Debating Myself

I have been deeply immersed in critiques of the market system this month, and my reading and thinking on the issue has happened to occur at a time I am about to strike out on my own financially–graduating college this May.

Thinking about the financial entanglements already piling up immediately following graduation (car insurance, student loan debt, rent commitments, etc.), I started to wonder if I was prepared to manage these and begin thinking about investment, retirement and savings.

And then it hit me. I’m not.

When most people hit the workforce for the first time starting off their career they have little or no experience or training in financial planning. It is like giving someone a car and not teaching them how to drive it first. Except it is more like strapping them into the driver seat of a car hurtling down a NASCAR racetrack and warning them that if they don’t drive right they’ll crash into the wall and badly injure themselves.

See this post at the Western Democrat listing the “debtor society” as one of the biggest issues facing American society. I have to concur (I mean Warren Buffet agrees too!).

The market system is incredibly complex and learning how to take advantage of its tremendous opportunities while avoiding its many dangers is as vital as learning how to buy food and keep clean. Maybe even more important, if you made enough money in the market you could actually pay someone to do those things for you. Yet we receive little or no formal training on financial matters. We don’t really talk about financial literacy, and those of us that do probably enjoy a sizable advantage.

Without getting into overarching judgments about the validity of the market system or the way capital is regulated (which is certainly a debate we as a society should always be having) we have to accept that we live in the here and now, and the here and now is dominated by a global capitalist economy. Shit. So how do you live well within that system? What are the instruments of that system, what are their functions?

One possible explanation for some degree of the growing inequality of wealth in the United States of America today may very well be the different levels of understanding of the market system. Wealthy people tend to impart their knowledge about the market system onto their children, who then use that information (and seed money from their wealthy parents) to generate their own wealth. If you and your parents were not fortunate to possess such knowledge (or seed money) then you are at a distinct disadvantage when it comes to generating wealth.

Knowledge is power. In a market-based economy basic knowledge can make a big difference in the returns you see on your investment.

That is why new campaigns about financial literacy are one of the most important components of reducing inequality (because the whole socialist revolution might still take awhile). We need to teach people about generating wealth now, and let them decide to take that advice or not. And if they want they can work for change within the system too. But don’t miss out on your own financial well-being because of ignorance (out of principle, that’s your choice–but if you miss out because of ignorance that is society’s failure).

So here are four super easy steps to help you get started:

1. Save money. I know, it isn’t revolutionary, but the first step is to decrease your spending–give up your Coldstone ice cream habit for example–and begin putting your money away for the rainy days that inevitably occur in a market-based economy. You will live long enough to see them.
2. Put your money to work. After successfully saving up some money, gradually put some of those savings to work. Always keep cash on hand, but after you have a strong base of cash start putting some excess into long-term investment vehicles with tax benefits (there are an array of these: ROTH IRAs, IRAs, 401(k), 529s, etc. ). If you want, put money in stocks and bonds on your own, but don’t feel obligated–you can make money by keeping it simple.
3. Start now. This seems odd, especially if you are young, but the sooner you start saving the more time your money works for you and the greater returns you get. Compounding interest is the back on which many fortunes are built. Start using it to your advantage right now.
4. Keep it simple. Don’t try to beat the market. If you save early you can take very low-risk investments with high long-term yields and make money without ever worrying or gambling on the market. Stocks have an average annual rate of return of 10% over the last 50 years. There will be booms and busts, but you should wind up with about 10% per year over the life of a 40 year retirement account.

If you don’t trust me or want more information, here are some further resources that you should definitely look at seriously for all kinds of other advice–tax, insurance, etc.

• http://www.mymoney.gov/
• http://www.360financialliteracy.org/
• http://www.jumpstartcoalition.org/

If you want a book there is only one you need to read, John C. Bogle “Common Sense on Mutual Funds”. Its intelligently written, interesting, and it will change your financial life.

We take finances very seriously in America, but we don’t seriously discuss them. A great majority of people are wholly unprepared for the kind of sound financial planning that will protect them from lay-offs or sickness and prepare them for a wealthy and enjoyable retirement. These are easy steps.

Because of the seriousness of financial advice and financial security in American culture, however, I am compelled to give a disclaimer here that I am not liable for any financial losses you incur as a result of taking this advice–I’m not trained in any way. Just think of me as a friend telling you about some great resources you should look at that will help you with financial problems.

Seriously. Start saving now.

Lawmakers are complaining that oil executives are exploiting consumers through artificially inflated oil and gas prices.

This is an odd criticism for politicians to make, considering they reap those very oil company profits to finance their campaigns–oil and gas contribute upwards of $20 million a year to political campaigns.

Of course, it looks good to stand up on C-SPAN for the whole world to see and fight for the American consumer. But please, if you would Big Oil CEOs, leave your donations for our political campaigns at the door on your way out…

Microsoft was recently slapped with a record fine for failing to comply with a 2004 ruling in an anti-trust case. PaidContent.org has a good summary of the European Commission’s decision, which found that Microsoft still was charging too much for licensing of its server data to enable competitors’ products to be compatible. (Another sticking point was the bundling of the IE with the Windows OS.)

The Economist’s Free Exchange blog gives a good description of the rocky history between Microsoft and the EU:

In 2004, the European Commission used its awesome trade regulation powers to fine the software firm €497m, followed by a further €280m in 2006. Now, the commission has fined Microsoft €899m ($1.4b, £681m) for failure to comply with an earlier 2004 ruling, centred on its bundling of Explorer internet software with its Windows operating system.

Clearly Microsoft is a successful and financially stable company (stable enough to attempt to acquire Yahoo for $44.6 billion) but as the Economist points out, this fine is larger than Sweden’s net contribution to the EU budget in 2006. Microsoft has continually faced much stiffer resistance to its business practices in Europe than in the United States—and certainly this latest setback does not bode well for Microsoft’s acquisition of Yahoo! either.

Certainly bloggers over at the Guardian feel that Microsoft got what was coming to it—there is a great discussion in the comments section of this blog debating the evils of Microsoft. I’m not sure I agree. Microsoft’s market dominance perhaps stifles the development of operating systems, but no one seems to complain that if I were to purchase a MacBook (until recently) I only had one choice of operating system on that platform as well. Microsoft has, in fact, been facing stiff competition from cost-free open-source competitors in the form of various incarnations of Linux. It seems to me that the punishment does not fit the crime—and certainly bundling XP with IE seems a rather minor affair in an era when browsers are obtainable in a matter of seconds.

After puzzling this for some time, I began to think, what if Microsoft struck back at the EU? A blogger at 22Hundred.net had this to say:

To Microsoft I say this…..pull out of Europe! Not completely obviously but give the EU exactly what they want. Remove IE, Windows Media and all other additional software from XP now, after all it’s only going to be supported for a few more months anyway. Then let the people who have just bought their shiny new OS try to use the damn thing without the bundled applications and ensure that the OEM’s do not bundle software to make up for it. It’s time to make the EU suffer.

My girlfriend and I were having a similar discussion, but she wasn’t as concessionary. Imagine if Microsoft pulled out completely. European consumers would be furious at the European Commission, because love it or hate it the Microsoft monopoly means that all of their computers can talk to each other. Most consumers are familiar with Windows and switching to Linux or Mac would be difficult, costly, and inefficient. Server farms running on Windows Exchange and other software would not be able to upgrade to Vista. Even the lack of Office support and service alone could bring the massive bureaucracies of the EU and its member-states to a halt.

Of course public opinion would prevent Microsoft from doing anything like that. But, if any corporation is tough enough to take on an overzealous regulatory regime like that of the EU, Microsoft is. I’m not saying it would (or should)… but it is an interesting thought experiment.

Perhaps a safer solution comes from the Economist:

Perhaps Bill Gates should cut his losses and buy a small EU nation state (Malta is nice at this time of year), keep paying the same money, but this time ask for voting rights at EU summits.

He could rename it something catchy too—like Zune Island.