As the College continues its celebration of the Barnard Year of Science, we’re taking a look at the role economics plays in STEM. While the “e” in that acronym refers to “engineering,” many academic institutions, including Barnard, now classify economics as a STEM major since the field explains how the world works using scientific reasoning and statistical analysis. Economists are trained in processing data and combining information with models to understand how and why economic variables behave as they do.
These days, economists are thinking a lot about inflation, which the International Monetary Fund defines as “the rate of increase in prices over a given period of time.” Susan Pozo ’76, professor of economics at Western Michigan University, noted that because it has been some time — 40 years, to be exact, since the U.S. has faced high rates of inflation — many may not be financially and psychologically prepared for an inflationary spell.
Pozo cites the “Great Resignation” as a source of inflationary pressures due to reduced labor force participation rates in various segments of the population. “The resulting labor shortage has put lots of upward pressure on prices,” she said. “I am not very hopeful that those labor force participation rates will be returning to prior levels very rapidly, so it is likely that we will continue to see upward price pressures.”
Talya Bock ’06, financial advisor at Merrill Lynch Wealth Management, noted that while some amount of inflation is normal and healthy, the rate of the current rapid increase in prices is unusual. Between COVID-19-related supply chain issues and the very low inflation experienced in the U.S. over the past several years, she believes the country is “catching up.” Thankfully, Bock thinks that both causes of inflation should resolve themselves in the medium term.
No matter what, financial wellness will remain a priority of the College through its Feel Well, Do Well @ Barnard campaign and the Francine A. LeFrak Foundation Center for Well-Being.
Learn more, below, about Bock’s and Pozo’s careers and their insights for how best to cope with inflation.
Talya Bock ’06, financial advisor at Merrill Lynch Wealth Management
“Barnard gave me a sense that I could do anything, so long as I put my mind to it.”
As a history major at Barnard, Bock enjoyed studying the social, cultural, and religious implications of historical events, even as she felt that something was missing. So she added economics to her major to better understand history’s twists and turns.
After graduating, Bock was hired by an investment bank and spent three years working in equity capital markets, taking large corporations public. The 2008-2009 financial crisis forced her to examine her priorities and pivot to private wealth management, where she now works at the intersection of individuals and personal finance.
“I help my clients with the big questions they face in life, such as: Can I afford to renovate my home? Send my kids to college? How much can I safely spend in retirement without running out of money?” she said. “I’m honored to help clients invest with confidence so that they avoid costly mistakes, such as buying too much house, selling during down-market periods, or holding on to too much cash.”
For parents who still have children at home, Bock’s best financial advice is:
- Pay yourself first. Invest in your own future before that of your children. Unlike for our grandparents, there isn’t much of a social safety net for one’s later years, so make sure you’re putting away some money for the future.
- That said, one cannot delay gratification forever. So treat yourself in the now, too! One guideline I offer clients is that your annual income should be allocated as follows: 50% fixed costs, 30% variable costs, 20% savings.
- Do not be intimidated. You have all the tools you need to learn the language of investing.
- Be wary of “shiny objects” in investing. There is a temptation to be wooed by investments promising quick returns. The safest, most reliable way to generate wealth over the long run is through a broadly diversified portfolio.
- Stay the course. We’ve all gotten used to double-digit returns on our portfolios over the past several years, which makes the recent swings all the more unnerving. The important thing to remember is that those boom years are a historical anomaly. History also teaches us that if you stay invested over the long run, you’ll come out on top.
Susan Pozo ’76, professor of economics, Western Michigan University; Research Fellow, IZA – Institute of Labor Economics
“Barnard gave me the opportunity to combine two loves — quantitative data and literature.”
At Barnard, Pozo majored in foreign area studies, with a concentration in Latin America, and prepared for graduate school in economics by taking many classes in economics, math, and statistics. She began her career working with and researching foreign exchange rates — their statistical properties, how predictable or unpredictable they were, and how volatility and uncertainty in the value of the U.S. dollar influenced international trade transactions — both contemporary and in the past.
A midcareer switch led Pozo to apply statistical tools to understanding migrant remittances, the money they send back to their home economies. Her research contributions in this area focus on migrants’ behavior with respect to asset diversification and how migrants’ attachments to two countries can be leveraged to diversify and protect against financial and other risks.
A former Fulbright research scholar in Uruguay and visiting professor in Spain and the U.K., Pozo spends long periods of time in different countries to better understand each place’s economy.
For students who need advice on how to manage their finances during inflationary times, Pozo offered these insights:
- Always, always, always diversify. Putting all of your assets in cash, with interest rates at a fraction of a percent, won’t do you much good with keeping up with inflation, currently running at 7% or 8%. But be mindful of other classes of [SP1] assets as they may be risky in other dimensions as we have recently seen with respect to cryptocurrencies.
- If you have a part-time job, watch what is happening with wages. In some jobs, wages are more likely to adjust upward with inflation, while in other jobs they will tend to remain flat.
- Be careful with your credit card debt. Track the interest rate charged to the current inflation rate. Credit card firms may use the excuse of inflation and then adjust interest rates upward by more than the inflation rate. The difference between the rate that they charge and the inflation rate represents your true borrowing costs.
- Pay attention to your student loans. If you are taking on debt for education, take note about whether the interest rate charged is a fixed or variable rate. A small percent difference over the lifetime of the loan can make a big difference.
To learn more about the Francine LeFrak Center, which will include state-of-the-art facilities for financial fluency and wellness programs, click here.
—MICHELE LYNN ’82