Money Listens

For all the cows you’ve loved before…

Friday, July 11, 2008 is Cow Appreciation Day.  Anyone who dresses like a cow gets a free Combo Meal.  Go for breakfast, lunch, or dinner.  Or all three.  Even if you’re not up for a full body costume, just wear a mask or spots and get a free sandwich.

It’s time to say thank you to all those cows who do so much for us all year long.  Where would breakfast cereal be without cows?  Today is their special day.  And it can be yours, too, with a little creativity. And did you know Chick-fil-A has some of the best cole slaw?  But the waffle fries are my favorite.

Visit Chick-fil-A’s website for tips on making your own cow costume.  And this could be you:

High school is over, college is next.  Your freshman has her sheets and towels, mini-fridge, panini maker, first aid kit, shower caddy, and about 350 lbs. of “must-have” stuff.She’s registered for classes, signed up for orientation, sent her roommate 500 text messages, and has “class of 2012″ on her Facebook.  (Let’s hope she will graduate in four years.)What else is on the college to-do list?  How about money stuff?  She’s going to be using money in college and needs to tell it where to go and what to do.

1.  Bank Account

Where is she going to bank?  She has a checking account and ATM/Debit Card with a local bank.  She needs to open a checking account at a national bank with a location at home as well as a location within walking/biking distance of college.  Most banks have no-fee student checking accounts.  Find out about ATM fees and overdraft charges.   A parent can be a joint holder in order to regularly transfer an allowance, or in a time of emergency.  Make sure she knows how to balance a checkbook and stuff like how long it takes her paycheck to clear after she deposits it.

2.  Credit Card

She will be bombarded with offers to open credit card accounts.  Make her swear not to do this.  Her ATM/Debit Card will be branded with VISA or MASTERCARD, and will be all she needs.

3.   Paperwork

She needs a filing system with folders and a place to keep them. Go ahead and make some now.  Even if most statements and bills are online, there’s still plenty of paper around.  Especially financial aid forms and notices from the school.  Does she know what types of paper she must keep?  What about receipts and warranties?  She also needs to keep her social security card, passport, test scores, health records, payroll stubs, and important papers somewhere.   And under the bed doesn’t count.  Not only does she need to keep the stuff filed, she needs to fill out the forms herself.  And write the tuition check.  And tell her she gets to fill out her own tax return next year.

4.  Spending Plan

She needs a plan for how much money she can spend on eating out, recreation, clothes, Starbucks, gifts.  You get the idea.  If this sounds like a budget,  a rose by any other name. . .   How much will the parents contribute and how much will she be responsible for?  And she needs to keep track of her spending.  Quicken or a spiral notebook will get the job done.  She needs to know that you will “audit her books” at Christmas break.  And you don’t mean textbooks.

5.  Maintance

She needs to know how to take care of her stuff.  If she has a car, what will she be responsible for?  She needs to know how to run the anti-virus programs and backup the data on her computer.  She needs to know to keep passwords safe.  And do laundry.  Ruining clothes is expensive.  She needs to pay her bills on time.

6.  Student Loans

If she is taking out loans she needs to understand the terms, especially what the repayment amount will be.  She must be careful to keep up with the forms and limit her loans to the bare minimum necessary for school.  Loans can get out of hand in a hurry.  She can check out this video on how college students struggle with money management.  http://www.youtube.com/watch?v=JOt3Apl7qBA

7.  Privacy

Does she know not to give out her account numbers or passwords?  Does she have a basic idea about identity theft and scams?  Tell her not to lend money to friends.  And don’t borrow any, either.

8.  Back Up

Tell her you’ll be there for any problems.  Money listens and parents can listen, too.

Investing has its own rules.  When we try to play investing by the rules we’ve always used to run our lives, it doesn’t work.  One of the reasons we’re lousy investors is because we follow the rule “You get what you pay for.”  When you’re buying a car, a computer, or dark chocolate, you generally do get what you pay for.  The more you pay, the better the product.  But not when it comes to investments. You can’t tell whether a financial product is the best one just because it costs more.  In fact, often the opposite is true.

Another maxim we live by is “If you don’t know how to do something, hire an expert.”  In practice, it’s much harder than it sounds.  Just who is an expert?  We’ve all had trouble finding a car mechanic or a plumber we can trust and depend on. How in the world can we find a financial planner?  (Be on the lookout for a future post on how to find a financial planner.)

Listen to your gut.  Trust your instincts. You usually know what is right.  Sure you do.  If you’re playing Clue, you might have a hunch that it’s Colonel Mustard in the Lounge with the Wrench.  So what if you’re wrong.  You’re out of the game and go get another Pepsi.  Are you going to risk your life savings on a hunch?  Okay, I think most of us have this one down.  We don’t rely on hunches.  We don’t guess.  We actually do some research and make the best decision we can.

If Dogbert recommends Index Funds, what are you waiting for?

These cartoons are from Scott Adams’ Dilbert website.  Check it out at www.dilbert.com.  And please don’t mention the words “copyright infringement.”

A recent article in USA Today discussed how seniors were getting hammered by rising prices.  It’s not your imagination; prices have been going up.  For the three months ending May 31, the annualized inflation rate for food was 6%, and for energy, inflation exceeded 28%.  Food and gasoline are the worst, but prices in general rose at a 4.9.% rate.

When you’re retired and living mainly on Social Security, it’s especially tough.  An AARP survey found that 59% of seniors have trouble paying for food, gasoline, and medical care.  If you’re like me you find that hard to believe. You hear mostly about retirees playing golf, going on cruises, and generally enjoying the good life.  You see them walking in the malls and eating at Olive Garden.  41% can afford to do that.  The 56% who can’t will stay at home to save the gas for doctors’ visits.  Are you and/or your parents going to be in the “having trouble paying for” group?

It sure looks that way.  The median balance in 401(k)s and IRAs for those approaching retirement age is $60,000.  That’s not going to go very far.  Seniors don’t just need help crossing the street.  They need help preparing for the future.  This is especially critical for women. Women live longer and are more often alone in old age, and they are more likely to be adversely affected by rising prices.  Forty percent of elderly women  receive more than 90% of their income from Social Security.

There is probably someone in your life that could use help crossing into retirement.

Why are so many of us lousy investors?  We’ve been reading MONEY Magazine for years, keep up with CNBC, and try our best to make wise decisions.

The Bogleheads’ Guide to Investing has been on my “to read” list since it came out in 2006.  The book is a group effort by three followers of John Bogle, founder of Vanguard mutual funds.  Proponents of Bogle’s strategy of investing are referred to as “Bogleheads.”  I postponed reading the book because most of my focus has been on spending less and saving more, not investing.  The book is a comprehensive how-to guide for beginning investors.  But it’s also got a fair amount of psychology and philosophy in the mix.

The book has a great answer for why so many of us are lousy investors.  It’s because of the principles we have learned to live by.

• Don’t settle for average.  Be the best.
• Trust your instincts.
• If you don’t know how to do something, ask an expert.
• You get what you pay for.
• If there’s a crisis, do something, take action.
• History repeats itself.  The best predictor of future performance is past performance.

Applying these principles to investing will leave you poorer. *

Investing is a whole different ballgame, with its own rules.  That’s because the stock market is random and unpredictable.  The rules that we’ve lived by all our life, that have served us so well, are useless when it comes to investing.

Who is happy with being average?  Don’t we always strive to be the best?  Don’t we want the best returns on our investments?  It’s questions like these that torpedo our portfolio.  The “average” investor takes high risks to try for “better-than-average” returns and ends up “below-average.”

Bogleheads choose index funds, little risk, and are happy with “average” returns.

*The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf. p. 76

Americans are spending about as much money on eating out as they are on eating at home.

The ERS Food Expenditure data series indicated that spending on food away from home was 48.9 percent and spending for food at home was 51.1 percent in 2006.

We spend about 58 percent of our food-at-home dollars at traditional grocery stores. Non-grocery stores that sell food, such as Walgreens and Dollar Stores, have increased their share of grocery sales to 11 percent. The really big winners were supercenters and warehouse club stores, which accounted for 18 percent of food-at-home expenditures in 2006. No wonder those check-out lines are so long.

The chain restaurants are also competing with the grocery stores. Many of these restaurants, such as Outback Steakhouse and Carraba’s Italian Grill, have emphasized take-out orders by adding reserved parking spaces and special entrances. These chains’ take-out sales account for an estimated 10 percent of their total sales.

Grocery stores are countering with more ready-to-eat meals and salad bars. There’s less and less cooking and more and more heating and eating. It’s getting harder and harder to separate the “at home” spending from the “eating out” category. Does the lasagna dinner from Macaroni Grill that you eat at home still count in the “eating out” budget category? What about Central Market’s “Dinner for Two?” Preparing and cooking a meal at home, with ingredients purchased from a grocery store, still beats eating out. At least in the cost department. Since we’re willing to spend half our food dollars on eating out, it seems the cost department isn’t much of a priority.

This Saturday, May 10, 2008, letter carriers will collect food for the local food bank. Last week you probably got a paper bag with your mail. If not, put any non-perishable food items in a bag or box by your mailbox. Your mail carrier will pick it up on Saturday when he comes by to deliver your mail.

Any items are welcome, but peanut butter, tuna, soup, and cereal are especially needed. Nothing past its expiration date, and no glass jars, please.

One of the reasons I want to get a handle on my finances is so I’ll have more money to give away. Here’s a good opportunity. It couldn’t be any easier, I’ll just take a look in my pantry and fill up a bag.

The U.S. Dept. of Agriculture spends a lot of time on its publications. And a lot of my tax money. So, I like to see what my tax dollars are buying. Right up there with Real Simple and Sports Illustrated is Amber Waves. Get it? From the song–America, the Beautiful.

But my favorite is the every-other-month Vegetables and Melons Outlook. (I am not making this up.) Don’t you have a favorite section in a magazine you always turn to and read first? For me, it’s the “Commodity of the Month.” In the April, 2008 issue, potato chips were featured.

Even though it’s pretty much common sense, you like to know that the U.S.D.A. is confirming that retail prices for potato chips are considerably higher than other potato products (such as fresh potatoes or frozen french fries). Since 2000, retail prices for potato chips have averaged $3.41 per pound, while fresh and french fried potatoes have averaged $0.45 and $1.05 per pound. This is due to the high cost of the frying oil. Plus, a potato is roughly 80 percent water so it takes about 4 pounds of raw potatoes to manufacture 1 pound of potato chips.

Even with the higher cost, potato chip consumption in the United States has steadily increased over the past five decades from 11.4 pounds per person in 1960 to an estimated 19.3 pounds per person in 2007. An estimated 79 percent of potato chips are consumed at home.

So who’s eating all these chips? Conventional thought is lower income, less educated households are more likely to purchase potato chips. Not so. When breaking down income levels of chip consumers, 50 percent were middle income households (households with incomes between $30,000 and $69,999). Upper income ($70,000 and greater) and lower income (below $30,000) households each consumed 25 percent.

If you can figure out what any of this has to do with personal finance, leave me a comment. Maybe it’s something about how the federal government uses our tax dollars. But, personally, it’s very comforting to know that average Americans are staying at home eating lots of potato chips. It just seems so, — so American.

My daughter read the 1932 Pulitzer Prize winning novel The Good Earth for her world history class. I decided to read it also, since it was one of those books I had always wanted to read. The engaging story is set in rural China in the 1800s. Although there are many cultural differences between East and West, wealth’s influence on human nature transcends time and culture.

Pearl S. Buck paints a vivid picture of two generations. The father is a hard-working farmer who accumulates wealth by his sacrifices and his respect for the land. He attains a high status in his village and uses his wealth to provide for others. He also indulges his sons with material possessions and the education he never had. He doesn’t want them to be farmers, like him, but to have a “better life.” In his old age the farmer sees how his sons have none of the qualities that enabled him to become wealthy, such as a strong work ethic, an ability to delay gratification, and frugality. His sons plot to sell the farmland to keep up their standard of living, unaware they are selling the source of their wealth. The father realizes, too late, that his sons would be better off had they been farmers.

Where do you fit in this generational picture? Are you the father, indulging your children? Or, are you more like the sons? Your parents provided you with material possessions and wanted you to have more than they had as children. You were never taught to delay gratification or how to manage your money.

How are you raising your children? Will they have a strong work ethic and value frugality? Will they be content with what they have? Will they be thankful for what they have?