Saturday, March 15, 2003

The Schwabs talk money


But many families don't, they lament

By Eileen Alt Powell
The Associated Press

NEW YORK - Carrie Schwab-Pomerantz thinks families could do a lot more to secure their financial futures if they'd just sit down and talk about money.

Unfortunately, most families don't do that.

"One of our research findings was that fewer than one in three families have frequent conversations about money," Schwab said. "It falls between sex and drugs as one of the least talked-about topics."

So Schwab-Pomerantz has decided to try to get people talking.

Along with her father, Charles Schwab, founder of the Charles Schwab & Co. brokerage, she's published It Pays to Talk - How to Have the Essential Conversations With Your Family About Money and Investing.

Schwab acknowledges that getting conversations going can be difficult, especially if you're dealing with an elderly parent. He admits he found it almost impossible to broach the subject of money with his own father.

The father and daughter discussed their new book in a recent interview with the Associated Press.

Question: When you were growing up, was money something you discussed at home?

Carrie Schwab-Pomerantz: We were a pretty typical family. My dad was what I would call a struggling businessman. I don't know if he likes to remember those days. It wasn't until I was in my early 20s that Schwab became a successful business. I think he taught us a strong work ethic. I had a paper route when I was about 12 years old, delivering the Oakland Tribune. ... I started working at Schwab when I was 16, and that's when I had my first real office job. And he taught me the discipline of saving. I started saving when I was 9 years old.

Question: Don't you think people are more willing to talk more about money these days?

Charles Schwab: I think there's more conversation generally speaking today about investing. The 401(k) has become so popular with families. Certainly the down market has increased the conversation to some degree.

Carrie: There is definitely what we call "stock market chatter." But it's not really personal, candid conversations about your priorities, your goals, your values, where you're ultimately trying to go with your life. Talking about the hot stock is not the same as really understanding your whole financial picture. As we saw through the Enron case, there is a big, big need for education. And it's not happening in schools, so it has to happen in the family.

Question: How do you get those money conversations going?

Charles: With my father, it was so difficult. It was taboo. He never talked about it. He was a successful lawyer in a small town. He saved and invested through his lifetime, but he lived longer than he ever expected to. He was just about 70, and he was also falling into a medical situation, a severe depression situation. I think it was related to his whole insecurity about money. He was living longer, his wife was still alive, he had a dependent child who was older, a daughter who needed help, and it was depressing him so much. Finally I said, Dad, can we talk about this? Can I help you with my sister? I didn't talk to him about his income tax or any of that stuff. The relief that came to him when I finally had the conversation, and the agreement that I would do a number of things to help out, it was such a nice gift to him. And everyone was a winner. ... You can use this book as a prop to start your conversations. You can say, "Dad, I'm reading about this situation, this older adult talking with his older parent." You could open the conversation that way.

Question: Do you think that baby boomers, who have been better at spending than saving, will be prepared for a financially secure retirement?

Carrie: It's going to be difficult, but it's never too late. We've talked about how Americans are so undersaved for retirement. So we hope this book gives them the financial tools, the knowledge they need to understand that it's not how much money you have but how much time you have to save. Those younger baby boomers will have more time to let their money grow. People 50 and older can take advantage of the IRA catch-up laws. For those who haven't taken advantage of the time, it's going to be tougher - tougher to help out themselves, let alone their parents and their kids.

Question: After three years of down markets, how should people invest and how do they stay diversified?

Charles: With stocks, the perfect diversification to me is buying index funds. If you're in the S&P 500 or the Schwab 1000, you're in 500 to 1,000 companies, representing 70 different industries. You're investing in the backbone of America. That is perfect diversification. Now if you have one stock, you have one-five-hundredth of a chance, like buying a lottery ticket. ... If you've just gone through three years of down markets, that's all you can see. You have to learn to look a lot longer. What if you had five tech stocks and they all went down? You've got to move toward a position of diversification in terms of restructuring your portfolio. You can't just wish and hope upon hope that those are going to come back to what they were in the past. It's not going to happen. It's the lottery ticket approach to investment, which is the wrong approach.

Carrie: Given the uncertain times, there's no more important time to have these conversations about what's important to you and having a plan to achieve those goals.

Question: Say you've got a young couple that's investing in 401(k) retirement accounts and has accumulated $5,000 to $7,000 in savings. Should they be in stocks?

Charles: They should definitely be in stocks in their 401(k)s and IRAs (Individual Retirement Accounts). That $5,000 to $7,000 should be a backup for emergency purposes or the start of building for a down payment on an apartment. It could be in a money market account.

Carrie: Where you invest your money depends on your risk tolerance, your goals and your time frame. So with a 401(k), a young couple - they've got 40 years to save - should definitely consider stock mutual funds. But if they want to buy a house, that's a short-term goal and the money should be more liquid. When they have children, they're not going to be paying for college for 18 years, so certainly stock funds are a great tool there as well.

Charles R. Schwab

Carrie Schwab-PomerantzAge: 65

Occupation: Chairman and co-chief executive officer of The Charles Schwab Corp., parent of the Charles Schwab & Co. brokerage.

Location: San Francisco

Education: Bachelor's in economics from Stanford University in 1959, MBA from Stanford Graduate School of Business in 1961.

Career experience: Schwab started his company in 1971 as a traditional brokerage and, in 1974, pioneered the discount brokerage business. Today, the company is one of the nation's largest financial services firms, with some 8 million active investors and $786 billion in client assets. Schwab has more than 400 offices nationwide, as well as Internet services and overseas operations.

Family: Schwab and his wife, Helen, have five children and 10 grandchildren.

Quote: "With stocks, the perfect diversification to me is buying index funds."Age: 42

Occupation: Vice president for consumer education of Charles Schwab & Co. Inc. brokerage and founder of the Schwab's Women's Investing Network, designed to assist women investors.

Education: Bachelor's in political science from the University of California-Berkeley, MBA from George Washington University in Washington, D.C.

Career experience: The oldest of Schwab's five children, she started working at her father's company in 1976. She advised clients and led marketing projects in Schwab regional and local investment center offices in California, Georgia, Maryland and Washington, D.C.

Family: Her husband, Gary M. Pomerantz, is a journalist and author. They have three children.

Quote: "There is definitely what we call 'stock market chatter.' But it's not really personal, candid conversations about ... where you're ultimately trying to go with your life."



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