Your Money–Mattress, Bank or Market?

Your Money–Mattress, Bank or Market?

What is Dead Money?

What Should You Do With Your Money?

This is a question on the minds of many Americans as they watch the stock market rise and fall. What should you do with your money? To set the stage for future discussions, let’s take a minute to make sure we understand the Time Value of Money, Inflation and the Rule of 72.

Time Value of Money

Many factors contribute to whether the the US Dollar is weak or strong. They include monetary policy, inflation and economic growth. If the Federal Reserve Bank is easing/decreasing interest rates, the Dollar is weakened and deflation generally occurs.

The Figure below show how much $1,000 today would be worth in the future if it were discounted at various rates i.e. 2, 3, 5 and 7 percent. As you can see, in around 70 years at a 7 percent discount rate, your $1,000 would be worthless!

Money Needs to be Invested to Retain Value


Inflation is the constant rise in the price of goods and services over a year, for example. Inflation weakens the Dollar and results in a decrease in the purchasing power of your money.

As prices rise, your Dollar buys fewer goods and services. This loss of purchasing power impacts the general cost of living across the board ultimately leading to a deceleration in our country’s economic growth. Below is a chart that shows the impact of inflation on the price of a cup of coffee over 50 years.

Coffee inflation chart
What Caused a Cup of Coffee to Become so Expensive?

What is the Rule of 72?

In finance, the rule of 72 is a method for estimating the time it takes an investment to DOUBLE. The rule number (e.g., 72) is divided by the interest percentage per period (usually years) to obtain the approximate time required for DOUBLING.

How Does the Rule of 72 Work?

To estimate the number of periods required to DOUBLE an original investment, divide 72 by the expected growth rate/percentage.

For instance, if you were to invest $100 with a compounding interest rate of 9% annually, the rule of 72 divides 72 by 9 to arrive at 8 years for your $100 to DOUBLE to $200. Below are other examples of the rule of 72 and the returns you could expect from your investment.

Interest Rate72/Interest Rate Years to Double
9%72/9%8 Years
6%72/6%12 Years
4%72/4%18 Years
2%72/2%36 Years


In summary, the worst place to keep your money is under your mattress where it will only devalue over time and become dead money. Banks are currently providing very low rates of return, but your money is guaranteed against loss by the US government through the Federal Deposit Insurance Corporation (FDIC).

The US stock market has experienced an average gain of approximately 10 percent since 1980. If you have a long term perspective, it’s a good investment, but losses are not insured by the US government. Real estate can be a good long term investment, but you should consult a local realtor to find the best value for your money.

If you have children and you want to provide them with the benefits of a post secondary education, you should definitely consider a 529 Plan.

Use 80/20 rule to maximize savings!

Use 80/20 rule to maximize savings!

80% Of Results Come From 20% Of Your Efforts

The 80/20 rule was discovered by an Italian engineer named Vilfredo Pareto and is often referred to as the Pareto Principle

But how can the 80/20 rule be applied to improve family fiscal management? Well, if 80 percent of results come from just 20 percent of our efforts, the first step is to prioritize your tasks/activities.

What are your most important tasks not just for the day but for the month? Make a list of them: Paying the bills, making a budget, searching for coupons, finding a part-time job, refinancing the car loan, buying kids’ shoes while on sale, replacing lightbulbs with lower cost led bulbs, finding ride-sharing for after school sports, trying to repair a leaking sink yourself, etc.


After each task write down an estimate of how much time it will take to accomplish. This procedure forces you to identify “bottlenecks” that may have kept you from doing the task earlier. When I follow this procedure in my own life, I am frequently surprised with how little time I think it will take to accomplish ALL the tasks. In fact, it makes me feel more motivated to get started. Why have I been procrastinating so long?

Most Valuable?

Now, ask yourself, which of these activities will be most valuable to my family. Those with the highest value should be done first. But, maybe you can’t complete your most valuable task in one day? Not to worry. Complete as much of your #1 task as you can and move on to #2. Accept that there will be interruptions like fixing lunch, picking your child up from school or doing a load of washing. Use these minutes away to ponder your #1 task.


At the end of the time you have to work on your fiscal management tasks, place a check mark beside the ones you have accomplished. If you only completed one-half of #1, enter “1/2” next to it. Next morning, get up, get the kids off to school and resume working down your PRIORITIZED task list.

Let’s look at an example. From the list of tasks above, which one has the greatest value to your family? If you don’t pay the bills, the water or electricity may be turned off! But if you don’t make a budget or get a part time job, you may not have enough money to pay the bills? If you can’t refinance the car loan, you may lose it and not be able to get to work! What to do first? You may feel so stressed that you can’t make a rationale decision and start cutting coupons to relieve the stress!

Shorts for kids.

Don’t fall into the trap of doing the easiest tasks first. Frequently these easy tasks are pesky but of the least value to your family. Instead, think which completed tasks would be most valuable to your family. If you pay the bills first, you buy time to complete the other tasks. You can then make a budget for the next month, look for a part time job and refinance the car loan.

In this example, the most valuable task probably took the least amount of time—an hour or so to pay the bills. You might say that 20 percent of your efforts produced 80 percent of the results that kept the family solvent for another month!

But For Lack Of Financial Literacy…

But For Lack Of Financial Literacy…

Children are like tulips blowing in the wind.


  • I could have had a Pell grant.
  • I wouldn’t have financed my car for 7 years instead of 3.
  • I would have waited to get married until I had saved more money.
  • I would have paid my credit cards on time.
  • I would have ‘vacationed’ at home a few times.
  • I would have invested in a 529 Plan for my education.

The list goes on with ‘would’ve’ and ‘should’ve’. What matters is what you do now! Incredibly, the latest economic reports find that the 1.6 TRILLION of Millennial student loan debt is actually exceeded by CREDIT CARD debt! Below are the leading sources of debt for the various generations.

Generation Z (Ages 4-22)Student Loans20%
Millennials (Ages 23-37)Credit Cards25%
Generation X (Ages 38-53)Mortgages30%
Baby Boomers (Ages 54-72)Mortgages28%

It may be getting late for some of the generations above, but not for Generation Z! Now, while they are so impressionable, is the time to model wise money management and ‘conjure up’ opportunities for them to experience saving, borrowing and investing.

Provide Learning Opportunities

Of course, the opportunities you provide must be tailored for their learning development as we saw earlier. When my oldest grandson graduated from high school, I invested $10,000 on his behalf at Charles Schwab. Now that he has completed two years of college and his investment has increased to $12,500, I helped him open his own brokerage account and transferred the profit into his account. To leave it at that would have been to drop the ball, however!

Every Penny Counts!

The next time he came by to visit me, I had him select four stocks in which to invest his profit. I then had him download the Vector Vest investment app I use and taught him how to use it. He was proud to have his own brokerage account and dying to buy some stock! That afforded me the opportunity to teach him how to be a good stock picker! Time will tell, but at least I opened his eyes to the world of investment.

My five year old granddaughter is a different case. Next time I see her, I plan to ask her for a loan–a loan that pays interest!! I’ll let you know if she bites and how much interest she wanted to charge for the $5.00 I hope to borrow…

A budding money management expert!!
Aren’t Lower Interest Rates good for my Family?

Aren’t Lower Interest Rates good for my Family?

Generally YES!

Lower interest rates mean:

  • Lower credit card interest rates
  • Opportunity to refinance your mortgage
  • Lower home equity lines of credit rates
  • Lower personal loan rates from the bank

When Interest Rates Are Lower, It’s Cheaper To Borrow

Some families may use these lower interest rates to buy a new refrigerator and maybe a new stove to match it while interest rates are low!

The danger is that when interest rates begin to rise, unexpected challenges can arise, too! For example, higher interest rates cause businesses and employers to cut costs. Some of those cost reductions could cost you your job or that of your spouse! Meanwhile, you still have to make those refrigerator and stove monthly payments for maybe two years on one family salary.

Currently, according to the Federal Reserve Bank, since 2008 household debt has increased 19 consecutive quarters to 13.67 trillion dollars. Non-financial corporate debt reached 9.92 trillion dollars the first quarter of 2019. Both are the highest in history.

Be Prepared For A Rise In Interest Rates!

As interest rates are decreased by the Federal Reserve Bank to help keep the economy growing, families need to be prepared for their eventual rise. I recommend not financing the purchase of the new refrigerator and stove just because interest rates are low, especially if the current appliances are in good working condition. Instead, save for the new appliance and pay cash, if possible.


Review Special Offers Carefully

Be careful about entering into agreements to buy appliances on an offer of ‘interest-free” for a period of time. If you are late on one payment, you will be charged not only a late fee, but you may be liable for interest on the item for the entire eighteen to twenty-four months!

A few months ago, as interest rates were falling, I thought about replacing my 2003 Maytag washer and dryer which were still working well. I went to Home Depot and spoke with a repair tech. He told me I would be better off keeping my 16 year-old Maytag appliances and replacing parts as needed.  He said most new washer and dryers are not as reliable these days and don’t last as long! His estimate for a new refrigerator was a life of five years; my current Subzero fridge has been with me for 25 years!

Spend Wisely…

As a general rule, if both of you are working, try to contain your total revolving monthly expenses (rent/mortgage, utilities, car and food) to the salary of one spouse and save/invest the other spouse’s income. You’ll be happy you did when that emergency knocks at your door.

Budget Budget Budget…

Of course the secret to successful family financial management is a BUDGET!  If you are a single parent, the monthly budget, prepared in cooperation with your children, is an absolute necessity. If it’s not in the budget, it’s not being purchased. It’s not the fashionable attire your wear that makes people seek you out, but rather the “content of your character” that makes you their friend.

Really Necessary?

Note: Higher interest rates are good for bond investors and retirees depending on their retirement funds for income.

How learning influences saving…

How learning influences saving…

Ready and excited to learn!

From birth, we are a voracious learning center full of curiosity. By age 4 or 5 our brain has quadrupled in size. (Goswami 2008) Yet, the ability for us to learn as we grow is dependent upon our cognitive development. Just as children need to walk before they run, they also need personal, enjoyable experiences with money, like shopping with their parents, to prepare them to understand basic financial concepts like counting money, a skill not typically acquired until age 5.

Discovery Learning Reigns!

Early on, we learn by imitating the actions of our parents. From then on, it’s all about discovery learning. Providing children with abundant experiences within a trusted learning environment prepares them to tackle new problems with confidence and try different strategies to solve their problems. (e.g. Chen & Siegler, 2000) This ability, known as metacognition, is valuable in resolving financial dilemmas or better yet, avoiding them later in life.

Make saving a fun experience!

‘You can lead a horse to water but you can’t make him drink,’ is another way of saying learning is more effective if we’re motivated. Children need to understand the relevancy of a proposed activity to their life or they may rebel feeling it’s not worthwhile. Explaining the relationship between the activity and their situation will also give them confidence they can succeed at a task–at their appropriate cognitive level. For example, you wouldn’t ask a 5 year-old to make change. (Gelman and Merk, 1986)

Cultivate A Strong Relationship

Finally, a parent’s relationship with their young child strongly influences the child’s cognitive ability. Reading to your child, language development activities, responsiveness and warmth of interactions influence positive growth and development as well as the motivation to learn. (eg. Grolnick, 2009; Melhush, 2010)

Learning Behaviors Indicate Readiness

As we explore ‘saving’, we will often refer to the extent to which the following cognitive learning behaviors are necessary and relevant to the skill to be acquired. i.e. receiving an allowance. To have a positive learning experience, we will discuss the necessity for a child:

  • To exhibit self-control
  • To plan for future events
  • To be attentive
  • To remember instructions
  • To apply learned concepts
  • To perceive causal relationships
  • To comprehend that skills learned today will be of future benefit

Please share your tips and advice on teaching money management skills with other parents by leaving a comment. All comments are screened for appropriateness. We look forward to hearing from you!