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OPINION | SAVE YOURSELF: Financial-knowledge compounding can span generations

by Sarah Catherine Gutierrez | October 12, 2021 at 1:58 a.m.

Let's talk about compound financial interest, but not the kind you learn about in a finance class. Sometimes in the workplace, there is that one person who cares a lot about money, enough to pull friends and colleagues to the side and encourage them to use the retirement plan or get out of credit card debt. These people are compound financial interest because they are willing to share what they know and inspire others to save and invest. This is societal financial compounding.

[Video not showing up above? Click here to watch » https://www.youtube.com/watch?v=08p3QbqLN10]

The question is, who are these people? Where do they come from?

A couple of years ago, I was asked to speak to teachers through the Economics Arkansas program. The goal was to get teachers excited about saving for retirement and passing that savings excitement on to students.

I prepared for the presentation by learning what teachers had available to them. I started with the Arkansas Teacher Retirement System and then their sidecar savings opportunity, the 403(b). After some dead ends and voicemails, I ended up on the phone with a live human, LaHoma Johnson.

Her official title then was "payroll specialist"; now she has moved to her current position as "payroll supervisor." A simple introduction to me and my objective led to a passionate and thorough explanation of the available 403(b) options. She wanted teachers to call her personally to get the contacts who would assist with signing up.

A couple of evenings later in a room full of teachers, I made my pitch for them to sign up to save at least 3% of their pay into a 403(b) if they had ATRS or the full 10% if they worked outside the school. For the public school teachers, I told them there was a specific person to call, and at the mention of LaHoma Johnson, many people in the room got very animated. Of course, they knew her. They had similar experiences to me.

LaHoma wants you to know something. This is about your future. This is about putting something, anything, into this extra retirement savings account because you never know what the future will hold. I think about all the people in the Little Rock School District whom this one woman has affected.

Imagine what we might expect in a different reality. A teacher hears a presentation about the 403(b) and a couple of years later is in a position to save but does not remember where to go or whom to talk to. Like me, this teacher hits a couple of dead ends, leaves a couple of unreturned voicemails and finally ends up on the phone with the payroll specialist. Only this time, she gets a bureaucratic and short explanation of the 403(b), maybe even one that seems alarmist -- "your paycheck will go down" -- and then a list of phone numbers to call to start a 403(b). Maybe she follows through with her original intention. But maybe she says, "I'll do this later."

LaHoma doesn't want anyone to wait for later and is spreading compound financial interest, or a compounding interest in healthy financial management, an arguably far more powerful tool than any compound financial interest an investment can offer.

I interviewed LaHoma and learned that the story is so much deeper than her passion for LRSD teachers and staffers tucking away extra savings. It turns out that saving and talking about money are in her DNA. She is a link in a family intergenerational chain that fortifies itself constantly.

LaHoma grew up in a household that saved and built wealth against many odds. One modest income supported this family of six. Her father constantly reinforced "the plan" to get a full-time job, buy and hold on to a family house with a fence, be able to take care of the children, and retire.

Her mom, though, thought more expansively. She had an eye for future generations and reinforced to LaHoma that this is not only about her. This is about her family. Her mother's parents made smart commercial real estate decisions, and as they passed on and she gained ownership, she knew the importance of holding on and growing these investments for her children.

LaHoma and her husband discussed money early in their marriage. She talks openly about the struggle they had early on between saving for themselves and investing in the next generation. She worried, especially about raising African American sons in a time where you must work harder to excel. She and her husband made the decision to invest in their education, sending them to a college preparatory school, Pulaski Academy.

You might think the story ends here, but LaHoma said, "You have to talk to my son, Tra."

Her middle child, a graduate of PA and a student at Columbia University in New York studying psychology and political science with a concentration in economics, is not your typical 21-year-old. He has thoughts on money, and he shares those thoughts with friends. First, he believes that young people should be living on 20% to 30% of their total pay. So 40% goes to taxes and benefits, and the rest? You guessed it -- saving. He wants all young people to have six months of expenses saved in an emergency fund and the rest saved for retirement. Tra tells anyone who will listen that we are the only ones who will take care of ourselves in the future.

Tra thinks the world has money backward. We are taught to "invest" in a home, "invest" in a notion of "you only live once," or YOLO in your 20s. "Why spend 50 bucks in a fun night in your 20s? Isn't it better to do that in your 40s when you can afford it and can do it with lifelong friends?" He wants to reverse the formula that gets so many young people into financial trouble early on.

LaHoma tells me that Tra loves to remind her that his plan is to take care of her in retirement. But LaHoma is continuing to prepare for the future so there won't be a need for that. The link in the intergenerational chain is strong.

So let us recap. A couple with a very modest income saves for their own future, teaches their kids to save and, maybe most importantly, makes money a normal and healthy topic of conversation with their kids and grandkids. Sure, they are positioned to pass down intergenerational wealth that is compounding in their investments, but this conversation is a stronger kind of wealth, an intergenerational transfer of financial wisdom, the kind that compounds more profoundly to future generations of family. The kind that compounds to the betterment of society, like the teachers whom LaHoma talks to, or the young friends and mentees whom Tra speaks to as well.

During one of our many talks during the second quarter of 2021, LaHoma had to duck away to help with a few things with her mom, who has dementia. Her father, who was the primary caregiver, passed away. The family is profoundly sad, but because her parents understood not spending wastefully, because of the preparation and many years of saving, this moment was less stressful financially. LaHoma's sister, LaDonna, has stepped into the role as full-time caregiver for her mom.

What I take away from this incredible story is that constant conversation about money in the context of the interest of family rather than the interest of self has created a legacy for this family to build intergenerational wealth. But as you can see, "family" is defined expansively and includes co-workers whom LaHoma speaks to once but maybe never again. It includes people crossing Tra's path. This is true financial compounding.

Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book "But First, Save 10: The One Simple Money Move That Will Change Your Life," published by Et Alia Press. Contact her at sc@aptusfinancial.com.

Print Headline: Financial-knowledge compounding can span generations

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