Our Money - Can The Goverment Protect It

By Dr. Boyce Watkins
www.BoyceWatkins.com

Media reports show that many Americans are not quite sure of what to do with their money. Watching banks fail left and right, people are logically afraid of what might happen to their savings. This fear is justified, as we are seeing our accounts beaten and stomped by the global financial meltdown.

This grave concern is magnified by the fact that those we’ve trusted are the ones who’ve left us vulnerable. Our most cherished financial experts handled our retirement accounts like flashy vehicles on a Nascar speedway. Our elected officials allowed executives in the banking industry to run rampant like 3-year olds with dirty diapers. Then, when the crash came, a massive bailout package was created for those most responsible for the damage, while the rest of us were left holding the tax bill.

This begs the question: Why in the hell should we trust the government?

I recall that during the failure of Enron, one of the most respected companies in America at the time, the firm made several statements designed to create confidence in the company’s financial condition. Like captains of the Titanic, company leaders explained that there was nothing to worry about, even as they themselves were preparing their lifeboats. When the company failed, those who did not protect themselves reminded us of one grim and fundamental truth: when the “you know what” hits the fan, it’s every man for himself….and every woman too, in case you’re wondering.

In response to such sentiment, the American consumer has been working overtime to protect his/her resources: people have (against my advice) moved their money away from the frightening stock market, they are diversifying money into different banks, and some are taking their money out of banks altogether. All of these actions are occurring in spite of government calls for calm in a world on the verge of financial panic.

The honest to goodness truth is that I don’t blame Americans for being afraid. I don’t blame them for not trusting the government right now. Trust must be earned in any relationship, whether it is a tough marriage of the relationship between a government and its citizens. Our government must work to regain that trust through sound and efficient financial management. It will NOT regenerate the public trust through excessive spending on meaningless wars, selfish pork-filled bills being passed through Congress and budget deficits that strain the resources of Americans everywhere.

I can’t tell you if the government is lying to you, but I can tell you this: There was a time when government guarantees such as FDIC insurance were as pure as the driven snow. There was a time when the United States Federal Government had pockets and resources so deep that even God himself could be bailed out with our cash. The sad truth, however, is that no empire lasts forever, and there is destined to be a day in the future when we are no longer the unquestionable economic super power that we once were. A country that can’t even afford its social security obligations is hardly a nation that has risen beyond economic risk.

Another sad truth is that if the financial world really were coming to an end, the citizens would be the last to find out about any such crisis. We would, simultaneously, be the first ones asked to suffer the burden of irresponsible behavior by our leaders. If that doesn’t justify a bit of skepticism, I am not sure what does.

Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, ESPN, CBS and BET. For more information, please visit www.BoyceWatkins.com.

Money Expert Boyce Watkins Tips For Consumer Confidence

Dr. Boyce Watkins
www.Boycewatkins.com

If you wish to see a video explaining consumer confidence, which is one of the driving issues behind the recent moves in the stock market, please click here.

This has been an interesting week, with auto execs showing up on private jets to request a bailout from the government and the Dow moving to below 8,000 points for the first time in 5 years. I still hold to the fact that this is a great time to get into the stock market if one has never done so before, especially if you are under the age of 50. By the way - please visit our sponsor, GreatBlackSpeakers.com if you are interested in hiring a top notch African American speaker or seeking to become one.

Take care!
Boyce Watkins
http://www.blogger.com/www.boycewatkins.com
Click here to join our money advice list.

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If you listen carefully to the words of Treasury Secretary Henry “Hank” Paulson and Ben “Big Ben” Bernanke (chairman of the Federal Reserve) you might notice a trend in their language. The word “confidence” is used a lot when they speak. Many of their monetary proposals are not necessarily valuable for their financial power, but also for their psychological power.

Some of you may wonder what confidence has to do with anything. After all, if you’re broke, confidence doesn’t exactly put money in your pocket. If you’re 100 pounds overweight, confidence won’t help you win the Olympic 100 meter dash. When you are flying on a crashing plane, confidence doesn’t keep the plane from slamming into the ground. But confidence is important to an economy, and one of the most significant drivers of economic growth. In fact, over confidence has driven US economic growth for the past 10 years. Here are some reasons that confidence matters in the minds of Hank and Big Ben:

1) Confident consumers spend money

If you think you might lose your job next year, are you going to max out your credit cards? I certainly hope not. If you are worried about being able to make ends meet, are you going to buy that big screen TV? Not unless you want your wife to leave you. So, even if it doesn’t hold any truth, the mere forecast of a weak economy is enough to make many Americans hold off on consumer spending, one of the great driving forces of the American financial system.

2) Confident companies invest money and hire workers

Investments involve risk. Your hunch may work out, and it may not. If you don’t believe the economy is getting better, you are not going to consider taking that risk. No one plans to go to the beach if the weather man says that it’s going to rain. When economic rain is in the forecast, companies pull out their umbrellas and hold off on new projects. This reduces the number of jobs in the economy, because nearly every job created in America is the result of someone making an investment.

3) Confident Americans do not take their money out of banks

In case you didn’t know, your bank does not have your money. Your money is part of a large base of financial capital that is loaned out to individuals and consumers seeking to get a good return on their investment. So, without investing, your bank would have no interest in paying you any interest at all. So if, say, 30% of all customers of the same bank decide to get their money out at the same time, the bank would have serious financial problems. It is a lack of confidence that could cause customers to “run” on their bank and take out their money.

4) Confident investors keep their money in the stock market

The stock market is a place where fortunes are made and lost. Some part of that fortune is psychological, given that no asset can have a value which exceeds that which someone is willing to pay for it. When investors lose confidence, they take their money out of the stock market, and reductions in demand for stocks lead to massive paper losses in the market. Additionally, most Americans are “momentum traders”, meaning that when the market goes up, they tend to buy more, and when it goes down, they tend to sell. History shows that it is actually the opposite approach that tends to work best.

5) Confident banks make loans

Banks have to keep a certain portion of their funds on hand at all times to meet federal requirements. If they are fearful that their customers might come and demand their cash, they hold onto their capital to ensure that it is available. If they are afraid that their borrowing customers will not be able to repay loans due to a weak economy, they also hold back on issuing new loans. The truth is that when economic forecasts are grim, conservative bankers become even more fearful than the rest of us.

The bottom line of this article is that confidence matters. So, the next time you hear Ben Bernanke give a speech, you can be confident that he is going to use language that makes you feel more secure. Whether you choose to believe those words is up to you.

Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, BET, ESPN and CBS. For more information, please visit http://www.blogger.com/www.boycewatkins.com. To join our money list, please click here.

Is The Government Being Honest With People - A Black Scholar's Thoughts

Remaining Confident During The Financial Crisis

by Dr. Boyce Watkins
http://www.boycewatkins.com/

If you listen carefully to the words of Treasury Secretary Henry “Hank” Paulson and Ben “Big Ben” Bernanke (chairman of the Federal Reserve) you might notice a trend in their language. The word “confidence” is used a lot when they speak. Many of their monetary proposals are not necessarily valuable for their financial power, but also for their psychological power.

Some of you may wonder what confidence has to do with anything. After all, if you’re broke, confidence doesn’t exactly put money in your pocket. If you’re 100 pounds overweight, confidence won’t help you win the Olympic 100 meter dash. When you are flying on a crashing plane, confidence doesn’t keep the plane from slamming into the ground. But confidence is important to an economy, and one of the most significant drivers of economic growth. In fact, over confidence has driven US economic growth for the past 10 years. Here are some reasons that confidence matters in the minds of Hank and Big Ben:

1) Confident consumers spend money
If you think you might lose your job next year, are you going to max out your credit cards? I certainly hope not. If you are worried about being able to make ends meet, are you going to buy that big screen TV? Not unless you want your wife to leave you. So, even if it doesn’t hold any truth, the mere forecast of a weak economy is enough to make many Americans hold off on consumer spending, one of the great driving forces of the American financial system.

2) Confident companies invest money and hire workers
Investments involve risk. Your hunch may work out, and it may not. If you don’t believe the economy is getting better, you are not going to consider taking that risk. No one plans to go to the beach if the weather man says that it’s going to rain. When economic rain is in the forecast, companies pull out their umbrellas and hold off on new projects. This reduces the number of jobs in the economy, because nearly every job created in America is the result of someone making an investment.

3) Confident Americans do not take their money out of banks
In case you didn’t know, your bank does not have your money. Your money is part of a large base of financial capital that is loaned out to individuals and consumers seeking to get a good return on their investment. So, without investing, your bank would have no interest in paying you any interest at all. So if, say, 30% of all customers of the same bank decide to get their money out at the same time, the bank would have serious financial problems. It is a lack of confidence that could cause customers to “run” on their bank and take out their money.

4) Confident investors keep their money in the stock market
The stock market is a place where fortunes are made and lost. Some part of that fortune is psychological, given that no asset can have a value which exceeds that which someone is willing to pay for it. When investors lose confidence, they take their money out of the stock market, and reductions in demand for stocks lead to massive paper losses in the market. Additionally, most Americans are “momentum traders”, meaning that when the market goes up, they tend to buy more, and when it goes down, they tend to sell. History shows that it is actually the opposite approach that tends to work best.

5) Confident banks make loans
Banks have to keep a certain portion of their funds on hand at all times to meet federal requirements. If they are fearful that their customers might come and demand their cash, they hold onto their capital to ensure that it is available. If they are afraid that their borrowing customers will not be able to repay loans due to a weak economy, they also hold back on issuing new loans. The truth is that when economic forecasts are grim, conservative bankers become even more fearful than the rest of us.

The bottom line of this article is that confidence matters. So, the next time you hear Ben Bernanke give a speech, you can be confident that he is going to use language that makes you feel more secure. Whether you choose to believe those words is up to you.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good”. For more information, please visit http://boycewatikns.com/

Dr, Boyce Teaches About Surviving During Money Meltdown

The Real Causes of the Financial Crisis

By Dr. Boyce Watkins

www.BoyceWatkins.com

I am no fan of President Bush. I made fun of the silly man long before it was popular to do so. However, in this case, I have to be one of the first to stand up and say that you can’t put all the blame for this financial crisis on his back. The War in Iraq? Yes. Hurricane Katrina? Absolutely. Damn near everything else? Sure, why not? But this financial mess should not, as our leading presidential candidates want you to believe, be slapped on the political tomb of Mr. Bush. That doesn’t mean he didn’t play a role, but Bush was more of a supporting actor in this horror story, not the star.

The horror story to which I am referring is that little news event surrounding a $700 Billion dollar bailout being sponsored by the Office Underwriting Corporate Hedonism (OUCH), also known as the Federal Reserve. Now, this is a different brand of corporate welfare, as taxpayer dollars are not being given away. At worst, taxpayer resources are being put at risk, as the Federal Reserve is making huge capital allocations to some of the nation’s most troubled financial institutions. As a lender of last resort, the Fed is responsible for investing money where the rest of us certainly would not.

To put it in layman’s terms, this is like using your savings account to loan money to an uncle who was fired for drinking on the job. Sure, he has been responsible in the past, and will likely be re-employed, but his recent behavior leaves you a little concerned. In the same light, taxpayer dollars in a financial crisis are like little soldiers being deployed to provide stability to the deadliest parts of the world. Many soldiers will come back home, while quite a few are going to be killed. Depletion of our government capital is quite likely in this scenario, for solving a global liquidity crisis with available reserves can be like using a kitchen sponge to soak up the ocean.

With that said, let’s discuss what this crisis is really all about. We must first understand the nature of our financial institutions. Banks and other entities providing credit to the consumer are a lot like drug dealers (both legal and illegal drug dealers are included in this example). Drug dealers give you something that you definitely want and even think you need. The drug (cash) is powerful, makes your problems go away and has a long-term consequence if you abuse it. That’s where the government steps in. The role of government is to regulate our financial drug dealers to ensure that they are not encouraging substance abuse from the users (American consumers), and to also ensure that consumers are relatively well-educated about the consequences of using the drugs (that’s where terms like “predatory lending” come from).

In order to make the economy appear strong, our financial drug dealers were allowed to run wild. Loans were being made to people who could not afford to pay them, causing the prices of homes to be bid out of control (it’s easier to bid a higher price on a home when your banker loans you all the money you need). Ultimately, consequences were felt when millions of Americans suddenly realized that they could not repay the amounts listed on the dotted line. This situation is not much different from what we are now seeing in the pharmaceutical industry, in which drug companies are using ads to encourage patients to walk into the doctor’s office and ask for whatever drug they saw on TV the night before (you hear that Rush Limbaugh?).

Now, before you go and burn down the nearest bank in your neighborhood, realize that it takes two to Tango. As Bill Cosby (perhaps naively) believes, “making good decisions makes everything ok.” We must remember that if all people made good decisions, drug dealers would have no customers. The truth of the matter is that in spite of the fact that our institutions and governmental authorities have failed us, one of the greatest culprits in this mess is the financial greed and myopia of the American consumer. We as Americans are among the most gluttonous and short-sighted consumers in the world. We borrow money to go on vacation without thinking twice, we don’t save for retirement, and we tend to do P Diddy/Paris Hilton imitations on every shopping trip. Money is our drug and we all rejoiced when there were more drug dealers in our neighborhoods.

So while Barack Obama and John McCain want to attack the clearly unqualified man in the White House over this mess, the truth is that we mostly have ourselves to blame. This crisis affects us all, and the corporate problems are nothing more than an aggregated manifestation of very bad individual decisions. Simultaneously, our legislators must be held accountable when ensuring that corporations are given incentives to engage in responsible lending. Perhaps a hybrid of the Cosby model is appropriate here: let’s get the drug dealers out of our neighborhoods, but let’s also make our neighborhoods a bad place to sell drugs.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of the forthcoming book “Black American Money”. He does regular commentary on CNN, CBS and NBC. For more information, please visit www.BoyceWatkins.com.

Lessons from Ed McMahon's Financial Crisis

Add Ed McMahon from the Tonight Show to the list of celebs getting their homes forclosed upon. I saw this story in CNN Today and it led to a set of thoughts that I wanted to share quickly. These were the thoughts that led me to write Financial Lovemaking 101, since the mistakes of the McMahon family are not uncommon:

1) Making alot of money is the easiest way to trick yourself into thinking you have more than you really do.

2) Celebs are not as wealthy as you think. Many of them are trying to maintain a perception that others expect to see.

3) If you are in an industry that doesn't have much job security, you should go overboard to protect your financial security. Actors have incredibly poor job security, even the really good ones.

4) If you hit retirement age, you should be extra conservative with your spending. If you lose your money at that stage of life, it's hard to get it back.

5) Pay someone you trust to watch the person who is watching your money. Then watch the person you're paying to watch the other person.

Did that make sense?

The article is here, enjoy!

Love, Money and Life: When it's "Cheaper to Keep Her" in Your Marriage

I am sure some of you have seen the typical “unhappy couple”. You know who they are: they may pretend that their marriage is wonderful on the outside, but there are a pile of scandalous secrets behind closed doors. The secrets may involve hidden bank accounts, secret gay lovers, or perhaps even some nasty abuse. Some even think they are the perfect couple, but every now and then, you get to witness tiny hints of an unfulfilled existence. You then realize that if there ever was a couple that needed to be divorced, it’s this one. So, you continue to witness their agony, wondering deep down why they don’t just call Dr. Kervorkian and have him put their marriage out of its misery. Actually, ending their marriage might end your own misery as well.

When you finally muster up the courage to ask your buddy why he doesn’t go ahead and pull out the marital machete, he gives you the words you’ve heard in so many bar room jokes, “it’s cheaper to keep her”. While these statements are stereotypically from men, you hear more and more women saying the same thing these days. You may also hear your friend tell you that he/she can’t afford to lose the financial support provided by their spouse. Either way, you feel sorry for the couple, because they’ve made one clear admission: “Whatever I have in my bank account is worth far more than my personal happiness.” That is what I would call bad Financial Lovemaking.

If our emotional fulfillment was suddenly converted into money, many of us would be bankrupt. However, there are many people in third world countries who are filthy rich with life satisfaction. This doesn’t understate the significance of their financial hurdles, but it does remind us that money, if not used as a tool to pursue happiness, can ultimately become a barrier to personal joy.

One of the trappings of a capitalist society is that we are taught that money is the ends, rather than the means. Money is a tool to enhance your life and your relationships, it should not be the reason you are in the relationship in the first place. That’s like buying a new car just so you can get the radio.

If I were given a choice between being dirt poor and happy vs. filthy rich and miserable, I would surely choose the dirt. You see, a person who endures unhappiness in order to protect his wealth is missing the point. The goal of money is to make you happy. So, using money as an excuse to not pursue happiness in your life is like saying “I am going to starve to death because I really want to stay in this restaurant.” If the restaurant isn’t feeding you, you might want to consider eating someplace else. That might be an example of good Financial Lovemaking, since part of the Financial Lovemaking process is getting comfortable with your own relationship with money.

I am not an advocate of divorce, nor do I judge those who’ve made the decision to split. But I can say that if you have no ideological problems with divorce, and money is your only reason for not going through with it, it might make sense to reconsider your priorities. If happiness and money were put on a scale next to one another, love would be the 3,000 pound elephant and money would be the 2 ounce cricket. All choices in the love and money balance should lead to short or long-term satisfaction, there really is no other way to say it.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging assets with Your Partner in Ways that Feel Good.” For more information, please visit www.financiallovemaking.net.

Details of the Stimulus Package: How it will affect you

by Dr. Boyce Watkins
www.BoyceWatkins.com

Many Americans have heard about the new stimulus package signed by President Bush. The package is designed to do one thing: Get consumers to spend more so they can continue to strengthen the economy. Sounds good in theory, but in practice, it is simply asking us to keep spending, which is what got us into this economic mess in the first place. What is also true about all this is that much of our excessive consumer spending has been built on the economic backs of our children, as it has largely been financed by debt. Americans have had 16 straight years of increased consumer spending and the government doesn't want the party to end.

Here's some info on the stimulus package and how it will affect your life:

If you pay taxes and your income is below $75,000, you will get a check for $600. Couples who earn less than $150,000 per year will receive $1200.

There is a child tax credit of $300 per child. Add that to the $600 per person you receive above. Finally, producing children is considered a good thing.

If you are a worker who earned at least $3,000 per year, but your income was too low to require that you file a tax return, you will receive $300.

Those with big money (incomes above the max) will still be eligible for the tax rebates. The rebate you receive will be reduced by a nickel for every dollar you earn above the cap. So, an individual earning $85,000 per year would receive $100 ($600 - $10,000 x .05).

There are other details of the package, but the meat of the package lies in the rebates. My advice to you: save the money or invest it. Even if you don't spend, the recession is going to end soon anyway.

The Coming American Retirement Crisis

by Dr. Boyce Watkins, Department of Finance, Syracuse University
www.YourBlackWorld.com


I have some good news and some bad news. The good news is that Americans are really stinking rich. Compared to the rest of the world, our financial problems are essentially non-existent. We don’t worry about having food on the table. We worry about keeping up the payments on our two cars, expensive mortgage and maybe even the rent for our 28 year old son. Relatively speaking, we are doing OK.

The bad news is that there is going to be less good news in the future. America is on its way to one of the greatest retirement crises of our time. There, I said it. I am a Finance Professor, so I think about this kind of thing all day. The baby boomers have hit the boom and they are on their way to the bust. Americans might be loaded compared to the rest of the world, but to have something and lose it can be worse than never having it at all. So, relatively speaking, we are not OK.

The baby boomers are on their way out the door of the work world, and headed for that blissful place called retirement. They had a big financial party in the 1980s and 1990s, and it’s always after the party lights go out that you find out who drank too much beer, who broke the lamp and who is waking up in jail. Let me explain the recipe for the pending retirement crisis. The ingredients should be cooked up and ready to go over the next 10 – 15 years, and you can probably smell the aroma right now, with the subprime lending crisis yanking on the purse strings of many seemingly well-off families:

1) Social security is getting very insecure: Statistics show that the average American family owes about $500,000 per household necessary to pay the government's future retirement obligations. The population is aging and the young workforce is declining in size. In most societies, young people take care of the old with their productivity. The problem is that there are going to be far more old people than before, and the dwindling youth population is going to be carrying them (and their old deficits) on their backs.

2) Pension plans are disappearing: Globalization has reduced the need for companies to have great pension plans. Why pay a huge American pension when you can buy out the American worker and hire someone in China for $2/day? Since Americans don’t save, you can easily give $100k to buy out a worker who would have earned a million dollars more over time by keeping his/her job. Many great American companies are no longer following the rules of your parents when it comes to providing long-term security.

3) Americans are pathetic savers: The net US savings rate is negative. That means that we save less than we spend. Debt is the boat keeping us afloat, and as the lending crisis taught us, the raft eventually runs out of air. We send our kids to expensive universities, mortgage our homes as many times as we can and pamper ourselves into the ground. After a while, it’s time to pay the piper for the pampers, and that time is coming soon.


4) The fountain of youth has been sprinkling on us: We are living longer, which means that there has been a dramatic shift in the retirement planning paradigm. You once expected to kick the bucket just a few years after you retire, but now you get to extend your financial challenges by another decade or so. The idea of not getting a solid paycheck for 20 years can be a frightening thing.

5) The cost of healthcare is rising like a rocket: If I were a healthcare company, I would find the nearest politician and give her a big kiss. The truth is that political “leaders” have been getting hooked up by politicians for years, and are now allowed to financially pillage American citizens. Our privatized healthcare system is unlike any other in the world and the pharmaceutical companies are working overtime to convince you that you have illnesses you’ve never thought about. Regular drug dealers are scary, but corporate, government sanctioned drug dealers are the absolute worst. Perhaps you might be turning toward some of those drugs to get through the rest of this article. I’m sure the pharmaceutical companies would be glad to recommend something.

America is not going to get it together anytime soon. We’ve overdosed on Vh-1, MTV Cribs and Lifestyles of the Blingingly Fabulous. But the fact that America has fallen asleep at the wheel doesn’t imply that you’ve got to crash along with it. Be smart, have fun and have some degree of moderation. Go see your retirement advisor right now to find out what you can do to prepare for the future.

Plan ahead and your golden years can be shiny…..and that’s without all the drugs.

Finding Quick Ways to Save Cash

Saving Money can be tough, but it's not impossible. So, I figured that, in order to help us get our January started off right, I would give you some quick tips to save cash. The motto for today is "You have to have your mind right to keep your money tight", so think of this as every bit of a psychological exercise as much as it is a financial one:

1) Keep a budget - if you don't know where your money went, it's hard to know where it's going. Plan your spending and make sure that you are aware of just how much is coming in, going out and expected to be made in the future. This can help you plan cut backs or extra spending.

2) Take your lunch - did you know that by spending $7 per day for lunch, 5 days per week, you are spending $1,820 per year? If someone were to take that money and invest it in a portfolio earning 8% per year for 30 years, they would have $206,175.44. Now go snack on THAT.

3) Cut 10% out of your spending right now. Find that bill that you don't need or whatever else, and force yourself to make it happen. Pretend that your boss just gave you a 10% paycut and you have to take things out of your budget. Come on, you can do it!

4) Slice up a credit card or two - credit cards are America's financial poison and we are all addicted on some level. Get off the credit card crack pipe and start making healthy financial decisions.

5) Use a grocery list - don't shop without a list, so that your spending can be focused. Overspending at the grocery store gets me in trouble, which is why I have been getting fat. But not anymore, I am going to keep that list in my pocket. So, you see? We all have our vices, but it is up to each of us to work through our personal demons.