Matthew M. Gagnon ’09G

People of every income bracket have questions about the best ways to manage, save, and invest. Beth Gamel ‘78G, Eric Janszen ’04, and Kathy LeMay ’93 share their wisdom about how to manage money, how to invest it, and, when you’ve got a little (or a lot) extra, how to give it away.

Both individuals and families are faced with the question of how to make every cent count, especially during times of personal hardship. These three alumni offer practical advice on a wide variety of financial matters as well as methods for successful and mindful saving, investing, and giving. In my interviews with them, a common thread was the importance of knowing one’s own values, history, and temperament when dealing with issues of finance.

Many people have more money to work with than they realize; the key is learning how to make the most of it. Growing a nest egg for children’s educations and retirement can’t wait until the last minute, for instance, but neither should philanthropy. There’s no time like the present to foment change in a tangible way by investing in social organizations.

Whatever your financial interests or concerns may be, Gamel, Janszen, and LeMay offer up seasoned perspectives and practiced analysis—a diverse well of knowledge from which we think you’ll be inspired to draw.

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Beth Gamel ’78G
Executive Vice -President
Pillar Financial Advisors

 

What are three principles of wealth management that apply at any income level?
Track your spending. Once you know how much you spend, you can determine how much you can invest and afford to spend. This is especially important for people in the lower and middle rungs of the economic ladder.

Plan your estate. Estate planning isn’t just for wealthy individuals who have many options. It’s critical for parents because a will is the instrument in which they name guardians for their children. Other important documents are a healthcare proxy and a durable power of attorney. In the first you name an agent who can make medical decisions on your behalf; in the other you name an agent who can make financial decisions if you’re not able to do so.

Participate in a retirement plan. If self-employed, consider the types of plans available to you. If employed with a corporation or nonprofit institution, sign up for the company plan. Retirement investments grow tax-deferred, and many companies have a matching program.

What advice would you offer to a recent college grad making education loan payments and dealing with a $4,088 credit-card debt —the national average?
I serve on the American Institute of Certified Public Accountants’ National Financial Literacy Commission, and among our outreach efforts is a public service campaign aimed at 25-to 34-year olds. Recent grads should visit our Feed the Pig website (www.feedthepig.org), which has some terrific calculators to help people find out how much money they can direct towards their student loans and credit-card debt. They should also consider transferring their debt from their current credit card to one with a lower interest rate.

How should families budget for their children’s education?
Start saving for your children’s education as early as possible, even if the amounts are small. In that way, you’ll build a reasonable base, which can then be supplemented with loans, scholarship packages, student savings, and campus jobs when your children are ready for college. A useful website with information about Section 529 college savings plans and ways to save and pay for college is www.savingforcollege.com.

How should families or individuals prepare for the unexpected, such as a medical crisis?
Every family should have a cash cushion for emergencies or unexpected expenses such as house or car repairs. This cash cushion should be equivalent to three to six months of your normal expenses, tucked away in an interest-bearing checking or savings account. If you think your unexpected expenses could exceed the cushion amount and you own your house, consider applying for a home equity loan.

In your career, have you seen a shift in values of how people think about charitable giving?
I’ve seen considerable change regarding how people think about philanthropy. Wealthy individuals especially have become more activist about their giving. “Strategic” donors want to focus their giving on specific goals and carefully evaluate nonprofit organizations and programs. These givers really do their homework and expect results from their contributions.

Wealthy individuals also want to know about the many gifting structures: private foundation, charitable remainder trust, charitable lead trust, pooled income fund, charitable gift annuity, etc. There’s also been a growth in the number of donor-advised funds. These public charities, many run by for-profit organizations, provide a low-cost alternative for charitable giving.

What was the first investment you made?
The first investment I made was in an IRA about 25 years ago. I think the maximum contribution at that time was $200, which I put into a mutual fund managed by USAA, our insurance provider. As I learned more about investment options, I rolled it over to another fund.

As co-founder and executive vice-president of Pillar Financial Advisors in Boston, Beth Gamel ’78G coordinates her clients’ sophisticated investment, estate, income tax, and charitable giving plans; she is annually named one of the nation’s top financial advisers by Worth Magazine. Gamel serves on the UMass Amherst Foundation Board and generously supports students and faculty with charitable giving to campus.

 

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Eric Janzen ’04
President iTulip, Inc.

What is a financial bubble?
Bubbles are complex pricing or market anomalies that are driven by a number of factors and go through a number of stages. In the past decade, the United States economy has had two asset bubbles, most recently in housing, and before that, in stocks.

Rising prices don’t necessarily indicate a bubble. Other factors have to be in place at different stages of the process. The easiest stage to identify is the terminal stage of a bubble, which is where investor sentiment broadly involves the entire population. There are a number of apocryphal beliefs such as “stock prices have reached a permanent plateau” or “housing prices never decline nationally.”

Right now, the stock market appears to be reflecting the same thing that is driving the economy: we’ve depreciated the dollar. This is increasing exports, and export-related businesses are doing well. It’s also causing a lot of people to come to this country and spend money.

Where is the American economy heading?
It appears that the Federal Reserve is willing to do things that are not good for the long-term health of our country and economy in order to meet short-term needs. It’s really a policy of expediency. We never imagined the Fed would push short-term interest rates down and hold them there until we had a housing bubble. It just seems crazy. All I can conclude is that it’s a mix of incompetence and malfeasance. In my opinion, it appears to be politically motivated.

What lessons should we learn from the housing bubble?
The first lesson is to be extremely skeptical of what you read in the papers about markets that are growing as fast as the housing market did. Right up until the housing market was clearly in decline, the business section of almost any paper would tell you that there wasn’t any housing bubble, that prices were rising because of various invented reasons such as immigration. Most of the financial media, the business press, needs to report information that is in the interest of the companies that are broadly rising and supporting the market at any particular time, whether it’s telecommunications stocks or housing stocks. They’ll tend to pig-pile on after the market collapses. For example, The Wall Street Journal is now onto Goldman and Sachs for its role in the mortgage debacle. But the press had no interest in exploring Goldman’s contribution during the bubble, so one has to look elsewhere.

The other lesson you need to follow is common sense. Particularly in residential real estate, prices cannot rise faster than incomes, because that is ultimately how people pay their mortgages. If the prices are rising faster than incomes, then you probably have a bubble, and you shouldn’t be buying into the market.

How will homeowners be affected?
It really depends on where you are starting. If you own a home and don’t have a mortgage, if you have a fixed-rate mortgage at a reasonable rate that you picked up back when long-term interest rates were low, then it’s irrelevant. Your house is a place where you live. It’s unwise to think of your home as an investment. Over the last hundred years, home prices have just barely kept up with inflation, with one exception, the period after World War II.

What advice would you offer prospective first-time home-buyers?
I would keep renting. Under the circumstances, housing prices are going to continue to decline. It’s important to understand, however, that housing prices are regional. The declines will not be even everywhere. Obviously there are some parts of the country where the prices didn’t go up much at all. Declines also depend on the employment prospects for the region in the future.

Over the next three to five years, pricing declines will continue in housing. It doesn’t make sense to buy a house that is declining in value unless you just want to live in a house. It really depends on your time-frame.

What is the best advice for people of any income level?
There’s a great book I’d recommend to anybody who’s just starting out in investing called A Random Walk Down Wall Street by Burton G. Malkiel. The idea is that there are two things that should determine your investing strategy: your risk tolerance and your age.

People who take greater risks tend to make more money. They will lose more money in the short term, but in the long run they’ll make more. People who are very conservative and tend to not take risks over the long run are not going to make much money, but at any particular moment in time, are going to feel more secure and have more access to their money at any time. Try to understand what your own thinking is, to make investments that allow you to make money and to sleep at night.

The other factor is age. When do you need to begin to draw down on your retirement funds? If you are currently nearing retirement age, when the stock market is relatively high, now would be a good time to diversify your stock portfolio into fixed income.

What was your first investment?
It was stock in British Petroleum back in the 1980s. My thinking was that demand for oil was permanent. A discovery had been made in the North Sea so I thought there would be a lot of growth there.

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Kathy LeMay ’93
President and CEO
Raising Change

 

What is your personal view of philanthropy?
It’s really important for younger people, or people who don’t have a lot of wealth, to step in. We have the sense that philanthropy belongs to a handful of people. A lot of people are saying to me, “what difference is my $25 dollars going to make?” It makes a huge difference. You build movements one dollar at a time.

Warren Buffett’s money is not going to end poverty. He plays a role and that’s great, but movements are built and sustained by people in your community. It requires that we all write checks. Just write checks to your potential. There’s a difference between broke and poor. Poor people tend to give away more money than people who identify themselves as broke. It’s absolutely true. A lot of what we’re doing at Raising Change is saying anybody can have a social action plan.

You need to be very clear about the checks that you’re going to write, and how much impact you want to see them have. We ask people to take the same model they use in financial planning and financial investment and carry it over to social-action planning. If you don’t pay attention to something consistently, you won’t have the results that you hoped for.

What top three pieces of advice do donors need?
One, know your values and vision for the world. Two, when someone says to me how much should I give, what percentage of my cash or assets, what I always say to people is how much do you care. Write that check. Finally, stay the course with an organization for the issue you care the most about. Don’t give for three years, then change course.

What is the mission of Raising Change?
Raising Change builds bridges between nonprofits and donors. Nonprofits spend a lot of time and money trying to demystify working with donors. There is anxiety about meeting budget and worry about upsetting donors and losing their gifts. From the donor end there is a lot of confusion about which organizations are really making a difference, how to choose a nonprofit partner, how much of a check to write.

At Raising Change we provide nonprofits and donors the tools before they meet. We address the inherent power dynamics and work to teach both donors and nonprofit professionals to see themselves as critical agents of social change and equal to everyone else at the table. This way there is authenticity and social change is happening in the act of fundraising.

Why should the average person care about social change?
The stark response is if you look around and see silence and crime and any of the issues that erode society, I know you wish that it were up to somebody else, but it’s not. The secret of the universe has always been that it’s up to you. There’s no one else coming. I think it’s one of things we need to learn over the next hundred years. You’ve got to feel your power. It’s a completely healthy response to feel horrible about the world. What you want to do is turn any anger or pain you have into action. I don’t think we exist for any other reason than to be in service to each other, but that message has gotten deeply lost in politics and with the dominance of the corporate sector.

What does “give strategically” mean?
Strategic giving is about your investment over the long haul. If you really want to move a mission forward, meet with nonprofits you are most intrigued by. Without promising money upfront, learn about their mission, and how the organization plans to carry it out over the next five to ten years. Strategic planning is also about thinking about your giving, your strategic impact in a multi-year period, and thinking about your relationship to a nonprofit for a number of years. It takes patience but a donor should have benchmarks for a nonprofit organization. If donors know ahead of time what the benchmarks are, then they’re going to be more confident.

Be clear about your vision and your values and the difference that you want to make in the world. Be really clear that every time you write a check, it’s to the exact spot you want it to go.

The first thing I do with people is to explore their history of giving in their own family. What did giving look like when you were growing up? Did your parents write checks, did your mom volunteer, did your family talk about social problems, did you read the paper? Most people I’ve met, no matter their income level, have some history of giving in their family. When you consider your history, you realize you are sustaining and growing your own lineage’s contributions to the world.

Why is money essential for social change?
Money is hard to give away. We deeply hold on to money and don’t redistribute it. We are happy to give away our time because it’s not money. Money is stifled in bank accounts rather than moving fluidly throughout systems—systems which, when under-funded, keep people in poverty but when fully funded help all of us reach our potential.

Wealth redistribution is one of the key ways you ensure the quality of living. I understand how hard it is to let go of money if you’re not sure you can replace it. But that’s what makes social change—taking a risk for the greater good.

It’s not just the checks we write, but the act of faith that money will be used wisely. When we let money go, a lot of the social change values we want to see enacted will be. Most people don’t write checks because they are afraid that they’re not going to have enough money for their life. It is the very act of writing out of your comfort zone that ensures social change and builds movements for fairness and equality.

What was your first investment?
I wrote my first $1,000 check to the Women’s Funding Network. I saw myself as a donor for the first time, and I saw myself as part of a collective group of people all working toward the same mission. That was a very powerful feeling. It was a stretch to write it. I felt I was a $1,000 donor in my heart. I just had to manifest it somewhere.

 

Kathy LeMay ’93 is President and CEO of Raising Change, LLC. Raising Change helps progressive nonprofit organizations raise the capital they need to advance social change agendas worldwide. Like most people, LeMay strives to make money at what she does; what makes her different is she wants to give most of it away. As a professional fundraiser and social-change trainer for 15 years, LeMay has raised millions of dollars in the fields of women’s human rights, hunger and poverty relief, HIV/AIDS, and movement-building. A big breakthrough for LeMay came in 2001, when she represented Women for Women International on the Oprah Winfrey Show. The show prompted a gush of cash for the Women for Women program through which women sponsor “sisters” in rebuilding lives torn apart by war. “Eight-five thousand dollars a day started coming in,” says LeMay. “It was insane.” The show launched the organization’s growth from an annual budget of $500,000 to its current $10 million range.  That’s pretty good for a working-class girl from Uxbridge, Massachusetts who cut her teeth as a do-gooder going door-to-door to oppose a proposed factory farm for poultry in her neighborhood. After graduating from UMass Amherst, LeMay volunteered in war-torn Yugoslavia, where she met and worked with women survivors of the siege and rape-genocide camps. This was a pivotal experience in her life, solidifying LeMay’s commitment to increasing the assets of women worldwide and building a critical mass of women leaders. After climbing through the fundraising ranks at a host of nonprofits (Food Lifeline in Seattle, the National Law Center on Homelessness and Poverty, and others), LeMay created Raising Change to capitalize on her expertise helping donors achieve the greatest impact with their gifts. She has since helped raise an additional $100 million philanthropic dollars for social change. She is a prolific public speaker on strategies that advance the movement for justice (“Creating A Social Action Plan for Life—Seven Steps to Making the World A Better Place”) and that empower women (“Women Go Global: How Women Led-Activism and Women’s Money Are Changing the World”).