The Politics of Social Mobility

http://bit.ly/19rz1Dp

The Brookings Institution goes on to describe the differences in opinion of the Republicans and the Democrats, which is factually correct...but, if we can step back and look at these two charts from a distance, do you really see any discernible difference?

Social Mobility is the ability to improve ones own social status, which could be in terms of health, wealth and influence. In short, lets face it - isn't it just about making more money?

For which you need a job. For a well paying job, you need a good education/skills. To ensure that you do that and other things right, you need parents/family. They are all important. The minor variations in percentage points do not matter much to me. I think everyone is actually in agreement. Lets just do it!

How to feel Wealthy?

This video clip from "The Street" summarizes a lot of what we have been discussing in our blog, so I thought it will be a good refresher, especially before the holidays and in time for making those New Year resolutions!




Useful links to past posts:
How to calculate your net worth
Wealth Generation 101
Plan your retirement now

Black Friday at Walmart - Part 1

Walmart is a classic case of the chicken or egg question - its interpretative ambiguity a wonderful topic for economic discussions which will never know resolution, but interesting to discuss, nevertheless. And it appears to be a recurring topic, especially around Thanksgiving.

This year the headlines were about the Black Friday brawls at Walmart over towels that sold for less than a dollar ( and of course along with the news about the protests by Walmart Union workers, which we will talk about in Part 2) which led me to write this post. 

With over 10 million transactions on Black Friday alone, customers swept up over 2 million television sets, 1.4 million tablets, about 2 million dolls and over 2.8 million towels. Should we be thankful for Walmart and for its super sized discounts in a still (sigh)  faltering economy?

When we talk about wages and other cost saving techniques employed by Walmart as compared to its so called competitors Costco and Target, what we sometimes miss is the target segment that Walmart is catering to. Walmart primarily targets families with incomes less than $60,000 per year. For this customer segment 'customer care' or the 'shopping experience' is not all that important. Low prices- Always. Period. Why would you need highly motivated, smiley faced, customer friendly employees to run this operation? Costco does not have a layaway section, Walmart is planning to expand it's lay-away. Target does price match for select retail periods but is also looking for opportunities to move away from being a low end retailer - remember the Neimen Marcus line and the Missoni collection? 

I  think Walmart has a very unique and rather successful business model, which works especially well in economic downturns and no amount of union protests will cause them to change their strategy, because they still receive over 30 applications for each open job at Walmart and numbers don't lie, but then....

When I was little I used to say that I will never become a doctor, because a doctor can be rich only when everyone else was sick. It did not sound very right. Similarly Walmart makes profits when the economy is down, when people fight over towels that cost less than a dollar and when its employees are underpaid - in spite of the successful business model - something does not seem right here.  Does it?

But then again, what if no one wanted to be a doctor for the same reasons and there were no incentives for doctors to become the best at what they are doing, what if a cure for cancer will never be discovered, what if there were no vaccinations and flu shots, what if there was no research and no development in medicine, What if...?

I will leave you at that for this week, we will pick up with Part 2 next week. Hope you had a great Thanksgiving!

It is a long road to Financial Literacy

When the housing bubble burst in 2008 there was hope that this generation will learn from their mistakes and do their own due diligence before they make large financial decisions, but alas it is a long road to financial literacy.

Post by CNBC.

People are being driven to make life impacting financial decisions much earlier in their lives - student loans, credit cards, healthcare, cars. The list goes on. It is almost impossible for people to make wise decisions without some form of financial literacy and this is especially applicable to young people who do not have adult mentors in their lives.

In countries around the world, those on the lower end of the economic ladder have to deal with a corrupt and inefficient political system, social limitations and lack of access to basic infrastructure. Whereas in the United States, there is a lot of basic support available - and in quite a few cases, I think, a little bit of financial literacy coupled with financial discipline can go a long way in improving social mobility.

Goals are for losers

I shamelessly copied that title from Scott Adams ( of 'Dilbert' fame). A soft management issue for a change, but inspiring, nevertheless. And of course, like the kid whose only take-away after listening to an inspiring talk about Bill Gates was that Bill Gates did not complete school, please do not take it out of context!

Here is the link to original video and article:



Fail your way to Success

If you want to be successful ( Read: $$, work-life balance, or however you define success) then don't just sit there talking about it, or crying over past failures and how unfair life has been to you.

And when one day you are ready to pen that life success story, you will know ( if you don't know already) that success is not all luck and passion. It is hardly, if ever, passed down from fore-fathers. It is not sweet talk, board room meeting, plans and goals. It is not what you wanted to do or what you were capable of doing, but what you actually did. It is always a result of sweat and toil. And every success story will have its fair share of failure anecdotes.

So, roll up your sleeves and get your your-know-what to the grind!

Taper talk in Incredible India

Replica of the Empire State Building, Bangalore, India

The Indian economy was cruising at a 9% GDP growth in 2010 when the US was in a recession. It has since plateaued to a more modest 5% over the last year. But tepid economic growth in the US ( less than 2%) and Europe, ensured that India continued to be seen as an investment opportunity - like America was in the late 19th century. The increased money supply caused by Quantitative Easing (QE) at this time, streamlined capital all the way to the Indian shores.

India's woes:

However exciting India might seem, it has its fair share of woes. With an under-developed infrastructure, political volatility and red tape tinged in xenophobia, it effectively  makes foreign investment an elaborate and painful process. Any foreign investment was for a quick Return on Investment. Even Indians with cash to invest were looking for opportunities abroad to hedge their portfolios or gain exposure to a more reliable source of return.

US Fed Policy is for the US: 

US Fed Policy, ( see Monetary Policy ) while independent of Washington, still works in tandem with Washington and its goal is US economic development (not world economic stability). Following the 1997 Asian Financial Crisis, several discussions were had and several steps taken by various Asian governments to internally strengthen their own financial systems and to insulate themselves from global economic events. With India and China and a lot of Asia demonstrating their resilience as they kept up a healthy GDP all through the US recession, it offered glimpses of hope, but alas hope is drying up rather soon.

Why is the Rupee- Dollar rate at 65.00?

As the US Fed indicates a gradual tapering, investors preparing for a reduction in money supply are pulling their investments from foreign shores and as they bring their money home, they exchange their rupees for dollars. As the supply of rupees increases, its value keeps dropping. Besides, the value of India's foreign debt increases as the dollar strengthens vis-a-vis the rupee, and questions arise about the sufficiency of existing foreign reserves. The Indian Central Bank ( Reserve Bank of India) apparently did not see it coming. Could it do something? Will it be too little and too late. We will wait and see.

What next?

India is well behind any advanced nation, even behind some nations in Asia which were considered contemporaries at some point in the past. But India has a vast pool of young and educated workers who aspire towards upward mobility and are willing to work towards it. There is so much room for development. There are so many people. At this stage, India can only grow. The growth rate may not be as exciting as one would want it to be. Growth may not come from foreign investments. It certainly will not come from any policy changes out of the rather lethargic political system. But India will grow. Future growth will be driven by domestic consumption. As the great Indian middle class gains awareness of western comforts and luxuries and aspires to get there, India will grow. And when growth is driven by domestic demand, growth will be more sustainable.

This is my take for the long term. Obviously, there will be some near term corrections. But if you have a long term outlook and have dollars to spare, this is the time to change it to Rs. 65 and enjoy a slice of the next Indian recovery. Even if it is just a CD ( Fixed Deposit) it will earn you close to 8%!

Resources:
Monetary Policy
Quantitative Easing (QE)

Using your $$$$ wisely

Hello everyone. I am back from my long summer break now and what caught my interest during my travels was a couple who said that they loved to pay taxes. Seriously, they love to pay taxes. They think they need to pay more taxes. God bless their souls. No matter which side of the political aisle my friends sit on, I have never heard anything like that before.

Are they some kind of Warren Buffet wannabes? Just that they do not realize that their net worth is possibly a millionth of Mr. Buffet's or plain simple people who just do not understand how to maximize their dollars? I don't know, but I had to write about it,  you never know there might be more people like them!

Lets use this oversimplified example of men and their driving machines. A is a simple man and B is a smart woman and both make $ 100,000 per year. The federal tax on that amount is about 25%

Simple man A happily pays his taxes and is left with $ 75,000 to spend. He buys a Toyota Rav4 for $30,000. His financials look somewhat like this. 

Tax:                     $ 25,000

Purchase of car:   $ 30,000

Total  expenses:    $ 55,000                   

Assets: A Toyota Rav 4 and  $ 45,000 of cash. And he is very happy.

Smart woman B on the other hand, buys a BMW X1 for $ 40,000. Since she uses it primarily for business purposes, she can deduct up to $ 25,000 of a heavy SUV from her pre-tax business income. 

So her taxable income is now $75,000. The federal tax on that is about 18%. 

And here are Smart woman B's financials:

Tax:                       $ 13,500 

Purchase of car      $ 40,000

Total expenses       $ 53,500

Assets: A BMW X1 and $ 46,500 cash. Ladies & gentlemen, "Smart is the New Rich". 

Personally, I don't see the US tax code being simplified anytime in the near future. It is important that we be tax smart and use the system to our own advantage. Unless, you are some sort of ascetic. Then, of course, you should not be reading this blog:-)

Footnotes:

1. "Smart is the New Rich" is the title of a book by CNN anchor Christine Romans. I have not read the book, but have watched her show occasionally and agree with her most of the time. In this blog I am only borrowing her very ' true and catchy' title.

2. Please note: The example in this post is conceptual and intended solely to create awareness not to serve as financial advice. Please seek professional help specific to your needs if you think you will be eligible for similar or other tax credits.