Do Gen X/Y clients want the truth or to feel good?

[Matt]

Sure, we all want to feel good, but if you have an advisor in your life shouldn't you be getting some tough love too? I'm seeing a push from a few firms to capture the Generation X and Y client base. Most of what I read smells a bit fishy to me... so I thought to throw it out there to you guys to see what you have to say.

A couple of points I notice:

A big push on Rent Vs Buy. I think that this appeals to many people because renting is easier to do, and requires less saving. IE if you rent you can continue to faff about with your money and make bad decisions. My logic is pretty simple here:

• If you had 'enough' in the bank: Would you rent or buy?
• If you were able to outsource 100% of property management would you rather own the best rental apartment building in the world outright, or be a tenant in it?

Now, I am not saying there aren't times when renting can be savvy. It really is a time horizon question, but I do worry that people are pushing a lot of this '7 reasons why renting is awesome' to coddle potential clients.

A big push on Financial Independance VS traditional retirement
I love the notion of FIRE, and advocate for it. But at the same time, there is the possibility to create a false sense of security in it. You can sell the notion that traditional retirement is over 'so don't worry about saving for it' rather than pushing people to really consider the virtues of financial independence.

This is a really subtle one for me, but it somewhat fits into this flavor that is being sold:

Don't worry about saving, have fun! Renting is great! Don't worry about retirement, you can have financial independence instead! I think there is still some saving advice going on, but I think there perhaps isn't enough slapping about the chops to show issues in a plan or budget.

What do you think, as a client, would you go to the person who was selling something that sounded awesome like 'renting is cool' or would you go to the person who said - 'what the heck are you doing wasting money like that, knuckledown bozo!'?

 

[TiffC1999]

Obviously there's a time and place to buy and a time and place to rent. I'm sure everyone who got burned in the real estate bubble in California will agree to that. An advisor should take all factors into consideration (current savings, salary, stability of job, housing market, etc) to determine whether it's best for a client to rent or buy. I would be suspicious of anyone trying to "sell" either one to me without taking into account factors specific to the current market and my financial situation.

 

[pillow25]

Like Matt said, rent vs buy is truly a time horizon thing. If you don't see yourself settling down and living in the same city for at least 3-4 years, then I don't think buying is the right move. I also disagree with the statement that if you rent, you can be irresponsible with money. You pay a premium to rent since you are not responsible for any of the maintenance and for amenities. In many cities (i.e. Dallas), renting in the nicer areas of town is more expensive than owning a house there once you break down the mortgage terms.

The fact of the matter is that owning a house is time-intensive, even if you buy new construction. Also, houses are not a liquid asset. I think a lot of people are pushing back on home ownership because a lot of people had a lot of value tied up in home equity, which took a huge hit, so people are skittish.

I think if you look at Gen Y as a whole and the issues that Gen Y has had to go through - huge student loans, weaker job market, the ephemeral notion of one job, one career, one industry (particularly important), it's obvious why people advising Gen Y advocate renting; it preserves flexibility. I think Gen Y has more or less accepted that the notion of one job, one career is gone and you'll always be on the go with the next job. Therefore, why own property especially since you won't have time to take care of it, and any equity you build is probably lost with a property management company. Furthermore, Gen Y just doesn't have the money to buy property because they're too busy paying student loans. I'm curious where you see that flavor of financial advice being sold because I'm not seeing it. Gen Y is pouring whatever leftover money into savings because they've seen what happens when you don't have an emergency fund, and it's not good.

To answer your question, if I had "enough" money (maxed out 401k, IRA, and a 9 month emergency fund), I would still rent because I don't see myself settling down where I currently live for at least 3-4 years. If I could outsource 100% property management, I'd own it and be a tenant at the same time.

 

[TiffC1999]

We chose to buy when we knew we were going to live somewhere for no more than three years. The housing market was much cheaper than most of the country and we were able to get a great rate on an ARM that even if it reached the highest interest rate we would still have no problem making the mortgage. If you live in one of the most expensive areas in the country then that wouldn't make sense, that's why the housing market, cost of living, the renters market in the area, etc. are all factors to include when making that decision.

 

[Matt]

that's why the housing market, cost of living, the renters market in the area, etc. are all factors to include when making that decision.

Yes and no... they are factors when finances are finite. So indeed for the younger person they are likely relevant. However, in the long run really all that matters is transaction costs. The transaction costs are the biggest expense when it comes to ownership, and as such need to be amortized over the duration of ownership. If there is sufficient money in the bank then people can hold through any market.

That said, I'd tend to agree with you about looking at the correlation between renting vs a mortgage in case there are any market inefficiencies at work. It 'might' be that renting is better in certain places and certain times (perhaps after a period of a lot of foreclosures are acquired).

 

[PurpleSquirrel]

Simple answer. All the rich, financially independent people always own assets.

I'd pick an advisor who puts client's needs ahead of his/her. Sadly, I haven't met an advisor like that. Everybody mentioned right in the first meeting that they want 1% of assets as fee annually and showed me the large cap/medium cap/small cap allocations. Plain vanilla work but 1% fee. No thanks.

 

[Matt]

Simple answer. All the rich, financially independent people always own assets.

I'd pick an advisor who puts client's needs ahead of his/her. Sadly, I haven't met an advisor like that. Everybody mentioned right in the first meeting that they want 1% of assets as fee annually and showed me the large cap/medium cap/small cap allocations. Plain vanilla work but 1% fee. No thanks.

Well, the number isn't so important really.. it is what you get for the number. If it is simply vanilla allocations you might as well robo-advisor it for 0.25, or DIY if you want to save that. The advice should go beyond allocations into planning college, retirement, tax, medicare, SSI etc

I'd be more worried by an elaborately structured hedgefund type offer than a well balanced cap plan, though personally I will be offering something between the two.

 

[VDebs]

Here's the thing about renting, its actually correlated with lower unemployment and better financial health. For example, Germany has very low unemployment, and a very low home ownership rate even though Germans are famous for their frugality and saving. Countries with high home ownership also tend to have higher unemployment and larger real estate led crises. Look at Spain and the US, both were led down the primrose path of "home ownership" and neither lucked out too well for it. Or look at China, which is busy squandering its historical moment and more or less assuring themselves a spot in the Middle Income Trap with their farcical building boom.

The fact is, if housing can appreciate x% over its lifetime such that owning is always better than renting, then you have a serious mis-allocation of capital and a serious problem in the capital markets. You have a society and an economy stubbornly tied to certain set patterns of development and population distribution. It all ends up as a horridly inefficient use of resources.

So yeah, on an individual basis it may make sense to purchase a house, but only if you're willing to stay there, it's a liquid market or you can easily convert it to renting. Otherwise you've got an albatross around your neck tying you down. For Gen Y folk stuck in a labor market that, lets face it, will never improve, buying a house is a big gamble, cuz if that job dries up then you got a mortgage to pay and a circumscribed area in which to search for a job to pay it.

 

[pillow25]

For Gen Y folk stuck in a labor market that, lets face it, will never improve, buying a house is a big gamble, cuz if that job dries up then you got a mortgage to pay and a circumscribed area in which to search for a job to pay it.

DING DING DING. We have a winner

 

[SC Trojan]

DING DING DING. We have a winner

As a Gen Y-er here's my perspective. I think the labor market sucks for people that don't have marketable skills. My girlfriend has a health care job she got from her AA degree (she also has a BS, but it was irrelevant). With a little hard work she can clear 6 figures, and if she works an average amount she would make $80 K. The reason she makes so much is the job isn't glamorous or fun for a lot of people, but it pays pretty well.

Things have cooled off a bit with $50 oil, but in the past few years skilled laborers have been making tons of money in the US. I worked in oil refineries and it was pretty typical to see under 30 operators with an AA degree making $150 K. I've heard stories of welders in the oil fields in North Dakota or Fort McMurray routinely making over $300 K / year (but working like 12 hour shifts for over 300 days in a year).

The jobs are out there, but you have to go to where the money is!

 

[jmw]

As a Gen Y-er here's my perspective. I think the labor market sucks for people that don't have marketable skills.

That's not enough to keep it from being a gamble.

You may not be marketable forever.

There is an oversupply of nurses in the US as a whole even with Obamacare. It's been tough for new RN grads to get a job for years. It will be tough for those who haven't upgraded to a BSN. Many employers won't hire someone without the BSN (a bachelor's in another field is no good). If your GF is an RN, she should upgrade that degree soon.

If you are in construction, it's not very marketable anymore. The builders are hiring big subcontractors. Those subcontractors hire illegals at low wages and no benefits.

If you are in IT, you are in constant threat of being technologically obsolete, having your job offshored to some Asian country, not able to gain employment due to age discrimination, or being replaced by H1B in the US. I know COBOL programmers who could never learn object oriented programming. Today's code monkeys may have trouble 15 years later. Sometimes there is age discrimination and sometimes the older folks don't really have the right type of thinking to stay in IT, especially if they are more MIS type than pure computer science. How long can you keep paying your mortgage during a dotcom bust?

 

[overclocked92]

Matt, as a member of Gen X if I'm paying for a service I want the honest feedback not what you think I want to hear.

If I'm paying for a service it is because I feel I don't have that knowledge/expertise myself so I am asking someone who does have it to provide feedback based on their knowledge / experience.

As for the other discussion that is going on in this thread, I am glad SC Trojan pointed out a key issue that needs to be discussed when you talk about the job market: Marketable Skills. Or what I call "puts bread on the table degrees vs. hangs on the wall degrees" when I talk about the topic with my sons. Once you have that initial skill set you need to start looking at how you continue to grow it, learn and adjust to the changing market as jmw alludes to.

 

[SC Trojan]

Agreed that the world is ever changing and no one's job is safe from ever increasing globalization and automation of jobs. Some jobs are more replaceable than others. With that being said, if you start in a place where there are high paying jobs then chances are more likely you will end up making money in the long run.

I know a lot of people that didn't do that. One guy from college "wanted to direct" so he has spent the las 10 years basically working at the Gap hoping to get that 1 in a million break. I'm all for enjoying your work, but you have to think about the economics too.

 

[VDebs]

Agreed that the world is ever changing and no one's job is safe from ever increasing globalization and automation of jobs. Some jobs are more replaceable than others. With that being said, if you start in a place where there are high paying jobs then chances are more likely you will end up making money in the long run.

I know a lot of people that didn't do that. One guy from college "wanted to direct" so he has spent the las 10 years basically working at the Gap hoping to get that 1 in a million break. I'm all for enjoying your work, but you have to think about the economics too.

[rant]Well that's where we get into larger issues. We don't need to work 40 hours a week. We don't need to market ourselves silly to find a job in high enough demand that it might not be automated or diluted by a stampede effect. Capital is really really really productive, so productive it produces way too much with very labor. So little labor that working people lack the wages to actually buy all of this crap that's produced because their employment in its production is less and less necessary. As a result we get a state of perpetual crisis, aka the "recovery" you see today.

Now the rational move here is just to accept this fundamental contradiction and say "Ok then, everyone gets a universal basic income derived from the surplus of unused production". Why? Because if you don't pay people to stay out of the labor market, then we're only going to get more crises. Or we do the other rational thing and reduce working hours across the board. Say we slash them in half to 20 hours a week but keep salaries the same. Less work for everyone, more money for everyone and more consumption power to avoid overproduction crises. And guess what? Nothing bad would happen. We have the productive power and then some to make it work. The only changes you'd see would be a happier, more well adjusted populace.

But we aren't doing that. We're doing the insane thing instead, creating more and more work to fill up a day, even as that work declines exponentially in its social utility. We don't increase wages, we slash them and then loan out all that lost consumption power. Later we wonder why we have all these credit panics that pop up every 5 years. We engage in constant low intensity war, so that a certain amount of productive capital is always in use creating tools of annihilation, while other parts of capital are always being annihilated by said tools. After which we wonder why such and such people "hate us so much". If the bottom line of Lockheed Martin demanded that my village get bombed with a hellfire missile every 3 weeks, I'd hate us too.

I mean, bloody hell people, this is not the rational and sane behavior of an intelligent species. This is what self destructive maniacs do. We all know this, that's why we're in MS, we're trying to game this insane system a little bit, so that its most crazy effects don't land on our heads. [/rant]

 

[PurpleSquirrel]

The concept of basic income for everybody works if govt makes it a law. Otherwise, don't expect corporations to adopt this willingly.
Easier to lay off half the work force and get things done with the remaining half. Basic income becomes more relevant as automation increases. We are seeing the first glimpses in the form of driverless vehicles. In my current job, I can see large swathes of workforce becoming redundant due to automation.

Now the rational move here is just to accept this fundamental contradiction and say "Ok then, everyone gets a universal basic income derived from the surplus of unused production". Why? Because if you don't pay people to stay out of the labor market, then we're only going to get more crises. Or we do the other rational thing and reduce working hours across the board. Say we slash them in half to 20 hours a week but keep salaries the same. Less work for everyone, more money for everyone and more consumption power to avoid overproduction crises. And guess what? Nothing bad would happen. We have the productive power and then some to make it work. The only changes you'd see would be a happier, more well adjusted populace.

[/rant]

 

[Matt]

Matt, as a member of Gen X if I'm paying for a service I want the honest feedback not what you think I want to hear.

Yeah... but I wonder if you would know about that service if I didn't market it in a way that made you want to hear it. I hear so much BS being marketed today, all telling you 'its easy, you can do it!' but really, for many people retirement isn't easy and they need some tough love. I think I want to find a middle ground on that.

 

[overclocked92]

Yeah... but I wonder if you would know about that service if I didn't market it in a way that made you want to hear it. I hear so much BS being marketed today, all telling you 'its easy, you can do it!' but really, for many people retirement isn't easy and they need some tough love. I think I want to find a middle ground on that.

It is a fine line you need to walk. If I feel like it is a sales pitch " you too can do it, special techniques, etc." my BS meter goes off (rightly or wrongly) and I move on. I would error on the conservative side rather than the "huckster" side.

 

[SC Trojan]

[rant]Well that's where we get into larger issues. We don't need to work 40 hours a week. We don't need to market ourselves silly to find a job in high enough demand that it might not be automated or diluted by a stampede effect. Capital is really really really productive, so productive it produces way too much with very labor. So little labor that working people lack the wages to actually buy all of this crap that's produced because their employment in its production is less and less necessary. As a result we get a state of perpetual crisis, aka the "recovery" you see today.

Now the rational move here is just to accept this fundamental contradiction and say "Ok then, everyone gets a universal basic income derived from the surplus of unused production". Why? Because if you don't pay people to stay out of the labor market, then we're only going to get more crises. Or we do the other rational thing and reduce working hours across the board. Say we slash them in half to 20 hours a week but keep salaries the same. Less work for everyone, more money for everyone and more consumption power to avoid overproduction crises. And guess what? Nothing bad would happen. We have the productive power and then some to make it work. The only changes you'd see would be a happier, more well adjusted populace.

But we aren't doing that. We're doing the insane thing instead, creating more and more work to fill up a day, even as that work declines exponentially in its social utility. We don't increase wages, we slash them and then loan out all that lost consumption power. Later we wonder why we have all these credit panics that pop up every 5 years. We engage in constant low intensity war, so that a certain amount of productive capital is always in use creating tools of annihilation, while other parts of capital are always being annihilated by said tools. After which we wonder why such and such people "hate us so much". If the bottom line of Lockheed Martin demanded that my village get bombed with a hellfire missile every 3 weeks, I'd hate us too.

I mean, bloody hell people, this is not the rational and sane behavior of an intelligent species. This is what self destructive maniacs do. We all know this, that's why we're in MS, we're trying to game this insane system a little bit, so that its most crazy effects don't land on our heads. [/rant]

Interesting way of thinking. I've often wondered how we transition from today to this "Jetson's" era of robots doing all your work. Some of the things we're doing today at like Amazon.com's warehouses or even self driving cars tells me it might not be as far away as we think.

 

[Haley]

I didn't read through the thread, fyi. Just a reply to original question.

Truth. Please.
What I'd really like is a Finacial Planner that explained the rationale behind advice.

I want to know the assumptions behind the advice. I'm not 100% comforfortable with historical data, show me why these assumptions are still valid or why we need to think a bit differently about them.

Statistics and averages only reveal part of the picture because your real life experience isn't going to be 'median' in many cases.

Buy vs Rent isn't just a timeline question. It is also a location question, a lifestyle question, and a resources question. If you just look at statistics it looks like owning in Austin has been the best choice but if you zoom in you find a few neighborhoods have gone way up, most have pretty much been stagnant, and a few have some limited growth in value. However you really need to subtract new build numbers from the equation to get a true picture.