Jill Kerby

TEENS AND PARENTS NEED TO THINK OUTSIDE THE ACADEMIC BOX

Christmas may be coming, but in households all over Ireland parents and teenaged children are also anticipating something of far more significance:  where they will go for their post-secondary education.

CAO forms are being carefully scrutinised as the Leaving Cert exams loom and the majority who do continue their education will opt for an academic course in a college or university, rather than an apprenticeship or other qualification, and that is a terrible shame as well as a waste of time, talent, enthusiasm and money. It is one of the contributing factors to why we have a pretty consistent college drop-out rate of first year students – about 20%-25%.

According to Solas, the Further Training and Education Authority, not enough sixth year students and their parents are being directed to explore the vast programme of training programmes and apprenticeships that can lead to well paying jobs and careers. A university degree even for children who struggle academically is the ‘golden ticket’, especially for middle and higher earning families.

I met recently with both Solas and the Cavan Monaghan Education and Training Board (CMETB) about how 2017 will see an even greater broadening of post-Leaving Cert courses, other training programmes and apprenticeships, including a post third-level graduate ‘apprenticeship’ in financial services that will be rolled out at the National College of Ireland. (25 new apprenticeships were added in 2016.)

Long gone are the days when training programmes were mainly directed at the unemployed; and apprenticeships, of which there are 9,000 were nearly exclusively trades-based, Nikki Gallagher of Solas told me. 

Further education takes in everything from construction, manufacturing and technology sectors, in finance as well as construction, food and hospitality, medical services, manufacturing, and science and technology. There are job training schemes for budding hairdressers, artists, craftworkers, as well as medical device and aerospace technicians. Would your young person like to become an equestrian instructor?  There’s a 44 week, internationally recognised course starting in January at the Castle Leslie estate in Monaghan, Catherine Fox of CMETB told me.

Apprentices are employees and paid while undergoing their training. But others on courses, depending on the institution, may qualify for meal, travel and accommodation allowances. Some further education colleges may charge a small annual fee (usually less than €1,000) but Institutes of Education do not.

Even more significantly is that both institutions can offer the same further education course that can act as launch pads for university degrees that may not have been achieved via the CAO system.

Many nursing and related students at Irish and UK universities were accepted in year two of the degree programme after doing their first year in a science/nursing course at a higher education college, Fox explained. “FET students benefit from smaller classes and continuous assessment. They’re usually very disciplined and focussed. And they will also, in many cases be saving on the cost of fees for one or even two years before completing their degree at a college or university.”

The diversity of people undergoing further training to meet the needs of our new smart economy, is quite astonishing – there are 250,000 full and part time higher education and training places - 33,000 at higher education colleges and institutes. There is a course for school leavers (and even pre-school students), as well as mature adults; for the unemployed and people with full time jobs. Inclusion means Solas provides literacy and language training for minorities, refugees and newcomers who all want a good job or career. 

So why do so many young people end up in academia…and drop out?  Or fail to work in their graduate area?

Fox and Gallagher (both third level graduates) believe too much emphasis is put on academic achievement at junior level. Too  many of our young people are never given a chance to explore non-academic interests or the range of jobs and employers looking to hire and train them, in the case of apprenticeships.  Too many parents mistakenly equate high paying, secure, jobs with the professions..

And there’s the rub. Young doctors, lawyers, academics (in the case of my family) spend up to 10 years achieving higher degrees before landing their first permanent position.  Unlike the young, apprenticed qualified electrician or aerospace technician or even investment analyst who started earning at 22 or 23, and was quickly on their way to financial and personal milestones (which even include a pension), the professionals’ were delayed will into their 30s. 

Too  many young workers are all facing employment conditions their (older) parents did not: unpaid internships; temporary and part-time contracts, and very little security outside the public service. By only focussing on third level academic degrees and ignoring other paths, like further education training and apprenticeships you only add to that uncertainty.

This holiday, explore the training and apprenticeship options (especially with your non-academic children). Tell them they are free to study and train for any job or career.

Here’s where to start: www.solas.ie and www.fetchcourses.ie

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie.

PART ONE:  WE’RE NOT IN KANSAS ANYMORE, TOTO.

A fortnight ago I wrote that gold is a form of financial insurance, despite its price being variable and susceptible to market uncertainty. In euro, an ounce would cost €1,160 that day.  As I write, it is €1,173; five days earlier (just as Hillary Clinton’s emails were thought to be under FBI investigation again), it was €1,180.

This kind of volatility over just a few days was played out in the stock markets just before and after the US presidential election. Watching prices go up and down is the stuff of madness and sleepless nights. Accurate, specific price  predictions are impossible.

Trump’s election was a shock, but not surprising, given how it reflected the widespread mood of discontent among voters everywhere, including here in Ireland.

Ordinary folk in America, busy with their own lives, may not be able to put their finger on the exact causes, but they are a lot more aware than ever that things are not right, and haven’t been for some time. They increasingly see how the political class, shareholders and especially bosses in favoured industries (like financial and technology) and to a degree the public service, have managed to somehow avoid the job insecurity and losses, the wage stagnation that plagues people working in the less sheltered private sector businesses.

The hollowing out of the ‘middle class” – and Ireland is a country happily aspire to be middle class over the last four decades - and the descent into the credit and debt economy has come at a shocking price.

In the United States, where this great debt monster was conceived, nurtured and exported, measured by the same standard that applied even 20 years ago, employment, manufacture and production indicators, individual and corporate earnings, the movement of goods, price inflation are also lower or falling.  The US national debt has tipped over €20 trillion (if was just over €5 trillion when Bush took over the presidency from Clinton) and the Federal Reserve’s own “asset” balance is $4.5+ trillion, up from $500 million in 2008, made up of US Treasury bonds (debt) and mortgage and bank debts it bought to provide more liquidity to financial markets.)

And let’s not forget the estimated c$57 trillion of unfunded future liabilities the US government has promised to pay in the form of Social Security pensions Medicare and Medicaid.

Student debt and even motor vehicle debt is now measured in trillions in the US; the long wars in the Middle East are estimated to have cost about $6 trillion. (That’s 6,000 billion dollars.)

Hillary Clinton intended to raise corporate, capital gains and estate taxes and extend the national debt in order to fund her social spending programmes and the notorious “military/industrial complex” that President Eisenhower warned about when he left office in 1961. Trump has promised to spend trillions to rebuild America’s crumbling infrastructure and boost the military industrial complex but he said he’d pay for it by getting US foreign companies to repatriate their cash to America (from Ireland, among other countries) and by lowering personal and corporate taxes, thus creating more ‘trickle down’ wealth and income.

Bill Bonner, who publishes a network of financial newsletters, a few of which I’ve subscribed for more than a decade (I highly recommend MoneyWeek magazine) says that people ultimately vote with their wallets, whatever about their public claims of altruism. He frequently quotes the journalist and satirist HL Mencken (1880 -1956) who said, “Every election is a sort of advance auction sale of stolen goods.”

None of the candidates in this election (except perhaps the hapless Gary Johnson) addressed the cause of the economic debt, credit, boom and bust crisis in America (and here.) They didn’t propose a return to ‘sound money’ in order to limits unsustainable spending programmes, wars and vanity projects.

Like pretty much every other modern politician, including every single member of Dail Eireann, no one made the connection between the notion of living within one’s means – (yes, this includes prudent borrowing to build/own valuable assets) and long-term financial health and prosperity. They didn’t even agree on who to blame (previous Democrat/Republican administrations, Wall Street, the rich, the poor, the Chinese/Russians/the EU/Gulf Arabs…)

This unhealthy, catastrophic credit driven, debt burdened system and its mismanaged solutions  (more credit and debt) will only last…until it doesn’t.

So where do you and I fit in?  Bailing out our bankrupt banks has quadrupled our national debt from €50 to €200 billion since 2008. We’ll borrow €10 billion next year to roll over and service this debt. Personal debt rates are coming down, but we’re spending (and borrowing) very cautiously. Our ‘recovery’ is being funded by the extra foreign based corporate tax, tax that a negative Brexit effect and a Trump administration could eat into.

Will “things” get better or worse, now that Trump and his brand of populism has prevailed in the spluttering economic engine room of the world?  Probably.

The only question you can answer with any certainty is whether you’re prepared for both outcomes.

Next week: Part 2: A Financial Ark and How to Build One (again)

STILL HAVEN’T BUILT A FINANCIAL ARK?  HERE’S WHY YOU SHOULD

The hysteria over the Trump election and the Brexit chaos is going to settle down – at least for a while. Then expect it to ramp up again in the New Year with the inauguration of the new President on January 20 and as the end of March triggering of the Section 50 Brexit deadline.

Trump’s policies may or may not revitalise the US economy, but the biggest fear for us is a negative jobs and tax revenue fallout in the US dominated high tech, pharma, medical devices sector and the banking they do in the IFSC. A hard Brexit meanwhile could also have a detrimental effect on Irish export sectors and the cost of living here when UK imports start costing a lot more.

“Ignore the noise,” my financial adviser, Marc Westlake keeps saying, meaning, “stop reading the headlines. Stop paying attention to the short-term ups and downs of reactionary markets and currencies. Ignore the dire ‘predictions’ – the pundits are only guessing. They don’t have crystal balls.”

He’s been giving me this advice for years and has stopped hasty, expensive reactions at every market downturn (or Brexit-like event.)

It’s not so easy to ignore the noise, when you write about personal finance for a living. But the theory is sound, especially when it’s accompanied by evidence-based market and financial analysis that shows that widely diversified, low cost, regularly balanced portfolios, held over a long term consistently outperform actively managed and traded, limited assets or funds, stuffed full of excessively high administration and management fees and commissions.  

Few fund managers, no matter how lucky they are in picking winners when markets are booming, do so consistently. A highly diversified, mostly passively managed, low cost fund of assets (we’re talking of thousands of shares, bonds, properties, commodities, fixed income assets) is more likely to weather volatility and meet realistic customer expectations.

But is following sound investment advice all your need to protect your wealth and financial security?

I don’t think so.

For the last eight years, far outside your adviser’s good sense and control, panicked central bankers have been artificially depressing the cost of money to save insolvent banks, prevent mass debt default by countries and corporations and to ‘stimulate’ more borrowing and spending to kickstart economic growth.

Their low to zero rate monetary (via QE) policies have further enriched the rich, but widened the gulf between them and the ‘not-the-1%’ who’ve been saddled with the bill for bailing out of the insolvent financial sector. Global debt – hastened by leverage derivatives like sub-prime loans which Warren Buffett ominously described as “financial weapons of mass destruction” back in 2008 – has doubled since 2008.

About a quarter of all Irish economic activity is generated by foreign owned companies, most of those, American. Donald Trump wants them to reconsider where they make their goods, their R&D and their back-room administration.

If Trump’s protectionism and a hard border-laden Brexit reduces future trade, profits, jobs, then it will also reduce the €600 million plus corporate tax bonanza we’ve enjoyed – unexpectedly – in 2016. What happens if that money – a higher corporate and private sector income tax take dries up? (Exchequer borrowing for 2017 will be c€1.2 billion, but €10bn will be allocated to pay interest on the €200 billion national debt.)

Back in 2010 I started writing about a concept I called, Build an Ark. It’s time to dust it off.

You build a financial Ark in order to weather – just in case – the economic fallout, like the job tightening or higher prices that could come with higher interest rates and trade protectionism. 

Building the Ark involves not just carefully assessing your current financial position – your income, outgoings, tax, debt, savings, investments, insurance (protection measures) – but taking steps to improve it.  That means controlling your spending, reducing and avoiding debt, paying only the tax you must…essentially, living within your means. If you’re in the private sector and want to retire some day, the Ark will also prioritise your savings and investments. 

Building a really strong Ark needs lots of willing hands. Involve your immediate and wider family and loved ones. Thinks about building one big enough to make sure no one gets left behind if it starts raining heavily again; that means tough, honest and hugely challenging discussions between the generations about individual incomes, assets, debts…and dreams. (Like home ownership, third level education, entrepreneurship, retirement and long term care for elders.)

The 2008 crisis never ended. It was plastered over and put off. The debt overhang could never support a genuine, global, sustainable recovery. 

By building your Ark, you can avoid a repeat of what came after 2008. 

Every parent and grandparent who Skype’s Christmas greetings to their young ones this year in America, Australia, Canada knows exactly what I mean.

(If your community group or organisation wants to book my How to Build An Ark seminar please contact me at jill@jillkerby.ie )

ARE YOU THINKING OF CHRISTMAS SHOPPING IN THE NORTH?

Is it disloyal or unpatriotic to do your Christmas shopping in the North this year?

Judging by the debate on the various radio programmes I listened to last week, you’d think this was the most pressing issue of our times – worse even than giving into a demand for immediate public sector pay restoration, which is going to cost billions more than the country can afford right now.

The cause of this urge to shop in Newry, Belfast or Derry is the nearly 30% fall in the value of sterling against the euro. The prices of a lot of goods, especially alcohol, tobacco and non-perishable foods, was already cheaper in the UK than here. Northern Ireland shares the economy of scale that comes with a big marketplace. Wages and service costs are also lower, due in part to lower income, VAT and certain excise taxes in the UK.

Before the Brexit vote and subsequent fall in the UK currency, the 30% differential just didn’t make it worth the price of a tank of petrol and currency exchange fees to drive across the border from Dublin, Waterford, Cork, Limerick or Galway for an even modest shopping spree in the North.

Not so if you were making a big purchase like friend of mine here in Dublin who saved over €2,000 renovating their bathroom units, appliances, electrical and plumbing fittings, tiles, etc at a DIY bathroom specialist in Newry. The well known bathroom providers even offered a team of fitters who were on their approved panel.

That was nearly €7,000 worth of spending that has already gone North from just one Irish household. 

Last year we spent an estimated €4 billion in the run-up to Christmas. About 20% of us spent some of that money in the UK and Europe, including on-line. Even if only 20% of that total goes abroad this year, it could amount to €800 million that will not be spent with Irish retailers.

But this all needs to be kept in proportion. A huge volume of our spending is already spent in foreign-owned stores and services, from the likes of the British and German grocery suppliers Tesco, Marks and Spencer, Lidl and Aldi to the familiar high street and retail park shop where we buy clothes and shoes, DIY and garden equipment and even many big insurance companies. (Think Zurich, RSA, Aviva, Axa, even Irish Life, which is Canadian owned.) 

We grow and produce a certain amount of locally sourced foodstuff that is sourced locally - especially meat, dairy and bread products – but we are mainly a country of foods importers.  The ‘shop local’ campaign mostly refers to the support of Irish retail jobs, not the sources of production. Once wages and overheads are paid (which indeed circulate in the Irish economy) the bulk of profits earned on the Irish high street goes abroad.

So it is wrong, during periodic currency swings like today’s, to abandon the Tesco or Marks and Spencer or Woodies in your town for the one across the border and save 20% even after you take your transport and banking charges into account?

If you plan on spending €1,000 on presents, food and alcohol this Christmas, is it so bad to save €200 that could go on panto tickets, a movie, a train ticket to Granny in Cork or Sligo or even an extra tank of petrol (c€46 of every €75 goes straight to the State in excise/VAT) to drive there?

Brexit is already starting to push up prices in the North, though it will be next year before most people there see a substantial rise in prices as goods in the shop have already had their prices locked many months ago. The real bargains, a friend of mine who works for M&S here told me, will be had in the (still duty free) January sales in the North. Some currency analysts think Sterling could take another dip downwards before the year end, just based on historic patterns and drop from their current levels of €1.22 to buy one pound to a low of between €1.125 to €1.075 to the pound settling at c€1.10 to the pound.

Timing currency markets is always hazardous and even the professionals don’t always get it right. Meanwhile, shoppers have always crossed convenient borders – Canada and the US; Norway and Sweden, Germany and Poland -  depending on which way their currencies ebbed and flowed.

If you want a clear conscience this shopping season, stay away from the UK equivalent websites of your favourite UK retailers, in my case Amazon and M&S.

I had my eye on a thick cashmere sweater for €165 here that is selling for £120 in M&S Newry. At today’s exchange rate it shouldn’t cost more than €135 in Dublin.

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.

GOLD vs PAPER MONEY: IT’S A MATTER OF TRUST

“The price of gold is the running straw poll of the world's confidence in paper money.” - James Grant, July 2008

I recently had a chance to hold a kilo bar of gold, which is only about six inches by four inches wide and about a half an inch thick.

For such a small object, it was incredibly heavy. It wasn’t buffed to a high sheen like the gold bars that are stacked in central bank vaults (which weigh 400 troy ounces or 12.4 kilos) but was slightly matt in texture and all the more lustrous.

Readers of this column know that I believe that precious metals have a small place – 5% to 10% worth - in a person’s net worth of wealth assets, typically the value of your paid off home, cash savings and pension fund. Occupational pension schemes, for example, are increasingly likely to include precious metals (silver and perhaps platinum) as part of a diversified investment fund. They see gold rare, precious and immutable, as do I, as a form of insurance I hope I’ll never have to use.

According to Aristotle, who advised Alexander the Great about these things as he set about creating a vast empire, ‘good’ money needs to be durable; it must not fade, corrode or change over time. It must be portable, and be easy to carry and move, with a high value relative to its weight. It must be divisible or ‘fungible’ and be able to divide into smaller units of value. It must have intrinsic value, that is, contain its own worth and lastly, it has to be ‘acceptable’, that is, be accepted to another party to complete a transaction.

Precious metals, especially in coin form, tick each box. The paper version of money we use originated as goldsmiths ‘receipts’ for the large amounts of physical gold and silver that Renaissance merchants owned, but didn’t want to risk travelling with. (Goldsmiths became the first bankers.) It was only in the last century that paper money bills stopped representing an equivalent amount of gold or silver. 

Today, there is no equivalent value of gold or silver in any currency issued by central bank to back up the number and face value of dollars, euro, pounds, yen, rubles and renminbi in circulation.  The intrinsic value of the money we use is literally only worth the cost of the paper, ink and base metals (in the case of coins).

In our increasingly ‘cashless’ world, tens of trillions worth of new money has been printed since the 2008 financial crash alone – mainly digitalised on the central banks’ currency computers. It is stored on on-line accounts and transacted via computers, debit, credit and pre-pay cash cards and smart phone wallets. 

Which brings me back to why I was on TV3 the other day with Mark O’Byrne of Goldcore.com, the Dublin gold bullion dealers, discussing gold.

There have been several significant Millennial financial crises ranging from the 1999-2000 NasDaq crash; 9/11; the 2008-2012 Great Recession and Greek crisis and now Brexit. The so-called War on Terror and subsequent migrant/refugee crisis has had massive financial repercussions.

The price of gold always reacts in uncertain and fraught geopolitical and economic times. Back in 1999 an ounce of gold was worth the equivalent of c €350 an ounce and at time of writing, €1,164. By the end of 2007 it was c€500.It peaked in late September 2012 at €1,365 in tandem with the Greek/Euro crisis.

The price of gold goes up and down as UK holders know: gold is up nearly 44% in the past year. Nevertheless it has a remarkable ability to maintain its intrinsic value, especially when every effort is made to artificially create price inflation by devaluing currencies or embarking on endless campaigns of QE – quantitative easing that causes savings and bond yields to collapse.

The banking sector is fragile. The debt crisis continues. Gold is dismissed by Keynesian economists as “the barbarous relic” that pays no interest. But they also hate cash which they say we are saving too much, to the detriment of “economic recovery”.

The cashless society is nearly here. Nil to negative interest rates are becoming  reality, but with no cash, there is no opportunity to take your money out of the bank and stick under a mattress. It is entirely at the mercy of the manipulators to tax with negative interest rates or confiscate in the event of a failed bank ‘bail-in’.

The depreciation of the money we use continues relentlessly. Gold has consistently held its value as this small reminiscence shows:

In the summer of 1982 the owner of the small newspaper where I worked set up a good VHI adult plan for the staff. It cost about Ir£360 old punts, which I couldn’t afford. Meanwhile an ounce of gold back then was worth about Ir£355.

Last summer, 34 years later, my Laya Healthcare Simple Connect Plus adult plan cost me €1,160. As I write this, the price of an ounce of gold in euro is c€1,164. 

Aristotle was right. And I bet Laya would take an ounce of gold as payment too.

Do you have a question for Jill?  Please email her directly at jill@jillkerby.ie or write c/o this newspaper.