Financial Well-being: How well do you manage your money?

On a scale of 1 to 10, with 1 being “it’s a disaster” and 10 being “I can account for every penny”, give yourself a rating for the statement: I manage my money well.

How do you rate? If you are on the higher end of the scale – congratulations! If you are still pondering the rating or are embarrassed to admit to disaster, you are not alone. Financial well-being is an important part of overall personal well-being, however talking about money can be a taboo topic and comes with complex feelings, emotions, and baggage.

An annual report by The Global Financial Literacy Excellence Center shows financial literacy in the United States is on the decline with more adults having very low financial literacy, a detriment to financial well-Being. Examining financial literacy across ages shows that it tends to be particularly low among those in early adulthood. Gen Z and Gen Y correctly answered only about 45% of the survey questions.

During a Totally Wise Workshop I asked participants to share how they would increase their financial well-being, here are some of the responses:

“Learn more about finances.”

“Use a tracking system for my budget and make goals.”

“A conscious choice to not make emotional purchases.”

“Schedule money dates – dedicated time to review personal finances.”

“Get to debt free freedom.”

“Budget consistent amount of money to set aside to do things I love.”

People want to experience financial well-being, but it can be difficult and intimidating to know where to start. Admittedly, of the five well-being pillars I focus on, financial well-being is one I feel the least knowledgeable about. So, I decided to ask a pro some questions that have been on my mind.

This blog post includes my conversation with Dana Mathews, a Financial Advisor at Edward Jones. Dana and I worked together ten years ago and recently reconnected during several conversations about career, mid-life, and of course – money. Dana and I discussed top of mind questions from my personal assessment of how I manage my money, which include circumstances for my mid-life situation.

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Sharman: Dana, what drew you into the financial industry?

Dana: I started my career in the financial industry with Edward Jones after experiencing a substantial loss in my life.

A few summers ago, my father suffered a bizarre health issue and was given a week to live. During that last week, my parents’ financial advisor came to see them three times. Each time, she would gently reassure my dad that they’d done the proper planning for this and that my mom was going to be ok. I didn’t realize at the time how important that was and why. I was wrapped up in so many other things that I didn’t really register what I was witnessing.

A couple months after my father’s passing, I was part of layoffs in the technology industry and I heard my dad’s voice in my head telling me to call Vanessa, his financial advisor from Edward Jones. I needed to get my financial life together. I was nearing 50, and felt I’d put it off too long already.

I called Vanessa and after speaking with her for about 30 minutes, she said, “You should do this job. You’d be great at it! You are so good with people and enjoy helping them. We can’t teach the interpersonal skills, and you have those, but we can teach you the financial skills.”

After going through my training program, I realized the importance of having a financial advisor. If you have a strong relationship with your advisor, they will be the ones you call on your best days, and your worse days. The words of comfort that Vanessa was able to provide to both my mom and my dad during that time, was invaluable. I feel honored to be there for my clients and that they choose to work with me.

Sharman: My daughter recently graduated college, my son will graduate in a couple of years, and I want to help them avoid making the same financial mistakes I made. How can parents help their kids establish a strong financial foundation?

Dana: I believe talking to your kids at a young age is the best way to establish a strong financial foundation. Our first memories of money and how it was used are often how we relate to money for the rest of our lives.

I grew up with parents that would say ‘it’s none of your business’ when I would ask what they were writing a check for. I had no concept of money at all except that my grandma spent hers on everything, and my parents didn’t! I had a weekly allowance that I saved for my big purchases, while my brother squandered every cent he had to buy the latest toy or gadget. I wasn’t taught about budgeting, or the value of a dollar, and it took me well into my adult life to seek out this knowledge.

The sooner you can start bringing your kids into the money conversation the better prepared they will be in the future when they are making their own money.

At Edward Jones, we offer free seminars for both young adults and teens, that would help give them the tools necessary to learn about budgeting and planning. You can find more information about this here: www.edwardjones.com/financialfitness

Sharman: I recently heard mid-life referred to as the “sandwich phase”, where you are in between launching children into adulthood and your parents’ retirement and estate planning. What examples do you have for helping aging parents with financial matters?

Dana: As our parents age, there are several things to consider like healthcare and long-term care, finances, legal concerns, and any assets they own. Having a family meeting to discuss all these factors earlier on is a great first step in ensuring that you learn what is most important to your parents.

If you are working with a wealth advisor, bring them in on the discussion for guidance, as they will be able to help with the investment allocation and long-term spending plan. Additionally, it is important to have legal paperwork in place so that your parents’ wishes are documented. This could include a will, financial power of attorney, a medical power of attorney, or a living will.

Sharman: Women tend to place others first, what should we be looking after for ourselves? For example, I’ve heard that an IRA can be a good investment, but I don’t even know what IRA stands for! Can you fill me in?

Dana: An IRA is an Independent Retirement Account.

A traditional IRA is a tax-deferred retirement account designed specifically for retirement savings. Tax-deferred means that the money invested is taken out pre-tax, which can lower your taxable income. Generally, the money isn’t taxed until it’s withdrawn/distributed.

A Roth IRA is a post-tax retirement account.  Contributions are made after-tax, which allows for the potential of tax-free distributions. If those distributions are qualified, both the basis and earnings may be removed tax free.

Sharman: The state of the economy and job loss have been the source of much anxiety recently. It is best to be prepared, so what are some best practices before, during, and after job loss? How about we start with the difference between non-retirement and retirement investments, and compound interest?

Dana: Non-retirement investments are those that are unqualified and will be taxed on any growth it receives, and typically referred to as a brokerage account. Non-retirement accounts can be used to save for short-term and medium-term goals without affecting your long-term retirement savings.

Retirement investments are those that have financial strategies of investing, saving and ultimately distribute money that is meant to sustain oneself while living in retirement.  Various popular retirement investment vehicles like 401(k) allow those who save for retirement to grow their money with certain tax advantages.  Many have tax-deferred growth, so you aren’t taxed on it until the money is withdrawn.

Compound interest is interest that is accumulated from a principal sum and previously accumulated interest, which is the result of reinvesting that would otherwise be paid out or distributed. It involves earning or owing interest on your interest. Compounding multiplies savings or debts at an accelerated rate, and generating interest on interest is known as the power of compound interest.

Sharman: Thank you, Dana, for giving me the 411 on financial well-being from your perspective. How can people get in touch with you if they have questions?

Dana: It was my pleasure! My email address is Dana.Mathews@edwardjones.com and I can also be found on LinkedIn.