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HerMoney Podcast Episode 179: Ethical Investing with Megan Schleck

Kathryn Tuggle  |  September 18, 2019

This week, Jean sits down with Megan Schleck, co-founder and CEO of COIN, a conscious investing platform that allows us to put our money into companies making an impact in the areas we care most about.

Megan shares with us the genesis of COIN, her thoughts on “buycott” culture, and how to make a positive societal impact through ethical investing.

Listen in as Megan and Jean discuss creating an avenue for everyday investors to have a place where their voice can be heard (for as little as $50!), the dramatic rise of companies that are following suit, mission-based investing as we enter the 2020 elections, and Megan’s background as a wilderness guide.

Then, in Mailbag, Jean and Kathryn talk about how age is more than just a number, and encouraging more women in the C-suite. We dive into listener questions about when to sell an apartment that’s losing value, the best ways to start investing while in college, and how to spend an inheritance. Lastly, in Thrive, Jean talks about the large net worth gap between baby boomers and millennials, and ways the younger generation can close it once and for all.

This podcast is proudly supported by Fidelity Investments. Making smarter, more informed financial decisions can help you meet your goals. Look to Fidelity for tools, resources, and investment advice that can help. Learn more at Fidelity.com/HerMoney. Fidelity Brokerage Services LLC Member NYSE, SIPC.

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. Posts may contain references and links to products from our partners. Learn more about how we make money.

Transcript

Jean Chatzky: (00:06)
HerMoney is supported by Fidelity Investments. We want to inspire you to demand more from your money by first knowing what you own and what you owe and what you want from your money will help you reach your financial goals faster at fidelity.com/demandmore. HerMoney comes to you through PRX. Hey everybody, it’s Jean Chatzky. Welcome to HerMoney. Thank you so much for joining me. Joining us. This show is put together by a team of wonderful women who we don’t shout out to often enough. So, big thank you to Kathryn and Christine and everybody who works to pull this together. Today we are going to wade into the waters of one of my favorite topics. We’re going to talk about investing and I have to say, you know, we tape these podcasts a little bit before they air and we are taping this one on a day where CEOs made news for being great corporate citizens. They actually signed a pledge of sorts put out by the business round table that said, Hey, it’s not all about the shareholder anymore. It’s also about all of the other stakeholders in how well companies are doing and we have to think about them as well. We have to think about the employees, we have to think about the customers, we have to think about the environment, we have to think about the impact that we, as a business, are having on the world rather than just maximizing shareholder value. It’s a very interesting investing related conversation to dive into and fortunately for me, fortunately for you, we’ve got a great guest to help us today. Megan Schleck is an expert in impact investing. She’s cofounder and CEO of an investing platform called Coin, and it’s a conscious investing platform. It allows all of us to put our money into companies that are making an impact in those areas that we care about. Whether we care about the environment or women’s rights or buying local or animal protections or women on boards. The list goes on and on and you can find, you can invest in companies that are doing all of those things. In other words, your passion for making money and your actual passions in life can fit together and when they do fit together, what happens is typically women, millennials and other people like us, we get excited about doing more with our money. Megan, thanks so much for joining us.

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Megan Schleck: (03:06)
So happy to be here. Thank you, Jean.

Jean Chatzky: (03:08)
Thanks for coming in. So I know because we were talking about it before we sat down in the studio that you were watching this announcement from the, about 180 CEOs as well. What does this mean?

Megan Schleck: (03:23)
Yeah, it’s really exciting to me both personally because of how closely, you know, we are focused on, you know, how businesses are actually acting and responding and to me it’s a representation of a bigger cultural movement we’re facing. There’s a buycott culture, whether it’s you know, you going to the grocery store and purchasing organic foods or wanting to, when you buy that latte, to actually have it being an environmentally friendly cup. There’s just a big movement I think for people to be more conscious about how they are spending their money.

Jean Chatzky: (03:56)
You said buycott culture?

Megan Schleck: (03:58)
Yes. The next generation of boycotting.

Jean Chatzky: (04:02)
And what does that mean exactly?

Megan Schleck: (04:05)
It really means having the ability to actually make your stance known in what you’re purchasing, what you’re investing in.

Jean Chatzky: (04:13)
So you’re, rather than not buying things because you’re opposed to them, you are buying things, investments because you’re for them.

Megan Schleck: (04:22)
Exactly.

Jean Chatzky: (04:22)
So you’re putting your money where your mouth is.

Megan Schleck: (04:24)
Exactly.

Jean Chatzky: (04:25)
Got it.

Megan Schleck: (04:25)
And I think that translates to how you invest. And so when I see leaders of businesses actually recognize that value comes not just from profitability, which is, I think, how they are thinking about shareholder value, it’s actually thinking about the sustainability of their business and that kind of holistic perspective I think is really important to think about as we build a collective economy together.

Jean Chatzky: (04:52)
Larry Fink from BlackRock has been leading, I think, this rallying cry for quite some time. I mean he’s been writing these annual letters to CEOs about how companies need to be good citizens of the planet, not just good corporate citizens.

Megan Schleck: (05:10)
Absolutely. And you know, there’s a piece to it where the business is actually then also making profit when they think sustainably about their business. There’s a lot of research and studies around de-risking of businesses when they think more holistically about the impact, you know, for what’s material to their business. And I think for Coin, we obviously really care deeply about people’s voices, and there really hasn’t been an Avenue for an everyday investor to have a place where their voice can really be heard. And so what we’re trying to do is really combine both of those together, that it’s the company thinking about the shareholder in a broader sense, but also us being able to act on our values.

Jean Chatzky: (05:50)
If I were to go to Coin, how does that work?

Megan Schleck: (05:54)
The first thing we ask everyone to start with is to reflect on what their values are. What is it that you really care about? So for me, when I start to go to Coin and actually started to invest, I was really passionate about environmental topics. So I went in and I selected three impact areas that really resonated for me. The ones I selected were climate action, gender equality, and then reduce, reuse and recycle. And so those three impact areas are what I really believe are important for me. Once someone selects their impact areas, we actually recommend a portfolio for you. So we go out, pick stocks that we think are really having a meaningful impact in that particular are and then we combine that into a holistic portfolio for you and manage it for you so that you don’t have to deal with the rebalancing and kind of the challenges of making sure that your money is diversified and appropriately invested, considering risk.

Jean Chatzky: (06:49)
For people who only invest through their 401(k) or their 403(b) who might have a brokerage window and who are wondering, could I do this from within my 401(k)? Can they piggy back on your research and go to your site, do the screen and essentially learn, these are the companies that I might want to buy?

Megan Schleck: (07:08)
I mean, certainly you could go onto the site and actually look at the companies and if you want to, you know, do your own research. We really want people to actually know where their money is going and what it’s supporting. So if you want to apply that in different areas, absolutely. We really think that the methodology that we’ve created is really unique. And primarily because we’re actually looking at company’s goals future forward. It’s not just screening, you know, which is kind of the traditional SRI. It’s not just looking at the revenue that a business is making or the corporate conduct. We look at all of those things, but we also look at what sort of goals they’ve set and are they actually acting for those goals.

Jean Chatzky: (07:48)
Tell me a little bit more about you. So you come to this from a very different background. You were a wilderness guide for many, many years. What made you do a 180 and say, okay, now I’m going to be, now I’m going to launch a business in finance?

Megan Schleck: (08:05)
Yeah, it’s been quite the journey. So I joke that I was, you know, in the back country in the wilderness, and then a few days later it was in the office with heels. So it was a very, startling transition. And for me it was driven by wanting to understand money. And, you know, I just had never really learned about investing or had understood investing in myself. And so it started with a personal interest in just wanting to get smarter about money. And then as I did that, I started to face a problem, which is that I didn’t really understand where my money was going and what it was supporting. For me the environment is a big passion point. I’ve obviously spent a lot of time in the, in the wilderness and it just is like such a place where, um, you know, I think I want future generations to also be able to experience. And so I take that, you know, with me as I entered into money management and finance and it’s been an interesting journey to learn and that challenge of trying to figure out where my money was going and what it was supporting was kind of the initial problem that I faced. So for me it was the experience of that and wanting to make it a lot easier for people to actually understand how their money is actually getting invested.

Jean Chatzky: (09:25)
We did a show a while back with a woman named Nicole Connolly who is at Fidelity. She heads up their ESG investing, environmental, social, global, otherwise known as impact investing. And one of the things that we got into was the fact that right now I believe it’s $1 in $5 are being invested according to these ESG principles. They’re being put to work by these principles. In light of the fact that there’s so much going on already, why launch a new platform? How’s Coin different?

Megan Schleck: (09:58)
For us it was about bringing that access to everyone. So where kind of initially I think a lot of access has come as an ETFs and mutual funds and these packaged products. But what is not possible is actually having any level of control over what’s actually going into the actual product itself. So what we did when we built Coin was we really invested in the customization of our portfolio. So you actually can directly own stocks rather than a package, mutual fund or ETF. And for us that was important because it allowed people to actually know directly the companies that their money was going to.

Jean Chatzky: (10:37)
And you can do it with not a lot of money. I mean when I was taking a look at it, that was what was appealing to me. You can get in for as little as $50.

Megan Schleck: (10:46)
Yeah. Right now there’s no other platform that is able to do that to be accessible for people at $50 fractional share traded. You know, there’s a lot that went into building that and I think that’s really fundamental for us is making sure that access is possible for people.

Jean Chatzky: (11:00)
What are you seeing as far as your customers go? What are they most interested in? And, I mean, I’m particularly interested in women. What do you see women buying?

Megan Schleck: (11:12)
This is such a loaded question this week for us because we were just looking at what values our customers were actually selecting. And there’s a number of women on my team. And for us, I think gender equality is an impact area that we offer that we’re eager to see, you know, do well. And interestingly, it’s not being selected in the same rate that other areas are being selected.

Jean Chatzky: (11:36)
Why do you think that is?

Megan Schleck: (11:37)
It’s something that we’re trying to grapple with. You know, we think about it all the time. How do we get women to support more women and to get everyone on the train to support promoting women? And it, I don’t think we know quite yet why.

Jean Chatzky: (11:51)
So if we’re not buying investments that are targeted at managing gender equality, what are we buying?

Megan Schleck: (12:00)
So the top impact area right now is climate action.

Jean Chatzky: (12:03)
I’m not surprised.

Megan Schleck: (12:03)
Not surprised. It’s a little bit different by generation. And I think that’s something that we’ve been really excited to see that it’s not just young investors, it’s a whole range of investors. Whether you’re 80 and trying to build your kind of personal endowment for future generations or if you’re just starting on your saving and investing journey. So we’re seeing a wide range and the values are a little bit different depending on the age group.

Jean Chatzky: (12:28)
One of the things that I’ve seen in research is the fact that women are often a little more reluctant to either invest or to wear the banner of investing, to call ourselves investors. I’ve been doing a series of events and I’ll often ask the question, are you an investor? And maybe 30% of the hands go up and they go up kind of shyly and then I’ll ask, do you have a 401(k)? And every hand goes up, really fast because that is something that we can all relate to. And in my book, having a 401(k) pretty much makes you an investor. What is it about investing that we are not wrapping our brains around?

Megan Schleck: (13:15)
It’s a really intimidating topic, you know, for me, I think it was hard to even just know how to get started. It’s not a conversation at the water cooler. You know, for me, when I was first getting started, and I think that that’s a big barrier for a lot of people just starting out and trying to kind of change the concept of themselves and I think it’s a big issue. For me, it’s how do we promote these conversations? To actually start talking about money as a group of women.

Jean Chatzky: (13:40)
And the impact that it might be able to make. We’re going to dive a little bit into mission-based investing and also into why this year, and why going into 2020, people are so hot and heavy on this subject, but before we do that, let me just remind everybody that her money is proudly sponsored by Fidelity Investments. We want you talking about your money and we’re here to remind you that you work way too hard to let your money just sit in savings. Whether you are new to the workforce, whether you are approaching retirement, Fidelity can help advise you throughout your career and beyond so that your money is working just as hard as you are. It all starts with a yearly financial checkup and an understanding of what you own and what you owe. And from there the folks at fidelity can work with you to evaluate your investments, to determine ways to grow your savings, to keep you on track to reach all of your various life goals. And you can start demanding more from your money today at fidelity.com/demandmore. We are happily talking with Megan Schleck, CEO and founder of Coin, a conscious investing platform that allows you to put your money into companies that are making an impact in the areas that you care about most. So you said to us before we started this interview that you think 2020 is going to be a big year for this. Can you talk about why?

Megan Schleck: (15:11)
I think anytime people are understanding or going into an election year, it’s thinking about their vote and how they participate in our democracy. And I think it’s a really interesting thing to compare to money and the decisions you make about your money because that is another way that you can really have a say in a voice on the world. You know? So I think going into 2020 we looked, and even going back into the, kind of, previous election seasons, we hear a lot people feel like their values are not getting reflected in leadership of this country and in their government leaders. And so we are looking at how else could you have your voice heard? And I think having your money have that alignment with your values is, I think, one way to make sure that you’re voicing and having to say.

Jean Chatzky: (16:01)
When I was working on my book, Women With Money, I wrote a chapter on legacy because I had asked women what they want from their money, and legacy was a big one. It was, I, you know, I wanna, I want to leave an imprint. I wanna make sure that my family is okay, that my community’s okay, that the world is okay. And so we talked about giving a great deal, but I think this idea that you could do the same by investing is only starting to resonate with people. You know, we’ve thought about investing as a selfish exercise, not a selfless one. How and why has that changed?

Megan Schleck: (16:40)
I don’t think it necessarily has, which, I don’t know if that’s a controversial statement, but I feel like investing is meant to, for us at least, it is meant with the goal of trying to get a return. We’re not looking to just do philanthropic giving. And there’s an important distinction there. I think it’s important that this doesn’t replace other ways that you’re trying to make an impact, whether it’s volunteering with your family or getting, giving directly to an organization you’re really passionate about. Those are other ways to make an impact and this is just one of, what should be, and hopefully is, many different ways that you’re trying to give back. Some people don’t have enough money even to invest, and so they may just be dedicating their time. And I think that’s a really important place to start. So for us it isn’t about not getting richer. There is a dual goal for us of returns and impact.

Jean Chatzky: (17:34)
When I started reporting, I was, you know, in my twenties, I was a reporter at Forbes magazine and we wrote a lot about socially responsible investing. A woman named Amy Domini was leading the charge. She was new. She was a pioneer. It was not considered a way to make the most money that you possibly could when, you know, you were choosing to either invest in a socially responsible way or to do as well as you could in terms of profits. Has that changed?

Megan Schleck: (18:10)
It’s a good question. I think there’s been a lot of research talking about the longterm benefits of companies thinking about sustainability, or impact, on what’s really material for their business that they will longterm perform very well. And you know, for us, we’re not looking to get 10X return, this is not a venture capital fund. We’re investing people’s money in publicly traded large cap stocks. These are big companies. PepsiCo, Microsoft, these are large companies that aren’t your traditional kind of VC model. So it’s, you know, think in terms of how does that connect with the history of SRI? I think there’s just now many more ways that you can have your values incorporated into your financial decisions.

Jean Chatzky: (18:59)
How’s Coin doing?

Megan Schleck: (19:01)
Oh, doing well. So we launched in March in just this past March. So we’re about six months in and it’s been really exciting to see the reaction, great growth. And I think for us what matters is people having access to be able to invest in a custom portfolio for them. So we’re really excited to see how it grows over the next several months.

Jean Chatzky: (19:22)
When you think back to your history, you know, being a wilderness guide, being a woman CEO, running a company for which you probably either had or will have to go out and raise some money is like being in a different kind of wilderness. There are not a lot of women where you are. How has that been?

Megan Schleck: (19:45)
You know, it’s funny ’cause when people ask me about what it’s like to be a woman, usually it’s about being a woman in finance. And I always say, well it’s not just women in finance, not just a woman in venture capital. It’s or you know, not directly VC but women as a CEO. But it’s also been a woman in tech.You know, Coin is a tech platform. So here you have some of the most male dominated industries. It’s kind of a merge of all three of those. And it’s been challenging. It’s obviously a hard place to be. I have a lot of empathy for other founders, especially female founders, who are really chasing their dream and trying to bring to reality something that they really believe in.

Jean Chatzky: (20:22)
How’d you do it? I mean, for other women who are listening, who are women founders, women in tech, women in finance who are just looking to break through, what advice would you give them?

Megan Schleck: (20:36)
I think for me, what’s really kept all the hard work worth it is just being really connected and passionate about the topic that you’re working on. So I think that’s fundamental is table stakes to be passionate about what you’re doing and to really believe in the product. I think the other part of this is finding really great partners. So John Hancock for us is our key partner. They’ve really invested in Coin and helping to build Coin and making sure that your partners are the right partners for you I think is a really important step. John Hancock happens to also really be passionate about corporate responsibility and giving back. And I think that alignment around values focus has been really helpful for building Coin.

Jean Chatzky: (21:19)
Well, Megan Schleck, it has been a pleasure to have you in the studio. If our listeners want to learn a little bit more, where should they go?

Megan Schleck: (21:27)
We have a website, investwithcoin.com.

Jean Chatzky: (21:29)
Okay. Thank you so much. I hope you’ll come back and keep us posted.

Megan Schleck: (21:36)
Thank you so much.

Jean Chatzky: (21:36)
HerMoney’s Kathryn Tuggle has joined me in the studio. Hey Kathryn.

Kathryn Tuggle: (21:40)
Hey Jean.

Jean Chatzky: (21:41)
Nice to see you.

Kathryn Tuggle: (21:43)
You, too.

Jean Chatzky: (21:43)
So here’s what I was wondering, and you’re a little bit younger than me. You are, I am on the cusp of Xer and boomer. Right. I’m born in 1964 makes me 54 years old, ahem. And that, I actually asked Eliot the other day if I was 55 already, like I just couldn’t remember. He was like, no, you’re 54. Don’t push it.

Kathryn Tuggle: (22:09)
I always say I’m a year older than I am so that I can get ready for it mentally.

Jean Chatzky: (22:14)
That’s a very good strategy. I did that before I turned 40 and before I turned 50 and I think it helped. But I think it’s also why I’m continually confused to this day about how old I am.

Kathryn Tuggle: (22:24)
Right.

Jean Chatzky: (22:24)
Yeah. So, but you are the opposite, right? You’re a millennial/Xer.

Kathryn Tuggle: (22:29)
I am on the cusp too. And I read an article that described this generation as X-ennial, but I also feel like to a certain extent, what generation you’re in has to do with where you grew up. Because growing up in rural Alabama, there was no internet, there were no cell phones.

Jean Chatzky: (22:46)
Oh.

Kathryn Tuggle: (22:46)
So I think, I was born in 82, and I think that born in 82 in Birmingham is a lot different than born in 82 in New York City.

Jean Chatzky: (22:55)
Born anywhere is different than born in New York city. Right. The New York teens I know are just older than their years always. But continue, I think you’re right.

Kathryn Tuggle: (23:06)
I didn’t have internet or a cell phone until college and in college all my notes were handwritten. I would go to the computer lab to write a paper if I needed to print it. So I think, in my mind, millennials are defined by the fact that they grew up with a tablet in their hand.

Jean Chatzky: (23:25)
Yep.

Kathryn Tuggle: (23:25)
And that was absolutely not my situation. I grew up on Friends and I can still remember moonlighting. And when push comes to shove, I say I am gen X all the way.

Jean Chatzky: (23:37)
Okay. All right. So that noted. What, what’s your reaction to impact investing? I mean, I have always been, as you know, I’ve been this boring investor. I’m index funds, I’m low cost all the way, but I’m really interested in moving some of my money around to invest by these principles. I mean, I just, I’m so worried about how the climate is changing and everything that I’ve been seeing and worried about… I mean, there’s so many different causes to get behind, but the fact that you can now do this without sabotaging your returns is really intriguing to me.

Kathryn Tuggle: (24:20)
I definitely think that millennials are interested in it. We have the data that show that they are, but I feel like this is for everybody who wants to make a difference. You know, my parents are in their late seventies and I feel like they, and all of their friends, want to do something as they think about leaving a legacy.

Jean Chatzky: (24:38)
Right. Yeah, absolutely.

Kathryn Tuggle: (24:40)
Have you done any of this?

Jean Chatzky: (24:42)
We mentioned Nicole Connolly, right, who we had on the show. She’s in charge of ESG investing over at Fidelity, but she also runs a fund that is their women’s empowerment fund. I’m not sure if I got the title of that right. I will. I will make sure and put it in the show notes, but I bought some of that because I was, you know, I’ve read all the research on how companies run by women with more women in the C-suite tend to do better. I want to encourage more women in the C-suite and I just thought, yeah, I’m going to buy some of that. So I bought some of that.

Jean Chatzky: (25:22)
That’s great.

Jean Chatzky: (25:22)
Yeah. So more to come.

Kathryn Tuggle: (25:24)
You’ll have to let us know how it performs.

Jean Chatzky: (25:26)
I will keep an eye on it. How are we doing with mailbag questions?

Kathryn Tuggle: (25:30)
We have some exciting questions today. Our first one is from Rebecca in Chicago. She writes, I bought my one bedroom condo in Chicago in 2004 for $102,000. Our building got hit very hard by the housing crisis. At one point 13 of 40 units in the building were in foreclosure and the last of those foreclosures finally sold at auction 18 months ago for $32,000. Last year, I consulted two different realtors, both of whom told me I would be lucky to get $50,000 for my place. I owe $61,000 on the mortgage. I cannot stay in this unit because it’s a third floor walkup and an old knee injury has come back to haunt me in middle age. I’m going to consult with realtors again soon, but if they still give me bad news, I don’t know what to do next. If I can get $50,000 for the place, I actually have the 11,000 in savings to pay off the remainder of the mortgage and honestly, that is my first instinct. Buying this place was a huge mistake and I regret it every day. It’s caused me nothing but anxiety and I just want out. My friends and neighbors told me I should hang onto the unit and rent it out, but that’s a headache. I don’t want to be a landlord and I’m terrified of getting a bad tenant who might trash the place. They all think that prices will come back to their 2004 levels eventually because our neighborhood as a whole is rebounding the crisis, but I don’t think they’re correct. The building is very poorly managed and not maintained well and because there is already a very high percentage of renters in it, we are almost at the threshold where we could lose our status as a condo association.

Jean Chatzky: (26:55)
Oh my God.

Kathryn Tuggle: (26:56)
They think I shouldn’t walk away from my very poor investment. I think they are engaging in these sunk cost fallacy and I can probably get out while the place is still mine to sell. I need the perspective of a neutral third party. What would Jean do?

Jean Chatzky: (27:11)
Sell the damn place. I mean seriously, it’s making you anxious. It’s making you unhappy. You have the money to get out and look forward. You’ve got a bad knee just, Oh my God, sell. I would sell the apartment, but before I sell it, I would make a call to your lender and just ask about a short sale. A short sale is where you are allowed to sell for less than you owe. You may owe taxes on the difference between what you owe and what you sell for, but that may be less than coming out of pocket for the other $11,000, and should you not get the full $50,000 that may be easier to stomach. If they say no, I’d sell it anyway. I just think life is too short. You don’t want to be a landlord. There are plenty of people who want to be landlords. They know they want to be landlords. They don’t mind getting up in the, you know, they understand what’s coming. They understand that if the toilet breaks, they are going to get a call. It might be in the middle of the night, it’s going to be on them or they’re going to pay a management company to deal with it. And I want you to take heart in the fact that you are not alone. I bought my house in 2005. I was going through a divorce. And I paid more than anybody on my block had ever paid. And if I sold my house today, I would not get what I paid for it. And I put money into it. I did the basement, I did the kitchen. This was not an investment. This was a place to live. And I think sometimes that’s how we have to think about these things. You bought yourself place to live. It didn’t turn out as well as you thought. Sell it, move on and start rebuilding your financial life.

Kathryn Tuggle: (29:01)
Great advice. Is there a way that people can write off those losses and their taxes?

Jean Chatzky: (29:07)
So what happens is that it shows up as a gain. The difference between what she owes the bank and what she pays the bank is considered a gain. And she may actually have to pay taxes on that. And so that is just something to consider as she goes into it. But it wouldn’t be the same as paying the full $11,000 herself, assuming that’s the difference.

Kathryn Tuggle: (29:34)
Got it.

Jean Chatzky: (29:34)
Does that make sense?

Kathryn Tuggle: (29:35)
Yeah.

Jean Chatzky: (29:35)
Okay.

Kathryn Tuggle: (29:35)
Thank you.

Jean Chatzky: (29:36)
All right. What’s next?

Kathryn Tuggle: (29:37)
Next is a note from Dania who says she started to the HerMoney podcast recently and has really enjoyed it while she’s driving in her car. She writes, I am 18 and have almost $5,000 saved in my checking account from my job.

Jean Chatzky: (29:52)
Wow.

Kathryn Tuggle: (29:52)
Wow. I am starting college this fall and would like to start investing most of this money, probably around $4,000. My current idea is to invest just under half in a high yield, 3-4 year CD so that I can have access to it at the end of college, and just under half into a relatively low risk options such as bonds and maybe some mutual funds so that I can use the money I gained from this after college as well. Then I would like to invest the remainder into an IRA. I will get a job as soon as possible once I move into my dorm so that I can continue making monthly contributions to each of my investments. I was hoping to get your input on my plan strategy and hear your suggestions as to how I could improve my plan. Thank you so much for all you do.

Jean Chatzky: (30:33)
First of all, you’re awesome, right? I mean Dania you are just awesome here. Here’s how I would think about this money. I would think about a longterm bucket and a short term bucket. I think by splitting it into three different categories, your complicating matters more than they have to be. The money that you want to have access to when you come out of college should be in a low risk option because you’re thinking that you may want to use it to get your first apartment. You may want to use it to buy your first car. And a 3-4 year CD, that’s a fine place to put it. Shop around for interest rates there. Go to a site like bankrate.com and just look for the very, very best CD rates. We even have some new savings tables up hermoney.com so you might be able to find them there. And put that chunk into something safe. Now bonds are not quite as conservative as CDs, but they are also fairly conservative, especially if you buy safer bonds, like shorter term government bonds. Where you want to put your longer term money is into an account where it can grow tax deferred. That’s your IRA. And then from within that IRA you want to invest it in something with real growth potential. That’s stocks. So an IRA or a Roth IRA, either one will work for this purpose. Since you’ve already paid the taxes on that money, you might want to look at a Roth because you’ll never have to pay the taxes again. And then the money in that account goes into a broadly diversified stock fund that might invest in the entire stock market. It might invest in the S & P 500. It just should be a big, big basket of stocks so that it can grow for your future. And then that’s the money that you continue to add to and add to and add to over time and you eventually retire on. But I got to say, I think you are amazing, and if you send us, we’ll send you an email with this information, but you are clearly going to be a woman with money, so if you send us your snail mail address, I will happily send you a book.

Kathryn Tuggle: (32:53)
Absolutely. You deserve it.

Jean Chatzky: (32:55)
Last one?

Kathryn Tuggle: (32:55)
Last one. We have Terry in Hawaii. Aloha.

Jean Chatzky: (32:59)
Aloha, Terri.

Kathryn Tuggle: (33:00)
Aloha, Terri. She says, I’m 54 and single. I recently received inheritance of about $45,000. I have debt, student loan debt that I took out for my son, a mortgage, no emergency fund, and I live paycheck to paycheck. Sometimes I wonder how the heck I do it, but I have been getting by. I want to be better. I want to be financially independent, but I feel like I’m drowning right now and I was hoping you’d be able to guide me. I’ve listed my financial status below and she says: yearly gross income of $48,000. An employer 401(k) with $65,000, she’s currently contributing 3% and getting a 3% match. She has her $45,000 inheritance. She has a 401(k) loan of $9,000 that she’s paying back at $300 a month. She has a parent plus student loan of $50,000 that she’s paying back at $300 a month. She has a $265,000 mortgage, which is $1125 a month. She has credit card debt of $5,000 and she’s paying $200 a month toward that. She says, I do have a small side business that can bring in an additional $1000 a month. What would you suggest is the best way to use the inheritance money and move forward?

Jean Chatzky: (34:10)
We are going to clear the decks of debt. That’s what you’re going to do and the way you’re going to do it is by first just trying to reduce your interest rates if you can on anything and then by looking at your debts from highest interest rate on down. So I’m guessing, you didn’t share your interest rates, but I’m guessing that credit card debt is the most expensive. Take $5,000 away from your inheritance and pay off that credit card debt. Then look at the parent plus student loan. That’s probably the second most expensive chunk. The interest rates on 401(k) loans are usually fairly reasonable. I’d like to see you wipe that out, too, so that you’d no longer have a loan withstanding from your 401(k), but I’d probably prioritize that parent plus loan. As of this point, I have spent your whole inheritance, right, because you have $50,000 in student loan debt, so use that additional money coming in from the side business and you’ll be able to wipe these debts totally clean within a year. At that point, I want you to keep very careful tally of the money that you are no longer paying toward those debts. So that money becomes money that you just start saving and you save it like a crazy person and you make sure that it is growing for your future without accruing any of these additional debts. I don’t know who passed away in your life, but boy oh boy, they have just offered you a clean slate opportunity and I’m really happy that you wrote in so that you’re not going to blow it.

Kathryn Tuggle: (35:49)
Absolutely. Good luck, Terri.

Jean Chatzky: (35:51)
Wow, great questions today, Kathryn. Thank you so much. How can our listeners find us?

Kathryn Tuggle: (35:55)
They can write to us mailbag@hermoney.com.

Jean Chatzky: (35:59)
Alright. Anything special they need to know?

Kathryn Tuggle: (36:02)
I like the detail. I like to hear the story.

Jean Chatzky: (36:05)
Alright. Tell us your stories. Mailbag@hermoney.com. And in today’s Thrive, did you know that the wealth baby boomers have is now 12 times greater than that of millennials? I know that’s not immediately the most shocking statistic since baby boomers have had many, many more years to earn their money and grow their money, but there are now some real concerns that the average net worth for young Americans has been on the decline since 1998 while the average net worth for every other generation has increased, here’s some numbers. In 1998 households in that 20 to 35 age bracket had an average net worth of a little over $103,000, but today, their net worth is only about $101,000 that’s according to the folks at Magnify Money. That’s pretty bad news and to put it in perspective, consider that in 1998 people age 52 to 70, those baby boomers, they had an average net worth of about $750,000 today they have 1.2 million. In other words, as other generations are improving their financial lives, millennials are finding themselves worse off. So why is this happening? Why is gen Y struggling compared with other generations? Student debt, which now stands at 1.6 trillion, skyrocketing housing costs, and then the great recession, which made many millennials hesitant to actually get into the stock market and the ones who didn’t get in missed out on more than a decade of upside as the markets rebounded. Thankfully the future is not all bleak. Millennials still have a lot of years to reach their full financial potential. If you’re listening and you’re among them, focus on your debt, that can be a great way to reach your goals faster. Like we were talking about with Terri, pay down the credit cards, refinance your debts to lower your interest rates, and then plow all that extra money that you’re reaping into your savings accounts, your emergency cushions, your investments, and also even if the idea of being an active investor is one of those things that you just can’t wrap your mind around, the thing you need to be doing is taking advantage of those 401(k)s, those IRAs and not leaving any matching dollars on the table. As my dad used to say, that’s free money. Thanks so much for joining me today on HerMoney. Thank you to Megan Schleck for the great conversation and for encouraging us all to invest in the things that inspire us. If you like what you hear, I hope you’ll subscribe to our show at Apple Podcasts. Leave us a review because we love to hear what you think. We want to thank our sponsor Fidelity. We record this podcast out of CDM Sound Studios. Our music is provided by Track Tribe and our show comes to you through PRX. Join us next week. We’re all lying down on the couch with financial therapist, Amanda Clayman. She is going to help us figure out how we can use our money to fuel the things that are most important to us and how to lineup, our values with our relationships and our financial behaviors. Thanks so much. We’ll talk soon.


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