Irish Financial Review

Why rich people can end up broke

Johnny Depp is broke. So is Lisa-Marie Presley.

Mr. Depp is reported to have spent $30,000 a month on wine!

In the case of Johnny Depp, his reported spending got him in difficulty. But according to Mr. Depp, his financial advisers are the cause of his money problems. In the case of Ms. Presley, her estranged husband is the cause of hers.

Famous people that earn lots of money run into the same set of problems that affect everybody else; it’s just the scale of their problems are much bigger when compared.

Take the case of Mr. Depp.

According to various media reports, he likes to spend, a lot!

$30,000 a month on wine.

$3 Million on a canon to shoot the remains of one Hunter Thompson into space.

Not to mention the marriages and divorces.

In other words, Mr. Depp go caught by the very same issues that impact people that earn far less!

Ms. Presley was caught in a similar financial squeeze that was not that dissimilar; great financial expectation snared in the reality of limited financial means.

On the opposite end of the same scale are those financial wizards that manage to grow their money, no matter how limited their financial resources.

Charles A. Jaffe, a Belorussian-American chess master once stated that, “It’s not your salary that makes you rich, it’s your spending habits.”

Microsoft founder Bill Gates arrives to play table tennis during the Berkshire Hathaway annual meeting weekend in Omaha, Nebraska, May 7, 2017.

Bill Gates washes the dishes

Bill Gates’s doesn’t do ‘statement wealth’, that is the wealth some people choose to wear, drive and live in. He does do statement modesty; he  wears a $10 watch. He still likes to wash the dishes. This is probably part money driven and part environmental. Dishwashers use electricity. Who knows, maybe the tea leaves provide Mr. Gates with some of his endless inspiration. For Mr. Gates, his approach to money has helped make him one of the world’s wealthiest people.

Broadly, those that end up broke, whether they are leaders of highly successful organisations or pensioners that left millions in their Wills, they have a deep respect for the value of money. Those that don’t, don’t.

Change for success

Pennies really can make a lot of difference when it comes to protecting and growing personal wealth.

A big starting point is when it comes to spending. Having awareness, visibility of spending habits is critical to ensuring spending is controlled. And creating this visibility is easier than most people might assume, even if it can be a little demanding in the first few months if one is not used to managing their money in a structured way. It is this part of the overall wealth creation process that MoneyWhizz works most closely with clients as it helps them to build a stable financial foundation.

But guiding adults back to financial stability is a poor cousin of financial education.

Thorough and meaningful financial education can support children learn about money and as they grow into adults, support them in making better financial decisions. This is not a panacea for ’emotional’ spending but it can provide them with more knowledge about how the money system works.

Frank Conway is founder of MoneyWhizz.org, the financial education initiative.

 

Financial education in Ireland

Financial literacy is defined as the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.

Image result for kids learning money

Teaching better money skills from a young age is critical

According to a number of global surveys, Irish citizens generally score lower than many other countries when it comes to essential financial skills. In a 2016 survey conducted by MoneyWhizz, areas that Irish adults struggle with include investment risk and diversification, inflation and even essential elements of credit profiles.

Teaching financial skills as a core life skill should begin as soon as children begin to develop money habits. According to a 2013 UK study from the Money Advice Service, children as young as age 7 form money habits that can last a lifetime.

But what to teach and how to teach kids about money is critical.

MoneyWhizz has identified six essential pillars of money knowledge, those include:

  1. Saving & Spending
  2. Credit & Debt
  3. Employment & Income
  4. Investing & Growing Money
  5. Risk & Protection
  6. Money Decisions & Planning

MoneyWhizz believes that is not sufficient to focus on any single money topic as can often be the case when it comes to teaching children about money. For example, a popular narrative suggests that financial education can be provided when children are encouraged to be ‘good savers’. While that objective has a lot of value, it represents just one of the six essential pillars of a thoughtful and comprehensive financial education programme.

Teaching styles are also very important. For example, in the case of young children, it is important to develop stories and engagement activities that promote learning.

While developing the Talking Cents financial education programme for primary school students (aged 7 – 12), MoneyWhizz incorporated a mix of learning supports, including stories, memory recall, word-focus along with a dynamic set of teacher worksheets aligned to the student magazines. This collaborative approach means that teachers can quickly and confidently engage in a meaningful way with students about a wide range of money topics, all of which are aligned to the Six Pillars of Financial Knowledge.

Finally, all financial education content has been developed based on a comprehensive financial literacy framework. The framework identifies key knowledge benchmarks by age and sets the learning objectives and provides resources in order to reach those knowledge benchmarks.

End of the beginning for record-low interest rates

Borrowers need to start planning for higher costs

Who would have thought that the world would be suspended in such surreal surroundings for a decade.

Image result for european central bank

Period of record low interest rates coming to an end

10 years, hundreds of millions of families and trillions in EU cash and finally, the world of QE is finally coming to an end (QE was introduced in 2015 following years of rate slashing by the ECB following the 2008 ‘credit crunch’).

For many, that end will mean higher borrowing costs, including monthly mortgage repayments.

For now though, the jam-jars are safe. No need to crack them open to pay higher monthly repayments but if you don’t have some extra cash put aside for the inevitable, now is the time to get cracking.

With over 300,000 mortgage holders on a variable tracker, the last few years have delivered a bonanza in low monthly repayments. For example, someone with a €300,000 tracker variable mortgage is paying €600 – €700 less per month than they were paying in 2008, this is for the same sized mortgage! The savings have been simply enormous, and this is what is about to end as Eurozone economies recover.

Most important is the ‘surprise’ at which the ECB caught the markets today when it announced that it wants to unwind its QE programme. On one hand, anybody paying attention should have known this day was always coming. However, for an institution known for acting deliberately and cautiously, the move sends an important signal; the ECB won’t be caught napping if and when inflation raises its head.

And so, for Irish mortgage holders, they won’t have to worry about run-away mortgage payment rises, just yet! But they should have a plan in place to accommodate higher monthly repayments eventually.

Frank Conway is the founder of MoneyWhizz.

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