If you’re a fan
of home renovation TV shows then you’re probably familiar with the types of bad
news home inspections can uncover. Last week, the Commerce Department inspected
its previous estimate for real gross domestic product (GDP) growth during the
first quarter of 2014 and found some bad news. As it turns out, the rate of economic
growth in the United States declined by 1 percent rather than increasing
slightly, as previously thought.
The revision sparked
debate among economists and politicians about the health of the U.S. economy.
According to The Guardian, some
economists found the revised numbers difficult to reconcile because they seem
to contradict other first quarter economic data – such as expansion of non-farm
payrolls, healthy manufacturing activity, and stronger retail sales – which
indicate a more positive growth trend.
News that the
U.S. economy might have shrunk slightly didn’t deter investors at all. The
Standard & Poor’s 500 Index finished the week at a new record high. This
could mean investors are confident economic growth will rebound in the second
quarter of 2014 or it may reflect a belief economic weakness in the United
States will encourage a more stimulative monetary policy.
The Wall Street Journal suggests signs
of slower growth in the United States and Europe are behind the resurgent
popularity of emerging markets. If you recall, investors pulled about $60
billion from emerging countries early in 2014 as they worried these markets
would be affected negatively by the U.S. Federal Reserve’s less stimulative
monetary policy. In May, a Reuters’
poll found 51 investment houses in the United States, Japan, and Europe had
reduced their cash positions to the lowest levels since last November and
invested the proceeds in emerging markets.
One expert cited
by The Wall Street Journal called the
rush into emerging markets a “global chase for yield.” No matter what you call
it, last Friday, Morgan Stanley Capital International's emerging markets stock
index rose to its highest level since October 2013. It was up 3 percent for the
year.
how do you make a peanut butter and jelly sandwich? If you’ve ever
been asked to write clear instructions for a seemingly simple task, you know the
challenge is in the details. To illustrate how to make a PB&J, you start
with bread, peanut butter, jelly (in a squeezable bottle), and a knife. Then
you need to remember to tell the reader to open the bread bag, unscrew the top of
the peanut butter jar, and turn the jelly bottle upside down before squeezing
it. You have to provide a lot of very concise information.
Communicating
financial and investment ideas effectively also can be challenging. It appears
a significant number of Americans are not receiving all of the information they
may need. For several years, the Financial
Industry Regulatory Authority’s (FINRA) Investor
Education Foundation has employed a five-question quiz to evaluate
financial literacy. The questions include fundamental concepts related to
financial knowledge and decision-making. If you want to test yourself, take the
quiz at http://www.usfinancialcapability.org/ (the link is the first one in the upper left corner).
In
2012, about 30 percent of Americans were able to answer three of the five quiz questions
correctly. That was about the same number of questions that were answered correctly
when the quiz was first offered in 2009. The percentage of respondents who were
able to answer four or five quiz questions correctly varied significantly by
generation:
·
24
percent of Millennials (born between early 1980s to early 2000s)
·
38
percent of Gen Xers (born between early 1960s to early 1980s)
·
48
percent of Baby Boomers (born between 1943 to early 1960s)
·
55
percent of the Silent Generation (born between 1925 to 1942)
When
a similar quiz was offered to people in countries throughout the world,
financial literacy was linked (in all countries) to retirement planning or
participation in private pension plans. In most countries, people who were
financially literate were more likely to plan for retirement which requires an
understanding of interest rates, risk, and diversification.
If
someone you care about would benefit by knowing more about financial matters,
please give us a call. We would be happy to sit down and talk with them about a
specific topic or recommend some good reading materials.
Weekly Focus – Think About It
“Courage is the
most important of all the virtues, because without courage you can't practice
any other virtue consistently. You can practice any virtue erratically, but
nothing consistently without courage.
--Maya Angelou, American
author and poet
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