Okay, I can’t help myself on this one…
This is probably my favorite commercial from the past decade and I have to share. It’s so clever and such a perfect picture of American life: put up the façade of success, put on a happy face, and be miserable and in over your head because of debt accumulated to attain the façade.
Click the link to follow:
http://www.youtube.com/watch?v=hn5EP9StlVA
As a note, I have very strong opinions (in the negative) about some of the financial products that are being pitched in the advertisement (more to come on such products in later posts). That being said, here’s my disclaimer…
Disclaimer: Advertisements shall not be construed as a recommendation to buy or sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility and it is recommended that you seek advice before participating in such actions.
Friday, July 23, 2010
A note on future posts...
Just a note for those of you that are following along: I’m intentionally focusing on – and beating on – debt for a few more posts because I really want to paint the picture for how bad of a situation we as a nation and individuals are in. I imagine that I’ve stepped on some toes along the way and ruffled some feathers. You know what? I’m okay with that. These are candid posts. Sometimes you can’t truly make a turnaround in your life and behavior until you are confronted with and recognize your own depravity. Some of the things I’m writing about unfortunately have just as much sting to me as they may to you…
Once we push past focusing on debt, I’ll launch into some of the following topics (in no particular order):
· Budgeting, oh glorious budgeting…
· Aaron’s 5 things every investor should know…
· Understanding financial instruments and investing basics…
· The underlying great debate of the financial world…
· Rating Agencies and their contribution to the 2008 financial meltdown…
The conversation continues………
Once we push past focusing on debt, I’ll launch into some of the following topics (in no particular order):
· Budgeting, oh glorious budgeting…
· Aaron’s 5 things every investor should know…
· Understanding financial instruments and investing basics…
· The underlying great debate of the financial world…
· Rating Agencies and their contribution to the 2008 financial meltdown…
The conversation continues………
Wednesday, July 14, 2010
Cause and Effect...
The decisions you make today, the way you live, the way you act, all affect people around you and the generations to follow you. Yes, I know I know - "Duh, Aaron…thanks Captain Obvious."
Stick with me on this...
For those of you that have kids (and those that don’t), think a minute about the basic concept of modeling. Simply, what you do is watched by your kids and they model your behavior. You may not even be aware of it, but they are watching your every move. For instance, you may think to yourself, “I’d like my kids to be kind to each other,” but are you being kind to your spouse? How do you respond when kids do something you disapprove of? What's the response to a guy that cuts you off in traffic? Kids notice and pick up on things, then model it too.
In a similar vein, I’d like to focus a minute on money and finances.
Think about it. If your family grew up well to do or with nothing at all, the manner in which your family spent money (or didn’t spend money) affects the way you spend money currently. For instance, if your parents repeated the mantra; “you’ll always have a car payment”, then you will most likely always lease a car over the span of your life. The truth is that the time value of money needs to work for you, not against you. Save money, pay cash for the vehicle and take the money you would have paid in interest on those car payments and put it to better use.
Let’s take a look at history for a moment. Thinking back to the “Greatest Generation” – those that have seen the Great Depression of the 1930s – most lived very modest lives throughout their 20s, 30s, 40s and 50s. They saw the effects of the Great Depression and never wanted to find themselves in that situation again. So they saved money, carried no debt, and spent modestly. Their children, the Baby Boomers, grew up without much excess as well. (Here’s my sociology opinion for the day) But, an interesting thing happened for the Baby Boomers - somewhere along the way, the Boomers made an internal vow: “I don’t want to live like my parents and I don’t want my kids to have to experience growing up ‘without’ like I did.” With the changes that came about in the 1960s, both men and women were entering the workforce, dual income families were springing up, and households were having more disposable income. The results? Households started spending more and saving less (see the post Debt Happy for charts related to consumer credit and the start of the upward trend in household debt – it all begins in the mid to late 60s). Then when couples started having kids (and in line with their internal vow), they spoiled them. And thus the great downward spiral had taken full effect.
Have a look at the chart below for savings rates for the U.S. (along with some other countries) over the past 20 years (I believe you can click on the image for a larger view).
It’s a messy chart, I admit. But do you notice something? All countries noted (with the exception of France) have a decreasing savings rate over the full 20 year time period and end lower than where they started. Also, see the time period from 1990 to 2000? During a time of economic explosion and prosperity for the U.S. and the world during the 90’s, most all countries (except France and Switzerland) had a decreasing savings rate. Why? Most were not saving during economic prosperity, but were spending instead.
So, what have these changes and behaviors in society cost us? What can we learn here?
For one, depending on what source your read, anywhere from 20-30% of Baby Boomers have no savings for retirement and 45-50% will not have enough to last through retirement. Wow. Now that’s a huge statistic. Many Boomers will be forced to work into their 70s to be able to live and save up for some retirement. Children of Boomers, guess what? Your parents may have to live with you during their retirement years (gasp).
Weren’t we talking about modeling initially? Yes, I’m glad you asked. If the Boomers went on a spending spree for the past 40 years, what do you think their kids have seen? They’ve seen: unbridled spending at will…
“Oh, you’re just being dramatic…” Am I? How many of us Generation X/Y’ers remember having/receiving/participating in any of the following: Video games, computer games, Beanie Babies, Barbies, Tickle Me Elmo, Walkmans, CDs, DVDs, laptops, cell phones, anything made by Apple, shopping sprees, vacations to destinations (skiing, cruises, Disney Land/World, Cancun, Europe, etc.) receiving a brand new car, and/or having your college education paid for? These things add up. Add on top of that anything our parents bought during that time for themselves, our family, or others and the vortex of money spiraling into the economy gets bigger and bigger while savings get smaller and smaller.
The results on the younger generation? Here’s an example (this may hurt): within the first 5-7 years, a newly married couple will have attained the same level of “comforts”, possessions, and lifestyle as their parents and grandparents – which took them 30+ years to attain. This one hits close to home for me. Yikes! And many newly married couples attained said status, not because they are earning more, but because of credit debt and spending beyond their means – mimicking the lifestyle that was set out before them. Again, see the graphs in Debt Happy, if you think I’m joking. Pretty scary stuff.
So here’s the question: how do we stop this downward spiral? How are we going to train up the next generation of spenders? Is it possible to change our current ways and habits?
I find the following very applicable in regards to reversing our spending habits and being disciplined spenders. For your consideration:
“No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it.” - Hebrews 12:11
Stick with me on this...
For those of you that have kids (and those that don’t), think a minute about the basic concept of modeling. Simply, what you do is watched by your kids and they model your behavior. You may not even be aware of it, but they are watching your every move. For instance, you may think to yourself, “I’d like my kids to be kind to each other,” but are you being kind to your spouse? How do you respond when kids do something you disapprove of? What's the response to a guy that cuts you off in traffic? Kids notice and pick up on things, then model it too.
In a similar vein, I’d like to focus a minute on money and finances.
Think about it. If your family grew up well to do or with nothing at all, the manner in which your family spent money (or didn’t spend money) affects the way you spend money currently. For instance, if your parents repeated the mantra; “you’ll always have a car payment”, then you will most likely always lease a car over the span of your life. The truth is that the time value of money needs to work for you, not against you. Save money, pay cash for the vehicle and take the money you would have paid in interest on those car payments and put it to better use.
Let’s take a look at history for a moment. Thinking back to the “Greatest Generation” – those that have seen the Great Depression of the 1930s – most lived very modest lives throughout their 20s, 30s, 40s and 50s. They saw the effects of the Great Depression and never wanted to find themselves in that situation again. So they saved money, carried no debt, and spent modestly. Their children, the Baby Boomers, grew up without much excess as well. (Here’s my sociology opinion for the day) But, an interesting thing happened for the Baby Boomers - somewhere along the way, the Boomers made an internal vow: “I don’t want to live like my parents and I don’t want my kids to have to experience growing up ‘without’ like I did.” With the changes that came about in the 1960s, both men and women were entering the workforce, dual income families were springing up, and households were having more disposable income. The results? Households started spending more and saving less (see the post Debt Happy for charts related to consumer credit and the start of the upward trend in household debt – it all begins in the mid to late 60s). Then when couples started having kids (and in line with their internal vow), they spoiled them. And thus the great downward spiral had taken full effect.
Have a look at the chart below for savings rates for the U.S. (along with some other countries) over the past 20 years (I believe you can click on the image for a larger view).
It’s a messy chart, I admit. But do you notice something? All countries noted (with the exception of France) have a decreasing savings rate over the full 20 year time period and end lower than where they started. Also, see the time period from 1990 to 2000? During a time of economic explosion and prosperity for the U.S. and the world during the 90’s, most all countries (except France and Switzerland) had a decreasing savings rate. Why? Most were not saving during economic prosperity, but were spending instead.So, what have these changes and behaviors in society cost us? What can we learn here?
For one, depending on what source your read, anywhere from 20-30% of Baby Boomers have no savings for retirement and 45-50% will not have enough to last through retirement. Wow. Now that’s a huge statistic. Many Boomers will be forced to work into their 70s to be able to live and save up for some retirement. Children of Boomers, guess what? Your parents may have to live with you during their retirement years (gasp).
Weren’t we talking about modeling initially? Yes, I’m glad you asked. If the Boomers went on a spending spree for the past 40 years, what do you think their kids have seen? They’ve seen: unbridled spending at will…
“Oh, you’re just being dramatic…” Am I? How many of us Generation X/Y’ers remember having/receiving/participating in any of the following: Video games, computer games, Beanie Babies, Barbies, Tickle Me Elmo, Walkmans, CDs, DVDs, laptops, cell phones, anything made by Apple, shopping sprees, vacations to destinations (skiing, cruises, Disney Land/World, Cancun, Europe, etc.) receiving a brand new car, and/or having your college education paid for? These things add up. Add on top of that anything our parents bought during that time for themselves, our family, or others and the vortex of money spiraling into the economy gets bigger and bigger while savings get smaller and smaller.
The results on the younger generation? Here’s an example (this may hurt): within the first 5-7 years, a newly married couple will have attained the same level of “comforts”, possessions, and lifestyle as their parents and grandparents – which took them 30+ years to attain. This one hits close to home for me. Yikes! And many newly married couples attained said status, not because they are earning more, but because of credit debt and spending beyond their means – mimicking the lifestyle that was set out before them. Again, see the graphs in Debt Happy, if you think I’m joking. Pretty scary stuff.
So here’s the question: how do we stop this downward spiral? How are we going to train up the next generation of spenders? Is it possible to change our current ways and habits?
I find the following very applicable in regards to reversing our spending habits and being disciplined spenders. For your consideration:
“No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it.” - Hebrews 12:11
Sunday, July 11, 2010
Debt Happy
Finance and economic nerds love charts…we have charts for everything. While most are boring and useless, the following are ones that are incredibly interesting and tell an important story. The first graph shows “Total Revolving (Consumer) Credit” from 1968 to April of 2010. Have a look.
“Revolving Consumer Credit” what’s that? Think of it as the collective amount of credit debt we as individuals have in the U.S. (not mortgages folks, but just credit based debt). In light of that explanation and viewing the chart, I hope you realize just how “debt happy” we (as Americans) are. We’ve gone from an era where the only debt people had was a mortgage and NO credit debt, to an era where we not only have mortgages, but almost 1 Trillion dollars in revolving credit debt – all in the span of 40 years! That is truly scary.
Have a look at the next chart: “Household Credit Market Debt Outstanding” from 1953 to 2010. This chart represents the collective amount of debt we as individuals in the U.S. This includes mortgages and revolving consumer credit from above. Think the revolving consumer credit number was shocking? Have a look at the graph…almost 14 Trillion dollars in debt! For perspective that’s just about the same amount as the U.S. federal deficit. Wow.
Now, what’s amazing to me is reflected in both charts around mid 2009. That’s when the trend line GOES DOWN for the first time in 40 years! Nothing like a good financial crisis and global recession to wake people up, eh?!?! Had it not gone down, we’d most likely be past the 1 Trillion mark for revolving consumer credit and past 14 Trillion for household debt!
Consider this. There are four ways to reduce debt burdens:
- By paying down debts via accumulated savings (which the decrease in the trend line reflects).
- By inflating away the value of money (this would be the result of “the Fed” a.k.a., Federal Reserve Bank, making changes to policies that cause inflation – hasn’t happened yet and not what they want to do as a first resort).
- By reneging in part or full on the promise to repay by defaulting (going into bankruptcy, for example – some do this, but it’s not a fun, easy, or pain-free fix).
- By reneging in part on the promise to repay through debt forgiveness (Think this will happen in a capitalistic society? Not!).
Here’s the BIG question: what do you think will happen to these trend lines once we “come out of the crisis/recession/economic downturn?
I submit to you that they will go back up. People come to their senses in bad times and get serious, yet when the good times return they forget the hardships and fall back into bad habits and an anesthetized existence. Proverbs 26:11 sums it up best and I submit to you for your consideration: “Like a dog that returns to his vomit is a fool who repeats his folly.”
Saturday, July 10, 2010
An interesting economic indicator, courtesy of the housing market...
So here's an interesting economic indicator for you...
How strong is our economy without government intervention? Check this out:
Sales of newly built homes plunged -32.7% in May 2010 following the expiration of special tax credits for home buyers. A year ago, the decline was -16%.
Sales for March and April 2010 were actually up 12.1% and 14.7%.
This underscores how much those subsidies fueled sales in previous months. In an era with historically low interest rates, people are not running to buy homes and have to be enticed with government tax credits. That’s pretty scary stuff.
Think our economy is “recovering”? I have serious doubts. Without the government intervention, the illusion and façade goes away, and we see the ugly picture of how things really are.
In response to the May plunge, guess what just happened at the end of June? Congress passed (and the President signed) a bill extending the home buying tax credits to September 30th of this year. Think the writing is on the wall? Yep. Our government realizes the housing market still needs to be propped up and that the economy is not that healthy.
How strong is our economy without government intervention? Check this out:
Sales of newly built homes plunged -32.7% in May 2010 following the expiration of special tax credits for home buyers. A year ago, the decline was -16%.
Sales for March and April 2010 were actually up 12.1% and 14.7%.
This underscores how much those subsidies fueled sales in previous months. In an era with historically low interest rates, people are not running to buy homes and have to be enticed with government tax credits. That’s pretty scary stuff.
Think our economy is “recovering”? I have serious doubts. Without the government intervention, the illusion and façade goes away, and we see the ugly picture of how things really are.
In response to the May plunge, guess what just happened at the end of June? Congress passed (and the President signed) a bill extending the home buying tax credits to September 30th of this year. Think the writing is on the wall? Yep. Our government realizes the housing market still needs to be propped up and that the economy is not that healthy.
Thursday, July 8, 2010
Inaugural post...so it begins.
Greetings,
So you’ve come to this blog…I’m glad you’ve stopped by to have a look. If you’re wondering why you should read this blog, here’s some background on it/me:
I'm a self proclaiming budget and finance nerd. I've recently gone back to school to get my MBA and discovered that I love finance and love talking about finance! Up until my recent schooling I would have said I was a pretty knowledgeable investor...boy was I wrong! I’ve been brainwashed by the existing financial establishments to believe what they’ve wanted me to believe. This blog was born out of all the stuff I've been learning and think "common folks" like myself would like to know (and should know) about the subject of finance, money, and investing. I’ll try and keep the concepts and posts as simple as possible and cut out academic jargon (or at least explain it if I use it). I hope you enjoy!
For starters, here are some great quotes that I’ve come across and find incredibly thought provoking. For your consideration:
“The markets can stay irrational longer than you can stay solvent.”
-John Keynes
"Only a virtuous people are capable of freedom. As nations become more corrupt and vicious, they have more need of masters."
-Benjamin Franklin
“Governments don’t solve problems, they only rearrange them…”
-Ronald Reagan
"When the people find that they can vote themselves money, that will herald the end of the republic."
-Benjamin Franklin
“…Deficit spending as far as the eye can see risks a catastrophic outcome.”
-Edward Harrison
"The Constitution only gives people the right to pursue happiness. You have to catch it yourself."
-Benjamin Franklin
“Children do what feels good. Adults devise a plan and follow it.”
-Dave Ramsey
So you’ve come to this blog…I’m glad you’ve stopped by to have a look. If you’re wondering why you should read this blog, here’s some background on it/me:
I'm a self proclaiming budget and finance nerd. I've recently gone back to school to get my MBA and discovered that I love finance and love talking about finance! Up until my recent schooling I would have said I was a pretty knowledgeable investor...boy was I wrong! I’ve been brainwashed by the existing financial establishments to believe what they’ve wanted me to believe. This blog was born out of all the stuff I've been learning and think "common folks" like myself would like to know (and should know) about the subject of finance, money, and investing. I’ll try and keep the concepts and posts as simple as possible and cut out academic jargon (or at least explain it if I use it). I hope you enjoy!
For starters, here are some great quotes that I’ve come across and find incredibly thought provoking. For your consideration:
“The markets can stay irrational longer than you can stay solvent.”
-John Keynes
"Only a virtuous people are capable of freedom. As nations become more corrupt and vicious, they have more need of masters."
-Benjamin Franklin
“Governments don’t solve problems, they only rearrange them…”
-Ronald Reagan
"When the people find that they can vote themselves money, that will herald the end of the republic."
-Benjamin Franklin
“…Deficit spending as far as the eye can see risks a catastrophic outcome.”
-Edward Harrison
"The Constitution only gives people the right to pursue happiness. You have to catch it yourself."
-Benjamin Franklin
“Children do what feels good. Adults devise a plan and follow it.”
-Dave Ramsey
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