Athens Banner Herald Column by Laurel Alberty

Alberty: New ways to teach children about fiscal responsibility

If you follow this column, you might remember a past missive about teaching my 5-year-old son, Walker, about money. We opened a checking account and he even has his own debit card. He receives $2 per day for good behavior and chores and can make a purchase on payday, which is every Friday. The idea was to teach Walker about the value of a dollar, saving and responsibility. Payday was good in theory.

Walker did learn the value of money and even saved for five weeks to buy a toy for his father (of course it was a toy he also would enjoy). Walker also learned to overcome some of his shyness as we required him to make his own purchase, which meant he had to converse with the check-out clerk. Unfortunately, payday was not a complete success.

Through my own fault, I did not have well structured tasks for Walker to earn his income. We also accumulated a ridiculous number of toys due to the weekly purchase. Due to the excess, he became disenchanted with toys and would spend an hour at a time on Fridays in the toy aisle unable to find anything of interest. It always seemed to end in a disagreement and disappointment with whatever toy he chose. None of us were enjoying payday.

Recently, one of my friends came up with a new way to teach her son about money and responsibility. It was a vast improvement from my attempt at payday. In their family, a calendar is posted with measurable daily tasks. Each task is worth a quarter with the potential to earn $1 per day five days a week. His tasks range from good behavior at school to putting away his clean laundry. They have three jars for deposits: spend, save and give. The parents do not influence his choice in deposit.

Another mother in our group of friends has decided to implement the same strategy with a twist. They implemented a match of any amount deposited into the save and give jar. This new strategy is a fantastic motivator for developing healthy wealth building habits.

I am so excited to try this new strategy with Walker. He already is enthusiastic and looking forward to making the calendar and jars. Sometime in the future I will update my column with how the new strategy is working out.

• Laurel S. Alberty is a certified financial planner and president of Watkinsville-based Alberty Financial Planning Services Inc.

Originally published in the Athens Banner-Herald on Sunday, September 20, 2009

Jeff Immelt, chief executive officer of General Electric Co., spoke at the annual Business for Social Responsibility conference last November. The association comprises about 250 companies that are looking for more sustainable ways to do business. Immelt was quoted as saying, “we are in an emotional, social and economic reset.”

The term “reset” resonated with me as it applies to our community and the world at large. Rather than a reset, we really have come full circle. Hitting the reset button is like starting over, but haven’t we learned from our experiences in the recent past? Shouldn’t we take what we have learned and apply a modern approach to tried and true methods of the past? The mere existence of a conference geared toward social responsibility is evidence that our global community can apply what has been learned and move forward in a positive direction.

An everyday example of this movement clearly is demonstrated at the grocery store. Despite the added expense and the challenges of arguably one of the toughest economic climates, consumers still are buying organic products. On a local level, the demand for organic products is so prevalent that Athens Locally Grown emerged and answered the call.

Athens Locally Grown is a group of nearly a hundred small farms and gardeners located in and around Athens. Each grower farms his or her land using strict standards to ensure that everything produced is chemical-free. While not a true cooperative, Athens Locally Grown uses cooperative efforts to achieve steady and dependable means of supplying the highest quality produce and other products. Athens Locally Grown works to find new and innovative methods to preserve greenspace, protect our natural resources, support our local economy, provide meaningful work and return to a more self-sufficient community life.

Being socially responsible, though slightly more expensive on the front end, is an investment that pays strong dividends over the long term. As we come full circle, we will purchase goods and services with a modern approach. If we apply the wisdom of experience to protect our Earth, we ultimately will protect our health and our wealth as a nation and as individuals.

• Laurel S. Alberty, CFP, is president of Alberty Financial Planning Services Inc. in Watkinsville.

Originally published in the Athens Banner-Herald on Sunday, April 19, 2009

The blog whatdoesgreenmean.net, written by Athens resident Alan Flurry, poses an interesting question, no matter how you apply “green” to your life.

One facet of the question is the transition from paper to electronic financial statements. Today it is possible to receive utility bills, mortgage statements, annual reports, trade confirmations and pretty much any other paper record electronically.

My family and I have subscribed to this new way of life. I wish I could say it was all about protecting our precious Earth, but honestly it is as much about convenience and the desire to eliminate looming piles of paper.

There is one major flaw in the movement toward electronic financial record keeping and it might not be what you think. Security is an obvious concern, but there actually is another equally important issue to address: What happens if you handle the family finances and something happens to you?

Our family had some first-hand experience with this problem as I headed off to Nebraska for two and a half months for a stem-cell transplant. Being a financial planner, it is natural that I handle the family finances. As I prepared for my trip, I began to realize there essentially were no bills coming in the mail anymore. Everything was delivered electronically to my personal e-mail.

We resolved the problem by making a list of accounts, account numbers, location, advisers and passwords. Fortunately, I also have set our accounts to pay automatically so there was very little action required during my trip.

Our experience was a reminder that something suddenly could happen and that there is not always time to prepare the list. Does your power of attorney know where your accounts are and who to contact? Whether you’re figuring out how to lighten your carbon footprint or getting your financial house in order, remember, you should have at least one paper record with your account details.

• Alberty is a certified financial planner and president of Alberty Financial Planning Services Inc.

Originally published in the Athens Banner-Herald on Sunday, March 08, 2009

Few, if any, could have predicted the gravity of our current economic crisis. Unfortunately, it is unlikely that the entirety of the fallout yet has revealed itself. The silver lining, which I always try to find, is that there actually are people who planned for this rainy day. Also, it might not be too late to start implementing some strategies that might serve as a safety net.

The foundation of a sound financial plan always should begin with saving money and managing risk. Financial planners often are, by nature or nurture, conservative. A financial-planning guidelines for emergency savings is three months expenses for a dual-income family or six months for single income. These funds are to be kept liquid meaning that you could access them immediately in the case of an emergency without having to sell investments. For those who are facing layoffs and job loss, their emergency savings accounts will be critical for everyday living.

The purchase of insurance also plays a role in managing risk. Having adequate health, disability, life and long-term care insurance coverage can be essential for protecting your current assets and for providing income replacement. When possible, acquiring personal insurance policies take risk management one step further. Once the emergency savings account is funded and the proper insurance coverage is in place, a solid financial foundation has been established.

The next level of planning involves saving for retirement and deciding where to invest any additional funds. The stock market still does have some nice opportunities to buy undervalued, high-quality companies. However, the decision about how much to invest in the market is absolutely an individual choice. It can’t be solely based on age.

Reputable financial planners require their clients to complete an investment profile questionnaire. The questions are about risk tolerance, income needs and time in the market. It’s critical clients completely understand these questions because this is the information financial advisers use when investing your money. For example, if you select the option that states you can withstand a 30 percent drop in your portfolio without making a change, you need to mean what you say. Too many people decide they can’t stand the losses in the middle of a down market and decide to sell, which makes the losses real.

When setting your goals for the future, it also is important to use realistic projections. Financial planners are taught to base their projections on conservative rates of return. Often, the planner’s use of conservative projections is strongly protested by the client. This especially is true when the market is performing well. Our current market is a strong reminder that extreme corrections can occur. These occurrences average down our bull markets justifying the conservative growth rates used in planning projections.

The fundamental financial planning guidelines have not changed, but the client’s attitudes toward these guidelines have changed dramatically. The current economic environment is a reminder how important it is to be informed about your decisions. It is never too late to work toward a solid financial foundation.

According to Webster’s dictionary, the definition of experience is the direct observation of or participation in events as a basis of knowledge. In the past, a great deal of my work related to experience has been from direct observation.

As I age, my experience comes more from actual participation. It is interesting how completely different one’s perception of a situation can be when the perception is based on participation rather than observation.

An example of my personal change in perception came from my battle with cancer over the past year. Such an experience often will teach many lessons, but my specialty is financial planning, so I’ll stick to writing about those lessons.

Wills, health care proxies and powers of attorney all are legal documents critical for effective financial and estate planning.

Choosing the right people to be executors, trustees and to have powers of attorney is difficult but necessary.

In an attempt to practice what I preach, I have had all of my documents in order for quite a few years. I was in my 20s and newly married and very proud to be so organized. When I was diagnosed with Lymphoma in June of last year, I thought how great it was that I did not have to rush to get my documents in order. But, then, my health took a turn for the worse, and I had to consider the reality of what my documents said.

It was very interesting to read my thoughts, written as a 20-year-old, in a legal document spelling out when to end my life. You basically could say I wanted to control, control and control some more. No respirator, no nutrition, just pull the plug. My powers of attorney listed my husband because I never dreamt my parents still would be alive much less actively participating in my care under such dire circumstances.

In my business, I have observed many clients agonizing over these decisions under the pressure of illness and various other impending deadlines. I was sure that I would never have to make that last-minute call to my attorney. But, 24 hours before my trip to Nebraska for a stem cell transplant, I was sitting in Bert Whitmire’s office changing my documents.

I have made this personal enough, so I won’t go into detail about the changes that were made. But I will divulge that the changes were sweeping.

The lesson I learned is that it is not only important to have your documents in order, but to revisit the details routinely as your life experiences change.

Generally speaking, the health insurance pool comprises two types of people: healthy people who pay premiums and rarely utilize their policy and those who have health needs that far surpass the premiums paid. This pooling of risk is the basic premise behind insurance. Sometimes those healthy people cross over to the other side. This is what happened to me.

Recently, my own personal lesson in health insurance compelled me to share the circumstances. My husband’s employer is family-friendly and has fantastic benefits, particularly the health insurance. It was a bright spot in some pretty tough news.

Medicine has come a long way in making patients comfortable, and there is a prescription for nearly every symptom. My condition required a magic pill priced at $100 a week – unless you do your research.

In comparison to some drugs, this $100-a-week medication is relatively inexpensive. But for someone who has been incredibly (luckily) healthy most of her life, it was an introduction to the problems associated with today’s health care. For about four weeks, I filled the prescription at approximately $100 a week.

Financial planning compensation is perceived to be a bit mysterious. Fee based, fee only, commission, project based; what does it all mean? It is important to understand how your financial planner is compensated, not just for the obvious financial reasons, but also for peace of mind.

Commission-based and fee-based financial planners are planners who are compensated by the products they sell. In this case, the planner offers financial planning to add value to the services they provide in addition to selling financial products. These planners may sell all types of financial products or may limit themselves to mutual funds or insurance products. The commission-based planners are paid a commission based on the sale of a specific product. Fee-based planners are paid a percentage based on assets under management.

The distinction between fee-based and fee-only planners is determined by who actually pays the financial planner. Either way, the fees are coming from the client. However, the fee-based planner is paid by the companies of the products they sell and a fee only planner is paid directly by the client. It is important to note that both types of planners provide the service of asset management.

Project-based planning is a completely different type of approach to financial planning. These planners are paid directly by the client based on an hourly or per project rate. This type of planner does not sell any financial products. Another important distinction is that they do not manage investments. The projects offered are along the lines of education, retirement, cash flow and estate planning. Generalized investment advice about asset allocation is often an option as well.

We are fortunate to live in a charity-minded community. We can count on our community leaders to donate much needed time and money to nonprofit organizations that have made our local area such a nice place to live.

As a result, charitable gifts play a significant role in the estate-planning process of our community and beyond. Gifts can be made outright or as a planned gift through an estate. Either way, both the donor and the charitable organization benefit financially. The charity receives an asset, and the donor receives a tax deduction.

Planned gifts are unique in that they do not affect the current financial situation of the donor since the gift is made at the time of a death. Even though there is no immediate benefit of an outright gift, planned gifts are critical to the existence of many nonprofit organizations.

A specific charitable bequest provision in a will or living trust is one way to make a planned gift. Another is to list a charity as a beneficiary on a retirement account or life insurance policy. These gifts are designated during the life of the donor but are not received by the charity until the donor’s death.

It seems unreasonable to ask customers to fit their whole financial situation onto a form. I am guilty in my practice of using this type of form as are most in the financial industry. When my clients first take a look at the personal financial planning questionnaire, there often is a sigh that follows. The sigh is similar to one of students receiving a large homework assignment.

Most people do not fit neatly into the boxes or blanks found in most forms relating to finance. This is why it is critical to have a relationship with those who provide you with financial advice. Forms are black and white, but there is a lot of gray that comes with life experience. Conversation is the key to understanding the circumstances surrounding a client’s financial situation.

Few financial institutions understand this concept better than local banks. When applying for loans with large banks you are likely to find that there is little flexibility beyond the confines of the form. These forms are a method of minimizing risk.

The lending process can be a very different experience when dealing with smaller, locally owned institutions. Small-business loans, equity lines of credit and other types of lending that might be perceived as risky by larger bank often are readily available at a locally owned bank.

Most financial advisers will tell you that every year around April 15 they hear from more than a few clients who have just “bought” an individual retirement account from the bank. This is a common misconception about accounts and the investments within accounts. As the tax deadline approaches, the rush to make an IRA contribution begins. These folks, however, have likely purchased a CD within an IRA account from their favorite financial institution rather than “buying” an IRA. Here is how it works.

First, you must decide which financial institution you prefer. The choices can range from a mainstream brokerage house, to a bank or even an online trading account.

In my opinion, your choice should be about whom you trust and not about how much it costs. Please know I am not suggesting you should not be educated about the fees associated with your investments. Investing is complicated, though, and you should work with someone with whom you are comfortable asking “silly” questions, such as how much you are paying him to handle your investments on an annual basis.

Once you have chosen a financial institution and a trusted adviser, you will have to determine if you are investing in a taxable (also referred to as retail) account or a tax-favorable account. These account types are not mutually exclusive. In many cases, investors will need both types of accounts.

In a taxable account, the investments are – you guessed it – taxable. This means that any dividends, interest or capital gains generated by the underlying investments will be taxable to the owners of the account. In the tax-favorable accounts, the dividends, interest or capital gains are either tax deferred or tax free (depending on the account). A checking account is an example of a taxable account. A retirement account (such as an IRA) is an example of a tax-favorable account.

Simple, right? Here is a very short list of just a few of the available choices: IRAs, Roth IRAs, Education IRAs, 529s, 401(k)s, 403(b)s, JTWROS and JTTEN. The list of choices is ridiculously long. Hopefully, your adviser will help you make the right choice.

If that isn’t confusing enough, you can really muddy the waters with the available investment choices. However, there is one main point about investments that hopefully will clarify the difference between an account and an investment. Any investment that can be purchased in a taxable account can likely be purchased in a tax-favorable account as well. For example, you can buy a CD, a mutual fund, a stock or bond (as well as many other choices) in either your taxable or your tax-favorable account.

Investing your money can be confusing. I hope this information has been at least somewhat clarified the difference between accounts and investments. But more importantly, I hope I have made the point that it is imperative you choose an adviser that you trust who can help you make the right choice for your individual situation.