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The Importance of A Financial Plan At Life’s Milestones: A Q&A with Terri Kallsen, Executive Vice President of Investor Services at Schwab

Jean Chatzky  |  June 27, 2019

Jean Chatzky: I’ve always surmised — based on my years of anecdotal experience and reporting — that people don’t come for financial advice just because.  They come for financial advice because they have a reason. You found that to be true in your research.

Terri Kallsen: It’s absolutely true.  According to an October 2018 Schwab survey of 200 affluent investors, 77% of respondents said they started a financial plan when their first child was born.  That was a pretty dramatic finding. I think part of what happens is that the birth of a child, perhaps more than any other life event, creates a real sense of responsibility for people to get their matters, including finances, in order. So this can be a time to really engage with how you’re thinking about money – saving, investing, and your short- and long-term goals. Those kinds of things. 

JC: I’ve got to say, I can totally relate.  I vividly remember sitting in the kitchen of a friend, shortly after my first child was born with my ex-husband.  We had to call a neighbor over, too, because we had just had wills drawn up and we needed to sign them and have them witnessed.  And we wanted to do it before we got on an airplane a couple of days later — for our first trip away without our baby. Typical, right?  What other life events spur people into action? 

TK: The cost of college is a big one.  According to The College Board, tuition has increased 213% to go to a public four-year school over the last 30 years.  That’s not money that people have just sitting in their savings accounts. They have to plan — and to do it while also making sure they prioritize their own retirements, so that sometimes spurs them into action.  Or, sometimes the event or milestone isn’t something way out in the future, but something that just happens — like a death which comes unexpectedly, or a divorce.

JC: Sadly, I’ve been there and done that.  

TK:  When there is a divorce, often the financial services company is the first to know.  And what we see is that many women really need to step up their game. I’ve seen it myself in many situations.  The woman often isn’t as engaged in the finances as she should be. The husband could be making changes without his wife knowing.  And it gets more complicated from there. There are pretty big issues around assets and liabilities. The titling of assets. Tax issues.  Updating all the wills and trusts.

JC: You’re taking me back.  And not in a good way.

TK: That’s the point.  It creates tremendous stress for women.  That’s why I highly encourage women to get more involved in their finances before there’s a crisis – whether it’s something like a divorce or the death of a spouse.  To look down the road and see which of these life events they can predict — and even those they can’t, but which are likely going to happen anyway — and do some planning. In Schwab’s 2019 Modern Wealth Survey, we found that only 24% of women have a written financial plan, so we have plenty of room for improvement. 

JC: When you talk about events that you can’t really predict but are going to happen anyway, could you get a little more specific.

TK:  Just look at the impact of moving.  Moving is one of the most common life events that happens.  It happens 11 times on average in an individual’s life. It’s certainly been true for me.  My husband and I have already moved eight times. And moving has one of the largest financial impacts that there is.  You’re often buying a home and selling a home, changing jobs which means you need to deal with your retirement plans, there are insurance changes, you usually have some additional credit needs.  And it’s not all big financial shifts, but smaller ones too. I know in my own situation, when my husband and I moved the last time we started to think about whether we needed new outdoor furniture.  We didn’t need it in Minneapolis, but we did need it in Texas. These smaller expenses can really add up and start to have an impact on your budget. And if you’re not doing your best to stick to a plan, it can be really easy to slip into things like credit card debt.

JC: I get what you’re saying.  You start at the overall event and follow the financial breadcrumbs so that you don’t experience more stress than is necessary.  But how do you get started — when do you get started?

TK: I’d say as soon as possible, but younger is always better.  My son just graduated from college. One of the gifts he got from me and my husband was a financial plan.  Obviously, he won’t be doing the whole thing — going through the entire planning process — at once. He’ll start with cash flow and budgeting to make sure that he knows what it takes to live on his starting salary and save something at the same time, he’ll start doing powers of attorney. He’ll take simple steps along the way and as he grows in salary and needs, he’ll take further steps.

JC: That’s a pretty nice graduation gift.  I wonder how many parents have the forethought to consider giving something like this to their kids.

TK: I didn’t start out as an executive at Schwab. As a CFP, I worked with families going through various big life events so I’ve seen in real life just how tough it can be if you don’t have a plan.  And it’s even more difficult for younger people. Schwab just released the results of our 2019 Modern Wealth Survey. We do this every year and one of the things we saw is just how likely Millennials and members of Gen Z, like my son, are to feel pressure to spend more than they can afford on experiences they want to have with their friends, or things they see on social media.  It’s up to us, as parents — and as financial planners — to help lead them in the right direction. But in order to really do this, it’s important for the financial services industry to find ways to make investing and financial planning easier and more accessible – whether that’s driving down costs and account minimums or modernizing and simplifying the products we offer. Let’s face it – we all probably want the process to be easier, but this is the standard younger people expect, and how they invest shouldn’t be any different. 

Disclosures
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