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September Market Update

Economic Update

Economic data released this September continues to reflect the trends observed in recent months. Reports show mixed numbers, with some areas of the economy showing resiliency, while others appear to be fading. Industrial production and retail sales were unexpectedly positive this month, with both sectors exceeding their estimates. Conversely, both consumers and corporations are defaulting on their debts at increasing rates. Consumer credit card delinquency rates have been rising steadily since mid-2021, reflecting an increase not seen since 2006 (see chart). Corporations are not far behind. As of August 31, 105 corporations have defaulted on their debt, compared to 54 for the entire year of 2022 (see article). Corporate delinquencies are mainly due to rising interest rates, as it is becoming increasingly more expensive to refinance debt. Rising consumer delinquency rates highlight the stress sustained inflation has on personal finances. Along with steady inflation, consumers face the additional burden of student loan repayments beginning in October. A recent survey reported that 45% of borrowers plan to not pay when payments resume next month.

China vs Mexico

As a result of the issues faced in 2021 and 2022, many companies have restructured their supply chains to near- or on-shore locations. This has caused the global balance of trade to shift, upsetting an 8-year trend that placed China as our largest trade partner, with Mexico now leading (see article). This disruption comes as news circulates that China, the world's second-largest economy, is slowing faster than it has publicly acknowledged. Its economy is facing a real estate bubble, heavy government debt, and low consumer spending. While some supply chain separation is arguably good for the self-resilience of our economy, a Chinese economic slowdown could become contagious.

Kids and Money

Over the years, we have heard no shortage of commentary relating to the lack of general financial education for children. Below is an attempt to help parents (and grandparents) bolster financial literacy among youth. Please feel free to forward this to anyone who may find it valuable.

2-5 Years Old

Too young to start thinking about money? Probably. However, impulse control and delayed gratification can be taught to toddlers, and these skills can become remarkably powerful in a later financial context. So how do we teach these skills? Enter the Marshmallow Test. In 1972, professors at Stanford University designed a study where a child was offered a choice between one small but immediate reward (a marshmallow), or a larger reward (two marshmallows) if they waited for an unknown period of time. In follow-up studies, researchers found that children who were able to wait longer for the additional marshmallow tended to have better life outcomes as measured by SAT scores, educational attainment, body mass index (BMI), drug use, and incarceration rates. Click the following link for a funny and informative video of the test (Video Link).

5-15 Years Old

At this stage in life, children begin to understand the value and utility of possessing money. Additionally, children must learn how to manage this resource. For a savings account, many parents are using the bank of mom and dad approach, where the parent keeps track of their child's account, similar to an IOU system. Additionally, there are paid apps available that offer chore, allowance, and virtual ‘piggy bank’ management. Banks are starting to offer parentally controlled debit cards and companion apps for children. These have typically included high fees. Banks are starting to realize that bank relationships tend to be very sticky, as many of us still maintain our first bank account due to quasi-sentimental reasons. Some banks now offer free checking accounts with parental spending controls, for children aged 6-17. It is likely more banks will roll out similar programs designed to capture future lifetime customers.

Arguably the most important (and most difficult) thing for a child is to want to save their money. Studies have shown encouraging saving habits is possible by finding the interest rate required for the child to leave the money in their ‘account’. This may vary widely among children. Some children may not need an interest rate to encourage saving, being naturally frugal. Other children may require an interest rate of 50% or more to encourage the habit. Matching contributions, reward systems, and goals all can encourage children to leave their money in the (piggy) bank. Over time, the rewards (interest percentage) should diminish, developing personal agency over their finances.

18+ Years Old

Credit is becoming an increasingly vital part of our economy. One of the main factors of a person’s credit score is its history; the sooner that clock starts ticking, the better. This is especially true if an individual wants to purchase their first home in their 20s or 30s. Assuming good financial habits, getting a credit card early on can lead to a better credit score, potentially saving on interest later in life. There are now even $0 fee student credit cards that gift $20 statement credits for GPAs of 3.0 and above.

The points in this section are abbreviated; the practices, tips, and strategies for youth finance are extensive. If you have any questions, we are happy to discuss this topic further.

Client Access Navigation

Finally, we have received a few questions related to viewable information on Raymond James Client Access. If you have any questions about this platform, please feel free to reach out. We are happy to help you navigate the site, and give you a more in-depth tutorial. Additionally, if you would like to go paperless, please let us know, as you will need to be set up with a Client Access portal.

Citrus Wealth Management

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Opinions expressed in the attached article are those of Citrus Wealth Management and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

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