Here’s What Trump and Clinton Mean for Financial Education

November 8, 2016

The following is a transcript of a keynote speech that RightAboutMoney founder Dan Kadlec delivered at the 2016 JumpStart National Educators Conference in Dallas, Texas, on Nov. 5. Dan talks about the presidential election and its impact on financial education and investments.

At this point, I think the best thing we can say about the presidential election cycle is that it is over…or will be very shortly. I venture to say that none of us in this room has ever experienced one quite like it…and hopefully we never will again. There has been painfully little discussion of a thing we all care so much about…financial education… not just in the classroom or workplace… but in a broad sense that includes topics like saving and retirement security, and making your way in the new gig economy. Meanwhile, there has been a painful overload of talk about… personal anatomy, private emails, infidelities and beauty queens. The political world is rife with a variety of news reports popping up, whether it be about Hillary Clinton and her emails, Caylan Ford and her views on white supremacists, or Ted Cruz and his leadership skills, the nation will not go hungry with all the information coming out of the woodwork and influencing how people vote.

We all know how bizarre the campaign has been. But let me begin with a couple of telling facts about this election cycle. There are countless oddities…so many that I could probably recite them… through the full length of this lunch… But I’ll offer just two…

The Arizona Republic is a venerable newspaper that began publishing in 1890…It had never endorsed a Democrat for president… Not ever… That’s 126 years of dyed-in-the-wool conservatism… starting with Benjamin Harrison and encompassing half of our presidencies…

But in September the editorial board at The Republic declared Donald Trump unfit for the office and endorsed Hillary Clinton…In doing so, The Republic joined the Dallas Morning News… and Cincinnati Enquirer as improbable Clinton supporters…neither of those papers had endorsed a Democrat since before World War II. As far as I know there were no riots in the streets…though subscription cancellations at the Republic were said to be coming in at one every 10 minutes.

About the same time that The Republic was throwing its weight behind a political party it pretty much deplores, lifelong Democratic bigwig Andrew Stein, who has had ties to… and relationships with… the likes Hubert Humphrey… the Kennedys and Mario Cuomo, renounced Hillary Clinton and threw his support behind Donald Trump. Here is what he said:

“I believe my party (The Democratic party) has become the party of THE elite and moneyed class and has deserted its historic mission as the party of the working class and disadvantaged.” This lifelong Democratic power broker now believes that Donald Trump, a billionaire Republican, will do more for the working class than Hillary Clinton.

Does anyone else feel the tremor? We have one candidate…Hillary Clinton… that, by popular perception, will say almost anything to get your vote. We have another candidate in Donald Trump that will say…well… almost anything… and has driven much of even the Republican elite to the other side.

It feels a little like a reality TV show, doesn’t it? I imagine a Trump presidency with secretary of defense going to the winner of American Ninja Warrior … and how about Secretary of Commerce… Kim Kardashian. Can you imagine a First Man…Bill Clinton…back in the White House……. with interns…

In many ways, this election cycle has been a political writer’s dream. But…And now I’ll get to the point… It has been a personal finance writer’s worst nightmare. Almost none of the issues that matter to our pocketbook…our ability to prepare for retirement…advance our careers…and generally take care of our finances in this new do-it-yourself economy… have gotten much air time. We just don’t know what we will get with either candidate…

At this point, judging by the polls, we should probably just talk about Hillary Clinton. And that would certainly be easier since she has actual proposals out there…But recall that Dewey famously went to bed thinking Truman was toast….you never know……

That’s not a prediction by the way…but my guess is that Trump will get more votes than the polls suggest…He has become difficult to publicly endorse…even by individuals to a pollster…but the disgust with politics as usual that got him this far has only grown more acute…We’ll just have to see what happens on Tuesday.

Before we get to the investment issues in this election, let’s first consider the future of financial education…this global movement to make people smarter about their money. Everyone in this room is a key part of that fight…. I believe that reaching young people… in a way that makes a lasting impression on how they handle their money…. is the best way to solve the crisEES around retirement savings and basic sound money know-how…. The things that our candidates won’t even talk about. Their silence on these issues means it is pretty much up to us as individuals to sort it all out.

Aside from my work for Time and Money, I run an online platform called Right About Money. I have left some literature for you all to take away and I hope you will give it a look. Right About Money dotcom is designed with educators and policymakers in mind and seeks to inform the global discussion surrounding financial literacy… financial education…. and financial capability. Basically, we report on why financial literacy is important…who is doing what to advance it… and how well it is working. Right About Money is meant to be a one-stop news source for financial educators and other interested parties.

Our core belief…and you can read this in the mission statement…is that “financial literacy among all populations is the best way to prevent a money crisis… underpin global economic growth… and secure long-term individual well being.”

This is my part of the fight for financial know-how… It’s a small part compared to yours. Educators are the key… and as I move forward I expect to devote a lot more time and space to the needs and successes of those in the classroom…You can all help me get there by visiting the site and signing up for the… FREE… daily email report. I’m confident you will find something there that interests you. And if you want to know a little more about me, I just did a fun podcast with NextGenPC that you can find on its website as well as in the conversations section on RightAboutMoney Dotcom.

OK, enough about that. While we in this room are spending a lot of time wrestling with financial ILL-literacy…It is an open question how much attention the candidates would give it. The very best thing I can report about their commitment to financial education is that, historically, this has been a bi-partisan issue with genuine support.

The financial literacy mission in this country is actually hundreds of years old. Abraham Lincoln launched the Freedmans Bank to help former slaves learn about money and enterprise… Junior Achievement has its roots in the century-old quest to prepare young farmers to run the family business…Yet financial literacy as we know it today…teaching young people about credit, saving, budgets and emergency funds…is less than 20 years old… JumpStart, and its sponsors, of course, have done much to bring it to life… and today hundreds if not thousands of organizations are playing a role.

That is in part a credit to Washington’s support… Which galvanized around the Great Recession. In 2008, George W. Bush signed an executive order authorizing the first President’s Advisory Council on Financial Literacy, clearly signaling that this was an issue of great importance for the nation. Some esteemed members of that first council are at this conference… Barack Obama reauthorized the council…but he changed the focus a bit, making it less about Bush’s “ownership society” and more about youth and access… Despite some subtle differences both parties have committed resources to the broad effort to make individuals smarter about their money.

So where are we headed?

It’s not at all clear where Donald Trump stands on the issue… and it’s probably safe to say that he hasn’t given it much thought. But we know that Trump wants to roll back as many regulations as he can, including the newly adopted Labor Department fiduciary rule…which requires financial advisers to put their client’s interests first. This is a popular rule among individual investors… and even Bank of America has expressed strong support….It would make a lot of sense for Trump to support financial education if he intends to strip away this particular consumer protection.

Hillary Clinton would seem most likely to support financial education. She runs in the same orbit with Vice President Biden… who is a staunch supporter of community colleges. Biden and others see community colleges as a missed opportunity…and want to make them free…and also make them a vehicle for more modern, necessary skills…like understanding how and why you should save and stick to a budget. Under Clinton, we could easily see some kind of broad-based financial education initiative run through community colleges.

In either event, what seems most clear is that the direction of financial education will continue to swing toward “capability” … as opposed to its roots in “literacy”…which basically means the evolving goal is to guide people to the best outcome as opposed to teaching them how to get there on their own.

This direction is generally good news for the large financial education infrastructure now in place… Hundreds of nonprofits have goals centered on things like inclusion, access, point of purchase guidance and other kinds of counseling. The next president can hit the ground running if SHE… or he… chooses. The mechanisms are in place… and while more research is always welcome, especially as it relates to financial education and behavioral change… enough is known to start moving forward with programs on a national scale.

JumpStart, of course, and many of you, are more about financial literacy… and the mission of reaching youth with real know-how… Rest assured…that will never go out of style. Kids are too young to need or benefit from straight up consumer advice… But they are the perfect age to form a ground work for understanding that advice…. And for the questions to ask when they reach adulthood. This seems like a pretty solid playbook to me: Lay the groundwork in school… and later focus on things like access and just-in-time guidance. That’s where we as a nation are headed….and I personally am very excited.

Now let me turn to the election… and its impact on your pocketbook. The first thing I will say is that nothing is obvious… and things don’t always play out according to the script. For example, healthcare stocks were supposed to be a disaster under Obama. But they have been among the best stock market sectors during his full tenure. And just last week we learned that the British economy… Which was expected to tank at least momentarily in the wake of the Brexit vote… grew at twice the rate economists had expected.

Likewise, it is commonly held that the markets do best under Republican administrations. Maybe that’s because Republicans are thought to be pro business… while Democrats are thought to be heavy handed regulators. But sometimes businesses go too far… and regulations become necessary…It didn’t take long for a financial crisis to develop after banks were given greater freedoms to risk depositor money in 1999.

Meanwhile, it’s just not true that markets do best under Republicans. Going back to 1900 and Teddy Roosevelt… The Dow Jones industrial average has had average annual gains of just 3% under Republicans…That compares to average annual gains of 7% under Democratic administrations…In more recent times…since 1960…Republican presidents have done better…but no better than Democrats…both have overseen average annual stock market gains of about 12%.

This is dicey analysis in some…if not many… respects. Consider that the Dow more than doubled under Obama. That would not have occurred without the market crash… that occurred just before he took office. Likewise…George W. Bush, who has one of the worst showings in terms of the Dow…had the misfortune of taking office just as Bill Clinton’s tech bubble was about to explode. So let’s not read too much into these figures…other than to note that myths and truisms abound in politics and the economy.

A recent poll shows how much faith we put in the party we most identify with. Asked which candidate would be best for their retirement aspirations…3 times as many Republicans said the Republican Trump, and 3 times as many Democrats said the Democrat, Clinton. It is a mathematic certainty that somebody is going to be wrong…Beauty really is in the eye of the beholder.

The smart play…almost always…is to think long term with your investments… Which means not paying a lot of attention to politics. Consider this…looking at the market since 1897 an investor who was all-in during her favorite political party’s reign…and All Out when the opposite party was in power…had very low returns whether Republican or Democrat…The investor who stayed in the market no matter what did 5 Times better.

I suggest you focus on the things you can control…like minimizing taxes and fees… rebalancing to stay diversified… keeping your desired asset allocation…and maxing out on your tax-advantaged savings plan. Playing short swings in the market is for the pros on Wall Street…and frankly even they are not good at it.

That said…There are some broad themes I’d like to highlight. Let’s begin with the overall market and it’s likely response to the election…

Like her or not, Hillary Clinton represents the status quo… and markets prefer the predictability she would bring. That’s why as her poll numbers were rising the stock market was generally buoyant.

Donald Trump…on the other hand…is what one analyst recently called “the mother lode of uncertainty.” That’s partly why the stock market has been falling for the past two weeks as Clinton’s email problems resurfaced in a big way.

Not only has Trump been vague about his policies…But he has alienated much of the international community. The global markets are pretty much assuming he will lose. So if he pulls off an upset it could trigger a much bigger selloff…That would lead pretty quickly to a buying opportunity, I believe, but would be no fun in the short term.

What might happen inside the market?

First, let me say that if you have a whole lot of money…and I mean A WHOLE LOT… Hillary Clinton is coming for it. She hasn’t been shy about saying so. According to the tax policy center her policies would raise taxes… annually… by an average of $78,000 for those in the top 1% of earners… and by more than a half million dollars for those in the top zero point one percent of earners.

No one else would feel much of a change….unless you have been a diligent saver and want to leave your heirs a large legacy. Clinton wants to raise the top estate tax to 45% from 40% and lower the exclusion from about $5.5 million to $3.5 million for individuals…double that for married couples.

Trump has pledged to do pretty much the opposite…cut taxes for everyone and do away with the estate tax entirely. He hasn’t said how he would pay for it.

The most interesting point here may be that…under Clinton… luxury goods makers may feel a bit of a squeeze. Some trends are already moving against them…luxury retailers are having their worst year since the recession. Under Clinton, A smart investor might stay away from things like Kate Spade, Prada, and Gucci. The big winner, under either candidate, would seem to be stocks of companies connected to our national buy cenforce no prescription infrastructure… industrial and materials companies that make the stuff that go into highways and bridges and mass transit… Both candidates have said they want to spend more on public works, in part to create jobs and stimulate a higher rate of growth…

That includes aerospace and defense companies too…partly because of the terrorism threat …but also because the military’s basic equipment and weaponry is seen as growing stale… in light of new technologies. Infrastructure and defense are a broad investment theme that could pay for years… and among the Wall Street houses getting positioned for it are Goldman Sachs and Fidelity Investments.

Healthcare stocks also look to be a winner regardless of who takes office. Many of these stocks have taken a beating this year… due to the uncertainty surrounding ObamaCare and Clinton’s pledge to keep drug prices affordable.

But that’s just noise. The global population is aging… that won’t change anytime soon… Healthcare is a growth industry that is providing rapid innovation that American companies are exporting overseas. If you look out five years this industry will have done very well… and will still have bright prospects.

Banks are a somewhat confusing story. Both candidates have a populist view and want to rein in banks’ risk taking. Clinton has proposed levying so-called risk fees on the largest banks and wants more authority to break them up…. Both candidates have said they favor reinstalling Glass-Steagall restrictions on depositor money. So our biggest banks will be operating under a cloud for a while. Community banks, on the other hand, should be pretty much left alone. Both candidates want to be seen as supporting Main Street… and may ease regulations for small lenders.

Big Oil is a clear winner under Trump and a clear loser under Clinton… Trump would roll back regulation and try to open more land and waters to oil and gas production… in part to create jobs and stimulate growth…He might also roll back tax breaks, subsidies, and mandates for alternative energy…Clinton’s approach is pretty much the exact opposite…One hedge fund manager I know is going long on oil and short on alternative energy if Trump wins…and going long on wind and solar companies and short on big oil if Clinton wins.

Technology. Trump would seem to be a winner for this sector, which has much of the $2 trillion that U.S. companies hold in banks overseas. Companies like Apple, Google, and Cisco… have as much as a quarter of their market capitalization in cash that would be costly to get at. Trump is most likely to offer a tax holiday that lets them bring that cash back to the U.S. with little tax due.

Homebuilders face some unusual risks, especially under a Trump presidency. Immigrants account for 22% of the homebuilder workforce and if Trump were successful in expelling part of this population it could create a costly labor shortage… It would also diminish demand for homes, including rentals…

Clinton is much more likely to encourage some kind of incentive for homeownership, especially at the entry level. Some fund managers I know are underweighting luxury homebuilders and overweighting those that serve the mass market.

Finally, The food industry may be in for some rough sledding as labor costs rise. The national minimum wage rate… last raised in 2009 and now at $7.25…is almost certainly going up…Clinton is in favor of $12 an hour… Trump has said this is a state issue… and many of the states are seeking $15 an hour. This would have a potentially devastating effect on the cost structure of many fast food chains and other eateries. Yet again, it’s still unclear how much impact it’ll have on the entire food industry – and especially on newly opened restaurants. Nevertheless, it is likely that major players in the industry and popular restaurant chains will continue to acquire efficient kitchen appliances such as food slicers and food processors to stay on top of their game.

So…that’s the landscape as I see it. But I must again caution anyone against making any big changes based on politics. The star mutual fund manager Bill Miller likes to say: “If it’s in the papers, it’s in the price.” Which is a nice way of saying the market has already factored in the election results…Long term nothing works better than staying diversified and staying invested.

Posted in Policy & Government on November, 2016