections. Granted no one believed me when I called the major three year cycle low in the CRB last summer either.

As you can see in the next chart, as soon as the dollar began to rally out of its last intermediate bottom, commodities, including oil and gold, all began to move down into major intermediate degree declines. For gold this has turned out to be one of the most difficult yearly cycle lows of the entire bull market, other than the eight year cycle low in 2008.

I know it doesn't seem like it but I can assure you that the gold bull market is not dead. This is just a very severe move into a yearly cycle low. Granted it is one that was exacerbated by some short-term manipulation right after QE4, but still just a normal cyclical decline that tends to occur most years in early spring. Since this particular yearly cycle low has been so severe it should act as the spring board for the next major leg up in the secular gold bull market.

As we have seen in the gold market, a move down into a yearly cycle low tends to be the most severe cyclical decline. Now it is the dollars turn to move down into a yearly cycle low. Over the next 2-3 months we should see the dollar retest, and then break through the 79 support zone. When it does I expect to see a waterfall decline similar to what has transpired in the Japanese Yen and the British pound recently.

This should drive the next leg up in the CRB's rally out of its three year cycle low, and trigger the first real inflationary surge, which I think will culminate in a massive spike in commodity prices sometime in late 2014 or early 2015.

I also think the expected hard move down in the dollar will trigger a violent rally in the precious metals market. 

Conversely as the move down into a yearly cycle low tends to be the most severe, the rally out of a yearly cycle low is often the most aggressive.

Considering the extreme oversold technical, and sentiment levels in the precious metals market, we now have the conditions necessary to power a violent rally, at least to test the 2011 highs over the next 2-3 months. Once that test is complete we should see gold break out to new highs on its way to an expected final T1 PATTERN C-wave top somewhere in the neighborhood of $3200.

Since currency cycles often turn on the monthly employment report, I think there's a good chance that the dollar index is going to put in its intermediate top either Thursday or Friday. I think the odds are about 50/50 that gold has already completed its yearly cycle low slightly ahead of the dollar on February 20, and oil & the CRB may have formed final intermediate bottoms on Tuesday. If not then they may wait for a final top in the dollar, although usually commodities will sniff out a currency turn a few days early, and gold often by a week or so.

Based on the COT reports, commercial traders are already positioned for the next leg up in gold, and institutional money has been entering the precious metals market in a big way as evidenced by the buying on weakness numbers in GLD on February 28.

It shouldn't be long now before all of the traders that have given up on the precious metals sector get reminded that this is still a secular bull market. And secular bull markets continue to rise until the fundamentals reverse.

In the 70s and 80s gold rallied until Volcker reversed monetary policy 180° and raised interest rates to 20%. Bernanke is still stuck in Keynesian monetary theory and is showing no signs of reversing policy any time soon. Until Fed policy changes the gold bull market will remain intact.

Break Out The Party Hats

Although there has been plenty of buildup in recent weeks, this morning the Dow Jones reached a new record high.  I expect the media to really make a big deal out of this, so expect to see it in the headlines everywhere.

CNBC reported that just 5 Dow stocks accounted for nearly 1/3 of its rise back to new highs.  Most investors prefer to look at the S&P 500, which is still 35 points from its all-time high, but it too looks like it will get there in the near future.

While I joke about breaking out the party hats, it is a major achievement and something that few people would have bet on several years ago in early 2009 when most folks wanted to give up on stocks for good.  It just goes to show you that the fear and greed cycle is alive and well.  While the news and circumstances may change from generation to generation, investor psychology does not.  Our guess is that we are still far away from a peak in the greed cycle.  Most folks are still shaking off the cobwebs from the last bear market and weary about getting aggressive in stocks.

In economic news, the February ISM Services index came in at 56.0, up from January's reading of 55.2.

In corporate news, Qualcomm (QCOM) announced a $5 billion share buyback.  But we have yet to hear anything from Apple (AAPL).  What is wrong with their Board of Directors?

Asian markets were higher across the board overnight, led by a 2.3% bounce in China.  China set a 7.5% growth target for 2013 which includes double-digit military spending increase.  The Reserve Bank of Australia held rates steady at 3.00%.

Europe's markets are also higher today, after most PMI services reports came in above expectations.  Spain was the only economy to miss consensus.  EU commissioner Rehn said that poor European economic growth may cause leaders to rethink current deadlines for deficit reductions.  That means we could start to hear talk of postponing austerity measures.  This could be a good thing, as the main focus for deficit reduction should be on economic growth measures.

The dollar is roughly flat today, and commodities are mostly higher.  Oil prices are up a bit near $90.41 and gold prices are higher to $1576.  Copper and silver prices are up slightly also.

The 10-year yield is bouncing a little back to 1.90%.  And the VIX has plunged back below the 15 level, down -5% today to 13.30 as the markets break out to new highs.

Trading comment: We have commented endlessly about the dip buyers who emerge on every pullback and the stair-step pattern of the market.  This recent mini-pullback lasted about 10 trading sessions, saw the SPX pullback fairly close to its 50-day support, and them move right back to new highs.  That has been the pattern for months.  At some point we will get a deeper correction, but it sure hasn't paid to sit on the sidelines and wait for said correction.  While many stocks are extended, fresh breakouts from consolidations remain attractive as the market stays in bull mode.

KAM Advisors has long positions in AAPL and QCOM

Monday Morning Musings

Markets opened on a weak note this morning after some disappointing action overseas.  There were no notable economic releases in the US this morning.

Overnight, Asian markets were mostly lower after officials in China announced more measures to cool rising property prices.  The measures include restrictions on home buying, implementing higher interest rates on second homes, and more strict enforcement of the 20% capital gains law on home sales.

Last night there was also a cautionary piece on 60 Minutes about China and how its property bubble has led to ghost cities where buildings have been erected but nobody has moved in.  In reaction to the news, China's property index plunged -10% and the Shanghai Composite shed -3.7%.  Hong Kong was also -1.5% lower in sympathy.

European markets are mixed this morning.  The UK's PMI came in at 46.8, which was below expectations.  And Italy's government is still in limbo with the upper house deadlocked.

The dollar is slightly higher today and commodities are mixed.  Oil prices are weaker near $90.33 while gold prices are up a bit to $1576.  Copper is a tad lower while ag prices are mostly flat.

The 10-year yield is flat around 1.85%.  And the volatility index is up 2% this morning still above the 15 level around 15.65.

Trading comment: The S&P 500 was basically flat for the week last week.  Although there were some pullbacks along the way, dip buyers stepped in quickly such that the index usually closed near its highs for the day.  Overall this is constructive action for the bulls, and those waiting for a deeper pullback continue to be frustrated.  We continue to trim stocks that have had strong runups and appear to be extended in prices.  At the same time we have been willing to add to stocks that have pulled back or are exhibiting fresh breakouts.  This type of rotation looks set to continue.  Consumer staples stocks are the ones that look the most vulnerable to a pullback.

10 Financial Freedom Commandments

Here are my 10 Financial Freedom Commandments. Enjoy!

Who's Afraid of the Big Bad "B" Word?

Some of us seem to be so scared of the Big Bad "B" word these days.  No...I'm not talking about BANKS, I'm talking about BUDGETING.  
 

Some of us equate Budgeting with Dieting; and the reason why we may fail at Dietingis because we feel like we are going to DIE of starvation.  But, If we "DIEt the right way by eating 5 – 6 smaller meals a day, we will always feel full.  The best advice for a new and successful Diet is to start with small changes and gradually do more to change our eating habits and execute an exercise regimen.  Next thing we know, we realize that this is not a DIEt...this is a new Lifestyle!  Congratulations!

 

This same concept is relative to Budgeting.  Budgeting is putting our Spending on a DIET.  The best and most successful Budget (Diet) is to start with small changes in our spending habits.  For example:  Instead of going to the vending machine every day for your midmorning snack, bring a small bag of wheat thins or baby carrots to snack on; or instead of going to a restaurant for lunch, make your lunch at home or pack up your leftovers from the night before and take it to work with you.  These small changes will save you a nice chunk of change and probably a few pounds if you did this for a whole week.

 

Before we start any new BUDGET or Spending Diet, here are 9 things that should be done to ensure success!!!

 

#1. Establish your Financial Goals. 

Where do you want to be financially in 30 days, 3 months, 6 months, and 12 months?  This only sounds hard but it's really not.  We do this mentally all of the time but we just don't write them down.  For example:  In 30 days, my Goal is to reduce my spending by $100 or more. In 3 months my Goal is save $300 or more. Keep your Goals S.M.A.R.T. (Small, Manageable, Attainable, Repetitive, and Timed).

 

#2. Assess where you are. 

Before you build your Budget, do a Spending Diary for up to one week. Write down everything you spend money on, regardless how small the amount. Do this on a daily basis to get an idea of exactly how much you are actually spending and what you are spending your money on. You'll be surprised how those $0.60 bags of chips, 2 times a day for a week, adds up.

 

#3. Determine areas of change. 

Look at your Spending Diary and determine what can be modified or eliminated without it feeling like you are on a Restrictive DIEt. Think BIG but start with small steps.  This is marathon not a sprint!

 

#4. Build your map towards your Goals. 

Write down the steps you need do towards reaching each financial goal. Again, be S.M.A.R.T. about it!  Sometimes we get selective amnesia, so it may help creating an electronic Financial Vision Board and place it in different areas around the house and at work. (PLUG: Make sure you sign up for my Financial Vision Board Class!)

 

#5. Take those small steps ASAP!!! 

My mother used to say, "I'm going to start my diet on Monday!"  She said that every Friday for years.  Execution is Key!  How do you eat an Elephant? ... One bite at a time.  Again, "Think BIG but start with SMALL steps."  Then, gradually do more. 

#6. Get a Budget Coach. 

Share your Goals and Plan with a financial success coach that you feel comfortable with, respect and will take their advice when necessary or required.  This person will assist in holding you accountable to meet your goals and be there to help you get back on track if necessary.  (PLUG: Contact me, Madam Money, to be your Financial Success Coach. I would love to help you with your new Money Management Diet.)

#7. Reward Yourself. 

Make sure you reward yourself at least once a month so that you won't feel deprived.  Don't overdo it with a Shopping Spree.  Rather, set aside money every paycheck for that new outfit you want or those gorgeous shoes you have to have!!!  Hint: If it is that Flat Screen TV you were about to get a loan for...STOP!!!...build it in your budget and save up for it.  Trust me; they will have more TVs when you are able to afford it.  It might even be on sale by then.

#8. Get a Credit Check Up! 

Get copies of your credit report from all three credit reporting agencies (Equifax, Experian & Transunion) to see what is being reported to make sure everything is correct. If it’s not, make sure you dispute it. Get your free copy at www.AnnualCreditReport.com.

   

#9. Don't be so hard on yourself. 

Give yourself a break!  Reaching your goals will take time and consistency.  So if you fall of the wagon ... dust yourself off, get back on, and begin again.  Trust me, it’s ok!

 

I am excited about your financial future and am available to assist you through this process!

Stocks Rebound From Early Dip

The markets started out of the gate on a weak note, but have already recouped most of their early losses.  Overnight foreign markets were fairly weak, in addition to a weak close here for US markets yesterday.  But some solid economic data led to some early dip buying.

The ISM Index for February came in better than expected at 54.2, its highest level since June 2011.  Also, the Univ. of Mich. Consumer Sentiment survey for February rose to 77.6 from its previous reading of 76.3.  So consumer sentiment has been bouncing in recent readings. 

Asian markets were mostly lower overnight after the latest Chinese PMI reading declined to 50.1.  That's still above the 50 level that marks the line between expansion and contraction, but its the lowest reading since last September.

In Europe, markets are also lower led by a -2.2% decline in Italy.  Italy's PMI came in worse than expected at 45.8.  The country's debt-to-GDP ratio hit its highest levels in more than 20 years.  The overall Eurozone PMI came in slightly ahead of consensus at 47.9 (still in contraction zone) and the Eurozone overall unemployment rate ticked up to 11.9%.

The 10-year yield is lower again to 1.85%, and not back below its 50-day average.  The VIX is bouncing 2.8% back near the 16 level.

Trading comment: The first day of the month has seen gains in most recent months with new flows coming into equities.  Today the market bounced from its early losses, but has been fading a bit since.  It's still early, but a weak close today would likely mean more choppiness and consolidation next week.  March is a month often known for heightened volatility.  So we want to continue to manage our risk closely.  A further pullback in the market would likely offer a good opportunity to scale into market leading stocks that have been too extended to chase.  Have a good weekend--