A few thoughts on time management

Here are a few quick thoughts on time management I wrote on 2018-02-01 in response to a private discussion topic:

Time blocks are good to avoid Parkinson’s law: “Work expands so as to fill the time available for its completion.” If you have two weeks to do something, even if it could be done in a day, it often ends up taking two weeks to get it done. Procrastinators like myself often wait until the last day before putting concentrated effort into meeting a deadline. However, this is obviously not ideal.

I have heard good things from productivity podcasts about the Pomodoro timer method for time-blocking your workday, but have yet to actually try it.

Of course, another critical piece is saying “no” to unnecessary distractions. For example, as a Ph.D. student I decided to give up Toastmasters, as I had been a club president and achieved many certifications there, so I felt the returns were diminishing and my time was better spent elsewhere. Life should not be looked at as a competition to impress others by being the most “busy” person. In fact, having fewer things that you do very well is usually preferable.

Tax-Exempt Retirement Contributions and the Bucket Analogy

Here, I am continuing my prior post and other writings. Even though I am financially competent, tax-exempt retirement accounts are complex and I have only just discovered that Roth 401(k)s, which have only been available since 2006, actually have different contribution limits from Roth individual retirement accounts (IRAs; which have been available since 1997). Before, I had incorrectly thought that the combined limits between the two were $5500. Actually, the limit for a Roth IRA is $5500 per year (under Age 50) and for a Roth 401(k), an additional $18,000 (under Age 50; increasing to $18,500 in 2018). For Americans Age 50 and above, the limits are $6500 and $24,000 (the latter increases to $24,500 in 2018), respectively. Although I work for a university on a stipend (not fellowship) consisting of earned income via an assistantship (graduate teaching associate), I did not discover until recently I can contribute to a 403(b), the non-profit equivalent of a 401(k), in addition to a Roth IRA.

For the uninitiated, Roth accounts require you to have earned income for which you pay income tax now, but in retirement (above Age 59.5), all capital gains taxes are waived. There are also a few other situations such as medical expenses, education expenses, and first-time home-buying that allow you to make withdraws with waived capital gains taxes before Age 59.5. Depending on your tax bracket when the withdraws are made, under the new 2018 tax laws, your capital gains tax (which would be long-term due to investments being held over one year) could be 0%, 15%, or 20% depending on your income, but most likely 15%.

Roth 401(k)s can only be contributed to via employee contributions, which come out of your paycheck. Notably, your contribution is tax-exempt while any employer matching funds are tax-deferred like with a traditional 401(k). Employers usually have retirement programs with companies such as Fidelity whereby employees can pick a percentage of their pay to contribute. Roth accounts are especially applicable to low-income workers (i.e., in the 12% tax bracket) because they might be in a higher tax bracket at Age 59.5+, so tax exemption benefits them more. However, even for those with higher incomes, capital gains can far outstrip the initial contribution over many decades. Furthermore, anyone who has cashed out a U.S. savings bond knows the IRS gives no consideration to inflation when calculating the unearned interest income derived forthwith. Monetary inflation is also not considered for capital gains, which is a reason tax-exempt accounts are especially valuable.

Roth IRAs can only be contributed to via a person with earned income setting up one on his/her own, such as with Vanguard. Employers cannot offer Roth IRAs. Those with earned income can contribute up to $5500 per year to Roth IRAs, tax exempt, in addition to contributing up to $18,000 to a Roth 401(k) if their employer offers one.

Both traditional and Roth retirement accounts are wrappers for other types of investments. You could put your money in a money market account or certificate of deposit, bonds, or equities. Over long time periods (e.g., 15+ years), stocks are the best of these three types of investments. You can change how your retirement fund is invested at any time. Many financial advisers advocate for putting most of your money in an index fund of the S&P 500 or whole U.S. stock market while young, with a transition toward bonds as you near retirement, which offer less risk of loss but less potential for gains.

Sadly, both traditional and Roth retirement accounts grossly favor the wealthy and well-informed, perpetuating wealth inequality. Most Americans cannot being to approach the $18,000 annual limits on 401(k) contributions. Many do not even have an emergency fund. Wages are too low and expenses too high for them to contribute anywhere near $5500 per year to an IRA, as well. Nonetheless, every year that goes by is a missed opportunity to contribute, because there is no “catching up” on prior years’ annual contribution limits (besides being allowed to contribute for a prior year up until tax day—even after you have filed your taxes for Roth IRAs).

The ideal way to build wealth would be to contribute annually to your IRA as follows, and to your 401(k) too if you have the funds available:

Full annual contributions

However, even financially savvy Americans do not typically have enough money available to put $5500 in their IRAs nor $18,000 in their 401(k)s per year. If they are above-average, their contributions might look like this:

Varying partial annual contributions

However, the rules to withdraw retirement monies are complex and fraught with taxes and penalties. Most Americans cannot say with assuredness that they won’t “need” thousands of dollars until Age 59.5+. Contributing to a retirement account only to cash it out a few years later is common, often with penalties. Even without penalties, such behavior harshly perpetuates wealth inequality because there is no way to put the piggy bank back together after hammering it open (i.e., one cannot withdraw money and then make up for this later, and taking a loan from your retirement account comes with unsavory fees). Consequently, the statistical mode for American retirement contributions is as follows:

No annual contributions

Stocks go up and down. When we look at this S&P 500 chart from Wikipedia, it is clear that one could invest at a market peak and be upside-down for many years:

66-year S&P 500 chart

However, being invested over a long duration of time results in a near-guarantee of returns that exceed money market accounts, certificates of deposits, or bonds. Without thinking about tax-advantaged retirement accounts, one would think that late-bloomers to retirement saving can simply catch up by putting in a lot of money now. However, the annual contribution limits for these accounts, shown through the imagery of buckets, prevent late bloomers from catching up. Although one can contribute the maximum per year starting now, there is no way to go back and contribute for prior years—even at current market levels. Therefore, the typical American suffers the double whammy of missing out on tax-exempt or tax-deferred retirement savings and market gains. This situation is insufferable.

When you retire the chances are good that you will suddenly be receiving far less income than when you were working. If you apply for a reverse mortgage you can fix that problem by borrowing cash from your home’s equity. One reason such a loan is so popular is the lack of a monthly bill. If you were to apply for a traditional home loan you would increase your monthly bills by one. However, with a reverse-mortgage you can repay the loan long after you borrow the money. The only major stipulation is that you cannot move out of the home during the loan period. If you do so the balance must be repaid in full within a short period of time. Alternatively, the balance can be taken out of the sale price if the home is sold after you vacate it.

Updated 2018-01-30 to note graduate assistants can contribute to a 403(b) and to note $500 increase to 401(k) annual contribution limits in 2018.

Thoughts on Financial Education, Retirement, Starbucks Partners

These are ideas I wrote on 2018-01-27 about financial education and retirement accounts for Starbucks partners (employees). I am thinking about starting a financial education corporation or not-for-profit after finishing my Education Ph.D. in August 2019.

Giving financial advice is largely unregulated, but investment advice as basic as “put 50% of your money in VTSMX” is regulated. A firm must be an Registered Investment Adviser (RIA) with one or more Investment Adviser Representatives (IARs) to proffer such advice. Becoming an IAR requires passing the FINRA Series 65 exam for $175, and an RIA can have just one IAR. The RIA must be registered with FINRA and the U.S. states it does business in (or, for huge firms RIAs, with the SEC), which costs several hundred dollars more. For instance, LearnVest, Inc. has a subsidiary called LearnVest Planning Services LLC that is an RIA. Becoming a Certified Financial Planner (CFP) or other achievement is not required. The Series 65 exam can be studied for in a week or less and only 72% is required to pass. It is offered at Prometric testing centers. LearnVest, and my venture, would share the characteristic of just advising clients on what to do with their money, but not managing their money. We would both have zero assets under management (AUM) meaning we just advise on what type of accounts to open, what companies to use (e.g., Vanguard), and what moves to make. These “moves” would largely be related to general financial planning and tax avoidance, but not timing the market or picking sectors or individual stocks.

In particular, the mobile apps available for learning about personal finance are shockingly pathetic. Most focus on particular areas (e.g., You Need a Budget, Mint, Personal Capital) rather than being comprehensive. LearnVest’s mobile app is particularly egregious, being available only for iOS and not having been updated for four years.

An example: A Starbucks employee should probably have a Fidelity Roth IRA (“Partner Roast“) contributing at least 5% of each paycheck for the 100% “safe harbor” employer match on up to 5% contributed, but then additionally should have a Vanguard Roth IRA to contribute more money each year. If they can only muster $1000, they can use the STAR fund (VGTSX, $1000 min), or more preferably the total stock market index fund (VTSMX) if they have $3000 to spare (note: Vanguard ETFs may be an option for smaller balances). The additional Roth IRA is needed because a Starbucks employee who makes $25,000 per year would only be contributing $2500 to their Roth IRA even with the partner match, while the max per year to contribute to Roth IRAs is $5500. While the partner could contribute more than 5% of income, it can be difficult to predict one’s future financial situation or exact income at the start of the year. If a Starbucks partner starts out contributing 15% of income + 5% match but then has to reduce to zero later in the year, they lose out on the safe harbor match for the duration of pay periods where they reduced their contribution to zero. However, like most employer-sponsored retirement savings plans, the Starbucks–Fidelity offering does not allow Starbucks partners to contribute from their checking account! They can only contribute from payroll by setting the percentage in advance. However, it is perfectly lawful to have two Roth IRA accounts as long as the combined contributions don’t exceed $5500 for the year (or $6500 if Age 50+). Further, Americans can contribute for the prior year up to the tax deadline (e.g., until 2018-04-17 for Year 2017). I speculate that 95%+ Starbucks partners don’t know this. Further, the majority probably don’t even have a 3-month emergency fund. Finally, Starbucks offers many benefits, but not a financial wellness program.

Why Apple should fight childhood hunger and poverty

This is a discussion post that I completed on 2018-01-11 for the class, EDF 6855: Factors Affecting Equitable Educational Opportunity and Life Chances: A Cross-National Analysis, taught by Judit Szente, Ph.D. at University of Central Florida.

Please reflect on the possible cause and effect of a specific issue and how it affects children’s life chances (e.g., reasons of poverty and hunger, effects of poverty and hunger, how poverty and/or hunger may affect children’s life chances).

The UNICEF (2016) chapter on children and poverty repeated emphasizes the need for multidimensional measurement of child poverty. In Sub-Saharan Africa or South Asia, even a household making more than 5.00 USD per day may still be poor in terms of their access to education, sanitation, electricity, et cetera. Infrastructure and access is critical to combating child hunger and poverty. For instance, many Chinese rural–urban migrants are denied access to education and other services in their new cities of residence (UNICEF, 2016), meaning their children are still experiencing poverty on many critical dimensions.

Last month (December 2017), I visited family in Shenyang, Liaoning, China for three weeks, which included a 10-day road trip visiting many tourist sites such as the Great Wall, Beijing Palace Museum, Yellow River, Longmen Grottoes, and Terracotta Army. Although the opportunity to visit such tourist sites is restricted to the relatively wealthy, with admission fees ranging from 50–150 RMB (7.50–22.50 USD) plus costs of travel, around such sites it was clear that many sellers of fruit, trinkets, and “tour guide” services are poor or at least struggling. At the Yellow River (Hukou Falls), a woman trying to sell a bag of a dozen apples for 10 RMB (1.5 USD) followed us. Although my family protested, I tried giving her one USD as a gift, but due to the language barrier, she placed the apples in the trunk of our car and accepted the dollar bill as payment. I felt bad, but my family assured me that at 10 RMB she was over-charging compared to other apple sellers and that one USD (6.5 RMB) was sufficient. Regardless, it is clear that many of these sellers are part of the “informal” economy (UNICEF, 2016), along with the associated disadvantages. Occasionally, I would even see children working with their parents to sell fruit or package incense sticks—time the children could be using to complete homework or play with friends. Although children may enjoy selling items, for poor families, child labor often becomes a necessity that inhibits educational progress and subsequent life chances. In fact, a recent longitudinal study of poor U.S. children showed a lack of brain and cognitive development stemming from poor nutrition and lack of cognitive stimulation (Hair, Hanson, Wolfe, & Pollak, 2015). Poverty is more likely to persist across generations when from an early age, poor children are malnourished and suffer wasting, stunting, rickets, and other maladies and disadvantages.

The United Nations (2017) first two Sustainable Development Goals focus on ending extreme poverty and malnutrition by 2030. These ambitious targets are unlikely, yet their promulgation stimulates public interest and support. However, they are simultaneously quite restrained. Individuals making more than 1.25 USD per day are not considered “extremely” poor, yet over a billion of them are actually still quite poor (UNICEF, 2006). While we often look to governments and NGOs to fight childhood hunger and poverty, it can easily be argued that corporate citizens should also play their part. Yesterday (January 17, 2018), Apple Inc. announced it will be repatriating its vast overseas cash hoard under the newly reduced U.S. tax rates. Their press release says they will pay $38 billion in tax, which means at the new 15.5% rate they will bring $250 billion home—a massive, almost incomprehensible sum. Sadly, in their press release, there is no mention of hunger or poverty. The only mention of education is computer programming (“coding”) and science, technology, engineering, arts, and math (STEAM) in the US. While many excuse public corporations from charitable responsibilities due to the supposedly preeminent responsibility to provide maximum profits to their shareholders, this may be misguided or even ridiculous. In China, iPhones have a following despite being more expensive than in the US when considering exchange rates—and several times more pricey when considering relative wages. Arguably, Apple should be investing heavily in Sub-Saharan Africa for future profitability via sales there. However, chasing inflated quarterly earnings and higher stock valuations in the short-term often inhibits corporations from long-range planning—such as developing the South Asia and Sub-Saharan Africa markets by confronting childhood hunger and poverty head-on.

References

Apple Inc. (2018, January 17). Apple accelerates US investment and job creation [Press release]. Retrieved from https://www.apple.com/newsroom/2018/01/apple-accelerates-us-investment-and-job-creation/

Hair, N. L., Hanson, J. L., Wolfe, B. L., & Pollak, S. D. (2015). Association of child poverty, brain development, and academic achievement. JAMA Pediatrics, 169, 822–829. https://doi.org/10.1001/jamapediatrics.2015.1475

UNICEF. (2016). The state of the world’s children 2016: A fair chance for every child. New York, NY: UNICEF. Retrieved from https://www.unicef.org/publications/index_91711.html

United Nations. (2017). Sustainable Development Goals: 17 goals to transform our world. Retrieved from http://www.un.org/sustainabledevelopment/sustainable-development-goals/

School attendance in Sub-Saharan Africa

This is a discussion post that I completed on 2018-01-11 for the class, EDF 6855: Factors Affecting Equitable Educational Opportunity and Life Chances: A Cross-National Analysis, taught by Judit Szente, Ph.D. at University of Central Florida.

What is your reflection on the goals of the Education for All initiative? What are some major areas in which we urgently need some growth internationally?

The goals of the Education for All (EFA) initiative (World Bank, 2014) revolve around equitable access via a focus on disadvantaged populations, such as girls and women, minorities, the poor, and those living in war zones and other conflict-stricken areas. Although females earn a majority of high school diplomas and postsecondary degrees in the United States (Kirst, 2013), in developing nations females’ access to education is impeded by many factors. Despite the costs and challenges, improving education and access is a moral imperative that produces great human and economic gains. While the EFA does little without practical action from signatory nations and organizations, it sets the tone, and the accompanying analyses and policy work guide funding priorities and debates.

One area where growth is needed internationally is in school attendance (UNESCO, 2014). From 2007 to 2012 the global rate of primary school attendance (Ages 6–11) has not increased beyond 91%, although great gains were made prior to 2007. The 9% of primary-age children not in school is a considerable figure—58 million, 43% of which have not and will probably never attend school. The lack of growth in school attendance is concentrated in sub-Saharan Africa, where slightly more than half (29.6 million) of non-attending primary aged children reside. While in 2000–2012, the proportional decline in primary out-of-school rate was the same in sub-Saharan Africa (39% to 21%) as in the rest of the world (10.5% to 5.5%), in the same timeframe the primary school age population increased by 35% in sub-Saharan Africa as compared with a 10% decrease elsewhere. Based on 2012 data, UNESCO (2014) expects this population explosion to continue in sub-Saharan Africa, which means this region will continue needing urgent attention.

References

Kirst, M. W. (2013, May 28). Women earn more degrees than men; Gap keeps increasing [Blog post]. Retrieved from https://collegepuzzle.stanford.edu/women-earn-more-degrees-than-men-gap-keeps-increasing/

UNESCO Institute for Statistics and Education for All Global Monitoring Report (2014, June). Progress in getting all children to school stalls but some countries show the way forward. Retrieved from http://unesdoc.unesco.org/images/0022/002281/228184E.pdf

World Bank (2014, August 4). Education for all. Retrieved from http://www.worldbank.org/en/topic/education/brief/education-for-all

Writing on education, finance, psychology, et cetera