2021 is off to a roaring start. What I find very interesting is that, for the most part, the winners of 2020 have been a bit of a laggard so far and those that trailed behind last year have been the leaders this year. It’s only been 4 months…who knows what the next 4 or 8 months will bring as 2021 rolls on.
Markets are grappling somewhat with elevated investor expectations. The first quarter earnings season, which is nearly complete, has been strong. However, it has been met with a relatively muted response by most stocks, even by many of those that reported better than expected results. It suggests that good earnings may not quite be enough in the current climate. There are other factors at play, including supply chain bottleneck, inflation concerns, and the ongoing pandemic.
It’s (almost) all about jobs
In today’s day and age, everybody appreciates data. The same is true for investors, who consistently parse through financial statements, economic releases, and high frequency information such as credit card spending, traffic congestion, and restaurant bookings (when open), among other things to gage the health of consumers, businesses, and economies. And while they all have merit, the one thing that may trump them all is the direction of the job market.
The employment situation in North America has come a long way over the past year. Between February and April 2020, Canada and the U.S. saw meaningful losses, roughly 3 million and 22 million, respectively. From May 2020 onwards, both countries have seen significant gains. Canada has been less consistent from one month to the next given the re-emergence of lockdowns across various provinces. Nevertheless, its gains have amounted to well over 2 million, suggesting it has recouped more than three quarters of the job losses. Meanwhile, the U.S. has seen approximately 14 million jobs created since last April, and it has recouped two thirds of the jobs that were lost.
The positive employment trends should continue going forward, driven by the full reopening of economies later this year. But it’s the pace of job creation that may be more important as it may foreshadow the timing of a larger shift in monetary policy, such as interest rate hikes, from the Bank of Canada and the U.S. Federal Reserve. The latter has indicated repeatedly that it is focused on getting the economy back to “maximum employment”, which is comparable to the level of employment prior to the onset of the pandemic. The U.S. has been averaging over 300,000 new jobs created per month for the past six months. Should that trend continue, the level of “maximum employment” will be reached in about two years. Job growth of nearly 600,000 new jobs per month would translate into a level of full employment by next summer.
In a perverse way, investors may be hoping for good, but not great, job growth. That would give central bankers enough of an excuse to keep policy unchanged for longer and support existing financial conditions, and consequently valuations in the bond and equity markets. A stronger trajectory may suggest that monetary conditions will have to be tightened sooner, forcing investors to more closely scrutinize valuations. At the end of the day, we welcome a backdrop marked by employment growth as opposed to the one we witnessed last spring. But, we are mindful of the unique challenges presented by a much stronger job market, and are prepared to adjust portfolios if need be.
I was wrestling with what else to write this week. I had some notes all ready to go about Value investing but even I was bored when I read it back. Then I dug up some stats about Moms for Mother’s Day and it seemed like something that has been done already so I came up with an idea that would appeal to most Moms: Tactics to raise money-smart kids.
While I appreciate some of you will be past this stage in your lives, my thought is that you may have family members who are not. Please forward it on to those that would find this list to be of value.
Teaching your children about money can be a difficult task because it may come as second nature to you as a seasoned adult. Many of the lessons you learned about money growing up may seem foreign now. To help you guide your children toward healthy financial habits, consider the list below.
Teach good financial habits from an early age. There isn’t a golden age when you should start teaching your children about money. The reality is that finances will always be a factor in life. The sooner your child is exposed, the faster they’ll learn how to budget, spend and save, which can help them avoid common money mistakes in the future. It is tougher now to engage with actual physical money because it used to be about coins and bills and now many items a child wants such as a video game update are purchased ‘virtually’. What have we found helps to engage children with money: Grocery shopping. This task can test the concept of money as well as the importance of planning purchases. Our kids are amazed at how much things cost so having them see it in reality helps them appreciate the value of money more.
Open a bank account for a child. When you feel that it is appropriate, you can open a bank account in your child’s name and introduce them to the process of visiting a bank branch. Show them how to deposit money, take out cash, and make transactions like depositing a birthday cheque, for example. You may choose to deposit an allowance into your child’s bank account regularly or visit the bank to make a cash deposit when they receive a cash gift. When you do make a deposit, it is also important to show your child that their money is growing. Eventually, you can help them set up direct deposits with their employer when they start their first part-time job. These lessons can evolve and grow with your child as they enter new chapters of their life. We found that a matching program works – similar to an employer savings program. My daughters are very different – one was a saver and couldn’t spend ‘her’ money while the other couldn’t spend it fast enough. We told our girls that we will match / double their deposits if they don’t touch the money for six months. This was no problem for the saver while the spender agonized over this. We found over time this incentive helped the spender to delay gratification and now she has become a great saver as well.
Teach a child about how savings work. When your child is old enough to understand more complex financial concepts, you can help them appreciate price comparison when shopping, the value per dollar spent, and how to budget. Where you can, encourage your child to put these customs to use. If they’re not experiencing it firsthand, they may not retain the knowledge or build these positive financial habits. Saving can be a tough subject to teach because everyone has personalized methods of doing so. The critical point is that savings are accumulated slowly over time by putting aside a small portion of earned money when you receive it. Another good money lesson would be to teach your child about different types of savings. Many people have short term and long-term savings goals. For example, you might be saving for a vacation next year and also saving for retirement. Be sure to inform your children of this and help them develop strategies to meet all their financial goals. When your child is young, help them set their own. For example, if your child has a toy they would like to buy, show them how much it costs, and how long it would take them to save for it.
Allowance should be earned, similarly to employment. Of course, you love your kids and want to give them everything. However, giving your children money for no specific reason can teach them that money is handed out, not earned. Implement some sort of routine that your child completes before receiving their allowance. This could be as simple as helping around the house, cleaning their room, or completing all of their homework. Think of it this way; you’ll get help around the house and teach your child about earning money at the same time!
Reward kids for good grades, similarly to a bonus. School and employment truly teach many of the same principles. For this reason, you can use good grades as a way for your child to earn a bonus payment from you. This will help your child understand that a little extra dedication can pay off, similarly to a bonus at a job. Some will disagree with this. I wasn’t sure at first but I was looking for ways for kids to ‘earn’ money. I figured I was going to spend it on them anyway but feel better about it when they have earned it and made the decision to spend it.
Help kids spend money wisely. Most children don’t know what a reasonable value for something is, such as a meal or a piece of clothing. It’s not their fault; they’ve simply never had to consider the cost of something before. That’s why it’s essential to teach children to spend wisely. You can do a few things, such as take your child to the grocery store or mall with you or give them an allowance for lunch at school. This practice can help them set a personal budget for themselves. This scenario is also an excellent opportunity to teach your child about impulse spending. Money isn’t infinite and should be allocated wisely.
The value of donating. Children might not understand that there are less fortunate people in the world or global issues that have yet to be solved, such as poverty, hunger or environmental crises. Supporting these issues can be a great way to teach children about the value of money and how a little bit can go a long way toward helping someone in need. You can encourage your child to pick a cause that they care about and make a donation together. If the charity has resources and information, you may be able to break down how their contribution made a difference exactly.
Importance of guidance. Every parent should teach their child about money in one way or another. If you don’t, you could run the risk of your child mishandling money, credit cards, or other money products in the future. Teaching your child good financial habits now can set them up for success. Whatever tactics you choose to use to teach your child about finances, keep in mind that the process should be about guidance. Be there to answer questions, but don’t do everything for them. Let your child make mistakes and learn from them. It’s better to make small money mistakes as a kid with pocket-change than big blunders as a young adult with a credit card and a credit score.
Happy Mother’s Day to all the Moms out there – and the great memories we have about the Moms no longer with us,