1.6 million of us have graduated from college in the US in 2014 alone, and we realize that most of us are not trained in planning our finances, investments and savings. I reached out to my mentor Paula Brancato whom I interned with at Northwestern Mutual couple years ago, and who seems to understand financial management like the back of her hand. Paula, an MBA from Harvard Business School, enlightens us in this interview.
Q: What financial advice would you give to recent college graduates and young professionals?
PB: Work hard. Save a lot, now, not tomorrow. Take very good care of your knees because you'll need them longer than you think. That is a financial statement because longevity will tax you financial resources. You are the first generation who will be taking care of your parents longer than your children. You are also the first generation likely to be retired for as long as you have worked. Think how much you need to save for that! When young people ask me if it is so important to start saving now, I remind them that Einstein said the most powerful force in the universe is compound interest and, let's face it, you are going to need a LOT of compounding to take care of all of this!
On a positive note, what you do have that my generation doesn't, is time. Time is much more valuable than youth or money, so use it well. If you save a little all the time, your money will be working harder for you than you did for it. Then suddenly one day, a little becomes a lot. But if you wait... the task seems gargantuan, too large to accomplish.
Q: How is our generation different from the previous ones, when it comes to managing our personal finances?
PB: I am impressed with the way you have accepted so much of what has been handed to you that has not been perfect without blaming anyone. At present, worldwide there has been a large diverting of resources to take care of the elderly. Paradoxically, this does not seem to have driven the generations apart but brought them closer together. In many households, grandparents are watching grandchildren so parents can work and provide for the extended family. Young people are staying home longer, like they did at the beginning of last century, which has fostered a stronger sense of responsibility towards and closeness with parents. I have 70 year olds who buy life insurance to be sure there is something to take care of their 90 year old mom. And 22 year old students who want to be sure they can give something back to mom and dad.
What I am trying to say is, finance is now more than ever an intergenerational matter. Even though modern families may have many branches and generations -- or maybe precisely because of this -- your generation seems to be responsibly handling it. Very few of you are "estranged".
This means that when you plan for your financial security, you are aware that you will also be "planning for" parents, grandparents, children and grandchildren and that what your generation does will affect them down the line. We were not so responsible. But your drive to protect the family is not so very different from your drive to protect the planet, is it? So you are also a much more consistent generation than we were.
Q: In the context of financial planning, what are some things that we don't do right?
PB: You don't always save early enough and/or consider tax consequences as heavily as you might. I started saving when I was 14 in my very first job. But if your first paying job is at 26 or even 30, well, then you are already behind the 8-ball. Not far behind, but remember, you will be preparing for a much longer future, one hopes, than I.
RE: taxes, they are not the end all and be all. One should pay them surely when they are due. However, you need to know that your generation has grown up in one of the most lax tax environments we've had. In your great grandfather's time, top bracket income taxes were as high as 90%. In some countries they still are. If income taxes are 50%, that means you earn 50% less each year and the part you get to keep grows way more slowly. You want to pay attention to this and work with a good advisor who can help you save on a tax-advantaged basis.
Q: How do you find men and women different in their mindset towards savings and investment?
PB: Women do tend to be more conservative. They are generally more intrigued with keeping what they make than risking it. If we are talking in generalities, which is always a bit silly, I would say they understand taxes and risk adjusted returns better than men do. However, women are often not as active in managing their finances as I would like. And they tend to be less decisive, pushing the responsibility onto the men in their lives and often ignoring their own good common sense. There is one exception -- women business owners. Again, as a group, and this is a generalization, they tend to be decisive, driven, action-oriented and they know exactly what they are worth. A great women business owner is a pleasure to work with. My job with many women who come to me is to allay their anxiety so I can help them think more like they are a business, you know, Pamela Inc. or Juanita Corp. There's still a lot of guilt, a stigma, associated with women taking a financially independent mindset.
Q: Why did you become a financial representative at NMFN? What has your personal journey been like?
PB: I got into finance because it was important to me as a woman and 1st generation American to always know what I was worth. Women from my background, indeed many women worldwide, even highly educated ones, are not often encouraged to understand or deal with money. In many cultures women cannot inherit wealth, let alone inherit equally. Money is still the realm of the patriarchy, something our fathers, brothers and sons "take care of" for us. This is perhaps, why so many women in the US retire into poverty. Approximately 2/3rds of those retiring below the poverty line are, in fact, wornen. And it is also why women have such trouble raising capital -- the true measure of financial equality and independence.
Why Northwestern? Because our company is full of people of high character whose primary concern is for the client. It's a highly profitable company whose vision and philosophy are aligned with mine. When you own a Northwestern policy you actually own a piece of the firm, one of the greatest companies in America. So, you're not my client, you're my partner and we share mutually in the returns. When I help you save or invest, I like to think I'm doing a bit of good for you and a lot for the planet. I call this Eco-Finance.
I can be reached at firstname.lastname@example.org and (310) 429-5181.