Citizen Economists » Personal Finance

Raising your children

B.P.T. — Mon, 23 Jan 2012 10:55:46 +0000

Thanks to Darwin Barton

There’s something to be said for raising your kids on a daily basis and that’s what I’m working on doing. A few years back my husband and I made the tough decision for me to quit my job and it’s been really nice, actually, since we’re able to have me watch the kids all day while he works. I love him to death but I wish he made a bit more money only because our life has changed dramatically in the last few years. We’ve not cut back on certain things like home alarm systems and the organic produce we like to buy but others like trash pickup and things like that had to go to make room for our new lifestyle. I don’t feel bad about it though because it means I get to be with the kids and do what I like to do which just makes me feel good about how I’m living my life. I know the kids appreciate being able to have their mom around!

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Choosing an Options Broker

B.P.T. — Fri, 20 Jan 2012 14:45:28 +0000

With all of the volatility and uncertainty in the market, investing with options can be a good strategy to limit risk or speculate on a theory without putting down too much capital. Trading with options can be risky and requires a good understanding of the underlying security and why options change in price, so many retail investors end up ignoring them completely. However, despite that potential risk and education required, there are many instances where an average investor can use options to protect or enhance their portfolio. The CBOE has a great introduction to options trading if you would like more information.

Once you know enough about options to begin trading, you need to find a place to trade them. Many well known stock brokerages also offer the ability to trade options, but before you go with your existing stock broker, you should review the offerings from all options brokers to make sure you are getting the best deal and the best support for options trading possible.

Because options trading can be very complicated, many brokers offer advanced options trading software tools to help investors place these trades correctly. If a broker doesn’t offer this and forces you to place all legs of a trade manually, it probably isn’t the best place to trade options. Another factor to consider is which software platforms are supported by the broker. Many brokers now offer the ability to trade and review your portfolio from your mobile phone or tablet, so if that is something that interests you, be sure to pick a broker with those features. Also, you need to evaluate the amount of support you need when trading, and the type of support you prefer. Many brokers offer customer service 24 hours a day via phone, email, or chat, while others only respond during business hours or are only available using certain methods of communication. Last but not least, you need to consider the costs of trading at each brokerage. The pricing structure can vary widely, and some are better suited for frequent traders, while others are more attractive to people that keep positions in place for a longer period of time, so you need to evaluate your personal strategy and choose accordingly.

After considering all of the criteria listed above, I decided that MyTrack is the best online options broker for me. It has a good education section, software that is specifically made for options trading, competitive pricing, and good support. Hopefully you’ll be able to find a broker that is just as good for you.

The Morality of Walking Away

Simon Grey — Wed, 18 Jan 2012 17:25:12 +0000

There appears to be a misunderstanding:

Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call “strategic default.”

“Guilt and morality are one side, and objective financial analysis are on the other side,” Martin said. “They’re coming to two opposite conclusions. I wonder how many other people are struggling with the same question.” [Emphasis added.]

Actually, there is nothing at all immoral about walking away from an underwater mortgage. Yes, people (particularly Christians) are generally morally bound to pay their debts. But here’s the thing: If you default, your debts will be paid.

In a general mortgage agreement, the borrower agrees to borrow a certain amount of money at a specified price (called interest) from a lender. Since houses tend to be expensive, lenders don’t generally give out unsecured loans; in fact, lenders generally demand some type of security—also known as collateral—to secure the loan. In general, a mortgage is secured by the property being purchased with the mortgage.

This means that if a borrower misses a specified number of payments (known as default), the lender has the right to confiscate the property pledged as security as compensation for the loan. Stated another way, if you default on your loan, your lender will confiscate your pledged property. In essence, by confiscating your property, your debt is considered paid in full by the lender. You therefore owe the lender nothing, for the lender has stated, per the terms of the contract, that ownership of property offered as security will suffice as repayment in lieu of currency.

That the lender may take a loss on the loan is the concern solely of the lender. The lender has a moral responsibility to do due diligence on each loan, in order to maximize profit. If a lender fails to anticipate a declining housing market, that is his own problem. If a lender fails to anticipate high inflation, that is also his own problem. The borrower is not responsible for ensuring the lender’s profits, the lender is. If the lender is a fool, it is not the borrower’s job to save the lender from his foolishness.

As such, it is not inherently immoral to walk away from an underwater loan. If the lender contractually accepts the property used as security as sufficient for repayment, then there is no problem with using that property to repay the loan. The only question the borrower has to ask himself is which payment method is cheaper—cash or property—and act accordingly.

Note: obviously, this is a general moral guideline, not specific legal advice. Treat it as such. If you are considering a strategic default, consult with an attorney first.

Still No Sympathy for the Poor

Simon Grey — Fri, 06 Jan 2012 20:20:46 +0000

Here’s Bryan Caplan:

What about the “losers”? Bite your tongue. When you call lower-income people “losers,” you’re falsely assuming that we’re all racing for the same finish line: material success. But to a large extent, lower-income people are just racing for other finish lines. Leftist outrage over income inequality is therefore deeply misguided. To a large extent, incomes differ because priorities differ. And if the poor don’t consider their lack of riches a big deal, why should anyone else?

As I wrote before, most poor people are where they are because of the choices they’ve made in their life. In fact, it is fair to say that, all things being equal, they don’t want to be rich. They would rather have whatever they have instead of wealth.

Note that this isn’t some deep psychological analysis, but rather a tautology: by their fruits ye shall know them. You can tell that most poor people want to be poor (or, more accurately, have what they have instead of wealth) by the mere virtue of the fact that they are poor. At this point in time, the markers of poverty are fairly well-known, and so only the astonishingly ignorant do not know what is needed to avoid poverty.

Thus, most poor people know that their past actions would likely lead to poverty, yet they made them anyway. Since they knowingly made those decisions, they are no more deserving of anyone’s pity than child who sticks his finger on a hot stove after being told not to do so.

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Love my Garage

B.P.T. — Mon, 19 Dec 2011 10:55:55 +0000

Thanks to Darwin Barton

Having a house is great. I love having a garage to park in, I love having separate room for my office and my husband’s “man cave.” I really love having a fenced in backyard for our dog and cat. I don’t love worrying about burglary, or fire, or flood. Life was most definitely a lot easier before I had any of these responsibilities. It’s funny that I so completely ignored my parents when they cautioned me to enjoy my “responsibility free” life when I was younger. I’m sure I’ll pass the same advice on to my future children, and I’m sure they will ignore it, just as I did. The one thing that saves my sanity is having a adt. This service allows me to worry at least a little less. I know my house is being monitored even in the event that I’m away when disaster strikes. While it obviously can’t prevent a fire, the service can ensure that the proper authorities are contacted when necessary. This is definitely another piece of advice I’ll pass on to my children—sign up for an alarm monitoring service!

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Why Not Default

Simon Grey — Wed, 09 Nov 2011 17:40:33 +0000

Seriously, what’s so difficult about allowing student loans to be discharged in bankruptcy?

Today, President Obama is effectively giving college students and their parents his middle finger. Whereas Jobs’ prank was harmless and symbolic, the President’s plan to bail out student loans will derail the entrepreneurial dreams and financial security of countless young people. [Ed. - this claim is utter bulls**t.Bailing out student loans will increase their financial security because they will no longer be slaves to the banks. And, with less debt, they can actually become entrepreneurs.]

By executive order, the President’s unconstitutional “We Can’t Wait – Pay As You Earn” plan modifies the existing Income-Based Repayment Plan so that, effective in 2012, graduates may cap their loan payments at 10percent instead of 15 percent of their discretionary income. Anything remaining after 25 years (formerly 20 years) becomes fundamentally the taxpayers’ responsibility. And, if a student wants to become a public servant (i.e. work for George Soros) his loan will be forgiven after just 10 years.

Obviously, Obama is playing for political points with this plan, presumably to mollify the OWSers, so I understand outrage for that reason. But what I don’t understand is how anyone thinks that student loans weren’t already the taxpayers’ responsibility. The government guaranteed student loans a long time ago, which is one of the reasons there’s a college bubble—private lenders face virtually no risk on the loans. In fact, the government guarantee of repayment is why default was taken off the table as an option: the government didn’t want taxpayers to take it in the shorts.

Neo-con bomb-lobbing aside, Obama’s plan is pretty terrible. It shouldn’t wreck the economy(at least no more than seeding a college bubble would), and it’s better than a jubilee for the loans, but there is still a much better solution available: the federal government should stop guaranteeing student loans and allow them to be discharged in bankruptcy. This way, college student wannabes won’t be as inclined to pursue worthless degrees and banks won’t be as inclined to fund the pursuit of worthless degrees. You don’t need bailouts, you don’t need special debt laws, all you need is the ability to discharge student debt during bankruptcy. Problem solved.

The Value of College

Simon Grey — Wed, 02 Nov 2011 19:10:38 +0000

Consider these charts:

As can be seen above, having a college degree is becoming worth less. And the cost continues to increase. Worst of all, one cannot default on student loans, so those who take on massive loans to fund their education will find that they are essentially slaves to the banks for life if they cannot find a decent-paying job.

I hope we can finally stop with the utterly worthless advice to go to college and pursue a career. The former is becomingly increasingly less correlated with the latter, and we are only doing a disservice to young people if we say otherwise.

Also, my experience has taught me that most of what passes for higher education is nothing more than drivel. Most of what is taught is obvious, wrong, or pointless. If you want to be smarter, go to the library and find good books to read. If you need help getting started, use a search engine to find classics of the western canon. Then imbibe deeply.

In the meantime, forget college.

Sounds Good To Me

Simon Grey — Mon, 17 Oct 2011 19:15:02 +0000

The OWSers finally have a good idea:

The social uprising — called “Bank Transfer Day” — encourages bank customers to take their cash out of big banks and put it in smaller banks and credit unions instead. The movement is ostensibly in response to aggressive fees institutions are rolling out to recover profits lost from new financial regulations, notably Bank of America’s (BAC – News) decision to stick debit card users with a $5 monthly fee and Wells Fargo’s (WFC – News) $3 test of the same.

Of course, one need not be a pot-smoking leftist to think that putting one’s money in a bank that doesn’t charge you usage fees is a good idea. And one need not view opening up a checking account with a cheaper bank as a way to show solidarity or prove one’s radicalism. Going to a cheaper bank is simply good business.

At any rate, if you’re going to bank, you may as well bank with an institution that hasn’t perpetrated massive fraud against its customers or the American people. To that end, I also recommend putting your money in a credit union; I’m very happy with mine. I haven’t gotten ripped off, and no one who works at my credit union has been arrested on fraud charges, nor is anyone calling for such a thing.

Better yet, transferring your money from one of the big banks to a local bank or credit union strikes me as a way to a) end the “too big to fail” nonsense once and for all and b) strike back at the criminals running the major banks. In the case of the former, taking your money elsewhere means that any future bailouts will ostensibly be used for fat cat traders who didn’t have enough foresight to cover their risks, since the “little people” with bank accounts will be elsewhere. In regards to the latter, it will considerably harder for the major banks to turn a non-fraudulent profit if they have no customers.

I’m with the OWSers on this.

Is It immoral to Play the Stock Market?

Simon Grey — Tue, 11 Oct 2011 19:10:24 +0000

The other day, my brother emailed me to ask if it was wrong to play the stock market. Since I was going to take the time to write him, I thought I’d share my response on my blog.

In the first place, it’s important to note that the stock market is inherently neutral, morally. By this I mean that the stock market, as a non-human entity, cannot go to heaven or hell and, as such, cannot be inherently moral or immoral by its own state of nature.

In the second place, it’s important to note the sources of immorality within the stock market. Karl Denninger has documented massive amounts of fraud among traders, particularly among firms that engage in automated trades. Furthermore, many companies traded on the stock exchange engage in illegal and immoral business practices. Many trades are based on fraud (think of businesses that lie about their balance sheets and income statements). Also, many people engaging stock trades are highly immoral.

Does this then mean that one can never trade stocks? Of course not. If it were immoral to trade with those who are immoral, then no one could buy groceries or clothes, or engage in any kind of trade. And it is not inherently immoral to be the victim of fraud (though it is foolish). Interacting with those who are immoral does not cause their immorality to transfer to you by the merits of trade.

However, those who are immoral can end up having an influence simply by the virtue of your continued interaction with them. This does not mean that the venue of your interaction is immoral. Rather, your decision to allow those who are immoral to drag you down to their level is immoral, and it is you who will bear the guilt and blame for that decision, not the stock market.

It is worth noting, though, that if playing the stock market troubles your conscience then you should refrain from playing the stock market (cf. Romans 14). And it is also worth noting that there are many major players in the stock market who are simply looking for a sucker of which to take advantage, and that the government has often turned a blind eye to the fraud that usually accompanies this. As such, though it is perfectly moral to play the market, it is at this point in time quite foolish to do so.

Where to put your savings

B.P.T. — Fri, 30 Sep 2011 16:30:09 +0000

With the stock market swinging up and down as the economies in the United States and Europe appear to be heading back towards a recession, it could be a good idea to move your savings out of the stock market and into safer asset classes. However, the Federal Reserve has stated that it plans to keep interest rates as low as possible for the foreseeable future, and has taken steps to drive interest rates even lower than the current record lows by swapping longer term debt for short term debt. Because of this, interest rates on savings accounts are hovering around 0%, making them a poor choice with inflation rates over 3%. Bonds are the other common alternative, but they are also seeing their rates driven down by the actions of the Federal Reserve, and they are affected by many of the same economic risks as stocks.

Since the stock and bond markets appear to be too risky at this time, and savings accounts paying near 0%, one alternative that allows savers to avoid risk and obtain a higher return on their savings is certificates of deposit, or CDs. According to the SEC, CDs are protected by the same insurance as savings accounts (currently $250,000), yet offer a higher yield than savings accounts, making them an attractive investment. However, savers are generally required to keep their deposit locked up in the CD for a fixed amount of time that can range from six months to 10 years, so it is important to ensure that the principal invested in the CD will not be needed until the CD matures, or a penalty could be imposed for early withdrawal. Other considerations to keep in mind are whether the CD offers a fixed rate, whether it can be called early by the bank, how often the earned interest is paid, and if a CD is offered by a broker instead of a bank, the reliability of the broker must be investigated, since they act as an intermediary between the saver and the bank where the funds will be stored.

Almost every bank offers CDs of some kind, and most banks will sell CDs to investors without requiring them to open a savings or checking account at the bank, so there are plenty of options available to people looking for a safe place to put some savings. I suggest researching the options online to see which CD is best for you, but when I checked today, Discover Bank offered rates that were well above the national average, along with easy funding options and reasonable early withdrawal fees. If you have some spare cash sitting around in a savings or checking account that is earning little to no interest and you know you won’t need it for some time, a CD could be a good investment choice.

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