Dollars and Sense Episode 3

The host of the podcast series, Dollars & Cents, discusses her personal journey of learning about personal finance and the importance of financial education for young people. She interviews Jeff Sommer, an economics and stock market columnist for the New York Times, who emphasizes the need for early financial education and recommends broad index funds as accessible investments for young investors. He also highlights the importance of diversification and low-cost investing. Overall, the podcast episode aims to provide guidance and information for young people interested in managing their money effectively. Welcome to the third and final episode of this podcast series. I'm your host Sophie Marecki and I'm thrilled to bring you another episode of Dollars & Cents. This episode is really special to me because it kind of culminates why I made this series in the first place. The reason that I chose the topic I did. When I started this project, I thought to myself, let me kill two birds with one stone. Not only will I explore a topic that I have deep interest in, but I can also learn what to do with my money. As someone who's turning 18 relatively soon, someone who has reminders set to open a Roth IRA, open a stock brokerage account, and get a credit card to start building their credit score, it's hard to figure out where to start. I hope that this is relatable to a lot of my listeners out there. Whether you're turning 18 or not, this podcast episode is for you. Thank you again so much for joining me today. I think that the best possible way for me to open this episode is to recount an anecdote that is very popular in my family. When I was around four or five years old, I received my first sum of birthday money. My mom brought me to the toy store with my new money and she showed me toys, games, puzzles, knickknacks that I could spend my birthday money on. I looked around, I perused, I was quite disinterested because I didn't like the idea of spending my birthday money. The only thing in the toy store that really caught my eye was a little red lockbox. My first ever purchase was a little red lockbox. You might be thinking, what does a five-year-old have to do with a little red lockbox? Well, in the years to come, I proceeded to save all of my birthday money, holiday money, lemonade stand money, stoop sale money, you name it. Every penny to my name was in this lockbox. By the age of 11 or 12, I had accumulated a considerable amount of money in my little red lockbox after years of saving. But it wasn't until I found out about inflation that I really got scared. Because I realized that the little red lockbox just wasn't going to cut it anymore. Now don't get me wrong, I still use my little red lockbox. I still keep my spare cash in there, but I do have a bank account now. Now if you're in a position, anything like mine, and you're starting to realize that a little red lockbox isn't going to cut it anymore, or maybe your savings account isn't going to cut it anymore, whatever it may be, this episode I hope you will find interesting. Because I will be talking to Jeff Sommer, an economics and stock market columnist for the New York Times. He writes the strategies column, giving advice to investors, new investors, explaining things like bond markets, bear markets, interest rates, economic stressors, and more. I find his articles to be very comprehensive, very easy to read as a beginner, very interesting, engaging, short, and I highly recommend that you all check him out. So without further ado, welcome Mr. Sommers, thank you so much for joining me today. Hey Sophie, how are you? I'm very good, thank you. I'll get right into the questions. Sure. Do you think it's important for young people to be involved in the financial market, and if yes, how do we increase engagement in finance in younger generations? Involvement in the financial market, you know, I think that it depends on how young you are. I think realistically, you're just learning things like, you know, how to budget, pay your bills, you know, would come first, and then if you have a little surplus, you know, then you sort of actually get involved. I think it's important to learn about it from the very beginning, because at some point, you know, when you do have money, you know, you will make better use of it. Do you think there's enough financial education in America, just across schools? No, definitely not. You know, I've done some pieces on that in the past. I don't have the statistics in my head, I don't carry that around, but I, you know, I'm pretty confident, you know, in answering no, there's not very much. And on the other hand, you know, there are questions about the efficacy of financial education when you're really young. That's why when you asked that question, I answered, you know, the budgeting and the rest of it. There's some reason to believe that people learn this stuff when they need it, so that if you don't have the wherewithal, you know, to invest in stocks and bonds, then you may not care. It's just very abstract and boring. And what you will care about is just kind of getting by. But having some kind of, you know, early education, I think is great. I mean, I actually had, in elementary school, in New York City, in Queens, I had a teacher who was really into this stuff. And I think it was around sixth grade where she had us, you know, get a, we used, you know, we had to, you know, get a notebook. And it was for this sort of investing class, you know, project where we were supposed to pick, I think, 10 stocks and write them in this book and follow the performance of the stocks and also give reasons for why we had bought them. And it was just her thing. It wasn't a program in the city schools. And it obviously had an effect on me. Well, that's really amazing. Thank you so much for sharing that. Oh, sure. To segue a little bit into a bit of a broader perspective, do you see a correlation between the lack of financial education in America with the performance of the American investment markets, like as compared to other countries which have maybe a bigger emphasis on financial education in schools? No, I don't. I don't. And I think the markets globally, you know, I mean, they tend to correlate pretty closely with the U.S. market. I don't see any huge difference that way. Yeah. Yeah. And in fact, I might add that one thing that I do say in these, you know, sort of a consistent message, I think, in the columns that I write when I do give advice is actually that I think that, you know, most people can't really outsmart the market and that that whole approach of really trying to get, you know, kind of either inside information or better information than the other person is not going to work for most people. That instead, you should just embrace the market and even embrace global markets by buying a share in all of them, which you can now do pretty easily, you know, with index funds. These are mutual funds or exchange traded funds. Same thing with bonds. Like, don't I wouldn't I wouldn't get too stressed out of how do I pick a particular bond? I would buy a share of all bonds and all stocks. And when you're young, probably emphasize the stocks and then don't worry about what's happening day by day or even ideally even year by year. What kind of investments do you think are most accessible for younger investors? Yeah, as I was beginning to say earlier, it's this broad index funds. And, you know, that's a technical term, probably like it may be off-putting. But once you're interested in doing it, you know, it's a simple you can buy. It's like buying one share of something. And it's possible now to buy one fund, one fund that, you know, captures all of them, all of the markets. You can get their funds that are available that will give you a little bit of everything. The main thing I would worry, the two things I guess I would worry about, one of them, I've just said by implication, you want diversification. You know, I would not make a big bet on any one thing. We don't know what's going to happen. So I would get a share in everything. And then with the hope that the world will survive, you know, and that's a whole other discussion and you do what you can to make sure it survives. And then if it survives, that the world economy will grow and that you will get a share of the growing economy, you know, over many years. So that's diversification. The second thing that I haven't talked about yet, you know, is cost, fees, et cetera. There's a lot of advice actually out there that will cost you one way or another. And you don't need it. You should worry about fees, that it may not seem like much, like 1% doesn't seem like much, but, you know, you're young. If you were to buy, you know, you could end up losing, you know, 25% of your investment simply because you gave somebody 1% every year, you know, over many years. And you don't have to give them the 1% or the 2% or a fraction. You can now have investments that cost less than a tenth of a percent in costs. Again, this was not possible when I was your age. And now it's one of the great advantages now of investing that just go for extremely low cost, extremely plain vanilla, not fancy, but highly diversified. And then stick with it. That's what I would say. Thank you. Do you think it's gotten easier to invest? I do. In fact, it's almost 50 years ago that the first commercially available index fund, you know, was started. That was at Vanguard by John Bogle, B-O-G-L-E is his name. And I think he really did a great thing. But it wasn't his idea. This is something that a lot of economists were talking about. Paul Samuelson is the name. I think he was the first winner of the Nobel Prize in Economics in America. And then he wrote the textbook that I used when I was, you know, when I was a senior in high school. I took, you know, and again in New York City, I took, you know, AP Economics. We used Samuelson's book. And Samuelson used to write columns also for, you know, magazines and the like. And he said that, you know, that in the investment business, the only people really who are getting rich are the people who run those businesses. And your average person really isn't. And that he wishes that somebody would come up with a way of investing in the entire market, you know, very cheaply. That's basically an index fund. And he said sooner or later someone's going to do it. Well, Bogle did it. And now a lot of outfits do it. You know, it's widely available. What I would, again, I would stress what I would watch out for is that because this form of investing has become so accepted and popular that there are always going to be people out there who are trying to profit, you know, off others. And I will say incidentally that I do not, I have always made my living just from writing, you know, and editing, you know, news material. I never received a cent, you know, for anything other than that. And what I'm getting at is this, that there are now a lot of, you've got to be careful now though, with index funds, ETFs is the short, you know, the abbreviation for exchange traded funds. You can now sell them. You know, a lot of them, they're not diversified. They're very specific. They're very, some of them strike me as almost ridiculous, you know, where you can buy an index fund that just invests in one stock. So it makes no sense. You don't need it. But, you know, if you can sell it, somebody will sell it. So what I'm saying is that it is easier now. In order to have a broadly diversified portfolio, all you need to do is you buy an index fund, you've got to buy the right one. It's very inexpensive. When I was, you know, in high school and if I had wanted to do that, I would have had to have known how to figure out which stocks are not correlated with one another, which means, you know, that they don't go up and down at the same time. I probably would need, would have needed to have bought at least 40 and, you know, between 40 and 100 different stocks. And there's no way I could have done it. And, of course, then you'd have to go to a broker and ask the broker to do it. And the broker would take out all kinds of fees. And even so, it still wouldn't be as well diversified as this. Now you can just buy one thing and it costs you almost nothing. It's really amazing how much a market can change in just one person's time. This has been super interesting and I've learned so much. Thank you so much for your time, Mr. Sommer. My pleasure. Thank you so much. Okay. Good luck. After my conversation with Mr. Sommer, I was left thinking. Thinking about how much luck do I need to succeed in the market? He made it seem so straightforward, so clear cut. That's what he's so good at in his articles. But is it really that straightforward for everybody? Inequities and high barriers to entry are everywhere in the American financial system. And that's what makes it so intriguing to me. That's why I chose this topic in the first place. I hope that this podcast has illuminated something to you listeners that you might not have noticed before about the American financial system or about the ways in which you can invest yourself. Thank you for joining me in this episode of Dollars and Cents. As always, I'm your host, Sophie Maretsky. I'll see you in the next one.