By: Sarah Horner
April 8, 2009
An article from MSNBC.com entitled, "Budgeting for Baby: What does it really cost?" outlines exactly how much having and raising a child will cost you.
"If you've never been a budgeter, now's the time for a financial reckoning. Experts recommend that parents-to-be and new parents dedicate themselves to whittling down their credit-card debt (ideally — and here's some tough love — to zero), while at the same time, building an emergencies-only savings account of six to nine months' worth of expenses. Do whatever it takes to meet this goal: Spend on a cash-only basis and write down every expense — or use a free online spending tracker like Quicken.Intuit.com or Wesabe.com — so you have a visceral idea of where your money goes. And be prepared to sacrifice. "If you want to prioritize the expense of a child, well, you may not need as many minutes on your cell phone and you may not need as many meals in a restaurant," says Chatzky. "And by the way, you're not going to be going to restaurants much once you have a child, anyway!""
To read the entire article, Click here
Saturday, April 11, 2009
The Cost of Raising Children
Dr Boyce Explains to NPR How Madoff Got Rich
Dr. Boyce Watkins explains to Farai Chideyah how Madoff got away with stealing $50 Billion dollars in the largest Ponzi Scheme in American history. Click the image to listen!
Friday, April 10, 2009
Black Money: Obama’s Team is Very Wealthy
When President Barack Obama moved into the White House earlier this year, he took several of his fellow Chicago millionaires with him.
Newly released disclosure reports show virtually all of the top Chicagoans serving in the West Wing had assets valued at a million dollars or more at the end of 2008.
In several cases, the reports provide the first detailed look at the finances of some of the president's top aides and friends from Chicago who have risen with him. They also show the salary haircut many have taken to be in the White House, at least until they return to the private sector.
Some of the wealth can be attributed to the fact that the top staff members surrounding Obama — such as Chicagoans Rahm Emanuel, David Axelrod and Valerie Jarrett — are from a big city where salaries tend to be higher. Many of the comparable senior staffers with the previous two presidents came from Austin, Texas, and Little Rock, Ark., where salaries for top professionals tend to be the lower than in Chicago.
Monday, April 6, 2009
Some Cash Strapped Cities Printing their Own Currency
A small but growing number of cash-strapped communities are printing their own money.
Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses.
The systems generally work like this: Businesses and individuals form a network to print currency. Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.
Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.
Ed Collom, a University of Southern Maine sociologist who has studied local currencies, says they encourage people to buy locally. Merchants, hurting because customers have cut back on spending, benefit as consumers spend the local cash.
Sunday, April 5, 2009
Your Black Money: Why Do Athletes Go Broke?
From Sports Illustrated
What the hell happened here? Seven floors above the iced-over Dallas North Tollway, Raghib (Rocket) Ismail is revisiting the question. It's December, and Ismail is sitting in the boardroom of Chapwood Investments, a wealth management firm, his white Notre Dame snow hat pulled down to his furrowed brow.
In 1991 Ismail, a junior wide receiver for the Fighting Irish, was the presumptive No. 1 pick in the NFL draft. Instead he signed with the CFL's Toronto Argonauts for a guaranteed $18.2 million over four years, then the richest contract in football history. But today, at a private session on financial planning attended by eight other current or onetime pro athletes, Ismail, 39, indulges in a luxury he didn't enjoy as a young VIP: hindsight.
"I once had a meeting with J.P. Morgan," he tells the group, "and it was literally like listening to Charlie Brown's teacher." The men surrounding Ismail at the conference table include Angels outfielder Torii Hunter, Cowboys wideout Isaiah Stanback and six former pros: NFL cornerback Ray Mickens and fullback Jerald Sowell (both of whom retired in 2006), major league outfielder Ben Grieve and NBA guard Erick Strickland ('05), and linebackers Winfred Tubbs ('00) and Eugene Lockhart ('92). Ismail ('02) cackles ruefully. "I was so busy focusing on football that the first year was suddenly over," he says. "I'd started with this $4 million base salary, but then I looked at my bank statement, and I just went, What the...?"
Saturday, March 28, 2009
Baltimore Sun Times – Dr. Boyce argues for NCAA Reform
The voice on the other end of the phone is passionate, and he’s becoming more passionate by the second. His words grow louder and they fly out faster.
“I grew up in the streets,” he says. “I’ve seen pimps in action. I look at the NCAA and I say, ’Wow, these guys would make excellent street pimps.' What they say -- and I mean this in all seriousness - is what a street pimp would say to a prostitute.”
This isn’t some radio shock jock speaking. Dr. Boyce Watkins is an assistant professor of finance at Syracuse University. He’s in town tonight, delivering a lecture at Loyola College titled, “The Business of College Sports: Is the NCAA Playing Fairly?”
I ask him to explain tonight’s message a bit.
“The model under which the NCAA currently operates was designed without excessive commercialization in mind,” Watkins explains. “Since that time, you see where this amateur sports organization has become effectively a professional sports league that refuses to pay its employees.”
Ahhh, one of those you’re thinking. Kick sports off campus! Tear down the arenas! Set flames to the football field!
But Watkins insists he isn’t against college sports. In fact, he loves them. So I feel a bit better. See, March always brings about conflicted emotions. I love filling out the brackets and love following the tournaments -- even though there’s an undercurrent of hypocrisy, unfairness and disparity that fuels the whole show.
I admit: For me, there’s a sense of guilt.
The NCAA is in the middle of an 11-year, $6 billion contract with CBS to broadcast tournament games. Coaches on the sidelines make seven figures a year, even though no one’s tuning in because they want to see what color tie John Calipari’s wearing. And shoe companies are pouring money into universities across the country by the truckload -- but the kids who have to wear the shoes don’t see a dime of it.
Thursday, March 26, 2009
Genma Holmes Speaks on Roland Martin’s Interview with Ben Jealous
Roland Martin, political correspondent for CNN and The Tom Joyner Morning Show, interviewed NAACP's CEO Ben Jealous about the law suit against Wells Fargo and several other banks for institutionalized racism. Mr. Jealous addressed the records that banks must make public about their lending ratios. Jealous stated that many of the blacks applicants were put in subprime loans that actually qualified for conventional loans. Jealous also stated that African American were target specifically for this type of discriminatory practices.
I read the lawsuit several times prior to my posting several weeks ago but I thought it would be interesting to pull out several key points of the lawsuit to further expand on my original post.
The suit states:
5. Wells Faro Bank, N.A. and Wells Fargo Home Mortgage, Inc target the African American community by capitalizing on their relative lack of experience in dealing with banking institutions and mortgage loans. Upon information and belief, Wells Fargo Bank, N.A. and Wells Fargo Home Mortgage, Inc. are aware of the African American Community's susceptibility to predatory lending practices, but nonetheless engage in policies and procedures that they know will result in African Americans being steered toward less favorable loans.
6. Indeed, in 2006, the Center for Responsible Lending, a non-profit research organization, found that even when income and credit risk were accounted for, African American were still 31% to 34% more likely to receive higher rate subprime loans, and that the disparities between them and Caucasians with the same risk factors were "large and statistically significant."
These particular points intrigued me more so than others in light of recent charge to hold folks Accountable by Tavis Smiley. Again this is not a personal attack of Tavis, only a charge to him to do his research and get back to the community that he often admonishes to educate ourselves on the issues, to know all the facts, and to dig deeper in our pursuit of being empowered.
Section 11. states The NAACP brings this class action lawsuit seeking declaratory and injuctive relief based upon the Fair Housing Act, Equal Credit Opportunity Act, and the Civil Rights Act.
Tuesday, March 17, 2009
Pres. Obama Blasts AIG Over Bonuses
President Obama latched on to the latest round of populist anger over corporate greed Monday, ordering his Treasury secretary to "pursue every legal avenue" to stop insurance giant AIG from giving $165 million in bonuses to some of the executives who drove the company into financial ruin before it was rescued by a government bailout.
"How do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama demanded of the company that last month posted the largest corporate quarterly loss in history, $61.7 billion.
Obama's scolding of American International Group came after his top economic advisers — Treasury Secretary Timothy Geithner, White House chief economist Christina Romer and Larry Summers, director of the National Economic Council — also blasted AIG over its doling out bonus checks ranging from $1,000 to $6.5 million to executives after accepting up to $180 billion in government bailout money.
Wednesday, March 11, 2009
Dr Boyce Watkins Talks Economy on NPR
Dr Boyce Watkins, Finance Professor at Syracuse University, discusses foreign policy, The Obama Administration and the Economy. Click the image to listen!
Tuesday, March 10, 2009
Dr Boyce talks Finance in Essence Magazine
Dr Boyce Watkins, Finance Professor at Syracuse University, appears in the March issue of Essence Magazine to discuss money and investing in light of the 2009 Financial Crisis.
Dr. Watkins is one of the world’s leading experts in Finance and was the only African American in the world to earn a PhD in Finance during the year 2002. For more information, please visit www.BoyceWatkins.com.
Dr Watkins has been in Essence Magazine many times in the past, particularly due to his popular book, “Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good.” To get financial advice from Dr. Watkins, please visit www.DrBoyceMoney.com.
Monday, March 9, 2009
President Obama’s Mistake on the Recession
By Dr. Boyce Watkins
www.DrBoyceMoney.com
Let’s be clear: This recession has become President Barack Obama’s personal War on Terror. Like the War on Terror, the enemy is evasive, the challenge is global, international cooperation is necessary, and the battle is unlike any other in our nation’s history. Wars are good for political business: when people get scared, politicians get a blank check to fulfill their legislative agenda. After 9/11, President Bush used fear to get the entire nation to sign onto the Patriot Act, and years later, we are wondering if someone is going to tap our cell phones and illegally imprison us for not eating our Freedom Fries. Bad legislation is like an STD: you can pick it up with a snap decision, but you pay the price for the next 20 years.
Friday, March 6, 2009
Report: Unemployment Rate Jumps to 8.1%
Employers axed 651,000 jobs in February, pushing the unemployment rate to its highest in 25 years, as companies buckled under the strain of a recession that is showing no signs of ending, according to a government report.
While that figure was near economists' expectations for a 648,000 drop in non-farm payrolls, January and December job losses were revised sharply higher.
The Labor Department on Friday said the unemployment rate surged to 8.1% in February, the highest level since December 1983. That was above market forecasts for a rise to 7.9 from January's 7.6%.
Cost-cutting employers are resorting to even bigger layoffs as they scramble to survive the recession, feeding insecurities among those who still have jobs and those who desperately want them.
"The pace of layoffs is fast and furious," said Stuart Hoffman, chief economist at PNC Financial Services Group, before the report. "We're still in the teeth of this recession and the bite has not let up at all."
Tuesday, March 3, 2009
The President’s New Budget Gets Slammed
Republicans attacked President Obama's proposed $3.6 trillion budget Tuesday as offering "red ink as far as the eye can see," and Democrats even suggested that the president might be trying to solve too many problems at once.
As administration officials trekked to Capitol Hill to defend Obama's budget, they were met with skepticism from both sides of the aisle because of the huge changes the president has promised to make in taxes, health care, energy and education.
THE OVAL: Proposals and analysis
Treasury Secretary Timothy Geithner and White House Budget Director Peter Orszag, in separate appearances, stuck to the administration line that the president's budget would benefit 95% of working Americans.
Higher taxes for affluent Americans would not come until 2011 once "we are safely into recovery," Geithner told the tax-writing House Ways and Means Committee.
"I'm confident this is the right path for the country," he said.
But Republicans disagreed.
"The president's budget increases taxes on every American, and does so during a recession," Rep. Dave Camp, R-Mich., told Geithner.
Camp also complained about provisions that would limit the size of charitable deductions that could be taken by families earning more than $250,000 a year.
Orszag faced similar questioning before the House Budget Committee.
Tuesday, February 24, 2009
Lawrence Watkins and George Kilpatrick Talk about Entrepreneurial Success
Lawrence Watkins and George Kilpatrick Break down the secrets to success. Click the image to listen!
Monday, February 16, 2009
President Barack Obama Deals with Auto Industry Problems
President Obama has dropped the idea of appointing a single, powerful “car czar” to oversee the revamping of General Motors and Chrysler and will instead keep the politically delicate task in the hands of his most senior economic advisers, a top administration official said Sunday night.
Mr. Obama is designating the Treasury secretary, Timothy F. Geithner, and the chairman of the National Economic Council, Lawrence H. Summers, to oversee a presidential panel on the auto industry. Mr. Geithner will also supervise the $17.4 billion in loan agreements already in place with G.M. and Chrysler, said the official, who insisted on anonymity.The official also said that Ron Bloom, a restructuring expert who has advised the labor unions in the troubled steel and airline industries, would be named a senior adviser to Treasury on the auto crisis.
The unexpected shift comes as G.M. and Chrysler race to complete broad restructuring plans they must file with the Treasury by Tuesday. The companies’ plans are required to show progress in cutting long-term costs as a condition for keeping their loans.
The administration official said the president was reserving for himself any decision on the viability of G.M. and Chrysler, both of which came close to bankruptcy before receiving federal aid two months ago.
One of President Obama’s top advisers said Sunday that the administration had not ruled out a government-backed bankruptcy as a means to overhaul the automakers.
“We’re going to need a restructuring of these companies,” the adviser, David Axelrod, said on “Meet the Press” on NBC. He added that a turnaround of the companies would “require sacrifice not just from the auto workers but also from creditors, from shareholders and the executives who run the company.”
Saturday, February 14, 2009
Alert: Watch Out for Changes with Credit Card Companies
By Dr. Boyce Watkins
www.DrBoyceMoney.com
In case you weren’t sure, credit card companies are not out to help you. If you are financially illiterate and uninformed, they are going to exploit you. If you are worried about the financial crisis, they are going to prey on your fear to get money out of you. They are also doing exactly what the rest of us are doing: trying to remain protected in a fragile economy.
The stimulus is stymied. The bailout is a failout. The stock market has consistently given a “thumbs down” to every piece of legislation passed in response to this crisis. Our economy is like the sick man who won’t respond to antibiotics. While the results of the latest package are yet to be seen, the truth is that no one is sure what will work. Every company is out to protect their assets and hold on to their cash, which means they no longer have much interest in loaning money to you.
Yes, this is true even if you have a good credit score, which is the ironic part.
Customers are opening their monthly statements to find that credit card companies have started to either ration credit (give less of it) or raise the interest rate being paid on outstanding debt. This doesn’t even count all the dirty tactics used, like using your payments to pay off low interest debt first, quietly getting rid of the grace period or charging interest on your balance from the prior two months vs. the current one. Even when you’ve been making payments on time for years, banks keep raising the bar to maximize shareholder wealth. When liquidity is scarce, those giving out water demand a higher cost per bottle. Additionally, higher default rates have justified the increase in interest rates, but higher interest rates increase the likelihood of default. It’s a nasty cycle, really.
Lawmakers are trying to intervene. Congressional hearings have taken place. Banks are being scolded by senators who keep telling them that this form of business practice is unethical and that they are gouging the American consumer. All this might be true, but what is also true is that you can’t force banks to loan you money. Also, it is very difficult, if not impossible, to legislate a strong economy.
If you have a less than stellar financial history, there is an even greater opportunity for your credit card company to raise your interest rates. If you have defaulted on other loans or are a slow payer in other areas, then they have no problem telling you to pay up or ship out. The days of easy money are long behind us, and companies are dramatically shifting their business practices.
The bottom line is that THEY’VE GOT YOU. They know that you’ve become addicted to the debt they so readily offered in the past, and this debt has become the lifeblood for the lifestyle to which you’ve chosen to become accustomed. They know that they can charge you a higher interest rate because you can’t do anything about it. Like a drug addict who is angry about paying more for his product, you really don’t have any other choice.
Well, maybe you do.
Here is one solution: tighten your economic belt. That means putting together a financial fitness plan today that consists of getting rid of as much debt as possible. I’ve mentioned in prior articles and on our website that paying off debt can be one of the best investments you make with your money. This is especially true if you have a stable job and are paying a high rate of interest to your credit card company.
So, the Dr. Boyce Challenge for this month is simple: Create a budget which includes the steady elimination of credit card debt. That means you should list every single expense you have for the entire month on one piece of paper or a spreadsheet. Don’t leave anything out. Count the money you want to use for getting your hair done, your nails, paying your mortgage, car note, whatever. Count everything. That will be your first step toward obtaining financial fitness.
As you create the budget, allocate at least 10% of your monthly after tax income toward reducing credit card debt. So, if you earn $3,000 per month after taxes,$300 per month should be allocated toward removing credit card debt, not including interest. So, if you owe $5,000 in credit card debt, you can remove this debt in roughly a year and a half. While $300 may seem like a lot of money to find in your budget, it’s there if you look hard enough. In fact, if you spend $10 per day on lunch and/or coffee, you can find the bulk of the money by taking your lunch to work. Make this one of the first bills you pay, not the last. The last bill is the one that only gets paid half the time. It’s easier to negotiate with creditors if you don’t need them so much. Take small steps toward finding your financial freedom.
Next month, we will move to step 2 of the Dr. Boyce Financial Challenge. While I confess that this change won’t be easy, I can promise that it will be worth it in the end. Be strong and remain focused, this is your opportunity to shine.
Dr Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lipo 101: From financial fat to fitness”, to be released in April, 2009. For more information, please visit www.DrBoyceMoney.com.
Thursday, February 12, 2009
Stimulus Battle Was Not Expected by Obama Administration
It is a quick, sweet victory for the new president, and potentially a historic one. The question now is whether the $789 billion economic stimulus plan agreed to by Congressional leaders on Wednesday is the opening act for a more ambitious domestic agenda from President Obama or a harbinger of reduced expectations.
Related
Deal Reached in Congress on $789 Billion Stimulus Plan(February 12, 2009)
President Obama and Gov. Tim Kaine on Wednesday at a parkway project in Springfield, Va., that could get stimulus money.Both the substance of his first big legislative accomplishment and the way he achieved it underscored the scale of the challenges facing the nation and how different a political climate this is from the early stages of recent administrations.
While it hammered home the reality of bigger, more activist government, the economic package was not the culmination of a hard-fought ideological drive, like Lyndon B. Johnson’s civil rights and Great Society programs, orRonald Reagan’s tax cuts, but rather a necessary and hastily patched-together response to an immediate and increasingly dire situation. On the domestic issues Mr. Obama ran and won on — health care, education, climate change, rebalancing the distribution of wealth — the legislation does little more than promise there will be more to come.
In cobbling together a plan that could get through both the House and the Senate, Mr. Obama prevailed, but not in the way he had hoped. His inability to win over more than a handful of Republicans amounted to a loss of innocence, a reminder that his high-minded calls for change in the practice of governance had been ground up in a matter of weeks by entrenched forces of partisanship and deep, principled differences between left and right.
In the end, Congress did not come together to address what Mr. Obama has regularly suggested is a crisis that could rival the Great Depression. What consensus has been forged so far is likely to be tested in the months to come as he faces scrutiny over the effectiveness of the stimulus package and the likelihood that he will have to ask Congress for substantially more money to heal the fractures in the financial system.
So this was hardly a moment for cigars.
If this is the 21st-century version of Franklin D. Roosevelt’s 100 Days, Mr. Obama seems to be pursuing it more as an urgent but imposed necessity than as a self-selected mission.
While he has deployed his political capital freely to win approval of the package and to begin pushing his version of a financial-system rescue, he has left little doubt that he is eager to move on to the rest of his domestic agenda. At his news conference on Monday night, Mr. Obama said with a hint of exasperation that a costly economic rescue package “wasn’t how I envisioned my presidency beginning.” Regardless of the government’s budgetary straits, Mr. Obama has signaled that he sees his other signature initiatives not just as salvageable but as more urgent than ever.
Click to read more.Sunday, February 8, 2009
Stimulus Update: Obama’s Package Gets Items Sliced
A coalition of Democrats and some Republicans reached a compromise that trimmed billions in spending from an earlier version of the Senate economic stimulus bill.
Senators worked late into the night to trim billions from the original stimulus bill.
CNN obtained, from a Democratic leadership aide, a list of some programs that have been cut, either entirely or partially:
Partially cut:
• $3.5 billion for energy-efficient federal buildings (original bill $7 billion)
• $75 million from Smithsonian (original bill $150 million)
• $200 million from Environmental Protection Agency Superfund (original bill $800 million)
• $100 million from National Oceanic and Atmospheric Administration (original bill $427 million)
• $100 million from law enforcement wireless (original bill $200 million)
• $300 million from federal fleet of hybrid vehicles (original bill $600 million)
• $100 million from FBI construction (original bill $400 million)
Fully eliminated
• $55 million for historic preservation
• $122 million for Coast Guard polar icebreaker/cutters
• $100 million for Farm Service Agency modernization
Friday, February 6, 2009
Your Black Politics: Barack Obama Pushes Bush Faith-Based Initiatives
President Obama established his own faith-based initiatives office Thursday, reversing a Bush administration policy that allowed churches to discriminate in their hiring practices.
"Whatever our differences, there is one law that binds all great religions together . . . It is, of course, the golden rule, the call to love one another, to understand one another, to treat with dignity and respect those with whom we share a brief moment on this Earth," Obama said at the National Prayer Breakfast.
"It is an ancient rule, a simple rule, but also perhaps the most challenging, for it asks each of us to take some measure of responsibility for the well-being of people we may not know or worship with, or agree with on every issue or any issue," he added as he unveiled his faith-based agenda.
Obama signed an executive order creating the Office of Faith-based and Neighborhood Partnerships. Unlike ex-President Bush, churches with hiring policies that discriminate won't be eligible for federal grants under the executive order.
Wednesday, February 4, 2009
“Buy American” Clause Creates Test for President Barack Obama
A contentious debate over a "Buy American" provision in the economic stimulus package poses an early test for President Obama on both domestic politics and foreign policy.
The Senate this week is considering an $885 billion bill designed to help mend the ailing economy, which requires all "manufactured goods" purchased with stimulus money to be made in the United States. The House already has approved a narrower bill mandating the use of domestic iron and steel.
To supporters, including labor unions that helped the Democrats retake the White House last year, a "Buy American" requirement is just common sense at a time of economic crisis and rising unemployment. Factories have been hemorrhaging jobs for years; manufacturing employment is now 12.9 million, down from 17.2 million at the end of 2000. If Congress doesn't insist upon the use of U.S.-made materials, taxpayer funds could line the pockets of European or Chinese workers rather than hard-hit Americans.
Sunday, February 1, 2009
Could the Economic Downturn possibly be a GOOD thing?
By Dr. Boyce Watkins
I hate being the doctor who has to tell the patient he has cancer, but the truth usually sets you free (or so my mother told me): We are in the midst of an economic bloodbath. It’s tough to argue that an economy which shrinks by an annualized rate of 5% is still healthy. It’s hard to tell someone that 7.2% unemployment, with the most job losses since 1945, is a good thing. A 4,000 point drop in the Dow is nothing to sneeze at, even if you have plenty of tissue. Times are tough, we know that.
But if we focus hard enough, we might be able to find a few bright sides to all this. With hopes that no one chooses to kill the messenger, I am going to give it a shot.
1) It could always be much worse.
The United States has, according to some, the strongest economy in the world. Our economy could shrink like Rush Limbaugh’s body on drugs and still be disgustingly rich compared to the rest of the world. Don’t believe me? Consider the “fast-growing” Chinese economy, the one that everyone thinks is going to outpace the United States in the next few years. Our annual tax revenues are nearly 4 times greater than China’s ($2.5 Trillion vs. $670 Billion) and they have over 4 times more people than we do (300 million vs. 1.3 Billion). In other words, our per capita tax receipts are over 16 times greater than China’s. So, we’re far better off than most of the world, even when we’re broke.
2) If there were ever an argument for getting out of Iraq, this might be it.
It’s hard to declare war on random countries if you don’t have the money to do it. War is big business and attacking other countries is a huge financial investment. If you don’t think war is about money, then you may want to take a couple of Political Science and History classes. Perhaps these troubles at home will keep us from creating trouble abroad, since Americans have lost patience with irresponsible, arrogant war-mongering. The Obama stimulus plan is asking for over $800 Billion dollars to boost our economy. We’ve already spent nearly $600 Billion in Iraq. Rather than declaring War on Terror, President Obama has declared War on the Recession, which seems to be a far better investment.
3) If you want to buy cheap stocks or real estate, this is the time to do it.
When the market rises, everyone wants to buy stocks. People forget that you shouldn’t buy stocks when prices are high, you buy when the prices are low. Companies with plenty of cash are grabbing investment and real estate bargains that were hardly available a year ago. You should be doing the same if you can afford to do it. Investors who purchase stocks after major market declines tend to do much better than those who buy during booms. You hear me Warren Buffet?
4) Struggle makes us FOCUSED.
Although I tend to be a hardcore capitalist, a part of me misses the activism of the 1960s, when people cared about more than making a dollar. OK, I wasn’t around in the 1960s, but I’ve watched enough old movies. Going through tough times not only teaches one to pursue a higher purpose in life, it also leads individuals to more carefully scrutinize the state of affairs in our government. In fact, I dare to argue that the financial crisis was just what Barack Obama needed to secure his election over John McCain. Economic prosperity allows us the luxury of choosing our politicians based on silly issues, like gay marriage (as we did in 2004). When we are worried about putting food on the table, we look beyond the silliness and choose the most qualified and most intelligent person for the job (after ensuring that he knows Africa really is a continent). Finally, tough economic times make you more responsible in your own money management, as the threat of financial insecurity keeps us all on high alert.
Those are my points, so again, please don’t kill the messenger. I certainly do not celebrate a weak economy, but I am a firm believer that focusing too much on the door that shuts keeps us from appreciating the ones that just opened. There’s always light at the end of the tunnel, a pot of gold at the end of every rainbow, and….well, you get the point. It’s the toughness of tough times that make the good times good. Keep hanging in there, it’ll be ok.
Dr. Boyce Watkins is a Finance Professor at Syracuse University. For more information, please visit www.BoyceWatkins.com. To join the Dr. Boyce Money Advice List, please click here.
Bailed Out Banks Take Heat for Using Funds to Hire Foreign Workers
Banks collecting billions of dollars in federal bailout money sought government permission to bring thousands of foreign workers to the U.S. for high-paying jobs, according to an Associated Press review of visa applications.
The dozen banks receiving the biggest rescue packages, totaling more than $150 billion, requested visas for more than 21,800 foreign workers over the past six years for positions that included senior vice presidents, corporate lawyers, junior investment analysts and human resources specialists. The average annual salary for those jobs was $90,721, nearly twice the median income for all American households.
The figures are significant because they show that the bailed-out banks, being kept afloat with U.S. taxpayer money, actively sought to hire foreign workers instead of American workers. As the economic collapse worsened last year — with huge numbers of bank employees laid off — the numbers of visas sought by the dozen banks in AP's analysis increased by nearly one-third, from 3,258 in fiscal 2007 to 4,163 in fiscal 2008.
Saturday, January 31, 2009
Financial Experts Boyce Watkins, Julianne Malveaux Meet with Rev. Jesse Jackson
Dr. Boyce Watkins, a Finance Professor at Syracuse University is planning to speak with Rev. Jesse Jackson on Keep Hope Alive Radio to discuss the stimulus plan recently released by President Barack Obama. The $819 Billion dollar plan just passed in Congress and is set to be presented to the Senate for final approval.
Dr. Watkins is a Financial expert and prominent Black Speaker, and will also appear with Dr. Julianne Malveaux, President of Bennett College for women, to discuss the plan. Watkins has written extensively about the Obama economic plan and finding ways to ensure that African Americans can get their piece of the economic pie.
"Obama might be a Black President, but he honestly can't say the word "black" within 100 feet of the White House," says Dr. Watkins, who is authoring a book on African American Wealth Building. "The truth of the matter is that Black people and poor people must ensure that they get a piece of this pie."
Friday, January 30, 2009
Finance Professor Scoop: Is there a good side to the Economic Downturn?
By Dr. Boyce Watkins
I hate being the doctor who has to tell the patient he has cancer, but the truth usually sets you free (or so my mother told me): We are in the midst of an economic bloodbath. It’s tough to argue that an economy which shrinks by an annualized rate of 5% is still healthy. It’s hard to tell someone that 7.2% unemployment, with the most job losses since 1945, is a good thing. A 4,000 point drop in the Dow is nothing to sneeze at, even if you have plenty of tissue. Times are tough, we know that.
But if we focus hard enough, we might be able to find a few bright sides to all this. With hopes that no one chooses to kill the messenger, I am going to give it a shot.
1) It could always be much worse.
The United States has, according to some, the strongest economy in the world. Our economy could shrink like Rush Limbaugh’s body on drugs and still be disgustingly rich compared to the rest of the world. Don’t believe me? Consider the “fast-growing” Chinese economy, the one that everyone thinks is going to outpace the United States in the next few years. Our annual tax revenues are nearly 4 times greater than China’s ($2.5 Trillion vs. $670 Billion) and they have over 4 times more people than we do (300 million vs. 1.3 Billion). In other words, our per capita tax receipts are over 16 times greater than China’s. So, we’re far better off than most of the world, even when we’re broke.
2) If there were ever an argument for getting out of Iraq, this might be it.
It’s hard to declare war on random countries if you don’t have the money to do it. War is big business and attacking other countries is a huge financial investment. If you don’t think war is about money, then you may want to take a couple of Political Science and History classes. Perhaps these troubles at home will keep us from creating trouble abroad, since Americans have lost patience with irresponsible, arrogant war-mongering. The Obama stimulus plan is asking for over $800 Billion dollars to boost our economy. We’ve already spent nearly $600 Billion in Iraq. Rather than declaring War on Terror, President Obama has declared War on the Recession, which seems to be a far better investment.
3) If you want to buy cheap stocks or real estate, this is the time to do it.
When the market rises, everyone wants to buy stocks. People forget that you shouldn’t buy stocks when prices are high, you buy when the prices are low. Companies with plenty of cash are grabbing investment and real estate bargains that were hardly available a year ago. You should be doing the same if you can afford to do it. Investors who purchases stocks after major market declines tend to do much better than those who buy during booms. You hear me Warren Buffet?
4) Struggle makes us FOCUSED.
Although I tend to be a hardcore capitalist, a part of me misses the activism of the 1960s, when people cared about more than making a dollar. OK, I wasn’t around in the 1960s, but I’ve watched enough old movies. Going through tough times not only teaches one to pursue a higher purpose in life, it also leads individuals to more carefully scrutinize the state of affairs in our government. In fact, I dare to argue that the financial crisis was just what Barack Obama needed to secure his election over John McCain. Economic prosperity allows us the luxury of choosing our politicians based on silly issues, like gay marriage (as we did in 2004). When we are worried about putting food on the table, we look beyond the silliness and choose the most qualified and most intelligent person for the job (after ensuring that he knows Africa really is a continent). Finally, tough economic times make you more responsible in your own money management, as the threat of financial insecurity keeps us all on high alert.
Those are my points, so again, please don’t kill the messenger. I certainly do not celebrate a weak economy, but I am a firm believer that focusing too much on the door that shuts keeps us from appreciating the ones that just opened. There’s always light at the end of the tunnel, a pot of gold at the end of every rainbow, and….well, you get the point. It’s the toughness of tough times that make the good times good. Keep hanging in there, it’ll be ok.
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.BoyceWatkins.com.
Credit Ratings and Repair - Part 1
By Dr. Boyce Watkins
www.DrBoyceFinance.com
Where do Credit Scores come from?
Unlike babies, credit scores do not come from a financial stork. There are 3 major credit bureaus in the United States: Experian, Trans Union and Equifax. Companies subscribe to their services to obtain information about you to decide if you are credit worthy or not. Under the old system, the credit scores ranged from 375 to 900. Under the new VantageScore system, they range from 501 to 990. The new system is more consistent among various credit bureaus, so you don’t end up with scores that go all over the place.
How can I get a copy of my report?
I personally go to a site called Myfico.com, where you can order reports from all 3 bureaus or just one. You can also go to freecreditreport.com (you know, the site with the really funny commercials). The law says that you are entitled to at least one free credit report every year. Also, if you are denied credit for any reason, you can write the bureaus, sending along a copy of the rejection letter, and request a copy of your credit report. If you choose to pay for your report, it will likely cost you about $8 dollars.
What factors go into calculating a credit score?
The factors that go into calculating a credit score are a little vague and it’s protected like the recipe for KFC chicken. While the formula is well-guarded, we do have some guidelines on what factors are theoretically used to determine whether or not someone should loan money to you.
The factors are broken into what they call “The Four C’s of Credit”: Character, collateral, capacity, capital and conditions.
Character is their way of trying to decide if you are a good person or not. I don’t agree with this, since having bad credit does not make you a bad person. It just makes you a person who does not have a good track record when it comes to borrowing money.
Capacity is represented mostly by your income level and how much money you’re expected to earn in the future.
Capital is noted by the amount of cash you have in reserves and other liquid assets at your disposal. If you have capital, that means you can withstand a short-term decline in income and still make payments.
Conditions are reflected by the environment in which you live. It might include the state of the economy, your line of work and other external factors that might impact your credit report. For example, during the liquidity crisis in America, conditions for lending are very, very bad.
Now you know where credit scores come from. You probably have more questions, since there is a lot of ground to cover. To get more information, please feel free to learn along with me and my students by visiting www.DrBoyceFinance.com.
Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, ESPN, BET and CBS. For more information, please visit www.BoyceWatkins.com.
Credit Ratings and Repair - Part 2
www.BoyceWatkins.com
As part of our series on understanding credit scores, we can now move into more of the nitty gritty. Understanding credit is an important part of financial planning, and there are even more ways for you to be informed, empowered and financially independent. Below, I continue with my Q&A about credit scores. Hopefully, empowered with this new information, you can work your way to the wealth and financial security you deserve.
How are all of the factors weighted when determining your credit score?
As I mentioned in the prior article, there is no publicly released, verifiable formula for how the various factors in your profile go into defining your credit score. However, there are researchers like myself who spend all of our time learning how these things work. So, based on the existing data, here is one estimate of how aspects of your credit history go into determining your credit score.
35% - Your history of payment on debts from the past
30% - The amount of debt you have
15% - Length and depth of your credit history
10% - The amount of new credit you’ve applied for recently
10% - The type of credit you use (credit cards, student loans, etc.)
Again, while these numbers are not precise, the truth of the matter is that they are probably accurate in a general sense. Reducing your current debt and paying bills on time have been shown to be an important way to improve your credit score.
How do I correct an error on my credit report?
The law protects consumers who feel that their credit report has errors on it. Anything you believe to be inaccurate on your credit report can and should be disputed. You should dispute the information in a formal letter to the credit bureau, not in a phone call or even email. You want formal documentation of your challenge.
The Fair Credit Reporting Act states that any information disputed on your credit report must be verified by the credit bureau within 30 days. If they reach out to the company that claims you owe them money and don’t hear anything back, they must by law remove the negative information from your credit report. Use this vehicle to carefully check on any information in your credit report that you do not believe to be accurate.
When you write the letter, make sure you include the following information:
- Your full name
- Your social security number
- Your date of birth
- Your mailing address
- The name and account number for the debt you are disputing
- The reason you feel the debt is not accurate
- Your signature
Be sure to include all relevant information, because the law says that the bureaus do not have to respond to any disputes they consider to be frivolous (not without merit). You want them to take your dispute seriously.
Here are the addresses to the various credit bureaus:
Experian (formerly TRW)
http://www.experian.com
PO Box 2002
Allen, TX 75013-2002
888-397-3742
Equifax Credit Information Services
http://www.equifax.com
PO Box 105873
Atlanta, GA 30348
800-685-1111
Trans Union
http://www.transunion.com
Consumer Relations Center
PO Box 1000
Chester, PA 19022
800-888-4213 OR 440-779-7200
Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, CBS Sports, BET and USA Today. For more information, please visit www.DrBoyceFinance.com
Credit Ratings and Repair - Part 3
www.BoyceWatkins.com
According to the Consumer Credit Counseling Service, 1 in 5 college freshmen owes more than $10,000 in credit card debt. This makes the clear case that financial literacy and education is critical for our young people.
This article is part 3 in our series of articles on credit reports and understanding the basics of credit. For more on this topic, please visit www.DrBoyceFinance.com. We have covered the basics of what credit reports are, how they work, and how to obtain your report. We can now dig deeper into your rights as a consumer when it comes to your credit. Remember: knowledge is power!
Do I have any rights as a consumer when it comes to my credit reports?
To determine your rights as a consumer, you should consult the Fair Credit Reporting Act. You would be surprised at the number of rights you have when it comes to protecting your credit. But you will likely not be surprised when I tell you that credit card companies and other firms don’t always want you to know your rights. But in your quest toward financial literacy, it is our goal to ensure that you know what you need to know.
Under the Fair Credit Reporting Act, you have a right to do the following:
- Receive one free copy of your credit report every year. You can contact one of the 3 major reporting agencies to get your copy.
• You are entitled to a free report is adverse action is taken against you by a company (denying you insurance, credit or employment). You must ask for your report within 60 days of this action in order to get one. In the notice, you will receive the name, address and phone number of the consumer reporting company that sent the derogatory information.
• You are entitled to one free report per year if you are unemployed and plan to look for a job within 60 days, are on welfare, or if your report is inaccurate because of fraud (like someone stealing your identity).
• If you cannot get a free report, the companies are allowed to charge you up to $9.50 for a second copy.
• You are given the legal right to know what has been asked on your report within the past year – two years for employment related requests.
• If a company denies your application, you have the right to the name and address of the consumer reporting company they contacted, assuming that they contacted a reporting agency to get the information
• If you question the accuracy or completeness of information in your report, you have the right to file a dispute with the consumer reporting company and the information provider (that is, the person, company, or organization that provided information about you to the consumer reporting company). The consumer reporting company and the company that provided the information are obligated to investigate and get back to you about the matter in dispute
• For a small fee, you are allowed to add summary explanatory information for potential lenders to consider when evaluating your credit report.
The Equal Credit Opportunity Act
• This act prohibits credit discrimination on the basis of sex, race, marital status, religion, national origin, age, or receipt of public assistance. Creditors may ask for this information (except religion) in certain situations, but they may not use it to discriminate against you when deciding whether to grant you credit.
• You cannot be denied credit based on your race, sex, marital status, religion, age, national origin, or receipt of public assistance.
• You have the right to have reliable public assistance considered in the same manner as other income. That means that if you are on welfare or social security, your source of income cannot be used to make a character judgment against you.
• If you are denied credit, you have a legal right to know why.
The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA)
These acts describe the law in terms of how to deal with mistakes on billing for credit and electronic funds transfers. Details are below:
• charges or electronic fund transfers that you – or anyone you have authorized to use your account – have not made;
• charges or electronic fund transfers that are incorrectly identified or show the wrong date or amount;
• math errors;
• failure to post payments, credits, or electronic fund transfers properly;
• failure to send bills to your current address – provided the creditor receives your change of address, in writing, at least 20 days before the billing period ends;
• charges or electronic fund transfers for which you ask for an explanation or written proof of purchase along with a claimed error or request for clarification.
The FCBA usually applies to accounts that are “open-ended”, such as credit cards and revolving charge accounts, such as those you get with department stores. It does not apply to loans that are made with fixed payments until the balance is paid off, such as auto loans. The EFTA applies to electronic transfers, such as those done through ATMs, point of sale purchases, etc.
The Fair Debt Collection Practices Act (FDCPA)
This act protects you if you owe money and others are trying to collect from you. It can be money owed for the purchase of a car, credit cards, etc. Basically, personal, family and household debts are included here. This act basically protects you from unfair, abusive or deceptive practices on the part of bill collectors. Under the Fair Debt Collection Practices Act:
• Debt collectors may contact you only between 8 a.m. and 9 p.m.
• Debt collectors may not contact you at work if they know your employer disapproves.
• Debt collectors may not harass, oppress, or abuse you.
• Debt collectors may not lie when collecting debts, such as falsely implying that you have committed a crime.
• Debt collectors must identify themselves to you on the phone.
• Debt collectors must stop contacting you if you ask them to do so in writing.
Finding ways to fix your credit score
A poor credit report will haunt you like a ghost in the night. It can affect your ability to get a job, get a loan, or even get insurance. If the information in your report is accurate, it can only be removed through patience and persistence.
A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.
Quickest ways to repair your credit score
1) Pay down your debt
2) Stop or significantly reduce credit card use
3) Dispute the negative items on your report if they appear inaccurate at all (more details on these steps is presented below)
If you are having problems paying your bills, contact your creditors immediately. Try to work out a modified payment plan with them that reduces your payments to a more manageable level. Don’t wait until your account has been turned over to a debt collector.
Here are some additional tips for solving credit problems:
• If you want to dispute a credit report, bill or credit denial, write a letter to the company, sending the letter “return receipt requested.”
• When you dispute a billing error, include your name, account number, the dollar amount in question, and explain why you believe the amount of the debt is wrong.
• If in doubt, request written verification of a debt.
• Keep all your original documents, especially receipts, sales slips, and billing statements. You will need them if you dispute a credit bill or report. Send copies only. It may take more than one letter to correct a problem.
• Be skeptical of businesses that offer instant solutions to credit problems: There aren’t any.
• Be persistent. There is substitute for time and patience when it comes to fixing your credit.
• Most of what these credit repair companies can do for you are things that you can do for yourself without paying them. For example, many of them will send letters to the credit bureaus questioning debts on your report, but you can do this WITHOUT having to pay a fee to anyone.
• You may want to consider contacting a credit counseling organization. These organizations work if you feel comfortable sticking with a budget, and are serious about repaying your debts. But be careful. Many of these companies are a bit sneaky. For example, they call themselves “nonprofit” to make you think that they are part of the government or that they work for charity. Let’s be clear: many of them are trying to make money from you! Ensure that the company is accredited by the National Foundation for Credit Counseling (NFCC), and that there are no complaints about them with the Better Business Bureau.
• Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
• Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Things you should NOT do if you want to repair your credit score
1) Make late payments
2) Close your credit accounts
3) Apply for new credit cards
4) Consolidate your debt – this is a tricky one, since debt consolidation may not always be bad, but applying for more debt is almost always a bad thing. This can be especially harmful if you consolidate a number of credit cards into one card, since that will affect your ratio of debt used to debt available.
Dealing With Rogue Bill Collectors
One of the groups that was not bailed out during the recent financial crisis has been the American consumer. Congress took care of the firms on Wall Street, but they didn’t take care of the millions of Americans forced to confront the realities of bankruptcy, foreclosure and uncomfortable confrontations with menacing bill collectors. It appears, sadly, that every man and woman must find their own way through this financial tragedy.
Bill Collectors really want their money, like the rest of us. Some of them seem to feel that it’s O.K. to resort to flat out thuggish intimidation to get their money back. That might work on The Sopranos, but it shouldn't work in real life.
Part of the reason abusive bill collectors can have their way with the public is because many citizens do not know their rights. Bill collectors prey on the uninformed in a terrible way: They may threaten to have you arrested, harass your relatives, call all hours of the night, and engage in other types of atrocious behavior to get their money out of your hide.
One woman successfully sued a rogue bill collector after he called her repeatedly with threatening language. The woman, a senior citizen, was told by the man to "Stop with the sob stories and pay your god d*m bill!" This kind of behavior is not acceptable, and bill collector harassment doesn’t have to keep you up at night.
The Federal Trade Commission states that complaints against bill collectors are rising, reaching the highest level they've seen in the past 3 years. Most of the complaints focus on vulgar language, trying to collect more than the amount of the true debt, and extra fees, such as court costs.
You have rights that can protect you from bad and malicious bill collectors. You want to keep these in mind as you work yourself out of debt:
1) There is something called "The Fair Debt Collection Practices Act". If you are not familiar with this document, get familiar with it. You can read it by clicking here.
2) A bill collector cannot contact you at work if your employer does not approve of the contact. Let the bill collector know that this is the case and they must legally stop contacting you at your job.
3) Bill collectors cannot call you before 8 am or after 9 pm. The only exception is if you give them permission to do so.
4) A bill collector can only contact your friends and family if they are trying to find a way to get in touch with you. However, some of them may do this in order to harass or embarrass you. If that is the case, you may want to tell your friends to tell the bill collector, "She does not live here and I do not know how to get in touch with her. Please don't call here anymore." Then, get the bill collector's information from your friend and reach out to them when you can.
5) You can get bill collectors to stop contacting you altogether by sending them a letter telling them to stop. You still must pay the debt, but they won't be calling you during dinner.
6) The bill collector cannot curse at you or use foul language and they must tell the truth about how much you owe. They cannot threaten to sue unless they are serious about it, and they can't touch your 401k or IRA.
7) If the bill collectors call you, you can demand that they send you a written notice of the amount you owe and who you owe the money to. If you do not believe that the debt is yours, you can write a letter to them stating that this is not your debt. They must then send you proof that the debt is actually yours.
If you feel that a debt collector has violated any of these rules, you can contact the Federal Trade Commission at www.ftc.gov. Remember that you are not powerless in this situation.
Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of Financial Lovemaking 101: Merging Asset with Your Partner in Ways that Feel Good. He does regular commentary in national media, including CNN, CBS, NBC and BET. For more information, please visit www.BoyceWatkins.com. This information does not constitute legal advice. For legal advice, please consult your attorney.
3 Myths About Investing - Part 1
Being mislead causes the most pain to those who do not understand money. Many people do not understand the basics, which can make them vulnerable to those who use long words to confuse them. When I teach Finance courses to my students, I enjoy finding simply ways to communicate complicated concepts. The ultimate goal is for the student to be able to discern the good advice from the bad.
I have compiled a list of quick and dirty myths about money and finance that can help you to get started on your path toward financial understanding. While this is just the tip of the iceberg, perhaps the ice will whet your appetite to learn more about the world of financial management.
Myth #1) An investment is only good if it helps you to earn more money
According to quite a few financial advisors, every penny you invest should be put into assets and ventures that are going to give you a financial return. The “gurus” tell stories about how investing your money to make more money implies that you are smarter than the person next to you. By virtue of your being smarter, you are therefore entitled to a happier life. Money is also made into the most important thing on earth, and you end up feeling bad if you are not, as you are sometimes told, hoarding every penny and allowing those pennies to dominate your personal life.
There are quite a few scenarios in which money should be used to make more money, and there is nothing wrong with that. But more money doesn’t always imply you will have a wealthier life. There are times when buying a car or taking a vacation can be much better uses of your money than buying another stock, bond or piece of real estate.
In fact, if the sole objective of money is to make more money, then that means you should just send your children to Dr. Kervorkian (the man who kills people for a living), since kids are expensive and don’t give you any of your money back. Don’t be so hard on yourself when it comes to investing. Investment is like working at the office or having sex: it’s ok, as long as it’s done in moderation.
Myth #2) Only some investors have a portfolio
What is a portfolio? A portfolio is a set of valuable investments that give you something back. When I ask my students “How many of you have a portfolio?”, only a few of them raise their hands. I then explain that making an investment is equivalent to putting a scarce and valuable resource toward the creation of something more valuable over time. Most of the students fail to realize that money is NOT the only scarce resource you can invest. You can also invest your time, your energy, your health and even your love. All of these amount to allocations of scarce resources, and most of us make these investments every single day. The decision to get out of bed is an investment, since you could easily spend your time lying around watching TV. The clothes on your back are part of your portfolio, since you have invested to obtain them, and they do provide you a return (your reward for investing in clothes is that you get the peace of mind of looking good and not having to walk around naked!).
The point here is that you should have a more complete way of thinking about investing. Money is only one type of investment, and it is sometimes the least valuable asset in our life portfolio. You have probably heard people say “time is money”. Well, that’s not exactly true. The truth is that time is MORE VALUABLE than money! If you are 22 years old, and you waste your time, you will never get to be 22 years old again. No amount of money can make up for being, say, falsely incarcerated for 15 or 20 years. However, if you lose money, you can usually get it back later. So, whether we have money or not, we are always investing.
Myth #3) The stock market is one of the best places to make money
The stock market is not a great place to make money, at least not in the short-run. It is a great place to keep the money you’ve already made. Don’t get me wrong. There are many people who’ve made their fortunes trading stocks, but that is not the norm. Additionally, even though there are many who’ve made a fortune trading stocks, more fortunes have been made using other investments. The stock market is what they call an “efficient market”, which means that it is tough to find a good bargain. This is a lot different from some other markets, where you can find a pretty good deal if you look hard enough.
When looking for a place to invest your money first, you should start with the investments that offer the highest return for the lowest risk. In other words, if you find something you are familiar with, you are likely to have a better outcome. One place to start might be with an investment in YOUR SELF. Do you have enough education to have the kind of career you would like? How about going back to school for that college degree or MBA? In my own research, I have determined that the returns to this kind of investing far exceed the returns generated from the stock market or other places.
You might also consider investing in Real Estate or even in the business of a relative. If you have a friend that is going into business, and you have reason to believe that this person is fulfilling an unmet need, has a guaranteed customer base, and is reliably going to give you your money back, then this kind of investment might be better than going right to the stock market. Just make sure that you sign a legal contract so there are no misunderstandings.
You can also make a lot of money by cutting your spending. Consider the following two options. Let’s say you have a credit card that charges 15% interest with a balance of $10,000. You have $10,000 available for investment, and you can either use the money to pay off the credit card or invest in stocks. Let’s also assume that you expect to earn 10% on the stock market (roughly what the US stock market earned during the 1997 – 2001 time period). There are two things you must remember about this investment:
1) The amount you are paying on your credit cards is greater than what you would earn from the stock market.
2) The amount you would earn from the stock market is risky, so it could be higher or lower than the average. The amount you are paying on your credit card is going to be the same, no matter what.
So, you have two choices: You can either a) invest the $10,000 in the stock market, earning an average of 10%, or you can b) Use the money to pay off your credit cards, ridding yourself of the 15% interest expense. If you go with option a) (investing in the stock market) and assume that you are guaranteed 10% on your money, you will earn $1,000 and have to pay $1500 in credit card interest (15% x $10,000). This leads to a net loss of $500.
If you go with option b) (paying off the credit cards and not investing in the stock market), you can save $1500. So, there is a $2,000 ($1500 – (-$500)) difference between these two choices.
The point is simple: “A penny saved is a penny earned”. You can rephrase this statement as “A penny not paid in interest is a penny earned in interest.” By using excess funds to pay off high interest debt, you have found one of the best investments around.
The point of this article is the following: Investing in the stock market is nice and glamorous, but it’s not the way to make money. If you really want to make money, you should start with investments around you: Buying a home, paying off credit cards, or going back to school. These investments give higher returns than the stock market and lead to a wealthier life.
3 Myths About Investing - Part 2
Myth #4) If you own a large number of US companies, then you’ve spread your money out well enough
Diversification is one of the most critical dimensions of investing. To make it simple, diversification means that you should not put all your financial eggs in one basket. Your grandmother probably gave you similar advice as a child, so you know where I’m coming from.
When you put your money into financial assets, the simple idea is that you don’t want to be overly exposed to risk and potential loss. Even if you think that an investment is a “can’t miss” opportunity, you are asking for trouble by putting too much of your wealth in one place. You may have seen the play “Raisin in the Sun”, in which one of the characters put the family’s fortune into a liquor store and saw his good friend Willy run away with the money. Whether it’s Willy or Enron, don’t let that happen to you.
Your broker may talk about diversification by stating that you should make sure your money is placed into several stocks at once. He might tell you that investing a percentage of your funds into GM, IBM, Microsoft and a few other US companies will do the trick when it comes to diversification. I hate to say it, but that message is WRONG.
First, investing should be international, not domestic. By only investing in American companies, you are missing a big piece of the global financial puzzle. If the US economy goes south, then so does your money. Also, some of the best opportunities exist in other countries.
Secondly, you should have your money placed in different types of investments. The stock market is just one place to put your money. You can also invest in real estate, a small business or even commodities and collectibles. The key idea is to spread your money around and to not get too excited about one type of financial outlet.
Myth #5) If a stock has done well in the past, it’s going to keep doing well in the future
One of the greatest myths in the financial world is the idea that a stock that has done well in the past is going to keep going up in price. Magazines fill their issues with a collection of stocks or mutual funds that did well the year before, and everyone clamors to buy these assets. The idea that a stock’s past predicts its future could not be further from the truth.
Research shows this is simply not the case. While it might seem logical that the past predicts the future, the truth is that stocks are priced based on a complex theory called “Rational Expectations”. Without going into what that theory implies, the bottom line is that any reasonable expectation that the stock is going to do better in the future has already been taken into account. For example, let’s say that you read the Wall Street Journal to find out that the Nike Corporation just signed a new deal worth an extra $1 Billion dollars. Your instinct might be to go purchase the company’s stock, in hopes that once the billion comes in the door, the price will go up. Sorry, but the truth is that the market immediately adjusts to that new information, so your ability to profit from the info is virtually non-existent. Additionally, all information about a stock’s future performance has been calculated into the current price. The truth is that its past performance can’t be predicted by ANYONE, not even a Finance Professor like me.
Would you like to know my own personal stock investment strategy? I buy a nice, diversified portfolio and then let it grow. I don’t try to pick winners from losers, and I don’t try to buy at the right time. I simply make consistent investments in the market (out of my pay every two weeks) putting those investments into a diversified portfolio. I then allow the thing to grow naturally. I don’t worry about price changes on the evening news, and I don’t sell nearly as much as I buy. What’s the result of this strategy? My money has steadily grown over the past several years.
Myth #6) The goal of money is to make more money
I study money and I have learned a lot about money. I have learned to appreciate and respect the power of money. But I have also learned the importance of keeping money in perspective. Money does not make your life wonderful: it simply enhances the beauty that your life already possesses. It can also be a protective force against some of the tougher choices we must make when our pockets are empty. Money is a tool for the improvement of your life and the lives of those around you, not the ends that one should pursue to find the holy grail of happiness.
At the end of the day, the goal is for you to be happy and fulfilled. The pursuit of wealth can play a role in this fulfillment, but you must be careful not to allow your pursuit of money to ruin the other valuable assets in your life. Money can be a means to happiness, but it is not the ends in itself. Keep that in mind as you go on your quest for riches.
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.BoyceWatkins.net
