Got a new 18-year-old? This "power" can help you help your young adult

Written by Gerald E Gasber, CFP®, CIMA®, QPFC.

When you look at your newly minted 18-year-old, you probably still see the beautiful baby you brought home years ago. But after reaching that milestone birthday, your baby is considered an adult under the law, and you no longer have the parental right to access his or her medical or financial information.

That fact can be alarming, especially if your almost adult is getting ready to go to a far-off college or preparing to travel the world.

However, documents such as financial power of attorney, health care power of attorney, and a health information authorization can help you get access to the information you might need to help your child. And when you add a "durable" clause or paragraph to the power of attorney documents, you maintain the authority granted in cases when the granting person—in this case your child—becomes incapacitated for even a short time.

While you're at it . . .

If you're already working with an attorney to prepare financial and medical powers of attorney, you might also want to add a will. It's a general good practice, even if your child doesn't have a lot of assets now.

Documents for financial health

Your child's fiscal health might benefit from your having a financial durable power of attorney. Its parameters can be limited or broad, depending on what works best for your family.

Limited rights restrict your access to your child's financial information. You might only be able to see your child's account balances, so you can tell when a checking account needs an injection of parental cash. Broad rights could allow you full transactional capabilities on an account. This option is worth considering if your child will be out of the country.

"Even if your attorney prepares a power of attorney for your child, you may want to talk with your financial institutions to see if they have agent authorization forms they'd prefer you to use," said Alisa Shin, a senior wealth manager with Vanguard Personal Advisor Services®. "Using a financial institution's form may make it easier for you to transact on your child's behalf."

"When your child is away, having a power of attorney or agent authorization lets you help if he or she has a financial problem and isn't here to take care of it," Shin said.

Documents for physical health

A Heath Insurance Portability and Accountability Act (HIPAA) authorization form will let a health care provider—including a college's medical team—share information about your child's condition with you without violating privacy regulations.

"Once they're 18, schools and hospitals aren't required to notify parents if their children are being treated," said Shin. This is the case even if your child is still covered by your health insurance plan.

The college health center may be able to provide you with the appropriate HIPAA authorization form. Filing this document with the health center before school starts helps ensure you're the one who's called if your child needs more serious medical attention. "Think about the hours of angst you'll save not knowing what's happening with your child," Shin said.

While the HIPAA authorization lets you know your child's medical condition, your child will need to execute a health care power of attorney (prepared by the attorney) so that you can make medical decisions for your child if he or she can't. This document might also be called a health care proxy or health care directive. More often than not, a health care power of attorney will contain the necessary HIPAA language so that if your attorney is preparing the document, your child might not need to execute a HIPAA form.

Peace of mind once documents are in place

Like most parents, you want your budding young adult to take on the world—but also need to know you can help when needed. The appropriate power of attorney documents can give you confidence in your ability to do exactly that.

• The information provided here is for educational purposes only and isn't intended to be construed as legal or tax advice. We recommend that you consult a tax, legal or financial advisor about your individual situation.


Expensive Olympics

Written by Bob Veres & Gerald E Gasber, CFP®, CIMA®, QPFC.

The opening celebration for the 2016 Olympic Games is just days away and of course all you're hearing about is pollution, crime, unfinished facilities, Zika and cheating Russian athletes. Chances are, the games will go off without a hitch and be highly-entertaining, despite some of the challenges that the athletes will face in their housing and venues. But once the games are over, the nation of Brazil is likely to experience a familiar dose of economic trauma.

Why? A recent study by the Council on Foreign Relations looked at the economics of different Olympic Games, and found that the costs inevitably outweigh the benefits. Part of the problem is enormous cost overruns; when nations bid for the games they typically underestimate the cost of constructing stadiums, fields, apartments for the athletes, safe transportation and security. In the case of the Beijing and Sochi Games the estimated costs were $20 and $10.3 respectively while the actual price tags came in at $45 and $51 billion. Building appropriate venues for the games in Athens, Greece actually led to a government bankruptcy.

If those facilities could be recycled into popular tourist destinations, the expense might be justified. But the report found that the more typical situation is a lot of so-called "white elephants"—expensive facilities that have limited post-Olympics use. Beijing's famous "Bird's Nest" stadium cost $460 million to build and now sits unused. The entire city of Sochi, Russia stands idle.

The Rio Olympics are estimated to cost $20 billion for infrastructure alone, even after plans to overhaul the city's sewage system were cancelled due to cost overruns. Estimates suggest that the city will attract only a fraction of the anticipated 480,000 (International Olympic Committee estimate) to 600,000 (Brazilian Ministry of Tourism estimate) visitors, which means that the already-compromised fiscal situation in Brazil will get worse at some point after the games have left town. And don't expect the sewage situation to be cleaned up once the visitors have departed.

Meanwhile, it is getting more expensive simply to bid on hosting the games. When you add up the cost of drawing up construction plans, hiring consultants, organizing the way the event will be run and the necessary travel expenses, a bid can cost as much as $150 million—as it did when Tokyo made its 2016 bid. The city of Toronto recently backed out of bidding on the 2022 games, due to an estimated $60 million in bidding expenses—and of course that doesn't count the rumored under-the-table payments to IOC executives.

That leaves two countries still in the running for the 2022 Winter Games: Kazakhstan and China. It may not be a coincidence that neither country has to worry about pesky voters and citizens claiming that the costs are not justified by the benefits.



Who Pays for College? Are They Getting Their Money's Worth?

Written by Gerald E Gasber, CFP®, CIMA®, QPFC & Bob Veres.

According to the Student Loan Marketing Association (more commonly known as Sallie Mae Bank), the average tuition, room and board at a private college comes to $43,921. Public tuition for in-state students at state colleges amounted to $19,548, with out-of-state students paying an average of $34,031.

How are parents and students finding the cash to afford this expense?

Sallie Mae breaks it down as follows: 34% from scholarships and grants that don't have to be paid back, coming from the college itself or the state or federal government, often based on need and academic performance.

Parents typically pay 29% of the total bill (an average of $7,000) out of savings or income, and other family members (think: grandparents) are paying another 5%.

The students themselves are paying for 12% of the cost, on average.

The rest, roughly 20% of the total, is made up of loans. The federal government's low-interest loan program offers up to $5,500 a year for freshmen, $6.500 during the sophomore year, and $7,500 for the junior and senior years. If that doesn't cover the remaining cost, then students and parents will borrow from private lenders. The average breakdown is students borrowing 13% of their total tuition costs and parents borrowing the other 7%.

Is the cost worth it? The Federal Reserve Bank of New York recently published a report on the labor market for college graduates. The conclusion is that younger workers have experienced much higher unemployment rates than their college graduate peers—the figures currently are 9.5% unemployment for all young workers, vs. just 4.2% for recent college graduates. Overall, the unemployment rate for people who have graduated with a 4-year degree is 2.6%, and even during the height of the Great Recession, it never went over 5%.

And income is higher as well. The average worker with a bachelor's degree earns $43,000, vs. $25,000 for people with a high school diploma only. The highest average incomes are reported for people with pharmacy degrees ($110,000 mid-career average), computer engineering ($100,000), electrical engineering ($95,000), chemical engineering ($94,000), mechanical engineering ($91,000) and aerospace engineering ($90,000).

Lowest average mid-career incomes: social services ($40,000), early childhood education ($40,000), elementary education ($42,000), special education ($43,000) and general education ($44,000).

Among the lowest unemployment rates: miscellaneous education (1.0%), agriculture (1.8%), construction services (1.8%) and nursing (2.0%).

Yes, there are some themes here, and of course people in every career can fall above or below these averages. Nor does everybody who graduates with a particular degree end up in a career that tracks that degree. (Of particular note: the list does not include a financial planning or investment advisory degree.) The point is that despite the cost, a college degree does seem to provide significantly better odds of getting a job, and getting paid more for the job you do get.



Where Have All the Male Workers Gone?

Written by Gerald E Gasber, CFP®, CIMA®, QPFC & Bob Veres.

The White House Council of Economic Advisers has released a report showing a long-term decline in the share of American men ages 25-54 who are participating in the labor force to the point where the U.S. now has one of the lowest male labor force participation rates in the world.

What's going on? The traditional explanation is that many men are lazy, and prefer living on disability insurance and food stamps rather than actually getting off the couch and earning a living. But the study debunked this view, showing that the number of people receiving Social Security Disability Insurance has gone up by just 2 percentage points since 1967, compared to a 7.5 percentage-point decline in prime-age male labor force participation rates over the same period. Other government programs, such as Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP) have become increasingly hard to access for those out of work—and especially those without children.

Instead, the report cites a reduction in the U.S. economy's demand for lower-skilled and less-educated men, whose participation rate has fallen the farthest, who are mired in jobs paying lower wages in an economy that is increasingly focused on technology, automation, and globalization. Another potential factor, compared with other developed economies, is the fact that the US spends just 0.1% of GDP on things like job search assistance and job training—far less than the 0.6% OECD average. Also, the US provides fewer subsidies for child care, has a higher tax rate on secondary earners, and is the only advanced economy not to provide paid leave.

One factor might come as a surprise: the Council of Economic Advisors speculated that the steep rise of mass incarceration since the 1970s in the US could be a contributing factor, even though prisoners are not counted in the statistics. People with a criminal record, even for drug possession or other victimless crimes, face substantially lower demand for their labor after they are released from prison.

In many States, the formerly-incarcerated are legally barred from a significant number of jobs by occupational licensing rules or other restrictions. Indeed, the American Bar Association has counted over 1,000 mandatory license exclusions for individuals with records of misdemeanors and nearly 3,000 exclusions for felony records. And there is evidence that, even in the absence of legal restrictions, employers are less likely to hire someone with a criminal record.

Whatever the causes, the chart suggests that the U.S. unemployment rate we see updated each month is at best misleading, because it doesn't factor in the fact that fewer American men are participating in the labor force, and therefore represent an uncounted number of unemployed who quite possibly would like to have jobs, but know, due to lack of skills, training, education or a clean legal resume, that they are unlikely to find one.

Can anything be done? The report offers some possible remediation's, including increased investment in public infrastructure (creating low-skill construction jobs); reforming community college and training systems to better match job demand; providing better search assistance as part of the unemployment insurance program; reducing the U.S. tax system penalty on secondary earners; expanding the Earned Income Tax Credit for individuals without qualifying children; investing in education and reforming the criminal justice and immigration systems.



Welcome to Brexit

Written by Gerald E Gasber, CFP®, CIMA®, QPFC.

Yesterday's vote by the British electorate to end its 43-year membership in the European Union seems to have taken just about everybody by surprise, but the aftermath could not have been more predictable. The uncertainty of how, exactly, Europe and Britain will manage a complex divorce over the coming decade sent global markets reeling. London's blue chip index, the Financial Times Stock Exchange 100, lost 4.4% of its value in one day, while Germany's DAX market lost more than 7%. The British pound sterling has been crushed (down 14% against the yen, 10% against the dollar).

Compared to the global markets, the reaction among traders on U.S. exchanges seems muted; down roughly 3.5% at the close, though nobody knows if that's the extent of the fall or just the beginning.

The important thing to understand is that the current market disruptions represent an emotional roller coaster; an immediate panic reaction to what is likely to be a very long-term, drawn out accommodation between the UK and Europe. Given these circumstances it is probably premature to assume that German companies are 7% less valuable today than they were before the vote, or that the pound sterling has suddenly become a second-rate currency. When the dust finally settles, people may well find that this panicky Brexit aftermath was a buying opportunity, rather than a time to sell. Those who sold may come to realize they were suckered once again by panic masquerading as an assessment of real damage to the companies they were invested in.

What happens next for Britain and its former partners on the continent? Let's start with what will NOT happen. Unlike other European nations, Britain will not have to start printing a new currency. When the UK entered the EU, it chose to retain the British pound—that that, of course, will continue. Stores and businesses will continue accepting euros.

On the trade and regulatory side, the actual split is still years away. One of the things you might not be hearing in the breathless coverage in the press is that the British electorate's vote is actually not legally binding. It will not be unless and until the British government formally notifies the European Union of its intention to leave under Article 50 of the Treaty of Lisbon—known as the "exit clause." If that happens, Article 50 sets forth a two-year period of negotiations, subject to extension, between the exiting country and the remaining union. Since British Prime Minister David Cameron has officially resigned his post and called for a new election, that clock probably won't start ticking until the British people decide on their next leader.

After notification, attorneys in Whitehall and Brussels would begin negotiating, piece by piece, a new trade relationship, including tariffs, how open the UK borders will be for travel, and a variety of hot button immigration issues. Estimates vary, but nobody seems to think the process will take less than five years to complete, and current arrangements will stay in place until new ones are agreed upon. So, for the foreseeable future, despite what you read, the UK is still part of the Eurozone.

So, how should investment clients of Gasber Financial Advisors, Inc. respond to Thursday's events and subsequent market reactions? For an answer we turned to Dimensional Fund Advisors, our long term partner in managing client portfolios.

"While there has been much speculation leading up to and since the vote, many of the longer-term implications of the referendum remain unclear, as the process for negotiating what a UK exit may look like are just beginning.

Dimensional has nearly 35 years of experience managing portfolios, including during periods of uncertainty and heightened volatility. We monitor market events—including their impact on trading and trade settlement—very closely and consider the implications of new information as it comes to light. We are paying close attention to market mechanisms and they appear to be functioning well. Our investment philosophy and process have withstood many trying times and we remain committed.

We urge caution in allowing market movements to impact long-term asset allocation. Long-term investors recognize that risks and uncertainty are ever present in markets. A drop in prices is generally due to lower expectations of cash flows, higher discount rates, or both. In some cases, a drop is also due to investors demanding liquidity. In the current situation, some investors and economists may expect lower cash flows due to possible trade barriers that may not be implemented [Emphasis added]. Higher discount rates may be occurring due to uncertainty about changes in the economic landscape and regulations. We have seen markets increase discount rates in times of uncertainty before, resulting in lower prices and increased expected returns. However, it is difficult to know when good outcomes will materialize in the future. By attempting to time the right moment to invest or redeem, one risks not enjoying the potential benefits of such materializations. Many of those who exit the markets miss the recoveries [Emphasis added]. What we have often seen in the past is that investors who remained in well-diversified portfolios were rewarded over time.

The UK will have up to two years to negotiate a withdrawal, during which time it remains subject to EU treaties and laws. Any potential operational changes depend on what path the UK and EU decide to take. Leading up to and since the vote, we have worked with our counterparties, including custodians, brokers, and dealers, regarding potential operational implications resulting from the UK's leaving the EU.

Dimensional remains committed to helping our clients in the UK, other parts of Europe, and around the world have a good investment experience. "

In conclusion, the important thing for everybody to remember is that many market participants are being driven by fear due to uncertainty and predictions based on incomplete data. What is being described by many in the media as an event is really a long process. Nobody knows exactly how the long-term prospects of Britain, the EU or American companies doing business across the Atlantic will be impacted by Brexit, but it would be unwise to assume the worst so quickly after the vote.

Relevant Quotes

"The difficulty first in predicting events, but even the greater challenge of predicting how other investors will react to these events. The most reliable way for investors to accumulate and preserve wealth is to adopt and maintain a broadly diversified strategy. Diversified across companies, across industries, across countries, and across currencies. This idea that we should dip and dart and reduce our exposure to risky assets based on some prediction that we our others might make more often than not lead to frustration and failure to capture the rates of return that capital markets have to offer."

- Weston Wellington, Vice President, Dimensional
- From: The Financial Crisis in Greece at

"Europe, the U.K., the U.S. and the rest of the world will adapt to the new reality. As for the markets, they discount the future and will absorb and reflect the implications of Brexit relatively quickly. So it's best not to extrapolate what happens today or next week very far into the future. In the end, broad diversification coupled with adequate cash and bond reserves will carry us through any short-term dislocation we may observe as a result of Brexiting Brits."
- Dave Yeske, Managing Partner of Yeske Buie, Inc.

"Each year investors end up getting a variety of curveballs tossed their way. Last year it was China, the year before Greece and this year Brexit. While this may permanently impact the Brits in many ways, a few years from now it will merely be a footnote in stock market history."
- Brent R. Brodeski, CEO of Savant Capital Management