Inside the Economy: Interest Rates & Unemployment

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On this week’s Inside the Economy with SH&J, we discuss the Fed’s latest interest rate increase that occurred last week. The Fed Funds rate is now at 2%. How many more increases can we expect this year and what will happen to bonds when the rate hikes cease? We are near full employment in the U.S. economy, and the recent job numbers may indicate something we have never seen in the job market before. Tune in to find out about these topics and more!

How Much Salary is Needed to Live in Denver?

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As the cost of real estate in Denver continues to creep upwards, we are often asked how much is needed in salary to live here. If you search the web for this answer, you will likely find a salary that necessitates the cost of buying an “average” single family home in Denver. Typically, what is missing in this calculation is the additional savings needed to retire, savings for children’s college education, and the cost of childcare when both parents are working outside the home.

Therefore, we have created a case study for a working couple both age 35 with two children, one in elementary school and an infant. This couple has recently purchased a home that cost $500,000 with a 20% down payment. Together they have already saved $60,000 for retirement and $10,000 for their first child’s college education. Their goal is to save for the cost of four years of undergraduate tuition at CU Boulder for each child. Because each spouse works full-time, they need full-time childcare for their infant, and after-school/summer care for their elementary school aged child. Each spouse has access to benefits through their respective employers, including a 3% match on 401(k) contributions, health insurance, disability insurance, and life insurance. Because their employers offer high-deductible health insurance plans, they also contribute the maximum family contribution to a health savings account. Each spouse is paying into Social Security and anticipates collecting 75% of a projected benefit at age 70. Their goal is to be able to retire at age 65 and access Medicare benefits. In this case study, the couple needs to bring in a household income of approximately $200,000.

There are a couple of key notes:

  1. This couple would have been approved for a much higher mortgage loan based on their income. However, in order to accomplish all their other goals, they needed to keep their mortgage payment (Principle, Interest, Taxes, and Insurance) just under 15% of their gross income (banks typically approve approximately 30%).
  2. If one spouse stays home to raise the children, the cost of childcare is greatly reduced. In this case study, the working spouse would need to earn a gross income of approximately $160,000.
  3. The assumed gross income replacement need at retirement is only about 35% of their current $200,000 household income. This is because the mortgage is assumed to be paid off, saving for retirement is accomplished, the kids are financially independent, and their taxes have reduced.
  4. This case study makes several assumptions and is intended to be based on averages. The figures can be easily argued as too high or too low depending on many factors.

If you would like to speak with a CFP® professional about reaching your financial goals, please call Sharkey, Howes & Javer at 303-639-5100.

Inside the Economy: U.S. Tariffs

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On this week’s Inside the Economy with SH&J, we discuss the potential impacts of U.S. tariffs on Canada and Mexico and the new Italian government. What is the reason many international stock markets have been trending negative over the past few weeks? Consumer confidence is near an all-time high in the U.S., and the personal savings rate has been decreasing. Is this correlation normal or is it a sign of things to come for the U.S. economy? Tune in this week to find out!

Financial Lessons for Your Kids and Grandkids

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The value of a dollar has changed over time and, with it, the financial lessons our children and grandchildren need to learn have also evolved. Many parents and grandparents want to teach children about money, but they don’t always know where, or when, to begin. These five lessons are easy for children to understand and build off each other as your child grows so that they have a wide base of knowledge for their financial future.

3-5 Years of Age:

Around three years of age, children begin to understand that they can ask for things like toys, books, and games. From their perspective, an item moves from a store shelf and into their home simply by asking. According to Carrots are Orange, this age range is perfect for teaching delayed gratification. Teaching the difference between a need and a want is an excellent lesson for this age, along with helping them begin to understand that sometimes we need to save money before something can be purchased.

6-8 Years of Age:

The Huffington Post reports that only 13 of 50 states require a personal finance course for students before they are able to graduate from high school. Because these lessons are not being taught in the majority of our schools, it is important to incorporate financial lessons at home starting at a young age. Children ages 6-8 years old are at a great stage for pretend play that utilizes money along with practical lessons from things like lemonade stands or doing additional chores for money. While playing supermarket, help your child to count out change. During the summer months, help them set up a lemonade stand and teach them how to determine what to charge based on the cost of the products they utilize.

9-11 Years of Age:

A key financial concept that is important to teach children is budgeting. While you can begin to teach the concept earlier, 9-11 year old kids will likely have a little better grasp on the idea. Consider giving your child a set spending amount to purchase snacks or toys from the store. Make a list together of things they would like, and encourage your child to determine the appropriate amount of money for each item. The important piece here, according to US News & World Report is not to bail them out if they make a mistake. Experience is a great teacher and allowing them to work through solving this type of problem is important.

12-15 Years of Age:

Investing has become a necessity for Americans who plan to retire as saving enough money for the golden years has become more difficult over time. Teaching children to invest can be fun and could make a lasting impact if it’s done well. Do some research together and discuss different types of investments and how risk and timing affect an investment. The Mint suggests setting up a fake account with your child or children and then tracking it with them over a year’s time. Not only can this provide a fun bonding experience, but it will help to plant the seed that investing is a long game.

16-18 Years of Age:

The day your child turns eighteen, they are officially eligible to open a credit card in their name. Teaching kids about credit and interest before they have access to it is crucial for their financial well-being. Discover reports that those with credit card debt carry, on average, $7,500 per credit card! With high interest rates and low minimum payments, the total cost over time for items purchased can grow out of hand rather quickly. This issue, along with the consequences of bad credit, can set someone up for a lifetime of financial trouble.

Sit down with your kids and explain how credit cards work. If you are able, consider offering your child credit through you, then allow them to make a purchase and payments with an agreed upon interest rate. Help them to track the total cost, including interest, for the item once it is paid off and compare it to what the original purchase price was of that same item. Helping teens learn this lesson early can potentially save them a lot of money and a lot of headache in the long run.

Inside the Economy: Interest Rates and the Yield Curve

By | Economic Discussion, Economy, Larry Howes, SH&J Blog | No Comments

On this week’s Inside the Economy with SH&J, we discuss interest rates and the yield curve. The yield curve is flattening, and historically inverted yield curves have signaled the start of recessions. How probable is it for us to get an inverted yield curve in the near future? In addition, in many areas around the country, it is a seller’s market in real estate, especially Denver. Does this mean people are actually taking advantage and selling their homes? Tune in to find out answers to these questions and more!