Broke-Ass Student

Posted in Don't Know Where the Hell This Goes | 208 Comments

208 Responses to “Broke-Ass Student Is Giving Away A Free Laptop”

1. on 28 Sep 2008 at 3:25 pm1Peggy

   1.Tell me a little bit about yourself and your finances.

   I live in Northern California with my husband. After the dot com boom we adopted a simple lifestyle, we minimize expenses (have one car, no cable TV, etc.). We are basically living off occasional contract work and savings/investments (and no significant debts) but are concerned about making our resources last.

   2.The Federal Reserve Central Bank. Who is the Federal Reserve, what is a central bank and what is their role in our monetary system?

   The Board exercises broad supervisory control over the financial services industry, administers certain consumer protection regulations, and oversees the nation’s payments system. The Board oversees the activities of Reserve Banks, approving the appointments of their presidents and some members of their boards of directors. The Board sets reserve requirements for depository institutions and approves changes in discount rates recommended by Reserve Banks.  

   The Board’s most important responsibility is participating in the Federal Open Market Committee (FOMC) which conducts our nation’s monetary policy; the seven governors comprise the voting majority of the FOMC, with the other five votes coming from Reserve Bank presidents.

   Who drafted the Federal Reserve Act?

   Carter Glass and H. Parker Willis

   When was the Federal Reserve Act passed through Congress and under what circumstances?

   It was hotly debated and based into law December 23, 1913.

   3.Inflation. Define inflation.

   Inflation is a sustained increase in the general level of prices, which is equivalent to a decline in the value or purchasing power of money. If the supply of money and credit increases too rapidly over many months, the result will be inflation. With inflation, a dollar buys less and less over time.
   
   Furthermore, tell me what causes inflation.

   Demand-pull inflation: inflation caused by increases in aggregate demand due to increased private and government spending, etc. Demand inflation is constructive to a faster rate of economic growth since the excess demand and favorable market conditions will stimulate investment and expansion.

   Cost-push inflation: also called “supply shock inflation,” caused by drops in aggregate supply due to increased prices of inputs, for example. Take for instance a sudden decrease in the supply of oil, which would increase oil prices. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices.

   Built-in inflation: induced by adaptive expectations, often linked to the “price/wage spiral” because it involves workers trying to keep their wages up (gross wages have to increase above the CPI rate to net to CPI after-tax) with prices and then employers passing higher costs on to consumers as higher prices as part of a “vicious circle.”

   Who benefits from inflation and who does it hurt?

   Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For those who borrow, this is similar to getting an interest-free loan.
   Uncertainty about what will happen next makes corporations and consumers less likely to spend. This hurts economic output in the long run.

   People living off a fixed-income, such as retirees, see a decline in their purchasing power and, consequently, their standard of living.

   The entire economy must absorb repricing costs (”menu costs”) as price lists, labels, menus and more have to be updated.

   If the inflation rate is greater than that of other countries, domestic products become less competitive.

   
   4.Free Markets. Define a free market economy.
   What causes ‘booms’ and ‘busts’ of our business cycles, and is the United States a free market?

   The term free market economy primarily means a system where the buyers and sellers are solely responsible for the choices they make. In a way, free market gives the absolute power to prices to determine the allocation and distribution of goods and services. These prices, in turn, are fixed by the forces of supply and demand of a respective commodity. In cases of demand falling short of the supply of a respective commodity, the price will fall as opposed to a price rise when the supply is inadequate to meet the growing demand of a good or service. Free market economy is also characterized by free trade without any “tariffs” or “subsidies” imposed by the government.

   The boom and bust cycle describes the cycle of economic upswings and downswings in the business economy.
   An economic boom is typically characterized by an increased level of economic output, a corresponding increase in aggregate demand, rising employment, and often, a rise in the inflation rate. During busts, or recessions, aggregate demand is low, inflation decreases, unemployment rises and national income falls. In extreme recessions deflation (a sustained fall in the general price level) may occur.

   Mixed Economy can be defined as a form of organization where the elements of both capitalist economy and socialist economy are found. The United States Economy is one of the best examples of the Capitalist economy is considered as a mixed type today.

   5.Fiat Currencies. What is a fiat currency, when did the United States abandon the gold standard, and why? Who benefits from a fiat currency and who does it hurt?

   The terms fiat currency and fiat money relate to types of currency or money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another currency, but instead from a government’s order (fiat) that it must be accepted as a means of payment.

   The United States’ abandonment of gold as the foundation of its monetary system came in two steps. In 1933, President Franklin Roosevelt ended Americans’ right to surrender paper dollars for gold and even to own gold bullion. Step two came in 1971 when President Richard Nixon “closed the gold window” and denied foreign governments the right to turn in paper dollars for gold.

   6.Fractional Reserve Banking.  Define Fractional Reserve Banking and explain how new money is created in our banking system from credit. What would happen to our currency if everyone in the United States tried to pay off all their debt at the exact same time, and why?

   Fractional-reserve banking is the banking practice in which banks are required to keep only a fraction of their deposits in reserve with the choice of lending out the remainder while maintaining the obligation to redeem all deposits upon demand. This practice is universal in modern banking.

   You could ask to withdraw all the money in your checking account at any time. If all the depositors of a bank did that at the same time (a bank run), the bank could be in trouble, though this rarely happens.
   Fractional-reserve banking works because:

   Over any typical period of time, redemption demands are largely or wholly offset by new deposits or issues of notes. The bank thus needs only to satisfy the excess amount of redemptions.
   Only a minority of people will actually choose to withdraw their demand deposits or present their notes for payment at any given time.
   People usually keep their funds in the bank for a prolonged period of time.
   There are usually enough cash reserves in the bank to handle net redemptions.

   References:
   http://www.federalreserveeducation.org
   http://en.wikipedia.org/wiki/Inflation
   http://www.investopedia.com/university/inflation/
   http://www.economywatch.com/market-economy/
   http://en.wikipedia.org/wiki/Economic_boom
   http://en.wikipedia.org/wiki/Fiat_currency
   http://en.wikipedia.org/wiki/Gold_standard
   http://www.lewrockwell.com/orig3/haynes2.html
   http://en.wikipedia.org/wiki/Fractional-reserve_banking

2. on 28 Sep 2008 at 4:55 pm2laura

   Sorry, this is too much work for an HP, in my opinion. Besides, cutting and pasting definitions from online resources is not what I would consider thoughtful discourse. I wouldn’t allow my 4th graders to answer questions this way. I would have them think about the definitions and come up with their own words to define the terms, or give examples or comparisons, etc…. Speaking of being a teacher, I was not pleased with your dis of our educational system. Quite frankly, we cannot be expected to teach everybody everything. Parents bear the responsibility for teaching their children certain life skills, financial literacy being one of those skills.

3. on 28 Sep 2008 at 6:11 pm3Jennifer Lynn

   I edited the original post because I agree, Laura. Copying and pasting isn’t the thoughtful discourse I was hoping to encourage. In fact, I’m going to let this conversation go where you guys decide to take it and as long as you contribute to the comments, you’ll be entered into the drawing.

   Laura, you bring up an excellent point by saying you feel teachers shouldn’t be expected to teach everything and parents should mainly be responsible for teaching financial literacy.

   What do you guys think about that?

4. on 28 Sep 2008 at 6:53 pm4Jess

   Of course, right as I finish posting I see the edit. And yes, it’s a wiki free-for-all.

   So, first off, I’m 23 and a poor intern going for grad school so I can be poor for another 3-5+ years. My fiance is dealing with debt from college that I expect him to cover on his own.

   As for teachers, there’s an issue of a ‘bubble world.’ We live in a world of entitlement where you should do everything for me because I’m buying it. If you don’t genuflect and accept my demands, I’m leaving. I do think parents need to teach their kids, because too many just get a credit card at college and are left alone. And that’s even scarier as tellers are told to emphasize getting multiple credit cards and maxing them out, leading to higher interest rates, poorer credit and more bank mystery fees.

   Giving kids allowances and a nice talk about debit and credit cards would help a lot more than an ‘emergency credit card’ at 18. Or 13, given what I’ve seen working retail.

5. on 28 Sep 2008 at 7:05 pm5Morris

   Hi Jennifer, my name is Morris, and I live in southern Indiana with my wife and 13 year old daughter. I work in higher education…taught in the classroom for over a decade, and now am involved with institutional research and instructional technology. You are so so right that to stop being a student is to stop living. I love your project here and wish you good luck in continuing your education.

   My finances are in good shape, thanks to a combination of frugality, steady and informed investing, and the blessing of a generous inheritance (I grew up on a farm and inherited some land that is now very valuable for its development prospects). Admittedly, not so many people have that last advantage. But even without that, we’ve done the right things…lived within our means…for example, didn’t buy more house than we needed, paid off our mortgage early, drive older cars, eat out infrequently. We are fortunate to have no debt, about 250K in retirement accounts, and real estate valued at 600K. I really really recommend starting a Roth IRA as soon as possible…in fact, we’ll be starting one for our daughter as soon as she is earning income, probably within the next couple of years. You just can’t overestimate the importance of starting early. I would also stress the importance of financial literacy and education…in another post, I’ll list some of the blogs and resources that I use.

   During this current financial crisis, I’ve learned a lot more about the Federal Reserve, so that’s what I’ll comment on here. It’s become clearer to me now that the Fed is actually a bank (more accurately, a group of regional banks) that has assets and makes loans. It is a government entity, but also has some properties that make it a part of the private sector. All banks that participate in the FDIC (Federal Deposit Insurance Corporation) pay fees to the Fed so that their depositors are protected by FDIC insurance. The Fed then is able to make short term loans to commericial banks to help them cover their obligations to depositors and maintain sufficient ability to redeem deposits.

   What I am still trying to understand more fully is the relationship between the Fed and the Treasury Dept. Treasury sells bonds to finance government operations (this is needed when tax revenues are not sufficient). But our currency is referred to as “Federal Reserve Notes.”

   OK, I’m out of time for now, will check back again tomorrow. Cheers.

   Morris

6. on 28 Sep 2008 at 7:16 pm6Danielle in Iowa

   Hmmm, I would say most people’s parents know nothing about financial literacy, so how would they teach this to their children?

7. on 28 Sep 2008 at 7:16 pm7Sean Hobson

   Hello.

   My name is Sean Hobson and I am a twenty-year old second year undergraduate at a University. Until my sixteenth birthday, I was very unwise about my spending habits. Upon converting to Christianity, I found it to be a sin to indulge in materialism and waste the money God had blessed me with. Thus, my finances now consist of purchasing the cheapest (though well made) stuff necessary–no more. Although I’m disappointed with how much money I have lately been forced lately to spend upon clothes and food, I make efforts to spend little and give much.

   More specifically about my finances, I have not worked a job in at least two years. Most of my income comes from the refund checks from student loans. This, I argue, has prepared me well for living frugal and knowing that once my money runs out–it’s out for good. I wish my mother shared this habit, as she works long weeks and has little to show for it due to her spending habits. All things considered, I would like to know how to better shop sales to save what little money I have, and to begin saving one semester at a time.

   Concerning the contest, I respectfully disagree with Ms. Laura. While I concede that there exists a burden upon parents to educate their children about things related to life non-related to academics, the original question was that the majority of Americans are ignorant of how the countries monetary polices operate. One might assume that If they are unknowledgeable about national financial policies, than surely they are about other things related to finances. How then could they teach their children what they themselves do not know? Moreover, to lay the burden upon each person’s parents to teach them financial literacy would be to immediately create inequity, because the new generation’s knowledge would be based solely upon how fortunate they were to have a parent that was both knowledgable about finances and caring enough to them. I suppose those children are out of luck then if their parent is not in the know, or is too busy to teach them.

   I therefore argue that there is then a need for financial literacy to be present in the public school curriculum. Is it more important for a child to learn how to play a flute, or how to start saving their allowance so they can avoid graduating college with $30,000 of debt? True, one must reach far back to learn what the original purpose of public education was to see if financial literacy would fit into this goal. But from my memory (be it short as it is), public schools were always meant to educate about the world and how to survive in it. And if that original goal remains, it is therefore imperative that financial literacy be implemented in the public school curriculum for future adults to survive our cost of living.

8. on 28 Sep 2008 at 7:40 pm8chris

   Inflation is effectively managed in the US by the Federal Reserve Bank issuing securities. (Additionally, since the US government is a very large employer and spender, this also effects inflation.) To increase the money supply, the FRB buys securities back from banks; to decrease it, the FRB sells securities. (Or, more accurately, the FRB will continually buy and sell securities, but will adjust the pricing to alter demand and thereby sell or buy extra securities to get the desired result.)

   Who benefits from inflation? Peggy, you mentioned inflation trickling down first through goods and then responding by adjusting salaries. Since the prices of goods and services can be changed very rapidly, and salaries cannot, there is a lag between inflation in consumers’ expenditures and inflation in consumers’ salaries. This encourages an increase in small loans such as credit card debt.

   Peggy, while you mention that debtors can benefit from inflation, you only mention the case where the creditor overestimates the rate of inflation. If the creditor overestimates it, the interest will be higher relative to actual inflation, which hurts the debtor instead.

   However, the borrower will always benefit from the expectation of (mild) inflation. No bank will charge less than 0% interest on any loan, since they could just leave the money in their vaults and benefit more. But if there were deflation, then the minimum interest for a loan would be whatever the expected deflation is, which may be more than what the banks would charge in the equivalent inflation scenario.

   An oft-overlooked party to benefit from inflation, especially Weimar-level inflation, is Scrooge McDuck, as it costs him less to fill his pool.

9. on 28 Sep 2008 at 7:50 pm9Jessie Wong

   Hi everybody!

   My name is Jessie and I’m a 15-year old high school sophomore. I’m not sure if I qualify for the laptop giveaway (if I do, that’s great!), but I thought I’d like to chime in on the subject of letting parents teach their kids financial literacy. I already spend most of my day in a classroom with a teacher droning on and on. If my parents don’t teach me stuff then wouldn’t they be considered more like caretakers than parents? (or even just roommates?) This is just going back to the topic of parents working twenty-four hours a day and leaving everything to the TV and teachers.

   That’s just my two cents on this topic. Thanks for reading.

10. on 28 Sep 2008 at 7:52 pm10David

    1. My name’s David, I’m 22, and I’m a student at Penn State. I’m a Film major. I work part-time at the nearby Wal-Mart. I’m a saver… I save my money the most I can, and I rarely splurge. I spend maybe $40-50 per month on food. I have a “fake debt.” My parents are paying for my college tuition, but once I graduate, I will begin making payments back to them. This makes things less stressful since missing a schedule payment doesn’t mean that I’ll have a bigger debt or have something taken, but it’s to also to show that I have maturity and can repay what I’ve borrowed. And, personally, I feel that it’ll show that I’m not just trying to sail down an easy street on their finances.

    2. The Federal Reserve Act was drafted in December, 1913, by the current president at that time: Woodrow Wilson. Its role is to basically oversee all financial roles in the country. It seeks to stabilize prices, quell risks in the markets, and operates many payment systems in the country. Current board members include Ben Bernanke (Chairman), Donald Kohl (Vice Chairman), Kevin Warsh, Randall Kroszner, and Elizabeth Duke.

    3. Inflation is when items and services become more expensive, but the value of your money remains the same, thus things cost more in the end. It hurts the people who buy goods as their savings are now worth less. I’d say that businesses get hurt as well, but can benefit should the inflation lessen in the near future. They’ll find themselves with a larger abundance of money which was used to buy their goods, but now the value has increased to previous levels.

    4. Booms occur when big businesses gain profits, and the market is hungry for more. What usually happens is that some of these businesses over-extend themselves and cannot maintain control. They get an over-abundance of their own goods, goods that they can’t sell, and thus their profits appear to drop. Debt starts to accumulate. To save themselves, they make cut-backs, but in return demand for their goods lessen, and the companies continue to fall. They need to remove their excess goods and create value in them once more to get out of the slump.
    As for whether or not America is a free-market, I think it’s close, but not completely one. The Government intervenes many times when there seems to be trouble, and thus that prevents things from running their course, and thus it’s not a free-market. For example, they’ll step in if there’s a Monopoly. It happened with Microsoft awhile back.

    5. Fiat currency is when the government declares the value of the currency. It’s sort of like inflation. One dollar may have meant one ounce of gold, but now two dollars equals that ounce. Or ten. Or fifty. The United States stopped the gold standard in 1971 because of debt accumulated around the Vietnam War. The dollar was worth less, and there were the troubles of the exchange rates between countries. In the end, I think the Government benefits more from it, while the people suffer a bit since what they have may not be worth as much as it originally had been.

    6. Fractional Reserve Banking is a law that requires banks to keep a portion of their funds in reserve at all times, and can never drop down below that minimum. When money is given out as a loan, and paid back, they come out with a profit. And if they can’t pay it back, well, that’s where repossessions come into play. However, what would happen if everyone tried to pay off their debt all at once? I honestly do not have any ideas. My guess would be that there would be some sort of inflation due to the rush of currency being pushed into the system.

11. on 28 Sep 2008 at 8:08 pm11Nick B

    I’m a 22-year old senior going full-time to a public university in Northern California, majoring in Finance and Information Systems. I’ve been blessed with parents that have been able and willing to help me out financially with school. This, combined with going to a relatively inexpensive public school so close to home, means that I’ll graduate in May with little to no debt. I invest and save what money I get, and am trying to cut down on unnecessary expenditures. A year or two down the road, I’m going to be starting grad school, so I’m trying to prepare and be in as stable a financial situation as I can for that.

    I think that schools, especially at the middle/high school level, have a responsibility to teach the basics on financial and economic theory and literacy. I attended a private high school where we were required to take a semester course on macro and microeconomic theory. And there was an available course on finance and accounting. But teaching values such as proper debt management and savings are really up to parents to instill.

    It is kind of scary how little people know about financial literacy. Most people I know can’t tell you what APR they are paying on their credit cards, and use them for everything, saying they will pay them off eventually. People think that retirement savings is paying into Social Security and depending on it to be their only source of income on retirement. On that note, I have to echo what Morris says above, that people should start a retirement account, like a Roth IRA, as early as possible and pay as much into it as they can. You can’t depend on Social Security and the government to be your primary income.

    Thanks a lot for doing this Jennifer. This contest has exposed me to some great new blogs, and I really like yours.

12. on 28 Sep 2008 at 8:16 pm12Kevin

    Hi my name is Kevin, I’m 17 and a senior in high school. Currently I am 100% debt free and I hope to stay that way despite the looming cost of colleges. Hopefully financial aid and scholarships can kick in so I don’t have to resort to student loans.

    I am a budding entrepreneurial economist so I try my best to understand the current economy, how we got into this mess, and how we can get out. To my understanding, there is no one to blame but human nature itself and greed.

    Let me explain. Some people are blaming the sneaky CEOs of these banking companies for allowing people to buy mortgages they can never pay back. But honestly can you blame them? Everyone has heard the saying “When the opportunity comes, go for it”. Well they are businessmen and saw an opportunity to exploit large amounts of money and did so. Is that wrong? No just greedy.

    Others are blaming the uneducated mass of Americans who bought these luxurious mansions with a 5% down payment not knowing they can never pay it back. Well they just wanted a nice house, who doesn’t? And it was the trend so everyone wanted to follow the trend. Big house for less money? Sound ideal. But once again, greedy.

    Or what about the Fed that kept lowering interest rates and not watching over this mortgage crisis? Well at the time, it was the right thing to do and heck, they wanted the support of the masses of America. Yes, greedy.

    Now with the $700 billion bailout plan enacted, all the taxpayers are angry cause their money is going to people that don’t deserve it. Once again? Greedy.

    So unless we can change the human nature itself, does the economy stand a chance of surviving?

13. on 28 Sep 2008 at 8:17 pm13Jennifer Lynn

    Welcome Jesse Wong, you are indeed entered into the laptop giveaway.

    David, you make an interesting point about how the government will step in sometimes to intervene in the markets. What do you guys think. Is that a good or bad thing?

    Kevin, those are some excellent questions for everyone to consider. Will our economy survive? What positive changes can we attempt to mend the damage?

14. on 28 Sep 2008 at 9:04 pm14Mike Skalnik

    I’m Mike. 18 years old, and a freshman at Georgia Tech majoring in Computer Science. I have a tad-bit of savings, but I’ll be pulling out a loan after this year for the rest of my college expenses.

    Fiat currency is simply currency with no physical worth. It’s only value is dictated by how much of it is in circulation. The U.S. ended trading in dollars for gold in 1971. This is good since the government can control the value more fluidly, but the downside is that it is very easy for the money to depreciate in value.

15. on 28 Sep 2008 at 9:21 pm15Lisette

    Hi Jennifer, I am Lisette - a freelance Web Designer from INDIA. My finances are not in great shape. I wanted to enter the contest but the discussion seems focused on US economy which I cannot contribute too much to.

    In India, inflation is currently sky-rocketing, we are, as is the rest of the world, feeling the effects of the crash in US Markets.
    I personally am very frugal and try to not spend more than I earn, which at times is difficult I have a few debts though incurred for medical bills for which I wasn’t insured at the time. I see myself clearing them off by the end of this year.

    I think that the basics of managing your money can be learnt at school, but good spending/saving habits are learned at home - and through experience.

16. on 28 Sep 2008 at 9:52 pm16Joseph

    I graduated from Boston U. this past spring.

    While I’m currently conducting my employment hunt, it’s easy to get bogged down with the daunting national financial situation, so it’s important to have a solid assessment of my financial status that I have to accept. After doing that, I’m able to embrace the positive and develop strategies to cope with the negative.

    With regard to financial literacy, I find that early education is crucial. I wish I had greater focus on economic principles and that surely would have put me in a better position today. If children aren’t being directly educated, they should at least be familiarized with situations that could develop with irresponsible handling of finances on personal and national levels.

    I’m personally disappointed in the mismanagement of gigantic funds that needs to be mended at the expense of taxpayers. I try my best to empathize with those who are facing grave and tragic times because of money. While these trends are unfortunate, this generalization of economic collapse creates mindsets that can plague the outlook for those struggling. The economy will recover - historically speaking. Address the financial hardship, but don’t let that completely dampen happiness.

    Jennifer - props to you for opening this forum. sorry if i’ve completely missed the ball. good day.

17. on 28 Sep 2008 at 10:15 pm17Nafisa

    Hi, my name is Nafisa. I’m a 20-yr old junior studying electrical engineering in Colorado. The only debt I’m in currently is that I’ve got a few thousand dollars in student loans. I’m currently saving almost everything that I make while working part-time (I’m a full-time student) since I live at home and my parents pay for everything non-school related.
    About the government stepping in, I think at times there is no choice but intervention. This should be a last case scenario though, otherwise everyone will expect a bailout and therefore not think of the consequences of their actions.
    In reference to Kevin’s question, will the economy survive? I think that it will, but just barely because how do you change human nature? How do you tell a nation to stop being greedy? Our country is full of (mostly) intelligent and (theoretically) rational people, but the majority of the population is still going to put themselves over everyone else. Very few people are willing to put what’s for the greater good before personal goals. I think the best we can do is hope that the ‘young/current/modern generation’ is willing to think ahead and slowly start making changes and educate ourselves more.

18. on 28 Sep 2008 at 10:41 pm18Jennifer Lynn

    Hi Lisette, welcome from India and thanks so much for sharing. My international readers certainly don’t need to focus only on the United States (although unfortunately I’m sure your home economies are being affected by our economic turmoils at the moment.)

    Lisette mentioned high inflation in India. Is anyone else experiencing high inflation and if so, how are you coping financially?

19. on 28 Sep 2008 at 11:44 pm19Rhonda Mason

    I am a 56 year old mother and grandmother. I’d just like to say that reading all your posts gives me great hope for our future. I never learned about finance in school. I worked my whole life and mostly lived paycheck to paycheck while raising 6 children and through necessity I learned to be frugal. It was only after they were grown that I’ve had the chance to pay attention to my money and save/invest some. Obviously there are many of you that are going to be a lot more financially aware than my generation was. Good luck to you all and may success smile on you!

20. on 29 Sep 2008 at 12:49 am20Jackie

    Ok well my name is Jackie, I am 24 years old, recently married and I am a registered nurse in the NICU. I do not have debt but I married into some haha. No, really all he has is student loans. We are currently saving for a house and I do have a checking account. I am a travel nurse so currently we do not pay rent, which is amazing! I have always been a saver but I wish I would have known about high interest savings accounts in highschool. My first job was at Burger king and I would save everything I had and I would spend a little on weekends to hangout with friends. My dad always taught me to save. In response to Laura, I would love if my teachers taught us more about savings in school. Even in 4th grade there is something to teach…yeah maybe not retirement savings but little things like, their allowance or summer “jobs” that they may have. Teach on how you can save that money to buy something that you want. Thats how I learned when I was younger. I would save every little penny I had. I am happy I learned this way. In response to Lisette, I also agree that spending and saving is learned at home too. I think my parents were good role models in that way. My mom would always have a coupon for something and i am now like that too!! I think what Morris is doing is a great way to save for his child!! She will thank you in the future!! We dont even have kids yet but already have a Upromise account for that future child of ours.

    In highschool part of our senior math class was with stocks. It was just about 10 min at the beginning of the class. I wish we couldve made it a whole class. We picked imaginary stocks and everyday we would check on the value of it. I thought it was a great way to learn. I dont feel that I was taught the financial system at all when I was in school. Looking at the topics you posted theres not much I can say because I was never taught. I was looking it up though and what everyone is posting here is very helpful. I think if people are more aware of their finances there wouldnt be so much debt. I have friends that are just barely making it at this point in their lives. It shouldnt be like that. I hope that the generations that come after us can figure it out Thanks for the chance to win Jennifer, and a chance for us all to chat about this!!

21. on 29 Sep 2008 at 1:24 am21D'Juan

    Hello Jennifer, my name is D’Juan. I’m 26 years old and currently a freelance web designer. I’m still new to understanding the economy, so there’s a lot of empty space that I don’t know yet. Luckily, this discussion helps a lot in my lack of knowledge!

    As far as your question about the government interfering with the banking crisis, while I’m not completely sure what to think as there are lots of angles I can’t see from, I don’t agree with it.

    If it’s the way I understand it, the gov’t would buy as much property that is under market value as possible, giving it control over a large amount of property. They would then sell that property at a premium to pay back the $700B. What, then, are the chances of the same people being able to purchase their homes back from the government? If so, would the gov’t then re-loan the same people money that they might not have been able to truly afford in the first place?

    I just learned what Fractional Reserve Banking is loaning out many times more money than you have assets on deposit. Apparently, banks in the US are allowed to loan out ten times more than the amount of money that they actually have access to. It made sense to me to work it out with a theoretical amount:

    They may only have $1 Million on hand, but they’re allowed to loan out $10 Million. If they were to charge an 8% interest fee on top of that money, they wouldn’t be making the $80,000 a year they should be making off of the $1M, they’d be receiving $800,000 because they’re receiving that 8% off of $10M - the amount of money they actually loaned out. The next year, they would start with $1.8 Million and be allowed to loan out $18 Million, and the vicious cycle would continue.

    Based on this, I worry about the possibility of a large percentage of American citizens going to banks to withdraw their money. If a large enough number of people attempt to retrieve their funds, what would then happen to the already bank if they run out of funds before people get their money back? A more dire question to ask is two parted: What are the chances of getting to this level of crisis from where we are currently, and if it were that bad what would happen to our society?

    I feel that I’m correct in my example of how Fractional Reserve Banking works, and if I’m incorrect, I’d ask that someone assist me to better understand it.

    I hope I’m entered into the contest, and would like to thank you for the financial lesson. My source is the following video.

    Money Masters: How International Bankers Gained Control of America:
    http://video.google.com/videoplay?docid=-515319560256183936

22. on 29 Sep 2008 at 2:08 am22AJ

    Hello, my name is AJ. I’m 26 years old, and a third-year law student at the University of Florida. At the moment, I have no savings (not counting financial aid). I depleted it all a few weeks ago when school started. I also have no credit card debt but that means little when I will owe nearly $60,000 in student loans once school is over.

    My parents never taught me about money. They have good jobs but live paycheck to paycheck. Having large debts didn’t worry them because according to them, you’re always going to owe someone. I want to live the opposite. I don’t want every dollar I earn going towards a bill. With little money around, it can be a bit hard to not want to take the “easy” way out and get a credit card but sites such as this one remind me that hard doesn’t equal impossible.

    As for the question who is responsible for teaching kids about money. I think it should be balanced between schools and parents. I think schools should play a part only because some parents (such as mine) don’t know anything about money other than spend, spend, spend. People can’t teach what they don’t know.

23. on 29 Sep 2008 at 2:14 am23Shanna

    I am a 21 year old senior psychology major at Chapman University in Orange, CA. I am currently financially independent since my dad has entered his second bankruptcy due to our old home going into foreclosure. I will graduate in the spring with over $40,000 in school loans, and have a little over $2,000 in credit card debt.

    My greatest lesson of an economic nature was simply traveling outside of my home town of Salt Lake City, Utah. I had to work all summer making a whopping $5.80 an hour last year (although Utah’s minimum wage has just reached $6.55) to save up some school funds and hopefully a little spending money. That plan back fired when I was faced with California living expenses having only my Utah sized savings and my money went a lot faster than expected.

    The same was true when I traveled to Australia last Fall to study abroad. I was a poor student with little actual money and a brand new shiny credit card with a $1500 limit to allow me to have some fun. Again, my money had far less value than I had hoped. The Australian dollar is extremely close in value to ours, favoring them (currently about 83 cents to our dollar). However, since they make far more money then we do (I think the minimum wage where I was staying in Townsville was at least $12 AUD an hour), therefore, according to the laws of inflation, the basic essentials of life are all far more expensive, allowing me to max out those cards in no time.

    I have now been back home for over a year and now about 3 months behind in my plan to pay back my debt before interest kicked in. And did I mention, they’re still maxed out? With gas prices so high, California cost of living being outrageous, and having the basic human instinct to not want to starve, I find paying off my credit cards with what little money i own to be not so desirable. I think this is the rut most Americans get into and just find it easier and easier to continuously charge expenses with what seems like “pretend money” that they don’t comprehend interest on.

    As for how things might change, I agree with Kevin, change can’t come until human nature in itself evolves. I recently participated in a research experiment at my school that consisted of students on computers buying and selling shares with each other without verbal communication. It was spread over 10 rounds, the share’s value changing each round. At the end of the experiment, we were paid real money for whatever computer cash we had left as well as the value of our shares. A smart room of students would have been buying and selling the shares as cheap as possible to ensure a large payout to everybody at the end. However, due to human greed, everybody was trying to get the absolute most money for the coveted shares that might appreciate in value, dooming us all to a frozen market, most of us losing more of our pretend money than we made, causing a lower actual payment from the researchers. Greed is our doom. I also believe, on the other hand, that our economy runs in cycles, winter before the spring kind of thing. As long as we can avoid absolute disaster, we can have a few billion dollars of debt as we work our way out of it, slowly, but hopefully surely. : )

24. on 29 Sep 2008 at 2:28 am24Mia F

    I’m a 29 year-old college student who’s worked various blue-collared jobs to take care of the bills. I live below my means and purposely avoid placing myself in debt. Because of my financial beliefs, I don’t own a lot of things and it’ll probably take years before I can complete my B.S. degree, but I don’t have creditors harassing me about payments.

    I live below my means so I really don’t struggle financially, although by my appearance people might not be able to tell. I do have some money saved in several accounts spread over two different banks, although with the current inflation and economic problems it seems rather pointless to save Federal Reserve notes nowadays.

    The other night President Bush briefly mentioned updating our financial regulatory structures because it’s outdated. Any ideas of what changes could occur?

25. on 29 Sep 2008 at 4:11 am25laura

    I just wanted to clarify that my initial comment regarding parents teaching financial skills to their children. I did not mean that finances, economics, and money management should not be taught at all in our schools. I just wanted people to understand that parents are equally, if not more, responsible for teaching their kids about these types of things. And parents have a much better forum…they can start by having their child open a savings acct. They can have their child earn money and save toward something they want (the ipod, the new Playstation game…). Schools cannot necessarily provide these kinds of real-life experiences. Lisette’s comment said it best; “…good savings/spending habits are learned at home.”

26. on 29 Sep 2008 at 4:25 am26Septian Geges

    My name is Septian Geges. I’m an Indonesian, so i’m sorry if my english is poor. I’m 17 years old. Now, i’m a student. I have some money in my wallet. Now, i’m thinking how i can get to the collage next year because education is getting expensive.

    Free market economics is closely associated with laissez-faire economic philosophy, which advocates approximating this condition in the real world by mostly confining government intervention in economic matters to regulating against force and fraud among market participants.

    Supply and demand causes ‘booms’ and ‘busts’ of our business cycles. When demand exceeds supply, suppliers can raise the price. Consumers who can afford the higher prices may still buy, but others may forgo the purchase altogether, buy a similar item, or shop elsewhere. (e.g., the consumer might say: “A two-dollar hot dog? I’d rather buy a hamburger at McDonald’s!”). As the price rises, suppliers may also choose to increase production. Or more suppliers may enter the business. For example, the gourmet coffee business, pioneered by Starbucks, revealed a demand for boutique, three-dollar cups of coffee. Other stores began offering such coffee to satisfy the demand.Increased supply (meaning volume) can indirectly result in lower prices, particularly with computers and other electronic devices. Mass production techniques have been steadily reducing prices 20 to 30% per year since the 1960s. The functions of a multi-million dollar mainframe computer in the 1960s could be performed by a $500 dollar computer in the 2000s. The camcorder has been said to place “a television studio in your hand”.

    I think, US is semi-free market.

    The terms fiat currency and fiat money relate to types of currency or money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another currency, but instead from a government’s order (fiat) that it must be accepted as a means of payment.

    United States government ended the convertibility of the US dollar for gold in 1971 and i ‘think, it would be easier for us if we don’t use fiat currency

27. on 29 Sep 2008 at 4:28 am27Amanda

    First off, I totally agree that personal finance MUST be taught in school. This is the reason everyone is getting in trouble in the first place. They are all uneducated about the topic.

    I am a 21-year-old college student who works full-time, in lets just say, foster care. I was recently married (yes, married) to a 27-year-old Social Worker. We make decent money for our age but we made some poor decisions in the beginning. We purchased a house and two new cars within 2 weeks of each other and had acquired some credit card debt.

    We found Dave Ramsey about 6 months ago, just before we were married. We are now on track to a better life. Our credit cards will be paid off by January 1st, we sold one car (we are now a one car family), and the second car will be paid off by June.

    I am not the least bit worried about the economy. I know we will come out of this because we have a PLAN, something most people just don’t get.

28. on 29 Sep 2008 at 5:31 am28Jasmine

    I only wish that I had found blogs like this a year ago. I am eighteen and all through high school i wanted to attend film school. But because I didnt qualify for financial aid at the school i was interested in I am currently going to a local college less than part-time. Besides baby sitting, I have never had a job. So even at the in-district tuition i can only afford two core classes and the books and supplies for them.
    At the rate I’m going it will take me two years to get enough credits to qualify as a college sophomore.
    I agree with all that state the importance of parents being involved with the education of spending/saving. The only financial education i got in high school was a one-semester economics class that was mandatory for all seniors to take in order to graduate. The class wasnt even that much of a help because it didnt focus on personal finance.
    Through personal experiences of others I am learning more about finances and I’m taking matters into my own hands and trying to correct my situation.
    Thanks Jennifer for all the help.

29. on 29 Sep 2008 at 5:42 am29Jennifer Lynn

    Speaking of credit cards, I’ve been noticing a disturbing trend lately. Before, people would max out their cards on shiny new trinkets or by simply accidentally living beyond their means. Nowadays I’m seeing more families going into credit card debt just to scramble to stay afloat and keep up with food inflation cost or rising gas prices.

30. on 29 Sep 2008 at 5:53 am30Philip

    Hello, my name is Philip. I am Swedish and I study engineering in the field of biotechnology. As almost every student I have an economy that doesn’t allow any extravaganzas, though through some part-time work and a scholarship I’m able to cope with quite a high rent. Also, in Sweden you’re entitled to both a monthly financial support and “cheap” loan from the authorities. What interests me is how you in the US can loan money from the bank without almost any guarantee. As I understand it, e.g. when you buy a house, you’re able to loan as much money as the property is valued to. In Sweden on the other hand, and in most other economies I imagine, the bank evaluates your financial standing, including salary and current debts and assets before granting you a loan.

    This is what I’ve understood as the basic reason behind the financial collapse in your country. The media coverage of it all here in Sweden is very extensive, which partially is because the status of the US economy affects our own very much. Our government and “Riksbank” (corresponding to the Fed Reserve, though ours is completely independent) have already taken measures to stabilize the financial system over here. Though some banks here have lost money because of the fall of US investment banks there has been no incidence of bankruptcy here yet.

    I concur with the opinion that personal finance (household economy) should be taught in school but as also mentioned, it’s principally at home you learn such things. My view of the situation in Sweden is that many families are unable to make a budget of their economies, though the social security system here is were reliable, in that way that you’re never put in a situation where you have to hand your keys to the bank (though you may have to move to a smaller house or apartment).

31. on 29 Sep 2008 at 6:08 am31Becca

    D’Juan,

    Banks are indeed required to keep only a portion of their deposits. After all, the whole idea of a bank is to be a financial intermediary. In other words, they pool resources and risk to realize gains on loans. Banks are more efficient at providing these loans because they have fewer transaction costs and are better able to assess the risk of asymmetric information (identifying bad creditors).

    The bank is required at all times to keep a certain percentage of the deposits from its lenders–this required reserve ratio is set by the government. However, they can and do hold excess reserves, which is the money that is in the bank at any given time. Securities like short-term US bonds are considered secondary reserves because of their high liquidity (the ease in which it can be exchanged for cash).

    Banks won’t make profit, however, unless they loan out some of their money. The big picture, however, is that even with that money being removed from the reserves to make the loan, it will (eventually) make its way into another bank. Again, 10% held, etc. etc. So yes, overall the banking system is holding the total deposits but loaning out the entire amount, but that portion that is in the REQUIRED reserves is a function of total deposits, not total loans/profits.

    Not only is there a percentage above that 10% held in reserves, but from those profits on loans the bank has to deduct the following: the cost of running the bank, the interest paid to depositors, stockholder dividends. This is like any other business that has a profit–they can reinvest in the company or spend it in dividends/salary payouts/etc. Thus, they aren’t really loaning out as much as it may seem.

    The FDIC was created to build confidence in the banking system after the Great Depression. If there was a wide-spread bank run, the FDIC would release its reserves to cover the withdrawls. The money supply would probably also increase until people calmed down and eventually redeposited their cash, giving the gov’t the opportunity to withdraw the excess cash from the money supply. The trick is to avoid hyperinflation.

    Whether this will come about all depends on the consumer confidence in the system and markets. Low consumer confidence causes the bank runs and only in restoring that confidence does the crisis become resolved. As to how bad it could be, well, you can look into history of both this country and of others to see what happens when financial markets falter. But the best thing for the economy is for people to leave things where they are. No bank runs on money you’ll get back anyway, no bank failures and no Great Depression 2.0.

    If you really want to read more about all of this, I’d suggest buying an old copy of Fredric Mishkin’s “the Economics of Money, Banking, and Financial Markets.” I believe it is on its 8th edition, so there are older ones out there, and he’s been the standard textbook for Monetary Economics classes for a while.

32. on 29 Sep 2008 at 6:40 am32Kinza

    I’m 21 year old full-time college student. I currently have no debt, and plan to keep it that way. I took an economics class in High School, but I hardly remember anything which I took with me that enabled me to become more financially aware. I wish we had a personal finance class in school which taught us how to manage our money and ways to invest it.

    I see a lot of people going into debt from all walks of life–why? Not enough knowledge. Personally, I have two credit cards at the moment, yet I honestly do not have any knowledge about them. All I know is my credit limit and that they are accepted everywhere. I know nothing else about them sadly. The only thing I do right I believe is that I pay it all off at the end of the month because I heard it from someone. We need to start becoming more financially aware on how to handle our money in order to avoid any financial problems and this should start at school. Teachers need to teach us what goes on in the outside world regarding loans, banking, credit cards, etc. Parents need to set a positive example for their kids on how to be a responsible individual with their money. The two would need to work together and only then would we set footsteps towards the right path and reach somewhere.

33. on 29 Sep 2008 at 6:49 am33christine yoo

    Hi, my name is Christine Yoo, I am 26 years old. I have been working with my parents my whole life, and when I say my whole life, I literally mean from the womb to this day. I graduated high school in 2000 and went to St. Joseph’s University in the fall of 2000, located in Philadelphia. We are a lower middle class family, so financial aid took care of my tuition because my parents could not afford it. (The history of financial aid is that the government paid for students’ educations, they had a fund for it, not loans, actually paid for students’ tuition, because education used to be important a long, long time ago.) So, I got in about $150,000 in debt, not including the interest. While in college, I had one credit card coming in, I had signed up for more, four years later, I have three more credit cards and debt of about $10,000 on the credit card balance alone. I am still not done school, it has been 8 years, I have 2 more classes to go, not including the one I am taking now. Like I said, I work all the time, there aren’t enough hours in the day, I am now paying tuition for the classes out of pocket, well out of credit card, working a full time job and a part time job so I can get those loan payments and credit card payments in and not default again. I have a lot of debt, and what really scares me is the financial situation the US is in right now, with the bailing out of Fannie Mae and Freddie Mac and then came AIG. These companies really need to go bankrupt for the system to correct itself, this is how a true free market would work. I believe a free market is where companies compete for the consumer, in that, the company with the best product for the best price will get more customers. If quality is high and price is reasonable, in an ideal free market, customers should be coming to you.

    The Federal Reserve Bank is something that I heard about some time ago and was appalled. This is a privately owned corporation, started by the bigwig bankers. They have no government controls on them, because they are a private enterprise. Let’s think about this for a second, the people that decide how much money gets printed, what inflation is like, what the interest rates can go to, and the actual value of money are all privately owned, think about that, a board of directors owns us financially, a private board of directors, we don’t get a say in it. The Fed can print as much money as they damn well please, they can so pretty much whatever they want, it is a “free market”. They could print a very small amount of money and cause a depression if they wanted, they did that twice already, not as explicit as I am expressing right now, but I mean, do some research, The Great Depression was much more than the aftermath of WWI, I mean, WWI had something to do with it, but there was more going on than your high school text book wants to tell you. These same bigwigs that own the Fed today are the men that caused those financial panics back then. The whole reason why we got off the gold standard was a money crisis, caused by those same bigwigs, this was before the Great Depression, this was when things seemed OK, but then, panic struck, I believe it was Rockafeller of Morgan who started rumors about the banks running out of money and then BOOM, the small banks had to close because they had no more money left to give out, because banks don’t actually hold all the money they have on the books, they invest it, sometimes nightly (Commerce does this) into stocks and bonds, banks only hold a certain percent of money in the vaults, a very small percent. Money is not a tangible thing when it gets too big, how can you conceptualize a million dollars? You can’t but you can see how many zeroes it has on paper, this money is floating, in your bank account, in the bank, wherever.

    Back to our financial crisis… I am scared out of my wits, bad things are coming, the bail outs are only the beginning to our financial downfall. There is a cap to how much debt we, as a country can go into, we have asked to have this cap raised so we can compensate for the bailouts and the vouchers for the digital TV thing in Feb 2009, and all this spending on a war. By the way, a war will make a country poor. Think about it, to go to war, you need people, people you need to pay, you need guns, guns and ammunition and tanks and trucks, that you need to buy. When the country spends all of this money just to take it to Iraq and destroy or leave there, it’s like digging a hole and shoveling billions of dollars into it and burying it. In WW2, it was cheaper to make more guns and tanks, so we left all our ammunition and other war stuffs over in Germany for them to deal with. It’s all about cost efficiency, but if they thought about that before they actually went to an unconstitutional war, well, I think things would be vastly different. Congress has to vote on whether or not we go to war, it’s in the Constitution, you know, the piece of paper the first white settlers wrote about independence and freedom, it’s in there, and yet our president would like to think he’s higher than the constitutional law, but i won’t get into that right now.

    Our economy is in the crapper and it’s only going to get worse, I don’t know how to fix it, I just know I’m scared as hell and mad as hell and don’t want to take it anymore. I know that if we band together and fight this government that doesn’t give a damn about us anymore, we can make a difference. When did we get so scared to peacefully revolt? When did we all just fall into apathy? I watch interviews with Milton Friedman and I cry, I listen to Ayn Rand and I wonder where we went wrong. It could have been so much different, this could have been good. I don’t know what happened and I don’t have any answers, I do know that if we do not learn from our past we are doomed to repeat it, again and again.

34. on 29 Sep 2008 at 6:55 am34AJ

    I just wanted to come back and say that I agree with Laura that the world should operate where the parents shoulder the bulk of the responsibility in teaching their children. After all, parents are their children’s first teachers. Sadly, it doesn’t always work in the way that we think it should.

    It is because of this that I said a balanced effort is needed. Though to be fair, I probably should have used the word combined as to not imply the effort be equal.

    In an ideal world, financial education would be best taught the way pointed out by Laura. She is correct in saying that parents have a lot more resources and opportunities to teach the subject compared to teachers. However, that’s an ideal world where everyone gets everything right. The real world doesn’t operate like that. All parents aren’t willing/able to do that.

    I know because I was one of those kids whose world didn’t operate like that. My parents know absolutely nothing about money and if the teachings were left solely up to them, I would be up the creek without a paddle. My parents think nothing of putting purchases they cannot afford on credit cards or paying bills late. They never opened a savings account for me and never gave me an allowance for which to save. In my household, money was a forbidden subject for kids. Kids aren’t supposed to worry about money, they would say. The truth is, in my household, the parents didn’t worry about money enough.

    If you grew up in a household with responsible parents who had/have the tools to teach you about finances then consider yourself lucky. Lisette’s comment would be spot on, GOOD savings/spending habits would be better learned in THAT home. If you on the other hand, grew up in a home with bill collectors calling all hours of the day and parents stealing (err… borrowing) money out of grandparents and other relatives’ accounts, then that comment would be backwards. Following that logic, I would have learned that it was oK to steal other people’s money, that it was oK to buy things you couldn’t afford, that it was oK to bounce checks, and that it was oK to have bad credit because “hey, everyone owes someone.”

    Thankfully, my school district (or teacher???) cared a little bit and included lessons about money. I learned how to write checks and balance a checkbook through my 5th grade teacher. It was the first time I ever discussed money and learned the value of a dollar. Mrs. Jimmerson set up a fake bank in the classroom for the students to use our fake money to buy toys and other stuff at the end of the semester. We were rewarded with fake money for good behavior and penalized for bad. If you didn’t have enough money to pay for a bad behavior penalty, you had to either sit with the teacher at lunch time until the debt was paid at a later date or wiggle free from her by borrowing some “quick cash” against the bank with sky high interest. If you did the latter, you were never going to have any money to buy anything at the end of the semester.

    I didn’t have a real bank account until college but the fake one at school taught me enough to get me through (with the addition of other financial courses in middle and high schools of course) It wasn’t a perfect system but still this day, I can remember Mrs. Jimmerson’s lessons about credit cards and how it was not a good idea to borrow and pay more just to satisfy a want. If I could thank her a million times, I would.

    I love my parents but important lessons like these, they could not teach me. It took teachers and strangers (such as PF bloggers) to open my eyes and say there’s another way. You don’t have to be in debt forever (or at all).

    I guess what I’m trying to say is that one shoe doesn’t fit all. If you can get an adequate financial education at home, by all means learn it from Mom and Dad. But for those of us don’t have it like that, school can be an excellent place to learn at least learn the basics.

35. on 29 Sep 2008 at 7:06 am35Sallie's Niece

    Hello I’m a 28 year old lawyer struggling to pay off enormous student loans on a limited income. Inflation to me means my income was only increased 3% this year while expenses rised at least 4% so my salary was decreased. Despite being almost 30 I am just figuring out financial responsibility after being in the bubble of academia for most of my life. I think there’s a lot of people out there like me whose parents wanted the best for them - best schools, best careers, etc. who didn’t neccesarily take the time to explain to them what it would take financially to get there. There’s no going back now (for me anyway) so I have resolved to live below my means - cut expenses, save and tackle all my debt so that my future is free and clear. I would love a new laptop as the budget will not allow this kind of purchase for at least a couple of years. Thanks!

36. on 29 Sep 2008 at 7:33 am36Pham Duy Nguyen

    hello there, I’m Nguyen and I’m from Vietnam, though I’m not very well-versed in US economy, I’ll give my two cents anyway

    currently, I’m a computer student and the only debt i have right now is pretty much “a virtual debt” that i made up so that i could work and study harder so as to repay it someday. my parents still pay for my college tuition, but i know it’s only a matter of time before i have to watch over my own money and figure out how to use them wisely.

    here in my country and also in almost the whole Asia, inflation is currently a serious problem. it seems that prices increase everyday the topic of saving has turned into a nation-wide debate. it comes to the point when people gadgets,… which then leads to decrease in those fields’ overall profits and financial states.

    right now, i’m very concerned with how certain fall of many US financial firms and enterprises (Fannie Mae & Freddie Mac, AIG,… ) would affect other countries. we all know how the oil price dramatically increased due to the US - Iraq situation, now we have ask ourselves what kind of effect all the money the US government intending to use on “saving” the US bank system would have.

    on a smaller scale, many previous posters have commented on the possibility of teaching kids how the financial system works, and i think that’s a terrific idea. you can’t become an adult and not knowing how to use your money the right way. i think such a course should be taken when a child is still young, perhaps below 10 years old, so that they could apply what they leanred into the real world as soon as possible

    about the free market, i dont think it’s a possible concept, mostly because it sounds too idealistic and goes against the most basic rule of the market: the government controls the market, or at least to some degreee. Governments provide a stable currency to make markets possible. They provide a legal infrastructure and court systems to enforce the contracts that make markets possible. And, most important, the rules of the game of business are defined by government. so, with that said, i guess you could say the US market, as well as many other nations’, is just semi-free. (pls correct me if i’m wrong)

37. on 29 Sep 2008 at 8:13 am37Kris.

    My name is Kris, I’m 24 - recently graduated and have been working as a paralegal in a law firm for about a year now. I started college with no debt and one credit card from our local credit union to build my credit score. I received great financial aid due to grades and my parents income. However, in my junior year, my parents decided to sell 1 of 2 homes they had purchased with the intent to make money in real estate (they didn’t) which inflated their income and left me without financial aid for the year. To make up for this difference I began taking out student loans (fed. and private). The next year they sold the 2nd of their homes which again inflated their income and left me without financial aid for another year which I made up for in loans again. During this time I was working a very good job while going to school but I still needed the loans to get through the year and I took out another a year after I graduated to go back for a second degree. After finishing this left me with over $60k in student loans (most for private loans). I consolidated to lower my monthly payments but without a co-signer I ended up with a very high interest rate where just the interest alone on my student loan totals over $500 a month! I knew what I was getting into when I took them out but I had a much sunnier outlook on how life after college was going to be.

    I guess for this discussion I am going to comment on inflation as I suppose that I’ve seen it the most in the past year that I have had to worry about rent, groceries, gas, insurance, etc. in much larger quantities as I did when I was a student. Inflation is by simple definition - when the goods you want to buy are increasing in price as the value of the dollar is decreasing. While just a year ago we used to go to the grocery store and buy groceries for $70 a week - the equivalent now without coupons - we’ve noticed is closer to $100 a week for the same goods. Definitely a BIG difference.

    On my opinion of the bailout - I think it’s a great step to get banks moving again but I don’t think that much will happen with the economy until the majority of Americans are helped in one way or another. Whether it’s decreasing interest rates more, more favorable loan/mortgage terms, tax incentives, decreases, job creation, alternative fuels, etc. I don’t think that people should be “bailed out” either - but I feel that by bailing out the banks the cycle is just going to resume itself.

38. on 29 Sep 2008 at 8:41 am38paranoidasteroid

    I’m Sarah, I’m 25. I work full-time as an engineer and am working on a Masters degree at the moment. My only debt is my student loans, and this year I’m aiming to save 50% of my take-home pay (after taxes and my 20% 401K contribution). I’m not struggling financially, thankfully, and I think this is because when I first started working, I did struggle alot with finding the money for rent, car payments, etc. There wasn’t money for extra, so I’m not used to having extra.

    I’m going to chime in the subject of fiat currency, since I probably understand that most out of all the questions. The US dollar used to be tied to gold & silver (my parents still have silver certificates that my sisters and I got from a great-grandmother), but at the end of 1971 the government changed it. It’s important because the dollar bill is essentially worthless (just a piece of paper). This is why a lot of people support leveraging to buy tangible goods, such as real estate. It’s also the reason for people saying you should buy gold and silver instead of keeping money. I think Robert Kiyosaki uses this as one of the many scare tactics in his books.

    As far as financial education goes, I think it’s essentially worthless. I’m a nervous over-saver. Other people are spendthrifts, and aren’t worried about saving because they think they’ll continue to earn money. You can teach people all you want, but sometimes lessons go right over people’s heads. My sisters and I got all the same information from our parents, we went to the same schools, and yet we are very different about money. As a teenager, you never listen to what anyone tries to teach you. Even as adults, we hate being told what to do (most of us, at least). Even if we try to teach our kids about money, who is qualified? A teacher whose money situation is unknown? The parents, who probably have credit card debt? Even if they were qualified, people wouldn’t listen.

    The only way people get educated about money is when something pushes them into it. You can’t force common sense on people.

39. on 29 Sep 2008 at 9:19 am39Casey

    Hi, my financial situation is currently a credit card that was out of control but is now being dealt with, a personal loan slowly but surely being paid off, and about $22,000 in student loans (not too bad).

    Inflation is caused by increases in aggregate demand and decreases in aggregate supply. Persons who might benefit from inflation include those taking out loans; as the overall value of the loan they have taken out decreases, they have to pay back less in real dollars. Likewise, banks and those who do the loaning can be hurt by inflation, because they are getting less money back in real dollars than they lent out in the first place. Generally, it’s the job of an interest rate on a loan to mitigate this twofold effect.

40. on 29 Sep 2008 at 9:29 am40Laura

    I’m a 20 year old undergraduate student and I’d like a Masters. I’m lucky to have my undergraduate studies funded through my family and scholarships. However, my family won’t be able to help me with my master’s, so my current goals are saving and forming good habits for the future. Since I have had a friend, who is a conspiracy theorist, tell me how the FED is basically a bunch of greedy bankers trying to destroy society or something, I decided to explore what the FED is really all about.

    The Federal Reserve is the organization responsible for the banking system in the US because of this it can have a great influence over the economy. Part of it is owned by the government and part of it is owned privately. As the central banking system for the US, the Federal Reserve supplies the US with its currency, determines monetary policy such as interest rates, and supervises and regulates banks.

    The Federal Reserve Act, which created the Federal Reserve, was drafted by Representative Carter Glass, a chairman of the House Banking and Currency Committee. However, before being passed, it was often called the Aldrich plan, after the head of the committee, Nelson Aldrich. It passed through Congress in 1913. When the legislation was passed the US had been without a central bank for decades. Many bankers felt that a central bank was needed in order to give stability to their field and the economy. However, the fear remained that it would give too much power to too few people. That is where my friend’s conspiracies spring from.

    Interestingly, the Democrat platform in the elections just prior to the passing of the bill had been against the Aldrich plan. And yet the Act passed through both the democrat dominated Senate and House, with only 2 democratic nays, and was signed by Democratic President Wilson. It makes me wonder what else our parties are claiming one way and doing another.

41. on 29 Sep 2008 at 9:53 am41Cheryl W

    1. Hi! I am a 44 year old stay-at-home mom and wife. My daughter is in college (she needs this computer you are giving away!) and we have a monthly payment for college to help her out. The rest of college is in government student loans. We have no credit card debt, but we do have a mortgage. We live very frugally, but it isn’t a chore, it is a choice that we don’t mind. We don’t really struggle financially, but we don’t have anything left for savings, either. I did look up some of your questions, as I found them interesting. But the answers were enough to make my brain hurt! Thanks for the opportunity for the HP!

42. on 29 Sep 2008 at 11:02 am42Sherelle J

    Hi! My name is Sherelle and I’m a 22 year old college student working her way through as a waitress (phew!).

    I wish I had learned financial responsibility from my parents but unfortunately they taught me what seems to be the “American” way of spending money you don’t have. Thus, I am just under $15,000 in debt, with only a little over $5,000 of that being my car loan. It wasn’t until about February this year that I learned to live within my means and started to avidly read personal finance blogs.

    In contribution to the conversation, I trained in loan processing and worked for a time in the real estate market right before the bubble popped. Seeing what I’ve seen, I wonder how our economy can even sustain itself when it is seemingly motivated by greed. I saw first hand all the lying that went into getting lower and middle class people to sign for loans on homes that they could not afford. And to think that this problem is rippling throughout the nation because these terrible loan setups were packaged as securities?!

    Now they want to use taxpayer money for the bailout but it is our society that encourages the use of credit and our sense of entitlement. We’re in trouble now because we’ve been taught to rely on money that ISN’T there from the consumers to government to financial giants. How will this bailout fix anything?

43. on 29 Sep 2008 at 11:48 am43Mia F

    D’Juan,

    I’m so glad you brought up The Money Masters documentary. I learnt quite a bit from it.

    I enjoyed it so much that I watch it twice, even though it’s over 3 hours long! I recommend it, too.

44. on 29 Sep 2008 at 11:58 am44Becca

    Something I realized I forgot–I didn’t “introduce” myself! I’m Becca, a 23 year old Statistician/Econometrician. I was both and Econ and a Math major in college, so I’ve got a lot of background in this stuff. In fact, a lot of my response came from digging up my copy of Mishkin’s book to refresh my memory, as it’s been a few years since I took Monetary.

45. on 29 Sep 2008 at 12:23 pm45Becca

    To Christine: The Fed isn’t a completely private entity–The president appoints the Fed chairman and other members of the Board of Governors, and the Senate confirms these choices. Congress has oversight over the Fed and can limit its power, so by electing your congressman you have some measure of control over the Federal Reserve Bank. They don’t actually print the money, that is the Treasury’s job.

    They do set an interest rate: the discount rate at which banks can borrow money from them. They also release a target rate for government securities and use their considerable buying power to herd the market towards that rate–other borrowing rates conform along this rate because the opportunity for arbitrage shapes the demand and supply of other securities and thus moves the interest rate in line.

    The FDIC didn’t exist during the Great Depression, that’s why the banks ran out of money. The reason we switched from the gold standard–commodity money–to fiat money was to have better control over the money supply for exactly these instances.

    I think you reading and exploring those who have studies this for decades is great–Milton Friedman is a good start, he’s a very powerful writer, but he’s just one school of thought. Start with the basics of economics and branch out from there. If you’re concerned about the way the Fed is handling this, write a letter to your Congressman or Congresswoman.

46. on 29 Sep 2008 at 12:55 pm46Dokie

    - I am 19 years old. I’m a girl. I work on campus and “work” in my parent’s office. I have a lot of savings that my parents have given me. I have debts like school parking tickets, frat fees, and I owe my friend money. I do find myself struggling financially because I am not going to use my savings money to deal with the things i mentioned before because I wasn’t supposed to have them in the first place.

    I saw Jesse Wong’s comment and she is entered in the contest so I guess we don’t have to talk about exactly what the blog says? Honestly, those questions look like something out of a text book. I am much more interested in discussing the dynamics between teachers, students and their parents.

    Parents, naturally, are going to teach their children things. That’s just what happens, however, not all parents can teach their child about finances or not all parents see it as important or think that their child will learn as they get older. So what are you going to do? Are you going to say “Parents, you’re right. So I’m not going to teach your kids this thing I think is vital” or are you going to say “Well, if you don’t think its important enough to teach your child, we’re going to put it in our curriculum to prevent future dumb-ness”?

    Teachers are not expected to teach everything, but if you think something is important and parents do not, then that thing simply will not be taught and you’ve got a rut.

47. on 29 Sep 2008 at 12:57 pm47Greg

    Hello I’m Greg and I’m 28. I work in the IT field. I have a Bachelors in Information Technology and plan to pursue grad school so I can get in more debt. Just kidding, actually I want to eventually share my knowledge with others through teaching. Still working on paying off my undgrad debt.

    I keep my finances in check by attempting to spend less than I earn, and attempt to make process on debt by making more than the minimum payments on my various loans.

    The Federal Reserve is the central banking systems of the United States, with its headquarters located in Washington, D.C.

    I’m not heavily into Economics, but always like learning of ways to be smart financially.

    Cheers.

48. on 29 Sep 2008 at 1:16 pm48Gustavo

    My name is Gustavo; I am 18 years old and a junior student of Petroleum Engineering. I study in Oklahoma as a foreign student, I am of Venezuelan citizenship. I do have savings, specifically money market savings account with BOA. My tuition is paid between my parents and a couple of scholarships I have. I don’t really find myself struggling financially.

    I will comment on Morris’s comment (#5)

    “What I am still trying to understand more fully is the relationship between the Fed and the Treasury Dept”

    Well I looked into this and came up with a good explanation, which I think will clarify any doubts for you.

    The Federal Reserve Notes (i.e. dollars) issued by the Federal Reserve Banks are obtained from the Bureau of Engraving and Printing (BEP). The BEP is administered by The Treasurer of the United States which is an office within the Treasury Department. The Federal Reserve Banks must pay the BEP for production costs of the notes. The notes become liabilities of the Federal Reserve Banks, and obligations of the U.S. Government.

    I learned something new by looking up this information for you, and I hope it helped you understand the relationship between these entities.

    Source:

    http://www.ustreas.gov/education/faq/currency/legal-tender.shtml#q2

49. on 29 Sep 2008 at 1:36 pm49Brianna

    Hi everyone! My name is Brianna and I’m 19 years old. I’m currently a second year student at Queen’s University in Canada, even though I’m from Chicago. I currently don’t have any debt, although that will be changing next year. My parents have paid for the first two years of university, but the rest of my education is on me. I’m in good financial standing other wise and even opened a Roth IRA this past summer and started and emergency fund.

    Most of you have mentioned financial education in your posts. Although I agree that financial education is important and should be taught (both by parents and in school) what concerns me the most is the attitude people (particularly my peers) have about money and financial planning.

    I was lucky enough that my high school required a consumer education class to graduate. The class covered basic financial necessities such as how to balance a check book, read an account statement and consumer protection laws. Unfortunately most of my classmates did not take the class seriously it was a “bird” class. Sadly some even failed the class. I was ridiculed for having some basic financial knowledge.

    When I decided last year that I wanted to learn more about personal finance and what to do about retirement, I checked out some books from the library. You should have seen the look my roommate gave me when I told her that, no I was not working on a research paper, but I was trying to figure out what to do for retirement since I don’t have much confidence in Social Security providing for me.

    Perhaps I am the odd ball out, worrying about retirement and financial security at the age of 19. But I’d rather start now and have a plan for the future. After all isn’t it the advice to start saving early?

    I find that not only do we need to educate ourselves about money and finance but we also need to change our attitudes about it. Financial knowledge is invaluable so why do we scorn those who have it? Particularly at a young age?

50. on 29 Sep 2008 at 2:40 pm50David

    Hi my name is David. I’m currently 2 years away from a BS/MS degree in computer science, and I’ve recently gotten into personal finance. I have $10,000 in student loans, but $15,000 in the bank. The loans are subsidized, and I get more interest than the loans cost. I’m planning on paying them off entirely right after graduation.

    It looks like I’m the first commenter after the bail-out vote (yipee). I’m glad to see that shot down. The average personal is already drowning in enough problems, and the bail out would have dumped even more on us. Hopefully this will teach people that investments with high returns will almost always have high risks. I know I lost ~$100 in stocks today, but it was a calculated risk.

    I think the main problem America is facing today is the news. We hear so much about the looming depression that we are actually causing it to come about. But depressions are not always a bad thing. They cause the market to catch up to the real world. Think of it as financial exercise. Too long have we been without any hardships, this one is going to hurt. But afterwards America will be better and stronger than before. Think about the recovery from the Great Depression. Think about how quickly Germany recovered from WW I, after being saddled with huge debts. Not that I hope for depression, but I think it is a necessary evil to wake Americans up to the state of the world. After we recover we can then work on the state of the world (poverty, global warming, wars, etc).

    Just my 2 cents, and blowing off some steam, but hey, thats what blogs are for.

51. on 29 Sep 2008 at 4:01 pm51Rhonda Martin

    I am a blue collar worker I guess you would say. I could not afford to go to college even with financial aid. I know nothing about financial freedom or how to get their but there is one thing I did learn and that’s learning starts at home as much as possible.

    I agree with Laura you can’t push everything on to the school teachers. First a parent needs to set the fundamentals in their children. I mean, little things like maybe saying the word “NO” once in a while when they want something. If you give a child what they want every time they threw a tantrum you are teaching them that everything is handed to them and they do not need to be responsible for their own finances when they get older. Teachers can point a child in right directions and teach them some financial fundamentals but if a student is used to getting everything they want growing up what do you think is going to happen when they get in the real world and have credit cards in hand. They are going to do what they have always been taught. To get what they want even if it means charging it on credit cards no matter if they have the finances to cover their debt or not.

    I say learning starts at a young age at home and continues through out a person life time. I know there are items that are almost impossible to buy without buying on credit such as tuition,car and a house. I have taught my child if it’s not a house,car or tuition and you can’t pay with cash then you can’t afford it. What is credit anyhow except a term of buying something you can’t pay for today and maybe not tomorrow. That’s why I’m commenting here. I can’t afford to pay cash so I can’t afford it , so I figure why not try to win it. Thanks for having a wonderful giveaway and thanks for amending your requirements because I never would of made it on the first set of rules and I think open discussion was more interesting too~! Have a great week.

52. on 29 Sep 2008 at 4:03 pm52Steve M

    Hello, my name is Steve. I’m 19 years old, and I am currently attending Boston University. While I did receive some scholarship money, it was not all that much and I am staring debt in the face. My family is as helpful as they can be and I appreciate everything they’ve done for me. They have, however, guided me in the right direction for the future.

    They’ve recommended, but not pushed, that I look into become an actuarial. I have since learned that this job has incredible job security and great pay. I may be in debt for a while, but hopefully, I will find a job as an actuarial.

    I have been working part time jobs, and writing freelance online trying to make money. I’m saving as much as I possibly can, which is why I haven’t bought a laptop, and hope to win this contest.

    Studying to become an actuarial requires at least some knowledge of our economy. So I will attempt to explain inflation in a clear and simple way.

    Simply put, inflation is an increase in the cost of goods and services. For the most part, it is more hurtful than helpful. But, again, looked at in simple terms, it could help someone that is in some sort of debt. If they owed $1 when it was worth the price of, for instance, a candy bar. And inflation has forced the price of that candy bar to go up to $2, then the value, or spending power, of $1 has gone down. So, even though that person still owes $1, it is easier to earn that $1 back, because the value has gone down. Inflation hurts almost everyone else. Inflation is often used when referencing the prices of goods and services going up and someone’s pay not being able to increase proportionately. Again, the last example used can be applied in this situation. If a person earns $1 a day, and inflation causes the price of a candy bar to go up to $2, but the person’s pay only increases to $1.50, they would not benefit from this. They used to be able to afford a candy bar per day, but due to inflation, they now cannot.

53. on 29 Sep 2008 at 4:23 pm53Dilip P

    I am an undergrad student and as of now my finances are okay thanks to not so high $1000 fee here in India. Though I am debt free now, I’ll be accumulating debt over the next 2 years as I’ll be pursuing Masters in USA. I’m working on those aspects now and I hope to get it all figured out on time so that I can plan accordingly.

    I came across your blog only after HP giveaway started and its great. Blogrolled!

54. on 29 Sep 2008 at 5:18 pm54christine yoo

    to becca: i did provide some misinfo, i was writing out of memory, you are correct in what you said but have you seen the film Zeitgeist? if not, i would highly recommend it, some of it is conspiracy theory nonsense but most of it makes complete sense. In school, we have gone over the classical and keynesian theories of economics, both of which seemed to be missing something. Milton Friedman makes the most sense to me personally. I have watched many Youtube videos of him and I agree with every word that comes out of his mouth, it makes so much sense to me. No one has been able to explain economics as well as that man, he is utterly brilliant.

    I realize I did not mention anything about my savings, mostly because I have none. After a recent conversation with my boyfriend I realize that putting money in my savings account would be counter productive with all the credit card debt that is accruing. I should use that money to pay off my debt and yes, that scares the hell out of me. I realize that I may very well not have social security to take care of me and I should have started saving long ago, I have made many a financial folly in the last couple of years, the biggest one, getting more than one credit card and living above my means and now I must pay for it, figuratively and literally.

    I now live in a two bedroom apartment with my boyfriend, we have no TV, and we hardly go out, maybe once a month and I don’t ever go shopping (clothes, appliances, etc.), we buy what we need when we need it. I wish I didn’t screw myself but nobody took me aside and told me about these things, but ignorance is no excuse, I made my bed and now I have to lie in it. I have to take this debt as it comes and perhaps one day, in about 10 years, my credit card debt will be gone and all I have left is my student loans to take care of, but until then, it’s the modest life for me. I don’t mind it though, cooking is one of my favorite things to do, I found this blog through cooking for engineers, by the way, which is one of my favorite food blogs out there.

    I am freaked out about all of my debt but I also realize that eventually, it will be gone and I will be free, I just have to keep working and keep paying and keep learning. I mean, that’s life, so I’m just going to keep on living and hope that one day I can afford to buy a house or at least get a mortgage — eep, more loan payments!

55. on 29 Sep 2008 at 5:21 pm55Drew

    Hi Jennifer — I knew from the moment I read your questions to be answered for entry into your giveaway that you were going to be inundated with thousands upon thousands of copy-and-pasted Wikipedia entries. I’d rather watch the entire Republican Convention on C-SPAN than try to read through that deluge. Anyway, I’m glad you narrowed it down somewhat. However, what you’re asking for is rather objective information, so there’s only so much of that information that can be “put into your own words.” I mean, you’re not asking me for my impression of a sunrise, but rather “How far is the Earth from the Sun?” Questions like “When was the Federal Reserve Act passed” or “Who drafted the Federal Reserve Act?” are not really subjects for Impressionistic tendencies.

    I agree with your observation that “financial literacy unfortunately is not taught well” [or at all] “in our public schools.” Neither are Civics or Grammar, and that’s all a shame and a tragedy.

    About myself:

    I’m 58 years old and retired from state government. I’ve got some credit card debt, negligible savings, but my house and car are paid for. The biggest financial worries I have are: (1) the increasing cost of living, brought on by the price of oil, and; (2) health insurance, which currently costs me in excess of $700 per month for myself and my son.

    Anyway, here’s my answer to the “The Federal Reserve Central Bank” question, much of it, out of necessity, lifted from the Fed’s website at http://www.federalreserve.gov/pf/pf.htm. It’s not original thinking, but I think you’ve accomplished a small part of your objective in that I now know more than I ever knew (or even wanted to know) about central banks and “The Fed.”

    Here goes…

    The Federal Reserve System, often referred to as the Federal Reserve Bank, or simply “the Fed,” is the central bank of the United States. It was created by Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve System is not “owned” by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.

    As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute.

    For nearly eighty years, the U.S. had been operating without a central bank after the charter for the Second Bank of the United States expired. However, after various financial panics, particularly a severe one in 1907, there was a growing consensus in the American financial community that some sort of banking and currency reform was needed which could provide a ready reserve of liquid assets in case of financial panics and would also provide for a currency that could expand and contract as the seasonal U.S. economy dictated.

    The proposed legislation was known as the Aldrich Plan, named after the chairman of the Commission, Republican Senator Nelson W. Aldrich of Rhode Island. Since the Aldrich Plan essentially gave full control of this system to private bankers, there was widespread opposition to it because of fears that it would become a tool of certain rich and powerful financiers in New York City, referred to as the “Money Trust.” From May 1912 through January 1913 the Pujo Committee, a subcommittee of the House Committee on Banking and Currency, held investigative hearings on the alleged Money Trust and its interlocking directorates. These hearings were led by the Democrat lawyer Samuel Untermyer, who later also assisted in preparing the Federal Reserve Act.

    In the election of 1912, the populist leaning Democratic Party won control of the White House and both chambers of Congress and that year’s party platform stated strong opposition “to the so called Aldrich bill for the establishment of a central bank.” However, the platform also called for a systematic revision of banking laws in ways that would provide relief from financial panics, unemployment, and business depression and protect the public from the “domination by what is known as the Money Trust.”

56. on 29 Sep 2008 at 5:44 pm56George

    My name is George.

    I am a 21yo software engineer and entrepreneur working for a high tech startup in San Francisco. Previously, I was a junior at UC Berkeley studying Computer Science.

    Although my work is in demand and consultants with my skill set easily make a 6+ figure salary, I have chosen a career path where a majority of my net worth lies in both vested and unvested stock. Despite this, I make a strong effort to earn more than I spend and build a savings that I can use in the future for investment or for bootstraping another startup. Approximately 15% of my earnings, post tax, are saved. I have zero debt. I also use Mint.com to carefully track where my money is spent.

    I invest approximately 40% of my savings into the stock market. I generally bet on companies with moderate risk, since I can afford the risks that such investments entail. As you might guess, recent economic events have put a significant dent in my net worth. Fortunately, my reasonably frugal lifestyle has enabled me to shrug off my losses without needing to change my habits, and I see the bearish market as a good chance to invest at bargain prices.

57. on 29 Sep 2008 at 6:23 pm57Chris

    I may be a bit different than others reading this blog. I’m a non-traditional graduate student which really only means that I’m older

    I’m 36 with a wife and 2.5 kids (one on the way). I’m a mid-career administrator in higher education with a bachelors, masters and am currently working to finish my dissertation (translation: I have significant student loan debt). I contemplated a career change and found myself unemployed for six months following the dot com bust in 2001. That span of unemployment of unemployment consumed any savings and created debt which we’ve struggled to service since. We struggle month to month.

    The phenomenon of the vicious debt cycle really didn’t get into high gear until the 1980’s when credit cards became ubiquitous. The yuppie generation and older members of Generation X were the first generations to have the ridiculous opportunity to leverage and spend future earnings now. Many of us did (and many of us may be your parents, if you are a traditional college-age student reading this). Why don’t schools teach us to not to? Perhaps schools haven’t caught up with the problem; perhaps it’s a value issue. Our parents had the intuition it was a bad idea and told us so, but we didn’t listen

    Hopefully, the current financial crisis which is due in part to the pathetic and decreasing savings rate over the past 25+ years will be something from which we can learn. After all, in very simple terms, the financial crisis is very similar to abusing credit cards. Rather than it being about people and credit cards, it’s about banks and bad mortgages/securities.

    Christine has a very good approach to the situation: with diligence and time, you can correct the problem. And, ultimately, it’s not something to stress and strain about - as long as you can take care of your immediate needs (not wants), you’ll always have time to get to your debt, as long as you don’t create more debt in the process. Once I realized that, I was better able to manage the mental stress that comes with bad finances.

58. on 29 Sep 2008 at 6:24 pm58Jennifer

    Hello. I am Jennie a 36 year-old Dental Hygienist/Real Estate Agent whose finances are not in great shape. My “old” philosophy was that if my bills were paid on time then all was well. With our current economic problems, my eyes are finally opened (better late than never) and I can see that I have a lot of hard work ahead of me to get on track.

    I have virtually no savings and massive credit card debt. Our home is only worth about 70% of what we owe on the two mortgages we have on it. We make good money but spend it as fast as it comes in. I will say that we are not materialistic and are very careful when making major purchases but we enjoy eating out and taking family vacations which is our downfall when it comes to saving.

    I have 3 children (20, 15 and 13) and I am proud of my creative approach toward teaching them money management. My parents never made a big deal about financial responsibility and I didn’t want my kids to end up in the same situation as myself (and my mother for that matter).

    I began giving them an allowance at a young age (in exchange for chores, of course) and when they began 6th grade, I increased their allowance to an amount that would cover a week’s worth of school lunches plus a bit extra. They were responsible for covering any expenses for “fun” things aside from family activities. I let them decide if they would like to pack a lunch and have the extra spending money or buy lunch and be broke for the weekend. It was interesting to watch how each child handled their money.

    To encourage them to save as much as possible, I set up a savings account when they turned twelve and explained that I will match their savings dollar-for-dollar when they turn 16 so that they will have the funds to buy a car. My son is the worst of the three when it comes to saving. He never wanted to put money away but now he is 15 and only has $650 in his account. He just received his driving permit and is getting excited about buying his first car. What a disappointment when he sees what $1300 will buy! Even worse, his 13 year-old sister already has over $1,000 in her account!

    Anyhow, thanks for all of the financial advice and I am going to strive to improve my situation from here on out :0)

59. on 29 Sep 2008 at 6:30 pm59Ana

    Financial education is definitely necessary for anyone who wants to take control of their debt, but it seems most money troubles start because people make emotional decisions instead of rational ones.

    My student loans came due a few winters ago. I didn’t have any money in the bank after Christmas, so I just let the letters pile up unopened. Obviously the head-in-the-sand approach didn’t work so well. My credit was dinged, I owed late fees, and I lost a reduced interest rate incentive. Had I only called my loan provider when the first bill was due, I could have easily qualified for a deferment.

    I was just too ashamed to ask for help. Thankfully my dad yelled some sense into me and I was back on track in a couple of months. Only $20,000 left to go!

    I think blogs like this are a great way to get people talking about their finances. Thanks, Jennifer! Keep up the good work!

60. on 29 Sep 2008 at 7:26 pm60Don

    Hi, I’m Don. I’m a math teacher, with no non-mortgage debt. I’ve been saving for retirement for about 10 years in a diversified low-cost portfolio. My allocation is about 60% stocks, 25% bonds, 5% cash, 10% real estate and my Roth/Traditional ratio is about 80%/20%. It’s probably a bit conservative for my age, although that has generally not been such a bad thing over the last decade.

    My best “money knowledge” is my breakdown of why a Traditional IRA might be better than a Roth IRA. People don’t say that very often (well some people who are selling something might). I haven’t seen other people look at that as carefully as I have in print. But it wasn’t a question you asked.

    What causes inflation; whom does it hurt, and whom does it help?

    That is a fascinating question. Most people know that inflation is a general increase in the price of goods and services throughout the economy. The cause would seem to be straightforward: obviously if you print more money, the value of each individual dollar is worth less. Of course, in our modern economy we don’t technically have to print more money, most money is in fact electronic.

    But it isn’t quite as simple as that. I had a chance to corner one of the Federal Reserve bankers on the question of inflation, in a short one-on-one. I’ll be honest, it wasn’t that informative because he ducked most of my questions. Those guys are in a tough position, because they can’t actually give an honest question or it tanks the stock market. They have to work through innuendo and implication.

    Still in the few minutes we spoke, I learned a few gems or hints of gems. One thing he mentioned was that one way the money supply expands and contracts is through the credit card companies. In some sense they kind of create money from nothing (I’m sure there is fractional reserve magic going on) that goes out and does work. Something to ponder or research.

    Another thing that I noted was he was very focused not on the simple connection of “more money = inflation” but rather the perception of inflation. The Federal Reserve members keep a close eye on the public perception of inflation via comparison of TIPS and traditional T-bills and bonds. The bond auctions give them a reading on expected inflation. It must have been very informative that this month that TIPS went so high that they had a negative real (after-inflation) return.

    I suspect if you study carefully, you’d find that measured inflation somehow sort of floats around between the tangible “size of the money supply” and the intangible “expectation of how much prices will increase.” To my mind, it is not unlike the disconnect in the stock market between company value and stock price. Someone like Warren Buffett will tell you that there are short-term inefficiencies in stock values (and he hopes to exploit them), but there is also long-term tracking of price and value—reversion to the mean. I suspect short-term inflation tracks with perception of inflation, but long-term it reverts to its basis in the size of the money supply. Ultimately, if you expand the money supply, you’re going to get that inflation now or later.

    Now, as to who is helped and hurt. People whose wealth is predominantly money are hurt, and people whose wealth is intangible benefit by comparison. For most of us, inflation hurts us because our largest source of wealth is our expected future earnings—i.e. future money. The poorer you are, the worse it is because you own less tangible property. Very wealthy people own property and companies, and inflation hurts them less.

    Of course the current environment is inflation in consumer goods, food and energy; deflation in real estate. This is killing regular folks whose wealth was their (tangible) house and (intangible) earnings potential.

    If you have a fixed 30 year mortgage, you probably benefit some because you get to make those later payments with comparatively worthless dollars, as long as the value of your house isn’t crashing into the dirt. You probably have most of your wealth tied up in your earnings potential though too, so it isn’t all roses.

61. on 29 Sep 2008 at 7:36 pm61Aaron

    Hi my name is Aaron; I’m 23 and a graduate student at Georgia Tech. Despite having parents who are very financially savvy, I was given a credit card when I started college and it didn’t take long before I had amassed quite a bit of debt. I’m slowly but surely working on paying this off, but it will take some time.

    Fiat currency is money that is backed by the government and not by gold, silver, etc… It’s worth is found in the government’s guarantee of its worth and not in its intrinsic value (like that of gold). In 1971 all countries moved to fiat money and moved away from the gold standard.

    The gold standard was disadvantageous in several ways. The main being that when a country had a trade deficit and gold left the country, recessions and unemployment often occurred to balance the economy. Fiat money was implemented as a solution to this problem. It allows the government to manipulate the monetary system in order to avert recession. Yet there is a hidden tax upon those using a fiat currency. As the government prints more and more money, one’s income and savings are eroded by inflation.

62. on 29 Sep 2008 at 9:56 pm62Jen

    Hi, my name is Jen and I’m a 15 year old junior (I hope I qualify) with parents that are very financially unsavy.

    Going back to the argument over whom is responsible for the education of adolescents I believe that teens should educate themselves if no one else does. Take responsiblity! The economy is a tricky place but that doesn’t mean that you should cruise (or I guess not cruise) by in a state of ignorant “bliss”.

    Say we gave teachers responsiblity, when would this be? As insanely busy high school kids or naive and uncomprehending middle schoolers whose main source of income is their five buck allowance?

    If we did force this upon teachers, when would this class be? If the government forced another class onto my already very busy schedule I would be irked not grateful for the forced fiscal education. I would rather research on my own time and murk things out independently (which is what I currently am doing). Parental responsiblity is more feasible, however, sometimes parents might be the worst example (cough cough, like mine). Let that be a lesson in itself though, never make the same mistakes! I guess I was just mildly irritated that no one thought that someone could educate himself or herself. Maybe I won’t be that succesful at first, but that doesn’t mean that I should try because my parents and shool have yet to teach me. I refuse to wallow in ignorance and make excuses in later years as to why I failed. It isn’t anyone elses responsiblity to teach you, if the opportunity for an education doesn’t come knocking, go out and find it! Read a few articles on finances and learn from others experiences.

    Wow, that was both angrier and longer then I expected it to be.

    Thanks for reading the humble opinions of an inexperienced fifteen year old!

63. on 29 Sep 2008 at 11:16 pm63Zack

    Hi all!

    My name is Zack. I’m a 23-year-old grad student in Information Technology. I’ve spent the last five years in school, but through a combination of scholarships and money earned in part-time jobs and internships, I’ve made it through with no debt, with the exception of a couple thousand dollars to my parents. I’ll no doubt pay that back once I’ve graduated and have a Real Job ™. I’ve got only the credit card debt accrued in the last 30 days (which will be paid off tomorrow), and a reasonable savings for someone my age.

    My problem is exactly this spotless credit history - I have no basis by which creditors can judge me! I’m lucky that I am still a student and was able to apply for a student credit card, else I’d probably have the lowest-end card available. I fear that my car is on its last legs (rust == bad), and I’m worried that my lack of a credit history and the current economic downturn will mean that I’ll be denied for even a small loan (and the ability to build a history at all, go figure).

    In addition, I’m cheap to a fault. Not when I buy things - I learned my lesson about buying low quality items a long time ago - but rather when I pass up the opportunity to buy anything at all. This allows my sometimes more lavish expenditures on groceries to not push me above the relatively low amount I bring in.

    Anyway, I read through the majority of comments thus far, and I found many of them to be interesting. I’d like to point out one key thing that was missing from the discussion about teaching finances in school. While it’s true that teachers don’t spend a lot of time stressing finance as an important part of life, perhaps this is due to external forces placing more emphasis on other aspects of school. This comes not just from parents (”MY kid should be learning THIS and who are YOU to say otherwise?”) but also from the government (No Child Left Behind-related standardized testing anyone?). If we could get off of this “everyone knows better than the teachers” kick, I think our kids would be somewhat better off. That is, until parents decide to stop pretending to parent with TV, sports, and a general attitude of “I’m ENTITLED to certain privileges.”

    But getting down from my soapbox…does anyone have any insight on how a young person might invest and/or build a credit history in the face of the economic nosedive we’ve found ourselves in?

64. on 30 Sep 2008 at 3:11 am64Kal

    Hi, I’m Kal a British native who is on the road to get back to school! I would like to begin by expressing my disappointment with those in power not being able to get a rescue package that’s right for the people and right for this critical moment. Believe me; over here we are feeling the trickle effect of what is essentially a global economic problem.

    Well inflation to me is an increase in the price of a basket of goods and services that is representative of the economy as a whole. I would say those who suffer in the short term are organizations and individuals that owe a hell of a lot of debt, namely the US government (although, the debt will still exist). On the opposite, those who benefit in the short term are countries with high inflation rates such as Russia whose money supply stands at the 50% mark and who are rearming themselves, and acquiring assets around the world.

65. on 30 Sep 2008 at 3:24 am65Jenny

    I’m a 33 year old Finnish young lady who graduated over three years ago and who is now in my dream job (well sort of) and with zero student debts (other liabilities is a different story)!

    My 2 cents about who or what causes the boom & bust effect of our business cycle is that it is down to central banks (ECB, Federal reserve) meddling with interest rates cause booms and busts we see in our economy.

66. on 30 Sep 2008 at 3:28 am66Pham Duy Nguyen

    hey it’s me again

    i have to say i totally agree with Drew that your contest makes it too easy for people to copy+paste things from wiki/britanica/google, maybe some open questions would have been better

    so what i’m going to say next is actually from one of my friends’ story. you see, his old parents rely on stock dividends for their income, but what with the financial situations these days are, they’re becoming more and more concerned with their retirement solution. personally, i think that they could sell some shares and live well for now, even if that means they would gain less (much) later on. i know it sounds selfish and all, but you all know what age we’re living in. any better idea for my friend?

    as much as i agree with teaching young children about finance from the young age, i’m afraid the environment around them may lead them the other way. face it, everything the teenagers watch on TV these days all convince them to buy more and more. decades of advertising have led us to the point when buying and showing off expensive stuffs makes you look cooler. and dont even get me started on those articles focusing on music and film stars spending bunch of money on the most ridiculous and expensive accessories. this in turns only makes the role of parents even more dire and important, as they will and must eventualy become their children’s ultimate guide on all things financial. i consider myself very lucky to come across blogs like this because they’ve helped me so much on preparing for life after graduation. but something must be done to make it a standard, that every man and woman going into adulthood must know how to manage their own money, just like they know how to count and spell.

67. on 30 Sep 2008 at 3:57 am67Matt

    Hello all, I’m Matt. I’m a 24 year old graduate student with about $50,000 in student loan debt. I think the main problem with people my age and finances these days is a lack of financial knowledge for some and artificially high expectations for others.

    I knew about loans and interest and keeping a budget, but how many people got fed the line “Money is no reason not to go to the college you want” in high school? Bottom line-of course it is. I could have picked a much less expensive school and done fine in my undergrad program, but nope, I had to dig myself a hole. I got a good education, but not necessarily better than I could have received anywhere else.

    This mentality, coupled with a lack of understanding about debt, has pushed several families to the brink of disaster. High expectations drive people to buy the biggest house and the most expensive cars they can under the false premise that they somehow “deserve it”, and lack of proper financial knowledge results in them charging it all at 17.9% and making the minimum payments.

    We not only need a school level focus on the basics of finances, we need a society-level education on setting expectations proper to your conditions.

68. on 30 Sep 2008 at 4:00 am68C David Dent

    My name is David and I am 44 years old. I am a programmer for the USNA in Annapolis. I am married with no children. It took me about 10 years to get to a financially stable position after being completely destitute and homeless (from 1990-2000). Along the way I managed to avoid declaring bankruptcy, I am now up-to-date on my taxes and have even managed to repair my credit to the point where I can afford to own two homes.

    I don’t have any magic nuggets of wisdom but I’ll share the philosophy that helped the most. I didn’t “obsess” over not having money. When I realized that my constant worrying about money meant I wasn’t managing it effectively I created a mindset that allowed me to focus on the things that needed to get done instead of my lack of cash.

    Free Markets. Define a free market economy.
    What causes ‘booms’ and ‘busts’ of our business cycles, and is the United States a free market?

    We largely have a free market in which the price of goods and services on the market is controlled by the forces of supply and demand. However, increasingly, interference on the part of the government in the management of prices in the interest of “fairness” or subsidizing certain industries (such as farming) to protect them has led to an artificial market.

    Artificial markets have natural cyclical “booms and busts” flattened or managed to prevent crashes and shortages. And while I don’t think that the US has a completely closed market (where the government sets the prices arbitrarily and controls production to prevent fluctuations) it isn’t completely ‘free’ either.

    Boom and bust cycles are common - especially in regards to commodities - because the raw supplies are subject to external and generally uncontrollable forces. Oil production, an example of a market that is artificially controlled, is impacted by wars and weather.

69. on 30 Sep 2008 at 5:45 am69Jennifer Lynn

    Pham Duy Nguyen, I’ve always been fascinated by how media can psychologically manipulate. (If you don’t have this product, you’re not happy enough, beautiful enough, etc.) We are constantly bombarded by advertisements and images of perfection because sellers are clever enough to know, if they can convince consumers we need their products and services, they stand to make big money from it.

    And speaking of psychology - how can one mentally convince another that an inherently worthless piece of paper has value, as in the case of fiat currencies? For those of you who have traveled, have you ever felt as if you were holding ‘play’ money or ‘monopoly game’ money when you visited a foreign country and converted to their currencies? Did it feel strange and not real?

    Let’s say I’m a Queen and you are all living in my kingdom. Each year I demand payment from each of you who works within my boundaries in exchange for the protection my kingdom provides. Let’s call this “income tax” and the only thing I will accept for payment is bananas. So I set one rule - if you don’t pay me a portion of your wages each year in bananas, I will have you thrown into my dungeon.

    Mentally would bananas suddenly have more value to you? What do you think?

70. on 30 Sep 2008 at 6:59 am70Becca

    Christine: No, I haven’t seen the movie. Actually, my roommate is getting her PhD in Econ right now and she said that all of the theories used in undergrad are obsolete now–none of what we learned then is actually used in research now.

    Friedman had a bunch of books published, too–smaller ones that run for 5 to 15 bucks new on Amazon. You may get a kick out of reading them, I’d buy one or go see if your library has them or can get them through Inter-Library Loan.

71. on 30 Sep 2008 at 7:33 am71Million Dollar Journey

    Great giveaway Jennifer. I happened to stumble upon this post and I thought I would contribute.

    I am the blogger behind Million Dollar Journey. I turn 29 later this year and we have gone from being $50k in debt in 2003 to a net worth of over $300k today.

    Inflation is caused by the increased cost of consumer items. Higher inflation is generally bad for regular folk as it means less value to their savings/retirement income. Higher inflation also typically means higher interest rates, which can translate to a stronger dollar.

    I would get into the others, but they seemed to be answered well in the comments above.

    All the best!
    FT

72. on 30 Sep 2008 at 8:37 am72Ryan

    Interesting website and discussion!

    I am not poor, broke, or in debt at all- although I most certainly was while working my way through college (4 degree’s).

    I have a few comments I hope that will add to the conversation.

    1. Poor or in debt is a current situation and like nearly every other situation can be remedied in the future (death and imprisonment are notable exceptions!). The 1st step is to realize what caused your situation and then how to rectify that problem.

    2. Teachers are there to show you valuable and needed knowledge from a more trustworthy source, it is not the parents obligation to be master of every field but your teacher has been (hopefully) instructed in the correct methodology on the subject fields they mentor on.

    The family should ensure the child is given the best possible teachers and must re-enforce the knowledge and work given to the child when outside of the teachers care. Teachers are there to give proper instructions and the family is there to enforce the child’s learning/progress.

    Any argument favoring one side (teacher/parent) fails as both sides must be given the same attention in order to achieve the base line achievement/success. Instruction without repetition greatly reduces the capacity to retain and understand.

    3. I understand the anger/sadness of US citizens about government and the problems of economy. But the problem is actually created and continued by citizens/consumers actions. Simple economic principles dictate a majority of our economic changes; of which consumers control the vast majority (in fact it can be argued that government at best can only influence never control economic change). To put it simpler what you do on a daily basis is magnified by quantity (you and many others do same thing), so when you act in a greedy or self centered manner you are part of the mass doing the same. If you chose to falsify income statements for tax avoidance reasons you are greatly damaging the entire economy!

    I would propose that a majority of people complaining about the economy are the reason for the economic woe. Case in point was mentioned above- when you see others moving into homes of high value you know you cannot afford and enter into a risky loan in order to follow suit- well you can pat yourself on the back for the proposed 700 billion dollar buy out plan. Not only do you fail to hold onto that nice house, you ruin your credit, reduce the amount of credit a bank can loan out, increase taxation to cover the debt covered by the government/insurers, and reduce the housing markets profitability/affordability.

    Yes all from one persons desire to have something they cannot afford. All though one person doesn’t destroy the economy the fact of others making the same leap of faith adds up quickly (it took all of 4 years to ruin the US economy and global banking).

73. on 30 Sep 2008 at 8:38 am73Ryan

    On the note of mass media- I work in mass media, I reach over 84 million people a month through just one of the 4 marketing channels I oversee.

    I do not create a need through marketing, I emphasis a need. This is a key difference! I do not create the urge for you to own a cell phone, I emphasis the need to own a specific one. The original need comes from a multiple of personal feelings- marketing exposes basic human reactions to specific stimuli in order to (hopefully). To counter a previously mentioned mass media complaint.

    We do not make you feel fat or ugly , smart or dumb! The purpose is to emphasis our product by targeting messages that people who already feel fat,dumb, stupid, etc would react to. You already feel unhappy about yourself, the marketing merely brings this out more in hopes of causing you to react in a positive manner to their goal (sell you stuff)

    So yeah I feel bad for people who think they are fat when all that matters is are you healthy- but marketing did not make you feel fat, marketing just presented a case for ourselves that you can relate to.

74. on 30 Sep 2008 at 8:41 am74Ryan

    Much love to your website and this discussion- please don’t enter me into the contest, I just wanted to contribute to the positive comments.

75. on 30 Sep 2008 at 9:07 am75Sally

    Hi, I’m 23 and I work in customer service. I have about $17,000 in student loan debt - down from $28,000 this time last year. I was even unemployed for four months in the past year too - what can I say, I’m very focused about my goals. Paying off loans seems like a stable “investment” in these scary time - unless the system collapses to the point where I don’t have to pay them back anymore, in which case I shouldn’t spent the money on frivolous crap while I could, right?

    I’ve actually been thinking about fiat currency a lot lately, though I didn’t know that was what it was called. I don’t think it’s such a fixed distinction - this is fiat currency, this is not. I think it works on a sliding scale, because really… how useful is gold? Not very. Almost all its uses are commercial or social, and very few are utilitarian. In case of zombie apocalypse, something like a jar of peanut butter or a loaded shotgun is far more useful than a gold brick - unless you come into contact with a fellow survivor who may be willing to trade for it in the hopes it will regain its value if society rebuilds. So, gold functions as currency not so much because of an inherent value or usefulness but because of a social agreement. It works the same way for many commodities, really. What is its appraised value? What is it worth to you? In some ways we’re closer to a barter/trade system than a lot of us think.

76. on 30 Sep 2008 at 10:42 am76Darrel

    Hi my name is Darrel; I am a 28 year old restaurant manager for a large national casual dining chain, who is married with 3 children. I have been married to my wonderful wife for almost 9 years now. Our daughters are 9, 8, and 5. We purchased our home 3 years ago come December.

    When we were working with our mortgage broker they pushed very hard to get us to take an adjustable rate mortgage, I told them I would go somewhere else if they couldn’t do a 30 year fixed. When we closed on the house, they gave us loan papers to sign and thank god I read them because they were for an adjustable rate mortgage! They of course apologized and made it out to be a big mistake and got the right papers in 15 minutes. I feel for the people who were tricked in to these arms, but if you don’t read what you’re signing you get what you deserve.

    I have been investing 10% of my income since I was 16 years old. Over the course of the last year I have lost about $10’000 U.S dollars in the market. In January when stocks were hitting new lows, I took a risk and raised my 401k contribution from 10 to 15%. I figure if we have a great depression I’m screwed regardless, if not then I buy low and have 40 years to hold on to the stock hopefully. We do ok, we aren’t rich by any means but we make do. We have 3-6 month food storage and we use a rain barrel system to water our lawn and garden. The rain barrel can be used for drinking water if it came down to it. We planted our garden for the first time this year and we have been overwhelmed with how well it’s done. We grow 3 different kinds of tomatoes, cucumbers, bell peppers, green beans, and carrots.

    This is the 3rd Federal Reserve system in our history. The history of the Federal Reserve is all over the internet so I will provide a link to save time. http://en.wikipedia.org/wiki/Federal_Reserve_System
    It was started on the eve of the Second World War and contrary to popular belief was started to finance the first world war…IMHO. The Federal Reserve is a privately owned corporation that regulates the movement of money and sets interests rates in which banks and institutions can borrow money. The Federal Reserve was drafted by Carter Glass and H. Parker Willis. There was a firestorm of controversy about it but it was passed into law December 23, 1913.

    Fiat currency is not backed by anything except the good word of the government issuing it. Fractional banking is the rule that a bank can lend out so many times the current money they have on hand.
    Inflation is caused by the loss of value or spending power of a currency. No one really benefits from inflation, not in the long term.

    Boom and bust are usually the result of a group of investors or a company taking advantage of an opportunity to make money without any concern for the general good, and the bust is when it catches up to them.

77. on 30 Sep 2008 at 12:08 pm77Jennifer Lynn

    Thanks so much for contributing, Ryan. I’m really enjoying everyone’s comments!

    Many of you have mentioned controversy in regards to the Federal Reserve Central Bank but do you know why it might be considered controversial? It indeed seems to be shrouded in mystery.

    Since Wikipedia has been used as a source numerous times in other comments, I’ll go ahead and use it as well.

    If you look in Wikipedia under “Jekyll Island” and “Jekyll Island Club”, it says,

    Planning of the Federal Reserve System

    Jekyll Island was the location of a meeting in November 1910 that may have hastened the creation of the Federal Reserve. Following the Panic of 1907, banking reform became a major issue in the United States.

    At the end of November 1910, Senator Nelson W. Aldrich and Assistant Secretary of the Treasury Department A.P. Andrews, along with many of the country’s leading financiers; who together represented about one-sixth of the world’s wealth, arrived at the Jekyll Island Club to discuss monetary policy and the banking system, an event which some say was the impetus for the creation of the Federal Reserve.

    Senator Nelson Aldrich, (R-RI) the chairman of the National Monetary Commission, went to Europe for almost two years to study that continent’s banking systems. Upon his return, he brought together many of the country’s leading financiers to Jekyll Island to discuss monetary policy and the banking system.

    On the evening of November 22, 1910, Sen. Aldrich and A.P. Andrews (Assistant Secretary of the Treasury Department), Paul Warburg (a naturalized German representing Kuhn, Loeb & Co.), Frank A. Vanderlip (president of the National City Bank of New York), Henry P. Davison (senior partner of J. P. Morgan Company), Charles D. Norton (president of the Morgan-dominated First National Bank of New York), and Benjamin Strong (representing J. P. Morgan), left Hoboken, New Jersey on a train in complete secrecy, dropping their last names in favor of first names, or code names, so no one would discover who they all were.

    Forbes magazine founder Bertie Charles Forbes wrote several years later:

    “Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance.

    I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written… The utmost secrecy was enjoined upon all. The public must not glean a hint of what was to be done.

    Senator Aldrich notified each one to go quietly into a private car of which the railroad had received orders to draw up on an unfrequented platform. Off the party set. New York’s ubiquitous reporters had been foiled…

    Nelson (Aldrich) had confided to Henry, Frank, Paul and Piatt that he was to keep them locked up at Jekyll Island, out of the rest of the world, until they had evolved and compiled a scientific currency system for the United States, the real birth of the present Federal Reserve System, the plan done on Jekyll Island in the conference with Paul, Frank and Henry… Warburg is the link that binds the Aldrich system and the present system together. He more than any one man has made the system possible as a working reality.”

    http://en.wikipedia.org/wiki/Jekyll_Island
    http://en.wikipedia.org/wiki/Jekyll_Island_Club

    Is the Federal Reserve indeed federal as the name implies? I looked up the Federal Reserve in my local phone book and it’s listed in the white pages instead of the government agency blue pages.

    So is the Federal Reserve Central Bank private or public? Is it both? Could this create a conflict of interest?

78. on 30 Sep 2008 at 12:24 pm78Mimi

    I’m 35 and married. We were doing fine financially, saving, paying our credit cards off every month. Until my husband was hurt at work about 8 years ago. It was quite a challenge to rebudget from two incomes down to one and keep a roof over our head. We did it. But our credit hasn’t recovered yet. We are slowly paying off the debts we incurred in the durring the first 2 years of his recovery. We do have a little savings, about $2000.00 not including my IRA. Which I’m proud to say I never stopped contributing to even during the worst of times.

    These global financially uncertain times are making me concerned that everyone will have to learn the financially frugal lessons I had to teach myself.

79. on 30 Sep 2008 at 12:25 pm79Jimmy

    Hi my name is Jimmy, I’m 22 and I’m an electrical engineering student with about a year left. I almost fully support myself with a co-op job every other semester, a part-time retail job when I’m in school and financial aid money. When I graduate next fall I will have close to $25k in student loans. Other than that I have no debt. I do have 3 CC’s, but I only keep 1 on me. I like the rewards points.

    As far as what everyone has been talking about with personal finance being taught to children and teens, I had parents that I learned fairly well from. My first job was at age 12 reffing soccer. I loved working and making my own money and always saved it. I saved it because I liked to buy things. Big, costly things. Usually I didn’t think twice. If I wanted it I saved and bought it. I remember a few things I bought and most of them were sold a few years later for a fraction of what I paid.

    I wish someone would have told me 10 years ago that college is expensive and paintball guns get old, lose their value, and require more money just to enjoy the hobby.

    I believe the school system should do a better job in educating students about economics. In highschool I had a 9 week long economics class and all that I remember from it was the teacher stressing supply and demand. Seems like that was all we did. The school system needs to teach more about the value of a dollar, debt, credit cards.

    Hope this kind of made sense.

    Jimmy

80. on 30 Sep 2008 at 12:40 pm80edgar

    Hi, My Name is Edgar Gonzalez I am 27 years old with 2 kids and a wife and currently living in Orange County, Cal. and its hard financially. I grew very poor never had many toys to play with, and being in this economy I feel bad not being able to buy my kids what they want.

    I think every parents wish is to see their kids grow up and live a better live than you did.

    My oldest kid will be 7 years old it would be great if I could give her a lap top to help her with her education.

    Inflation:

    The entire economy needs money so they raise the price and every thing is so expensive and our money remains at the same value.

    Debtors gain and we Tax payers have to pay for it. People living off a fixed-income, check by check at the end is us who suffer.

81. on 30 Sep 2008 at 3:11 pm81Gareth Cook

    My name is Gareth Cook, I current go to Moorpark community college and am going to be majoring in Economics. I am 20 years old and current I quit my year of 14 months to go back to school as a full time student. I have saved up a lot over the last year because more than anything I want to invest in the stock market and possibly make a career out of it. I currently have $7500 in the stock market with Zecco and up 5.25% for the year so far and about $2200 in a loan that I gave a friend of mine which pays me back about $100 each month and a checking account currently with about a few hundred dollars. I do find myself struggling financially because I don’t think I am getting as much bang for my buck that I could be, I have switched online stock brokers a couple of times still not knowing which is best and the same goes for savings, I so far like ING Direct CD’s rates but in the event of a death the money would go to my state because they won’t allow beneficiaries. So I’m still trying account out there and so far always running into dead ends with different offers.

82. on 30 Sep 2008 at 3:21 pm82gon

    Hello, my name is Gonz and I´m from La Paz, Bolivia. I am 21 years old and I am a medicine student. I guess almost everyone understands that medical education is one of the most expensive trainings nowdays, even in this side of the world. And yes, I am in a hard financial struggle to get the professional life straight.

    Bolivia is a South American country, and like most of the third world countries the Per Capita Income is roughly 900 US$ a year. On that budget, it is impossible for anyone to afford a laptop computer, oh yeah, those are luxury items here. Just like German sport cars.

    In fact, education happens to be a luxury as well, knowing that I have to put together 25.000 US$ a year to pay for my medical training.

    Also, Medicine school is a full time job, so that I cant have a part time job, it has been proved impossible to be physically located in two different places at the same time, even though my thoughts are in a whirl, looking for ideas to get enough money to keep on studying, eating and living.

    On the saving topic, I remember having a Bank Account, which I emptied to buy one of those fancy Nikon DSLRs, yeah, photography is my passion, I have been reading a lot and I educated myself on photography, if anyone is interested, Flickr is a great learning community.

83. on 30 Sep 2008 at 4:49 pm83Bridget

    Hey everyone. My name is Bridget. I’m a 20 year old college freshman (second semester) at a local community college. I’m a Liberal Arts/Humanities major for the time being, but plan to transfer to a four year university after three more semesters. My intended major is Journalism, but I suppose English would suffice. The 4.0 GPA that I earned last semester led to me getting accepted into an English program at a somewhat-local university, but I’ve opted to stay at my community college a bit longer.

    Financially, I’m just barely making it. I’m unable to work more than a few hours per week (as a bus aid for pre-school aged children) due to a botched spinal surgery and a chronic pain condition that I developed because of the surgery. Because of this, I’m forced to live on $60 a week, sometimes less. As a commuter student, $40 automatically goes towards my car’s gas tank each week, leaving me with hardly any money left over. I live with my parents, which is a huge blessing, but I find myself having a hard time affording basic things like notebooks for college or new clothes as my old ones start to fall apart. Things like haircuts and makeup are simply out of the picture.

    My savings consists of roughly $100 that I’m trying really hard not to touch. I may need it in the event of a flat tire or some other unforseen expense. My current laptop is almost four years old and has a busted fan. The kicker? I -just- had a new fan installed about a month ago. I think my laptop just wants to kick the bucket, but I desperately need it to last until I can afford (or win!) a new one.

    As far as debt goes, I’m lucky enough to have none. I get a good amount of financial aid each semester, and my parents help me make up the difference. I pay for my remaining tuition, while they cover the cost of my books. Right now, I’m kind of warming up to the idea of taking out a small student loan for next semester. With heating costs, taxes, and other bills, my parents are having a hard time saving money for my college expenses. I think a loan is inevitable at this point, but I’m fortunate to have not needed one for my first two semesters.

    There seems to be a lot of discussion about who should teach us financial responsibility, so I’d like to throw in my two cents on that topic. I feel that parents SHOULD teach us how to save and be frugal when necessary, but not all parents do a good job of this. My parents have hidden their financial problems from me (at least $20K of credit card debt, possibly more, on top of car loans, personal loans, and their mortgage). Finances have been the black sheep of the family, so to speak. I’m not even sure that my father knows the full extent of his and my mother’s debt, because my mother is in charge of their finances. I don’t believe he knows how much credit card debt there is. Clearly, my parents dropped the ball when it came to setting a good example for me and making sure I knew how bad credit cards can be. They also have practically no retirement savings, and they’re within 4 years of retirement. Pretty scary.

    Luckily, I’ve had teachers over the years, including one current professor, that were able to teach me and my peers the importance of saving and living within our means. I don’t care about having name brand clothing, flashy cell phones/ipods/what-have-you, or anything of that nature. I proudly live within my means, even though it’s difficult on a budget of $60 a week. If my parents had done the same thing, they would have set a much better example and they would likely have less debt and perhaps more savings.

    I hope I’ve sufficiently added to the conversation and provided a good picture of my current situation. Like all of you, this laptop would mean more than I can put into words. Will not winning it mean the end of my college education? No, but the convenience of having a laptop and being able to do homework from bed when my back is bothering me is priceless.

84. on 30 Sep 2008 at 6:20 pm84Christopher Stavish

    Hi, my name is Chris and I am in desperate need of a laptop for school. With the cost of books, food, and housing there is no way I will ever be able to afford one. Winning this contest would be such an amazing opportunity for me to have the type of computer I need without going into debt! With that said, below is an explanation of the Federal Reserve for those who are interested. Thanks.

    The Federal Reserve (Fed) is the central banking system of the United States. A central bank, put simply, is a government entity responsible for stabilizing their nation’s economy through the use of monetary policy. Congress created the Federal Reserve System in 1913 when President Woodrow Wilson signed the Federal Reserve Act; this established the Federal Reserve Note as the new currency of the United States and required all nationally chartered banks to join the Federal Reserve System. However, it was not until almost a year later that the actual boundaries of the twelve reserve districts were determined and the Regional Banks were established. The Fed was created with the purpose of instating a more secure, more elastic, and more stable economic structure in the United States. The primary functions of the Federal Reserve are to regulate member banks, make loans to banks, and conduct monetary policy.

    STRUCTURE

    The Federal Reserve System is a fairly simple structure which is composed of select individuals and institutions. The Fed can be broken down into four segments:
    • The Board of Governors
    • The Federal Open Market Committee
    • The Federal Reserve Banks
    • Member Banks

    MONETARY POLICY

    It is the job of the Federal Reserve to help the United States maintain a stable economy, and to steer our country in a positive direction during difficult financial times. In order to perform this task, the Federal Reserve uses three main tools of monetary policy that affect the money supply. These tools include open market operations, changes in the discount rate, and changes in the reserve ratio.

    CONCLUSION

    The Federal Reserve is an integral part of the American economy and is present in our everyday lives. From the interest rates that banks charge the public to the entire American money supply, the Fed possesses tremendous financial power. The Fed’s use of the monetary policy allows the economy to be controlled and set at a certain pace. Therefore, as long as the Federal Reserve is in place, the American government has a means of stabilizing our economy when the market is subject to severe volatility.

85. on 30 Sep 2008 at 7:01 pm85Elena

    Hi, my name is Elena, I am 23 years old. I graduated a year and a half ago, and am working in IT. I have no student debts, thanks to having a scholarship all the way through university, and also due to education being cheaper here in Australia. I do have a credit card, but I always pay my balance off at the end of each month, and I’ve never paid a cent in credit card fees.

    I’ve only started taking an interest in finance and economics very recently. Until a couple of years ago, I’d always considered finance to be very dry and boring - perhaps starting work was what finally changed my mind, once I realised that I knowing more about finance would translate into having more money in future! My parents taught me very little about managing my finances. I had an allowance from around age 9, which taught me the basics of saving for what I wanted, but I got almost no financial education beyond that. That’s something I certainly plan to do better on if I ever have children! I think the key to childhood financial education is to make finance sound interesting and relevant. If I’d realised in high school that finance wasn’t just number crunching and formulas, but something I personally could use to get more money, I’d have been far more interested in learning about it. Perhaps a good way to start would be to, once children are old enough to understand the maths behind it, get them a high-interest savings account, so they can start learning about using compound interest to increase their savings.

86. on 30 Sep 2008 at 7:04 pm86Michele P.

    Hi! My name is Michele and I have a hubby and two kids 15 and 6. I work for a nonprofit agency determining if our clients are eligible for the federal LIHEAP fuel assistance program. It has been a very busy year, and we are expecting double the amount of clients this year due to fuel costs and home heating costs.

    I grew up poor, not dirt poor, but it was a struggle sometimes and while I could have worked during my high school years my mother expected me to get my education first. Of course, I graduated in the top 10 of my class, but college wasn’t an option-since once I graduated I had to work to help out with my mother and grandmother. Needless to say, growing up wanting stuff didn’t help once I got out into the real world, I wanted everything. And I got it. Along with debt. I am in debt now, but I have a plan to get it paid off. I have, unfortunately, made mistakes in financial planning and now am paying the price. My mom never really talked finances to me, and I never asked. Did I expect my teachers to tell me all about financial planning? Nope. Although I do see where there is a class now that my son has to take called Career Planning, which prepares kids in high school for the future, as they pick a job, etc… kind of like the game of Life, and see if they are able to survive based on their choices.

    Unfortunately, based on some of my clients coming in-their parents have never told them about financial planning and setting some aside for a rainy day (to pay their light bill, fuel bill) and they expect the total costs to be paid for by our program. They often get quite upset when I mention our program is a supplement, and not meant to heat their homes for the whole winter. These clients found out the hard way, not through teachers or their families, that they need to make responsible choices or suffer the consequences. In this case, pay the bills, set some aside for the bills or get disconnected or no more deliveries.
    Considering the state of the economy now, our own lawmakers, bankers etc… didn’t think ahead either. And look at the consequences.

    We have some clients that pull the same thing every year, and we have some that have learned from their experience and take steps to plan ahead. Some of our best clients are the elderly. Because they have the philosophy of make do with what you have. And they saved for a rainy day. And they are the most prepared. If everyone followed their way of thinking, and made do with what we have, established a security net for emergencies, and stopped living check to check (of which I am very guilty of!) things would be better-and we could splurge occasionally.

    I learned from no one-except myself. The good, the bad and the ugly, I have been through it all. While I can’t promise I will always stick 100% to my plan, I am learning through trial and error what works and what doesn’t. So I pretty much feel that you have to learn on your own, you can be guided or influenced by family, friends and teachers, but you ultimately-are responsible for your own actions.

87. on 30 Sep 2008 at 7:24 pm87Michael R Wolski

    It seems to me that the federal reserve bank is not entirely federal. If “numerous private U.S. member banks” are under this ‘federal reserve’ mantra, then my understanding of what is federal, state, and private is all mixed up. I do think it’s good that private banks are involved though. Our economy is a collaboration of private, commercial, and government entities. Our money system should be, and is, a collaboration as well. It’s good that private and commercial business helps steer the federal reserve system. Without listening all around, I don’t think our dollar would hold any value. The government can’t just say “Oh here’s the value of our dollar and if you don’t like it… whatever.”

    This is my understanding and I’m not sure if it’s correct, but I hold this ‘were all in this together’ idea for our economy. Anyone else’s thoughts?

88. on 30 Sep 2008 at 7:27 pm88Michael R Wolski

    Oh also here’s a little information on my status.

    I am a sophomore at Penn State University. I attend the main campus at University Park and am majoring in Information Science and Technology. I am 19 years old and currently have a part time as a server for the Sherwood Oaks retirement community. My job is actually back home near Pittsburgh and I only work whenever I either visit back home, or during extended breaks.

    Financially I believe I am in good standings. I do not have any other debt besides student loans. I always try to keep a couple hundred dollars in my primary checking account and I have a few thousand saved in a savings account. However I am banking on the fact that I will get a good job post graduation to pay off my student debts. Sometimes I worry whether or not I will do well, but my grades are very good and I am only a sophomore.

    Haha… kinda a copy and paste because I had a Word document I was writing up to submit to your contest :-p

89. on 30 Sep 2008 at 7:28 pm89Michael

    My name is Michael, I am 23 years old, married, and recently graduated with a degree in Civil Engineering. My wife recently graduated with a degree in Elementary Education. In all we have right at $100K in student loan debt. We also recently purchased a house that we doing much needed renovations to it. (We like to say “investment” instead of “house”.) Despite the enormous debt, we are eliminating huge chunks of it each month usually a modified snowball effect.

    Ever since graduating in 2007 I have been on a mission to learn about several different financial topics regarding investing, taxes, business, cash management and so forth. I was amazed with how much I did NOT know. Even more though, it was sad to realize that none of this information was even spoken of in high school. I know that without some of the knowledge that I have obtained since starting my “mission” has prevented me from being “lost” when it comes to personal finances and investing. I also know that I have several high school classmates who are struggling financially because they never learned to balance a checkbook, use a credit card responsibly, or prevent themselves from “getting screwed out of a deal” when making a large purchase. They are hurting themselves even more by not even saving any bit of money to invest or put away in an emergency fund.

    I have spoken to some of these old classmates and have offered my advice; some have accepted and others have turned their head. This has lead me to several personal goals that I am going to attempt to achieve over the course of my lifetime. There are too many to list, but they all lead to one common goal: Implement into the Indiana high school curriculum a semester long class that explores financial matters regarding personal finance, cash savings, long-term investing, inflations, and other “hot topics”.

    These goals are very, very lofty but it is my hope that community and school support will back a curriculum of this nature.

90. on 30 Sep 2008 at 7:53 pm90Doug

    I live in California and retired a few years ago at age 50. Financially (compared to statistical averages) I am doing fairly well.

    The move to defined contribution retirement plans (e.g., 401Ks, IRA, 403Bs) from defined benefit plans (pensions based on years of service, etc.) will cause many people to be shocked as they approach retirement age. In the old days, you could get to a certain age, just retire and continue to get a ‘paycheck’. Now, most people need to consciously save and allocate among asset classes during their working years, and figure out how much is reasonable to withdraw during retirement (while continuing to manage their investments).

    Not to depress anybody, but assuming a reasonably long retirement, $1 million in retirement savings can only be counted on to throw off about $30,000 to $35,000 a year adjusted for inflation. Even if your home is paid for when you retire, insurance, taxes, medical costs, food, and other non-discretionary items may eat up more than you expect.

    By the time most readers of this blog retire, $35K (because of inflation) will be worth substantially less than it is today. Therefore, most people in their 20’s will probably need to accumulate $3 million, minimum before they retire.

91. on 30 Sep 2008 at 7:53 pm91Pham Duy Nguyen

    hey Ryan, thanks for your opinion, i’ll ponder more on this before giving you my reply. i guess sometimes i can feel too criticised with mass-media

    so i was surfing the web looking for more news when i come across this:

    http://www.nytimes.com/2008/09/07/business/07ltcm.html?_r=2&ref=todayspaper&adxnnlx=1220781987-8kh2NPeipMnjRcOYG1p6yQ&pagewanted=all&oref=slogin

    they say you can’t look toward the future without looking back to the past. guess what? everything we’re suffering right now due to the collapse of multiple financial systems? we’ve been through before. back then it was too feared that “its unraveling could set off a systemic meltdown”

    and here we are again. funny how it all looks like a sin-cos graph: up and down and up and down again. however, i think this just comes to remind us how vulnerable we are. or is it because it was our combined actions that led us right back we were? i agree with Ryan’s 3rd point: our way to spending money us just so easily affected by outside forces that we may have helped paving the way for this financial crisis we’re facing. and when i said we, it’s not just the US people, but people all aroung the world too. i guess it’s just in the human’s nature

    back to the teaching discussion:
    The OECD’s ranking of high-school students’ math skills (www.nces.ed.gov) shows the U.S. lagging behind just about every other industrialized country. And the questions posed on the exam aren’t obscure calculus questions — they focus on practical math issues like calculating interest rates. The country’s education system is failing to teach its citizens basic principles of math, which is why they don’t understand why it’s bad to get a variable-rate mortgage, or to not pay off their credit card every month.

    i know it seems i only tackle these academy questions and not showing any of my own financial experiences. well truth is since i’m still a sophomore students, my experiences are not that much to show here. all i can do is keep reading and preparing myself for life after graduation

92. on 30 Sep 2008 at 8:14 pm92Jennifer

    Hey, my name is Jennifer. I am a 24 year old grad student getting my doctorate in physical therapy. I have about 26K in student loan debt (around 38K when I’m done) and a meager $2500 in savings bonds. My parents still graciously offer me financial support for rent and living expenses.

    When I was growing up my parents told me it was all about school. It was “make the grades and get a good education and we will take care of the rest until you do.” I am thankful that because of this I will have a doctoral level degree in a relatively short time, however I now have very little experience with personal finances and no credit.

    Shortly after I graduated from undergrad (with no debt by the way) I was given tickets to a Dave Ramsey seminar/event. This was somewhat awkward for me because I had no debt at the time, but knew I was about to go 35-40K in student loan debt for grad school; but I hear Dave preaching about paying your way through school, never going into debt, not needing a credit card or to worry about my credit score…etc. Although I defied him on the debt thing (PT school is hard and I honestly would not have had time to work to pay my way through school), I have yet to get a credit card. But with the market the way it is I am beginning to worry that my income (which will be around 65 to 90K when I graduate) won’t be enough to convince a bank to give me a car or home loan. I know this is somewhat off topic but does anyone have any suggestions for me, especially if your familiar with the Dave Ramsey plan?

    But otherwise, this whole fed bailout thing has been weighing on my mind. Would it be so bad to let those companies go under for their bad practices? I mean $700billion is a lot of taxpayer money, according to CNN it would more than fund the Iraq war up to this point, or pay for like 7 International Space Stations. I am not a fan of debt at all, my plan is to live like I do right now and pay off those loans within 2 years of graduation, so its really frustrating for me to think about people living above their means without fear of consequence, and executives of companies who approve those loans filling their pockets all to be essentially rewarded in the end. I mean can our economy handle just letting things take their course sans bailout?

93. on 30 Sep 2008 at 8:18 pm93Philip

    I am a sophomore at a 4-year college in St. Paul, Minnesota and am studying to become an Accountant. I am very interested in the business world and how finances affect both businesses and individuals.

    I currently have ~$3,500 in savings. $100 of that I am using to experiment with the stock market and to become comfortable with an online broker. ~$200 of that I am keeping in a checking account to cover expenses–I have very low monthly expenses right now. Tuition and room&board are completely covered with scholarships, grants, and loans. I do not own car, and I rarely eat anywhere besides the dining hall. The rest I have placed in an online savings account currently earning 3.5%.

    I currently have $11,550 of student loans and expect to finish school with $30,000-$35,000 in loans. While I do not have a job right now because I am building a very strong base GPA in order to maintain my scholarships during my final two years of school once I have harder classes and have a job, because of my low non-school related expenses I do not expect any major issues between now and next summer. I just got my first credit card because it automatically came with my bank account once I turned 18, but I only plan to use it for expenses which I would have to pay anyway in order to build a credit score.

    While I have not had any formal training regarding fiscal responsibility, my dad does not have a well paying job (he instead prefers to do something that he enjoys) and my mom is a homemaker. Growing up I was exposed to my parents being fiscally responsible, and it seems to have worn off. The past two months I have really begun researching fiscal responsibility and taking control of my finances in preparation for my 18th birthday.

    Edgar (#80), I am sorry but you seem to be misinformed about several aspects of inflation. I will attempt to give an explanation of inflation. Inflation is a general increase in prices across ALL goods and services. Gas doubling in price in 12 months does not mean that there is massive inflation. The housing market collapsing and housing costs dropping does not mean that there is massive deflation. Inflation is calculated by averaging the changes in the prices of all goods and all services over a period of time. This is often done on a quarterly basis. This number is then annualized, basically meaning that is multiplied by 4, in order to determine the amount of inflation if that change were to continue for the rest of a year. Inflation has been averaging ~3% over the past decade, with various spikes and valleys.

    Inflation is not caused by the economy needing money. I am not sure what you mean by “the economy”, but a common measure of the current state of the economy is the Gross Domestic Product (GDP). Since the GDP is usually adjusted for inflation, which means that when comparing the GDP now and the GDP in 2000 the values of the $’s that are compared are the same, inflation does not grow the economy in any meaningful way. Neither does our money remain at the same value; prices are rising because each dollar is slowly dropping in value.

    There are many causes of inflation. One is the over-printing of money by the government. Another is a change in the price of raw materials. For example, if there is a drought resulting in a small crop of wheat, there will not be enough supply of flour to meet the demand for flour and the price will increase. This will cause the price of goods that use flour, such as pizza, to increase in order to offset the higher cost of ingredients. A third cause is an increase in wages: if a company gives all of its workers a 5% raise, it suddenly has much higher fixed costs than it did the previous year. In order to offset these costs the company must increase revenue by selling more of its goods or services, increasing prices, or both.

    One group that is hurt by inflation is lenders. If I were to loan someone $1,000 and they paid me $1050 in 12 months, I would have received 5% interest. If inflation rose by 3% at the same time, my real (adjusted for inflation) return would only be 2%–a 60% drop in returns! Conversely, inflation is good for those who have to repay loans. The real value of the $50 of interest that my friend repaid me was only $20 at the time he received the loan.

94. on 30 Sep 2008 at 9:11 pm94Nate

    1.Tell me a little bit about yourself and your finances.
    Well, I was paying my way through school by doing graphic design, then my laptop got stolen along with my entire portfolio… now I’m working a 9-5 saving money to pay off student loans and replace my stolen equipment…

    2.The Federal Reserve Central Bank. Who is the Federal Reserve, what is a central bank and what is their role in our monetary system?

    Wait, isn’t that the “corporation” that owns almost all of Americas gold, and they print some paper money that supposed to represent our portion of that gold… although I don’t think its quite equal anymore

    3.Inflation. Define inflation.

    When you blow up a balloon….
    lol

    4.Free Markets. Define a free market economy.
    What causes ‘booms’ and ‘busts’ of our business cycles, and is the United States a free market?

    A free market is a place for people to go and take whatever they want from. Then once you have taken everything everyone else was giving away for free you sell it, on ebay!

    5.Fiat Currencies. What is a fiat currency, when did the United States abandon the gold standard, and why? Who benefits from a fiat currency and who does it hurt?

    I dunno, but I wish my wallet was Fiat with Currency!

    6.Fractional Reserve Banking. Define Fractional Reserve Banking and explain how new money is created in our banking system from credit. What would happen to our currency if everyone in the United States tried to pay off all their debt at the exact same time, and why?

    You know, on this subject I always liked the “fight club” approach, set the national debt deficit back to a big fat zero and watch things blow up while were at it… why not!?!?

    Wow, I hope I got all those answers right! or at least a laugh or 2

95. on 30 Sep 2008 at 10:20 pm95Mia F

    I’m wondering how other people are feeling about the US government bailout plan.

    Personally I’m not for it because don’t see how it can help the people, well, maybe besides freeing up credit so that more people can place themselves into more debt. There doesn’t seem to be any guarantees that it will fix the current problems, or teach anyone any responsibilities.

96. on 01 Oct 2008 at 4:37 am96Christina

    I am a 25 year old administrative assistant. I have credit card debt left over from some emergencies and some wasteful spending in college, plus student loans and a car loan. I am now working full time and getting my MBA and trying very hard to get rid of all my credit card debts (will tackle car then student loan as soon as I am done with credit cards).

    Fiat currency interests me. Basically, it means that our money isn’t worth anything other than our government’s word that it is worth something. Before, the gold standard meant that money was worth a set amount of gold. The US got rid of the gold standard in 1971 because of the strain of the VietNam war, but in 1933, FDR got rid of the American’s right to trade in their paper money for gold because of the Depression. So, financial strains caused the government to take over the value of money. Under the gold standard there was a limit on how much money could be printed, but now it’s whatever the government wants.

    Since this was brought up, I am going to admit that I know little about the bailout plan. Personally, I think if the economy is going to go down, let it. There was too much credit and not enough “real” money anywhere (which is why the fiat system interested me), I don’t see why people “need” to have credit to buy a house they can’t afford, or why companies “need” excessive credit to expand in ways they can’t support. But, I know little, and yes, something should be done so that everything doesn’t completely and totally crash and too many jobs are lost (and I don’t mean the CEOs and investment bankers, i mean the everyday middle or lower class workers who will lose jobs if large companies fail), but the news media and the government are being very evasive in explaining the real details and are focusing too much on the sensational “BAILOUT” and “RECESSION” and “TAXPAYER MONEY” sound clips instead of giving real explanations.

    My 2cents. Thanks!

97. on 01 Oct 2008 at 6:27 am97christine yoo

    OK, so i had a conversation last night about the gold standard. Long, long ago, as I am sure you all know, we were on the gold standard, which means every dollar we had in circulation was backed by gold, you could take a 10 dollar bill into the fed and say you want your gold. If you google search old money, it even says on there “redeemable for x amount of gold” they have changed that nowadays, for obvious reasons. One of those reasons is (as someone had already commented), we are no longer on the gold standard. Now, let’s think about this, if our money is not backed by gold, what is it now backed by?

    Our government’s word, that’s it, their word that they are good for it. They have the power to print more money and as we all know supply and demand, the more there is of something, the more the value of that something drops, so more dollars, less value of the dollar.

    We saw it with the Mexican Peso Crisis (1994, i know, different situation but same concept), we saw it with the British Pound (1919-1930’s). We bailed out Mexico but with Britain, their story sounds a bit too familiar. They had just got out of WWI, The Great War, they had spent money to fund a war, so their economy was in the toilet so to speak after that, remember before when i said war is like digging a huge hole and shoveling money into it, here is a prime example of this, war brings no revenue (unless you count the trade agreements and new land taken, but there are reparations and aid that needs to be given to invaded countries to rebuild, this is how WW2 started, but this is a whole other topic, i’m rambling), so back to England, sorry Great Britain, they were dependent on exports, so when The Great Depression of 1929 in the US happened, and boom, you can read more about it here:

    http://en.wikipedia.org/wiki/Great_Depression_in_the_United_Kingdom

    i don’t know how to make it a link thing but i just wanted to make the point that our money is now backed by someone’s word, our government.

    it just makes me think about milton friedman: he said no one will spend your money better than you, now think about that, with income tax and social security taken from us, taken without our consent, taken from our paychecks, out of our pockets, to give to someone (or multiple someones) to take care of us for us, now don’t you think that the 20 or so percent taken from us could be better spent if it was ours? i mean, i understand that we are not financially savvy, i can attest to it, but that does not mean we need to penalize people who have been investing in IRA’s and making savings because they know our social security system is broken.

    i know this would put people’s sense of responsibility for themselves and others in question. As a society of people, how efficient are we at taking care of ourselves? This is a question that I have been struggling with for a while now. Let’s say we take out the income tax, we abolish mandatory social security, then where does that leave the elderly who have not made savings? am i saying we leave them in the dust?

    of course not, but i truly believe that if we put that money back in the pockets of the people, they will have enough sense to know that saving that money for their retirement/investing is the most viable option, and the ones that cannot, then i do believe the government should step in to help those in need out. I know, where do we draw the line, if the government is there as a safety net, wouldn’t that promote frivolous behavior? i am unsure, that is why i am not in Washington making these decisions, because honestly, i am not educated enough or capable enough to figure out this problem. i could think of every ideal situation that could happen, but that would be contingent on many things that i am unsure of. so yes, i complain about the heavy government involvement, but i also cannot see a viable solution.

98. on 01 Oct 2008 at 8:02 am98Adam

    Hi, I’m Adam from Pittsburgh, and I’m 20 years old. I currently attend Carnegie Mellon University, which is not the cheapest school. Luckily, my parents are helping me out a bit, and coupled with financial aid, I’m able to just get by with my part time desk-job at school. Don’t get me wrong, I’m not completely broke. I do go out on occasion, or buy something that’s not completely necessary for living, but mostly, any excess income goes into savings.

    I haven’t started investing in stocks yet, and was horrified when the stock market crashed over the past 7 days of trading. My savings are still wrapped up in a couple banks, and luckily they haven’t closed down (yet).

    I am an engineering student, but I’m finishing my third economics course this semester. Economics, as you know, focuses mostly on free markets. Free markets are markets in which the laws of supply and demand always apply.

    A “boom” can be caused by several things, but most always go hand-in-hand with innovation. The “boom” in the 90’s was caused by the introduction of the internet as a popular tool for business. I think we have another opportunity for a “boom” in the 2010’s with more green energy (green collar) jobs being created every day. Green energy is a replacement good for fossil fuels. As the price of oil continues to rise, the demand curve for bio-fuels will move outwards. This is an example of free market economics in practice.

    A “bust” in our economy happens when the companies that we rely on for goods fail in some way or another. This could be caused by corruption, foreign competition, or poor financial planning.

    I don’t know. I feel like I can think of a lot more ways to help the economy, than I can think to hurt it. It’s a shame a lot of the higher ups can’t do the same.

99. on 01 Oct 2008 at 8:22 am99paidtwice

    My name is Jaimie, and I write my story at I’ve Paid For This Twice Already. I’m one of those people who don’t understand basic macro-economics and am, frankly, terrified about what is going on in the US economic system right now, because I don’t understand the long term ramifications of, well, much of anything. I’ve read the comments with interest and although I do understand some of how things work, I’m still a bit clueless about what that means as far as the mess the country is in right now.

    You’d think I was an idiot but I’m actually considered of above average intelligence by conventional standards.

    My story isn’t any different than many others - my family is in debt and we’re struggling to rectify that. If only I’d started buckling down and really working on eliminating debt a year earlier than I did, we’d be in a much better place to weather the financial storms ahead. But instead we’ve still got quite a bit of debt to go, and that’s my own personal focus. I can’t change the financial tides, so I focus on what I can change - my own risk within them.

    Thanks for invoking discussion

100. on 01 Oct 2008 at 8:55 am100Nathan

     Christine

     I completely agree with you, with the gold standard there was actually value backing ever dollar that was printed. Now days money is almost magically conjured up by wizard magicians in the form of bank loans. And yes, who owns our money now? the government. So if your saving and spending a currency that is based on a stable system of government what happens when that government fails? What happens when the economy starts failing? do they just conjure up more money and use their military to back it? Use the system of order to back the money? I don’t trust the government, that is why I spend my money on assets that actually hold their value. Like skills, property, gold, things that have physical value. Think about this, if the grid went down tomorrow and you no longer had power, running water, a steady food supply… what would you do? Grab your guns and rampage through the streets? some will. Or will you have a hidden garden and a sustainable haven to escape to? I know I will… will you?

101. on 01 Oct 2008 at 9:55 am101Danielle U

     My name is Danielle (age 25) and I graduated from college with a Bachlors in 2006. My degree is in Music Merchandising (like majoring in music and minoring in business). I thought I wanted to work in the music business until I did two internships the summer before I graduated (and I had to find the internships myself but then had to pay my college to work for both companies for free…how crap is that?) and I found out the music industry was not for me. You see, I am not a partier. I’m not a drinker, I don’t do drugs, and I don’t sleep around. And that seemed to be all these people did…and I’m not talking about the musicians…but the people who run their careers, who act like they are in highschool and most of them are in their forties at least. So, basicly I decided to finish up my degree since I was so far along with it (and I didn’t want any more student loans).

     Now I have a degree I don’t use, and am working as a bank teller part time. In my spare time, in order to make some extra money, I go to book sales and I sell the books online and to used book stores. I enjoy that quite a bit. In fact, my dad sells dvds, books, cds, and toys online. And two years ago when I was spending time with him I helped him double his income. I am pretty proud of that. I think given the right resources I could do quite well with the book sale, though as of this point…it’s more a hobby then a real sorce of income.

     As far as the economy goes, I think people would be far better off not getting so many credit cards (spend only what you have unless it is an emergency). Did you know that the average college graduate has 8 credit cards when they graduate from school? That is crazy…it’s no wonder our country is in ruins. In college, I had a friend who was already $20, 000 in credit card debt his Sophmore year in school. Just another reason I never got a credit card. I just wish colleges wouldn’t let so many credit card companies come on campus and give college students a free shirt (or some other useless thing) to get the students to sign up. I think that colleges are only enabling the debt problem.

     Money needs to be explained to children early on and continuesly reinforced as they grow up. They need to be taught how to save and how to spend wisely. Otherwise, this may not be the worst our economy gets.

102. on 01 Oct 2008 at 11:26 am102vero

     It seems like everyone has pretty much answered the questions, but I am a 22 year old about to finish college. I live in michigan and everyone knows how that is going. I do not have a job right now. Big surprise there! I really don’t have a savings going, which is something I screwed myself over with. Now that I am about to graduate, I wish I would have saved more so I can move wherever I want without worry. In high school, they told us a little bit about balancing a checkbook or paying bills, but didn’t really get into everything. I wish they would have went over it and pounded it into our heads to save a very good cushion to be able to survive, especially with our economy. I currently have 170 days to get my things together and graduate.

103. on 01 Oct 2008 at 2:18 pm103qk

     Hey, my name is Lourdes (like Madonna`s daughter), and I am studying business management.
     Inflation is a general rise in the level of prices, caused by an increase on the money supply too rapidly thus devaluing the currency, or as the Neo Keynesian theories say, if the will of buying goods is growing faster than amount of goods that have been made, then prices will go up, and, that when the cost of making goods (which are paid by the company) go up, they have to make prices higher to still make profit out of selling that very product.

     Inflation affects all sectors of the population, in different ways, for example people living off a fixed-income, such as retirees, see a decline in their purchasing power and, consequently, their standard of living, also when consumers dont know what is happening next, they are less likely to spend`, hurting the economy.

104. on 01 Oct 2008 at 4:32 pm104NSY

     As a stay-at-home mom living in the Bay Area, it is really hard to make ends meet on one income. We pretty much live paycheck to paycheck. I try to save as much as possible but it’s really disheartening when you know that that money isn’t going to be worth enough with inflation. We have spoken with a financial advisor whose only real advise was to make sure that you protect what you already have. Makes me feel like the only way to make money is to have some money to begin with.

     We are as frugal as we can–only one car, eat at home, no frivolous spending. But still…it’s tough going.

     I wanted to comment on credit card spending. I was just listening on the radio about how Americans have way too much credit card debt and how pple can have access to over 40 cards at one time and rack up debt on them all. This is amazing to me. As a non-American, I’m bemused by how easily you can get a cc here. I recall when I first came and got my first card, I went a little crazy, then got my bill, sobered up a lot realizing I had overspent, and went back to paying by cash. I now use the cc again but I’m much more aware of how much I spend and I always pay up my cc bills. Why do cc companies allow pple with questionable histories get a cc to rack up more debts that they cannot possibly pay off? Seems greedy and unreasonable to me.

     My two cents…

105. on 01 Oct 2008 at 4:35 pm105Cheryl Wade

     About myself. I am a southern almost middle-aged mother. My largest regret is not going to college. I am proud of the fact that I am the person that my office comes to when they need information or don’t know the answer but I really would like the self validation of having a degree. I have a 17 year old son who is in his final year of high school and I am giving him something I did not have the opportunity for (at least back then). He is going to college. (I just might follow in his footsteps) The laptop would actually be for him.

     I decided to tackle the Inflation question. (And I thank you for the refresher course on economics)

     3. Inflation. What causes inflation ; who benefits from inflation and who does it hurt?

     Inflation is caused by either a) a devaluation of currency or b) production cost increases.

     Inflation benefits debtors the most and harms people with fixed incomes, cash wages (tips etc) and savings accounts. It also hurts people who are locked into a sell price by contracts.

     I hope the quick and dirty answer works for you.

     Thanks
     Cheryl

106. on 01 Oct 2008 at 5:05 pm106Susie

     Hello, Susie here.
     I’m 23, and just finished up my fourth year at a two year community college. (The first two were a vocational program, but then I realized that I actually really enjoyed science and I wanted to go for the four year degree!)

     I now have enough credits to transfer to a four year school as a junior, but I am currently starting a year of working and waiting until I turn 24 and can apply for financial aid as an independent student. (The parents refuse to fill out the fafsa…) If I wait the year to get the aid, I may be able to graduate without so much debt. I can hope.

     Inflation affects me the most via the cost of renting. four years ago, I rented half of a large 2 bedroom appartment for two thirds of the cost I now rent half of a small 2 bedroom appartment. The catch is though.. My hourly wage has actually gone down since then! Now if only THAT would inflate!

107. on 01 Oct 2008 at 6:11 pm107Jonathan Wade

     I am intrigued by your first intention of the contest and I want to answer in the spirit of your question. I may not be the most eloquent but it will not be a cut and paste job.

     I am a 37 year old male living like most Americans. A little too much debt and a love for electronic gadgets.

     I chose the question regarding fiat currencies because that was a term I was not familiar with and I thought I should learn a little while I was at it.
     ———————————————————————————–
     5. Fiat Currencies. What is a fiat currency, when did the United States abandon the gold standard, and why? Who benefits from a fiat currency and who does it hurt?

     In a fiat system, money is not backed up by a physical commodity (gold). It’s worth is based on scarcity and the faith placed in the issuing body.

     The gold standard was abandoned in 1933. This was an effort to fight the severe deflation of the dollar during the Great Depression. The last tangible connection between the dollar and gold was severed by President Nixon in the 1970’s.

     As far as the benefit and harm of this type money system. I can only see the government benefiting from this fractional financial system. The people who will be hurt most are the citizens of the middle class and below. We are seeing examples daily. Costs are increasing at rates much greater than income. We have seen a 25-30% increase in the cost of gasoline which in turn drives up the cost of every other consumer good.

     Thank you for sparking my interest in learning more about this term.

108. on 01 Oct 2008 at 7:25 pm108JT Price

     I am a 17 year old high school senior. I am looking to my future and plan to go to college and major in psychology. One of my parents works for a local junior college and I will be receiving a significant discount on my tuition for the first two years. My other parent has told me that they will help me when I transfer to our local state college that has a great Medical program (if I show by my grades that I take college more seriously than high school) I plan to live at home throughout my college career and that will save quite a bit of money. My earliest lessons regarding credit cards were hearing the horror stories from my mom. She wanted me to be prepared for the credit bonanza that awaits me in college. She is a big believer in credit cards for big emergencies only.

     The Federal Reserve is the central bank of the United States. It is a mixture of government and private components. It consists of a Board of Governors, The Federal Open Market Committee, twelve Federal Reserve Banks, private member banks, and advisory councils.

     The duties of a central bank include:
     Implementation of Monetary Policy
     Control of national money supply
     Regulation of the banking Industry
     Sets official interest rate to manage inflation and the exchange rate
     Manages country’s gold reserves
     Act as the Government’s bank
     Address problem of bank panics

     The Federal Reserve Act was drafted by Samuel Untermyer a Democratic lawyer. The bill was sponsored by Senators Glass and Owen and passed in December 1913. This bill was heavily favored by Democrats with only two voting against passage of this bill.

109. on 01 Oct 2008 at 8:09 pm109Paul

     Hi,
     My name is Paul. I am 34 years old and used to be in debt 12 years ago. Slowly but surely I climbed out of debt only to find that my wife put us both into debt. I am trying to teach my son about money and how you can make it work for you but I am not showing him a good example. We recently had to cash in my 401k to pay for bills and school. I am definitely struggling at this point.
     Inflation is an interesting ongoing cycle. I think the companies that raise prices are benefiting by creating smoke in the face of consumers. The gap between the rich and middle class is widening and the working class is hurting the most.

110. on 01 Oct 2008 at 9:04 pm110D'Juan

     Becca,

     Thank you for that thorough explanation. I’ll definitely be checking out the book reccomendation!

     Mia F,

     I haven’t gotten the chance to watch all the way through it, but it reminded me of “America: Freedom to Fascism” a bit. They’re both full of important in formation, that in the hands of the people would likely incite change.

     If the whole of America knew the info in either film, a lot of things would change, that’s for sure!

     NSY,

     I’m sure the reason that companies allow people to rack up so much debt is because with all that debt comes the repayment, and with the repayment comes the interest! It’s greedy and unreasonable, yes, but I think that “greed and being unreasonable” also had a part in the market’s current problems, which is why I’m against the bailout.

     How this current financial turmoil will result remains to be seen, but it’s still good to know quite a bit more on finances and how money works.

     Great topic, and I can’t wait to read more!

111. on 01 Oct 2008 at 10:13 pm111Christopher Ried

     First off, my name is Chris Ried; I’m graduating this year with a B.A. in Biotechnology continuing on with a Ph.D. in Molecular Genetics/Virology. My personal finances are that of a college student. My parents can afford very little and I feed myself week by week through my campus job since I did not want to squander $4,800 on campus fatty foods. Naturally, I am collecting about $13,000 worth of debt every year in college and would love to pay it off.

     Now that you have had a glimpse into my life, let me deliver a couple comments about free markets. Free markets are one of the sociological pathways that evolved to quench the public’s longing for a better tomorrow through materialism. Meaning, we can have almost anything we want, such as an exotic fruit from South America, or dirt cheap products compliments from China. This is fantastic within reason; for when humanity overdraws their financial benefits through credit; the head of free markets all of a sudden start to make a shift from angelic to diabolical. We are a country who is currently struggling because of an accessible “free monies” through credit cards and loans; however when this privilege is taken too far, the balance between assets and credit shifts towards a never ending problem.

     Let me explain! When we as Americans take out more loans than we can handle; yes we are buying with that credit which complements our GDP, however after that everything goes bad. For we start paying off those loans w/ interest so there is no money flowing into the economy, but going back to the banks. For the banks do not go out and buy but give out more loans. So as this cyclically continues, we start seeing problems in our economy because of these problems which makes it bad on everyone.

112. on 01 Oct 2008 at 10:35 pm112Clint

     Hi,

     My name is Clint, I moved to America in 2000 from Toronto. I gained dual citizenship when that happened too. I’m 18, and a freshman in college this year. I’m already in debt, from buying a car for school, and paying for school. I’v never had much in life as my mom doesn’t work and my dad passed away last year from cancer. I work for everything I want, and I learn to keep my dad going. The federal reserve is not owned by anyone, but instead open to the public and it has private features. The federal reserve is the central bank, it controls flow of credit, and money - affecting our daily lives in America. Carter glass drafted it on December 23rd, 1913 under the circumstances that it would help in crises, and emergency. Inflation occurs sometimes when a Monopoly is in effect, or when a certain company/person posses something that only they can do. It hurts little people, who must buy something. And benefits, the rich people who come out with all the money. Gas for example, has been going now for the past years since I’v been driving, up and down, inflation. Booms occur when the economy is doing well, and busts if we’re not doing very well. The market is always going up and down. Fiat Currencies relates to types of money, currency. In 1785 the notes were introduces, and as time went on it all adapted. After the war, we had to adapt to using paper to pay off dues as there was not enough gold. It hurts us all, and benefits us all in a way - put paper can be worth nothing over night as gold wouldn’t be. Fractional reserve banking is how banks are required to only keep a fraction of their deposits, and loan out the rest. Loaning out money creates money, and is then destroyed as it is paid back. If everyone paid off their debt at once, the market would crash and foreign trade would not work out.

113. on 02 Oct 2008 at 2:44 am113Melvyn

     I note that this contest is open to anyone worldwide but you’re interested in the knowledge of the “average American”. Many of us non-Americans are also ignorant of basic financial issues.

     Looking through the comments it’s hard to see any of your questions that haven’t been addressed. This thread has taught me lots about inflation and I’ve also learned the definition of a “fiat currency” so I want to thank you for starting the discussion.

     Your recent update said that entries will be counted even if they contain no new information so I hope you’ll count me in.

114. on 02 Oct 2008 at 3:53 am114Sorcha

     So pretty much all of the questions asked address what I do not and have never understood about money. It doesn’t seem to make much sense having an agreement that a worthless piece of paper, or more worryingly, electronic credit has value. Having said that, the best thing I ever did, financially speaking, was to give up work and become a stay at home mom. I’m a doctor and I was doing my residency in Israel where resident doctors are paid about $12,000 a year. Almost my entire income was going on childcare and I never got to see my kids. It also meant that my husband’s career was on hold because he had to make sure he was around sometimes for the kids because I never was. I quit work which meant my husband could get a much better job. I still work an evening shift once a week (which pays a little better than the regular hours so not all of it goes to the babysitter) and the rest of the time I’m at home. The financial situation in the world is quite worrying but I can’t work out whether it’s more or less scary because I really don’t understand what’s going on.

     About whether parents should be teaching finances to their children at home: well obviously I wouldn’t be able to explain it to my kids but you can set a good example by not being extravagant and, when they’re old enough, letting them have an allowance that they have to budget.

115. on 02 Oct 2008 at 5:34 am115Danielle in Iowa

     If everyone paying off debt at once would lead to a market crash, I guess I can consider my inability to pay off all my debt at once a service to the greater good! (and I’ll be serving that greater good for a few years yet…)

     Oh yeah, my name is Danielle and I am a 30 year old PhD student in civil engineering. I get a stipend through my university and get my tuition paid, but I have still managed to rack up about $10,000 in credit card debt during my six years in grad school so far. I am working on the debt, but it is also hard to really focus on it when I know in a year I’ll have a job making three times what I make now. But of course, we all know that bad spending habits transcend salary, so I am trying to work on that so I don’t end up with a real salaried job and still have $10,000 in debt!

116. on 02 Oct 2008 at 6:14 am116Sam Ryan

     I’m a 19-year-old sophomore at UC Berkeley. I’m planning to be a history major. Currently I’ve got a couple hundred dollars in savings, no job (hoping to change that soon), and several thousand dollars in student loans to pay off eventually. However, I’ve got no credit cards, no car, no frivolous expenses beyond the occasional used book or video game, so I am pretty confident about my financial future.

     Regarding booms and busts, it seems to me that they are linked with two phenomena: innovation and public trust in the financial sector. Correlation is not causation and the actual reasons for an economic collapse are generally unclear. However, generally speaking, when a society’s technology is being drastically improved (1950s, 1990s) there is a financial boom, and the financial sector does well, creating a public impression that Wall Street is doing its job with success. When either a lack of innovation or an abject failure of people and companies to operate the financial system becomes publicly acknowledged, we tend to see a bust (1930s, now.)

117. on 02 Oct 2008 at 8:11 am117Joe

     Hello, My name is Joe. Im 19 years old and currently living at home in New Jersey. I am attending my third semester of community college. I don’t currently have a set major, but I am definitely exploring my options and what I am capable of doing. I’m a waiter, working at a small restaurant in town. I definitely try to pay for whatever I possibly can, including: tuition, food, gas, and whatever floats my boat on a daily basis. My schedule it a complete mess, having no free time for myself. I work on Tuesday, Friday, Saturday, and Sundays. I attend classes Mondays through Thursdays (Yes, even on the days I work too!) I currently have VERY minimal savings, and luckily I don’t have debt. I find that if I have a goal set for something (a car) I will try and save for that goal. I don’t find my self struggling financially, but really limping. As I just stated before I am yet able to afford a car, traveling 22 miles round trip a day to school is a mess.

     But enough about me, lets tackle a question!

     What is inflation?
     - Inflation is, the rise of general prices, compared to the amount of money in circulation. The more money in circulation the less its worth.

     Who is hurt by inflation?
     anyone with a savings account, people living on a fixed income, individuals with long-term contracts, People who are paid in cash. (restaurant workers A.K.A. Me), anyone who is selling a product at a fixed price and last but not least: The Economy!

     Who Benefits from it?
     To be honest, not the average person.
     I have looked and looked, and asked several people this question. The response that I received which isn’t a good one was; A country, or organization that owes a massive amount of debt.

118. on 02 Oct 2008 at 8:21 am118desherinka

     Hello, I am 20 years old and I study graphic design, of what i could read and research about the Fed, I can mention the following:

     The Federal Reserve System is the central banking system of the United States, the primary motivation for creating the Federal Reserve System was to address banking panics. Other purposes are stated in the Federal Reserve Act, such as “to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes, to manage the nation’s money supply through monetary policy to achieve the sometimes conflicting goals of maximum employment, stable prices and moderate long-term interest rates.

     Regarding to Central Banking, a central bank, reserve bank, or monetary authority is the entity responsible for the monetary policy of a country or of a group of member states. Its primary responsibility is to maintain the stability of the national currency and money supply, but more active duties include controlling subsidized-loan interest rates, and acting as a “bailout” lender of last resort to the banking sector during times of financial crisis (private banks often being integral to the national financial system). It may also have supervisory powers, to ensure that banks and other financial institutions do not behave recklessly or fraudulently.

     The timeline of central banking in the United States is as follows:
     1791-1811: First Bank of the United States
     1811-1816: no central bank
     1816-1836: Second Bank of the United States
     1837-1862: Free Bank Era
     1863-1913: National Banks
     1913-Present: Federal Reserve System

     The Federal Reserve Act (enacted December 23, 1913) is the act of Congress that created the Federal Reserve System, the central banking system of the United States of America, which was signed into law by President Woodrow Wilson.
     In 1912, the Democrat lawyer Samuel Untermyer, assisted in preparing the Federal Reserve Act.

     The Federal Reserve Act passed Congress in late 1913 on a mostly partisan basis, with most Democrats in support and most Republicans against it.

     In the 1930’s the Federal Reserve Act was amended to create the Federal Open Market Committee.

119. on 02 Oct 2008 at 9:33 am119Dee

     Hi, I’m 28 years old and until a few months ago, I was working at an event planning company doing fundraisers for non-profits. I really enjoy working with groups for a greater cause. Thank goodness that I started a cd while I was working and so have saved up a little bit. Also, I’m grateful that my parents are allowing me to continue to save up while living at home with them. I try not to go out too often or dip into my savings while I am looking for a new job, but sometimes it is a struggle to keep up or not to feel envious of a friend’s new Gucci bag.

     Thanks to HP and to you, JL for hosting this awesome giveaway. I really enjoy reading your blog and the comments have been insightful. It feels sort of like Jay Leno’s “Street Smarts” but on the internet! I was reading the comment about teaching some sort of finance/economics in high school and I think it’s a great idea and should be taken even further. Of course, the best examples begin at home, but not everyone is fortunate enough to receive that. Also, I remember my economics class in high school being a waste of time. Yes, we were supposed to learn about the stock market, but aside from nodding off to a narrated version of Adam Smith’s “Wealth of Nations,” nothing really stuck. I ‘d like to see instead a mandatory one-year “life skills” class to take place wherein students would learn about basic skills such as rudimentary cooking, sewing a hole in your sock or a button back on, balancing a checkbook, keeping a budget, and then a little more on savings/investing. I wish I’d had that.

     Right now, it’s hard not to feel pessimistic about the financial future and our economy. It’s also hard not to feel angry. I was reading an article in Glamour about “the biggest money mistake these women made.” Turns out, they tried to buy a house, completely out of their means, with ZERO PERCENT DOWN. Now, as I said before, I don’t believe I learned much from my economics class, but I do know that putting ZERO PERCENT DOWN on ANYTHING is definitely a bad move. It just makes me so frustrated that people got caught up in the more more more phase that they lost all common sense. I too, would like a house of my own. A beautiful home, one with bedrooms (plural), backyard, good neighborhood, etc. But I know that while I could potentially qualify for a loan and get a home with ZERO PERCENT DOWN, that this would quickly spiral out of control. Yes, I realize that there are other variables–shifty mortgage lenders, outright lying on applications regarding incomes, etc, but the underlying principle is a lack of common sense.

     Please don’t get me wrong, it’s not that I don’t feel sympathy; I do. I’ve cried while reading stories on the internet of single mothers losing their homes. And, they are victims, as well as perpetrators, but really, everyone is at fault here. I believe I’ll attempt to answer one of your questions here, regarding inflation. To me, inflation means a rise in prices for the consumers. I know that it is a way for the market to readjust itself, and that it does bring benefits, but I’m personally not getting them, nor, from what I see around me, are any of my neighbors. This is fine, I suppose. Time to tighten our belts. It’s just sad when buying healthy fresh fruit and vegetables becomes so expensive that even they start getting cut out, never mind indulgences like imported cheese or wine.

     Thanks for sparking a great debate. It’s good to see that people are constantly seeking to further their knowledge and I know that I will continue to study and learn about my savings and investments through blogs like yours.

120. on 02 Oct 2008 at 11:01 am120Danielle U

     I would like to make a correction to what I said before…”the average college graduate has 8 credit cards when they graduate from school.” It’s actually 56% of college graduates have 4 or more credit cards. Which is still a whole lot!

     Although I am not perfect, I don’t have a credit card, but I am like “Danielle in Iowa”, I have yet to pay off all my college debts/loans (I couldn’t do it all at once though, even if I wanted to), so in a way I too am helping keep the stock market afloat, right?…lol. We’re just doing our part to help our country.

121. on 02 Oct 2008 at 11:13 am121Danielle U

     I would also like to say how I agree with “Christopher Reid” who stated “When we as Americans take out more loans than we can handle; yes we are buying with that credit which complements our GDP, however after that everything goes bad. For we start paying off those loans w/ interest so there is no money flowing into the economy, but going back to the banks. For the banks do not go out and buy but give out more loans. So as this cyclically continues, we start seeing problems in our economy because of these problems which makes it bad on everyone.”

     I feel if we would teach more financial information starting in elementry schools and up, we can at least prevent some of this from cycling later on (at least like it currently is) because kids would learn that loans are not to be taken lightly, but when there is a real need. For example credit cards…they see it as free money, or at least the ones I have talked to. Children to adults see what the media shoves at them everyday. Get stuff now, worry about the money later.

     And when it comes to banks (and I work for one), I think that banks should have seminars and free classes to teach people how to save and spend more wisely and that if someone wants a loan they should have to take a class to learn more about what they are doing before they just signs some papers to get the money. Maybe that could help our economy a bit…it wont make all the difference, but it would really help.

     What does everyone else think?

122. on 02 Oct 2008 at 11:38 am122Kara

     Hi everyone! I’ve been really enjoying reading the rest of the comments that people have left here. I’m 25 and about to complete my last year of medical school. My income consists only of student loan money, and my husband has a pretty low salary currently. Because I chose to go to a medical school in the city that I grew up in, I am now at one of the most expensive medical schools in the country. I have not received any help in the form of scholarships, so I am personally financing my entire education with loans. When I finish school in May, I will have $250,000 in student loan debt. Luckily, I have no student loan debt from my undergraduate education, and my husband does not have any debt. We have also stayed away from credit card debt, paying off our balances in full every month.

     My husband and I have started to invest in Roth IRAs, and each maxed out our contributions last year, and plan to continue to do so until we no longer qualify for the Roth. That will still be a few years since I will only make enough money during residency to make payments on my loans and have a few thousand dollars left over each year. However, a lot of the money that we are “saving” is just coming from the money I get through my student loans for living expenses, so we have trouble deciding if investing is really the right thing to do now. Especially since I should be making over $100K/year once I complete residency, and then will have plenty of money to save assuming we keep our expenses similar to where they currently are. For now, we’re continuing to save that money, because we want to have something there. Now that the stock market has fallen so low, it just makes us want to invest more, but it has been sad to see the money we’ve invested disappear as the markets drift lower and lower. I am confident that eventually, the system will correct itself, and we will begin to recover the money that has been lost.

     Until my husband introduced me to the world of blogs and feed readers, I had very little knowledge of how economics worked on a large scale. I was good with my own money, but didn’t know much about investing, the stock market, the federal reserve, inflation, etc. Along with general reading I have done in the past couple years, I have also learned a lot in the past few weeks. Because of the financial problems in the US right now, I have been reading all kinds of articles about why some of these banks have failed, why a bailout is beneficial to the country, what effect all of this has on my personal life, whether my money is safe in my savings account, etc. As much as I am ready for the financial situation to turn around, I am grateful that I have been able to learn even more during this time.

     Thanks for a great blog Jennifer! It definitely resonates with me, as I am definitely a broke-ass student, and will become a broke-ass resident once I’m done being a student this year. At least at the end of the year I’ll feel better about starting to track my net worth…I can’t bear to do it while it’s still continuing to decrease constantly. I’m going to start to track it in May.

123. on 02 Oct 2008 at 11:38 am123james

     first of all my name is james.i am 20 years old. i live in new orleans and currently do not have a job but am lookin. i am cuttently majoring in business management and plan to leave new orleans in 2 years. i am in debt by $5,400.00 which all goes to school and helping pay bills.

     i totally agree with you danielle u. i wish i would have take classes about loans before i decide to take them. even though i would have to make loans anyway, i would have had a better understanding about the loan. i also wish that financial information would began in elementary school because a lot of students would first know how to manage their money better and starting at a young age will increase their experience with handling money for the future.

124. on 02 Oct 2008 at 11:40 am124Sherman

     I am a college freshman living in queens, living completely off of student loans and small donations from family members. My current laptop is 5 years old and barely holding together (which is kind of hard to deal with considering I’m a computer science major.

     I noticed several comments about the America being a semi-free market because of its activity in breaking up monopolies. I think that is a mistake. America regulates these types of thing to promote free market. A free market means that both the buyer and seller are having an influence on the price. If only the seller has influence than it cannot be called a free market.

125. on 02 Oct 2008 at 11:44 am125Samuel

     Hello, I am Samuel and I am a college freshman. I currently attend College of the Desert. This past summer, I went on vacations to mexico and I noticed that many people do not have the wealth to live a comfortable life. Likewise, many people told me that even though in Mexico prices of goods are lower than here in the United States, they still have a hard time living of their salary. They always say that prices keep going up all the time. However, this led me to think that people arent really being educated well enough about economics. I explained to them that in a technical way, prices are going up. However, I explained that if they go deeper into the situation, prices arent rising. What is happening is that the value of the currency is going down. The amount of money you have now is not worth the same as it did a couple of years ago. This issue is also happening here in the United States. If inflation keeps rising, I prdict that there will come a day where many of the currencies in the world are going to vanish or are going to be replaced with some stronger currency like the Euro. Well, this was just somethings that I wanted to point out. Thank you for reading.

126. on 02 Oct 2008 at 12:57 pm126Gary S

     I am a 47 year old Canadian who is struggling with financial issues. A few years ago I suffered a work related injury and not long afterwards my employer decided to close up shop and move to Mexico.

     Since that time I have found it difficult to find a steady job in my profession. As times goes by and the bills pile up I believe it is time for me to begin looking into alternative ways to support myself.

     I have been seriously considering the idea of starting my own blog as a way to earn money and possibly gain financial freedom. If others can do it then why can’t I. Winning this HP laptop would surely help in that respect.

127. on 02 Oct 2008 at 1:18 pm127Jeff S

     I am a 19-year-old junior in Kansas. Currently have no debt thanks to a generous scholarship. Would have liked to go to another school, but this one made the most financial sense. I see too many of my friends going to private schools for undergraduate degrees that do not offer a significantly better education than a public institution. However, we have been conditioned to believe that Ivies are where to go to make a name for yourself.

     I do not use a credit card, but a debit card drawing from ~$5000 in savings. It is probably a bad idea for any young person to have a credit card unless they are committed to paying it off every month and if, furthermore, it offers significant advantages to a debit card. A 3% cash back on gas and grocery purchases, for example.

     I agree with Danielle on the need not just for education, but for FORCED education for those who are taking first-time loans from banks for a car or a house. Young people rarely understand the repercussions of such decisions, and can’t see far enough into the future to understand the trouble they may get into.

128. on 02 Oct 2008 at 5:53 pm128Marissa Achee

     My name is Marissa Achee. I live in Thibodaux, LA, Lafourche Parish, a devistated area of Hurricane Gustav. I had to move on campus due to distruction at my home. I am a junior at Nicholls State University. My major is MBA-Pre Law. I have no financial help, and am currently relying on student loans. Most of my classes have work that is required to be done on-line. Having a computer would mean a lot to me.

129. on 02 Oct 2008 at 6:12 pm129Danielle U

     It’s nice to see there are other people that feel the same way I do. I really do think that our banks need to take more time to help people than only seeming to by assisting people by giving them more money without explaining what taking the money could meen to those people down the road.

130. on 02 Oct 2008 at 6:29 pm130Danielle U

     ****message for moderator: when I entered my last post I entered my email too quickly and it was spelled wrong (it should have been what is shown for this message).****

131. on 02 Oct 2008 at 6:55 pm131Kunal

     Hi, I’m Kunal , 18, student in a community college to save money and get a good education. I currently have very few finances to speak of right now as the money I have now is currently savings. I prefer not to spend the money if I can. As a full time student it’s not so much the struggle after, but the struggle before that I want to avoid. I also realize however that without a sound financial base to build one there is little if any chance of being able to do well in this world. I haven’t found myself struggling financially yet, but what I am more worried about is what I will have to face out in the world in regards to student loans and debts and the like. If the way I currently work is any indicator I can already foresee quite a bit of trouble coming my way just to survive after college.

     Put simply the Federal Reserve Central Bank is the main bank that controls whether not inflation occurs and controls what happens to the money that we use everyday. Although we would like to think that the money is self-regulating, there is too much chaos to really believe that. An example of this would be the sheer difference in purchasing power in other countries using the dollar. If you remember the movie Euro Trip and when they found out that a nickel was worth more than millions where they were stranded.

     If you reverse the situation from that movie, put it on America, and realize the horror on your face. That is what the FED is there to prevent. The regulate the worth of the dollar so that although you don’t notice it, the prices of groceries, hardware, etc. doesn’t become so exorbitant because of worthless money. Another example would be in Africa when the president was removed for being a dictator. The need to create paper money as high 10,000 for just being able to purchase common goods is exactly what the FED is made to prevent.

     The draft was an act of congress that was passed into law by Woodrow Wilson. However, it would probably be best to call the plan the Aldrich plan, since senator Nelson Aldrich was in some respects the godfather of the plan. If not for Aldrich the Federal Reserve would not be here today, or have lasted as long as it did.

     Events that predated the act that were signs of instability include :
     -The ending of the charter for Second Bank of the United States.
     -Various financial panics, like the stock market crash of 1907 where people who helped run the stocks committed suicide because of the crash.

     In the end the Act was enacted December 23, 1913

     The true purpose of the Federal Reserve Act was to prevent the another financial crisis, like the Stock Market Crisis in 1907, from happening again. The purpose of the plan was to allow the country to, “provide a ready reserve of liquid assets in case of financial panics and would also provide for a currency that could expand and contract as the seasonal U.S. economy dictated,” (Federal Reserve Act) that is to say to allow the U.S. economy to be stable in such a way that the chances of the stock market falling were slim if present at all.

     The current situation in the economy and the stock market right now is not just the act of Bush being president, but the nation as a whole crying out in need to prevent the country from falling into poverty again and panicking it did. The true purpose of this Act is to provide, “systematic revision of banking laws in ways that would provide relief from financial panics, unemployment, and business depression and protect the public from the “domination by what is known as the Money Trust.” (Federal Reserve Act). In other words the act is supposed to allow the American economy to survive as well as prevent control of the economy by the rich.

     Sorry if this is a bit of a ramble and whatnot, but the truth of the matter is that the people of the American economy cannot forget the past, ignore the present, or prevent the future. The need to realize that our forefathers made this country so that we could live in freedom is taken in granted. Though they may remain paragraphs on another page in history textbooks, the dangers they faced, and the problems they answered are no less different now than they were then. The country doesn’t just need change or reform, it needs hope and people that are willing to help bring the economy back to normal. To keep the American people safe. The people that run this country aren’t just the president or the House of Representatives, but the people. If the people are not willing to act, then they must be roused awake so they do not face the horrors that befell those before us.

     For people to consider it okay to be ignorant of financial matters is like a saying it’s okay to ignore the sun when it’s right next to you. Finance is what makes up the everyday things that our country runs on. From import to export, to shipping of large freights, to the simple act of buying groceries you can never avoid finance. The need to be properly informed instead of being, for lack of better a better term, properly stupid outweighs the needs of the people. That does not mean learn everything about finance in a day. Go to your banker, your friends, the internet, your personal insurance agent, or even your finance manager and ask them what they can teach you about the economy works. How finance works. Besides, if you can’t learn from the economy and how to work it to your advantage then you have no way of controlling your life at all and freeing yourself from the torture of a dead-end job.

     Freedom was provided, all we need to is take it.
     (Not just the leaders, but the followers too.)

132. on 02 Oct 2008 at 6:59 pm132Kunal

     Sorry for the long post, but I had to get that out of me. Most of it comes from my Consumer Education days.

     FYI: Paper money isn’t paper. It’s a mixture of paper and linen so it can last longer than regular paper can.

     Sources (Since I forgot to put them on):
     http://en.wikipedia.org/wiki/Federal_Reserve_Act
     and a google search of the term Federal Reserve that didn’t include information about the founders or the current chairmen.

133. on 02 Oct 2008 at 7:01 pm133Kunal

     Feel free to argue if you want I don’t mind.

134. on 02 Oct 2008 at 7:23 pm134Joe

     I agree with you Danielle U.

     The fact that the banks don’t really help out the people is the real problem. They are just too quick to give out a loan so they can start making money themselves. That’s what is has come down to really, is that everyone is so obsessed with money they don’t care what happens as long as they get it.

135. on 02 Oct 2008 at 7:28 pm135Jennifer Lynn

     Bonnie Lee emailed with a comment since she was having problems posting it here and I’d like to share it with you guys as well.

     “My name is Bonnie and I am a seventeen year old high school senior. I have been homeschooled all my life; however, I also take duel-credit classes at the local community college. I am trying very hard to get into a four-year college that is pretty darn picky about who they let in, and also quite expensive. I read several college/money blogs and am also taking a class at my church. I am currently (and plan to stay) debt free.

     As we already heard, Inflation is a when the currency looses value.

     I have heard it explained like this:
     If there are only 100 beanie babies and everyone wants one, then the price goes up., but if everyone is buying $150 beanie babies than they will spend less on, say, smoothies. So smoothies should go down in price.
     But that’s not what happens, because the government decides that it really wants a beanie baby, so it just prints more money to buy one. Thus the price of beanie babies has gone up and the price of smoothies can go up too because there is now more money out there.

     Its like me and my brothers when we play Monopoly. There are a lot of us kids and it’s kind of a game within a game to see who can cheat the most (horrible I know). Once I decided to take the money out of our old monopoly board and use it, but the problem was now everyone had way too much money, we all went on a shopping spree and bought every piece of land we came to.

     In real life the price of the land on the board would have gone up when I added the new money.”

136. on 02 Oct 2008 at 7:31 pm136Joe

     I have a question, ***and this ISN’T a direct attack on anyone.****
     But I always thought that Wikipedia couldn’t be used as a reliable source due to the fact anyone could change it. That’s what I’ve been told whenever I’ve written papers for any class that I have attended.
     Was I lied to? or does anyone else agree with me on that?

137. on 02 Oct 2008 at 8:30 pm137Matt

     I’m Matt, 22 years old and a senior in college. My major is Computer Engineering with a minor in Entrepreneurship. Thanks to my scholarship and financial support from my parents, I am in no debt.

     I agree with the many that have voiced the need for more financial education in schools. Honestly, we teach things like chemistry and calculus that many people may never use again, but we don’t teach something that everyone deals with from day to day. Sure, I believe it is good exposure to teach things like science and math. But there are many simple financial principles that would benefit people a hundred times more than either of those subjects.

138. on 02 Oct 2008 at 8:55 pm138Nathan Cahill

     My name is Nathan Cahill. I turned 17 three weeks ago. I live in Guatemala. Besides going to high school, I am a freelance web programmer/designer. All the money I earn goes into a savings account for college.

     The federal reserve is not owned by anyone, and it provides a way to stabilize the monetary system of the country.
     A central bank manages a nation’s supply of money and credit and operates at the center of the nation’s financial system. It is reponsible for the banking system in the US. An important part of a central bank is it’s function to equalize the value of a currency over a large geographical area.

     In 1912 the Aldrich Plan was submitted to Congress. It included recommendations and draft legislation for proposed changes in U.S. banking and currency laws. The Federal Reserve Act was dirived partially from that and it was sponsered in 1913 by Carter Glass and Robert Latham Owen.

     The Federal Reserve Act became law on December 23, 1913. This was preceded by much debate on both sides of the aisle. All the Democrats were in favor of the act.

     Inflation is not simply cause by printing more money than needed. It is caused by increases in aggregate demand due to increased private and government spending, etc. or by drops in aggregate supply due to increased prices of inputs.

     People that have a debt benefit from inflation, but they are about the only people that do. The rest of us have to face prices that are raising faster than our salarys do.

     When the demand for a product is greater than the supply, the suppliers can raise the price. The production of the product increases until there is too much supply. It is impossible to sell all of the goods produced and the price falls agian. The US has a mostly free market because the prices of goods are controlled by supply and demand. There are some cases in which the goverment intervenes and subsidizes a few industries like farming.

     Fractional Reserve banking just means that banks have to keep a fraction of the deposit that they recieve. The rest is available for lending. If all the depositers withdrew all thier money at the same time, the bank would have a big problem on it’s hands. This almost never happens.

139. on 02 Oct 2008 at 9:24 pm139Felipe

     Hi,
     My name is Felipe and I’m an undergraduate student. I currently go to a state school because even though I find it very expensive, it is still better than most private schools.
     The current financial situation has affected me directly in that MEFA (state organization that lends to residents at a very low rate) has decided not to give out any loans this year. The only other way (after federal loans and grants) that I could find to pay for school was taking a private loan. I had to get the loan under my name and my name only because my mom is currently facing foreclosure. After lots of praying I did get a $5k scholarship which is helping me pay back the private loan.
     Financially, I currently have $3k in a 0% APR credit card, which I plan to pay off before the promotional period ends, and about $7k in federal loans.

     Out of the questions asked, I’m most familiar with inflation. Inflation, like the other readers said, is when the market value of your money declines and today you can no longer buy what you could buy yesterday with the same amount of money. Between 1990 and 1994, Brazil’s average inflation was at a record 764%. I remember how people would go to the supermarket in the morning and see one price and if they went again at night, the price would be much higher.

     The American idea of “credit” is starting to catch up in Brazil. People can now finance a R$300,000 (~$150,000) apartment for up to 5-10 years. It might not seem like a lot when compared to the American average of 15-30 years, but financing an apartment in Brazil is like paying credit card.

     I strongly agree with the reader who said that the bailout plan is a mistake and that the government should just let the economy fall. What is the point of having credit if you can’t find a decent job to pay that back in a timely fashion?

140. on 02 Oct 2008 at 9:46 pm140Jennifer Lynn

     Hi Joe, I’d agree that Wikipedia isn’t a reliable source but I’d also extend that to ANY source. Always use your own critical thinking skills. After all, history is merely an interpretation and journalism enjoys regurgitating the same information over and over again.

     Quick question for you guys, just something to think about. For fractional reserve banking, many of you have given a Wikipedia definition of, “Fractional Reserve banking just means that banks have to keep a fraction of the deposit that they receive. The rest is available for lending.”

     So if the bank keeps a portion and lends out the rest, we all know we’re not merely paying a loan back as is - we’re repaying the loan back with interest. So in addition to the original balance, where does the interest money you pay on the loan come from?

141. on 02 Oct 2008 at 10:24 pm141Dustin

     My name is Dustin I am 22 and pretty much the epitome of a broke ass college student. I lost my current job and found a new one this week. My new job is about an hour away, so now I spend a ton in gas. I also went from a perfect driving record to two tickets in this past week…what a week.

     fiat money is money created by the government/central banking institution of a country. I would say the person who benefits the most is the people involved in creating the currency.

142. on 02 Oct 2008 at 10:50 pm142Sakura

     Hello! I’m 19 living my second yr in community college [I plan to transfer to a 4 yr] currently taking 20 units whilst at the same time working minimum wage over the weekends. I used to have one checking account but recently got another just in case, you know, one of the banks is in trouble. Plus I got a neat checking card! I have no debts. I’ve never owned a credit card or apply for loans or own a car [I take the bus because I care about the environment! I also have bad sense of directions]. Heck, I don’t even have credit. I do find myself financially struggling because what’s been happening is, my family has been added to those groups of people whose houses are going in foreclosure and since my parents don’t have money, they leech it off of me so I can help pay to move. Now I seriously have only 100 sitting in my bank accounts. It was bad enough I almost became broke when I paid for school but now I’m freakin dirt poor! D:

     Here’s my response to some of the topics in the discussion so far [I apologize in advance if my post generates bad vibes, these are just my opinions]

     Parents teaching kids about financing: Even if parents do teach their kids about it, I doubt some of them will listen, or maybe understand because they’re too young. [Besides finance is a huge topic that should be learned in school] I’m thinking of this in how people’s behavior is; that unless something bad happens to them, they won’t do anything about it. Back in the Clinton days, everything was hunky dory [which might be one of the reasons why people wanted Hillary in the hot seat] and there weren’t too many discussions about what will happen in our financial future. Now everyone’s talking about this financial crisis and bailout bill. Same thing with Katrina; who’s idea was it to build a city in a giant punch bowl? A year goes by and here comes a twin Katrina. But hey, none of these disasters ever came to mind in the past. We say we learn from our mistakes only to have history rhyme in the future. [I say rhyme because history doesn’t repeat exactly how it is, it rhymes]

     Gee I got way out of topic. So credit cards for kids; if they can pay it, they can keep it. They just got to be careful because there’s a fine line that separates them from the world of the living and the world of living in debt. I cannot emphasize how much I see people use their credit cards every time they make a transaction. The US is liable for like 10 trillion in debt; we’re all basically living off of credit even though some people say they aren’t. That’s just how we roll. We can’t change it just like that.

     Also on another note, I’ve noticed that when something bad happens to us, everyone suddenly becomes an expert on the subject frequently and frantically talking about it.

     My response to Kevin and christine yoo; our economy is like a domino effect. We normal people are so much tied with the rich guys that whatever happens to them, we’re affected as well. This goes for the entire world too. That’s where the bailout comes in. If we save the bad guys, we can save ourselves.

     I like how Shanna called our currency “pretend money” because it’s totally true. The value of the dollar has gone so low that it’ll end up being worth nothing.

     I should stop now cuz my post is getting a bit long ^^;

143. on 03 Oct 2008 at 1:10 am143Jason

     Hi, I’m Jason and I’m 24 years old. I graduated from college two years ago and have been working as a software developer since then. I’m actively saving for retirement in a 401k, much at the insistence of those wiser and older than me. Compound interest really is a force to be reckoned with!

     I agree with Sakura about the credit cards for kids, it really comes down to who can be the most responsible with the plastic. I currently own five different credit cards, do not carry a balance, and rotate my usage. Why? I’m a sucker for 0% APR promos and instead of paying off in full like I usually do, I pay the minimum and plunk the rest in a savings account until it’s time to pay the entire balance off. The only principal I would try to stick to is “do not use more credit than you cash you have”.

144. on 03 Oct 2008 at 7:00 am144Joe

     @ Jennifer

     “So if the bank keeps a portion and lends out the rest, we all know we’re not merely paying a loan back as is - we’re repaying the loan back with interest. So in addition to the original balance, where does the interest money you pay on the loan come from?”

     -One, it is created by the bank so they can make a profit, and never, ever let you out of debt. (Some of those interest rates are ridiculous.)

     Two, it comes out of our pocket, our salary, our labor.

     “An interest-based financial system does nothing but siphon wealth from the working class to give to the idle rich, because only those with money can collect interest–that’s how interest works!”

     Their is an interesting quote I found online.

     It’s like the opposite of Robin Hood. Is it not?

145. on 03 Oct 2008 at 7:46 am145Pham Duy Nguyen

     “The need to create paper money as high 10,000 for just being able to purchase common goods is exactly what the FED is made to prevent.”

     what Kunal stated is also something that i’ve been wondering myself. here’s the situation in my country: our smallest paper money is 200 VND, though it’s rarely used these days anyway, and the biggest is 500,000 VND. the most popular paper money is the 10,000, 20,000 and 50,000. One USD is worth about 16,600 VND. i always ask older people why we need paper money with such big value. why not make it just one digit minimum (1 VND, for example) and increase it from there, just like the Euro or USD. and i tell you what: none of them older and more experienced people has given me a satisfying answer. anyone here?

     i’ve also been asking my friends if they’re aware of the possibility of them getting in debts for years to come, and they all laugh at me, because they think you’d only be in debt if you have no job (?). man, i’m so depressed right now. that idea to teach young kids financial knowledge may not be so irrelevant at all

     about credit cards for kids: i think it’s fine, as long as they know where the money comes from. so many times have i seen kids who got their hands on credit cards and only thought of them as free gift coupons.

     i’m surprised that the US bailout plan didn’t come through. to me, it sounds like the best way to temporarily save the current US economic. yes, we all know it’s not pretty and seems like we’re saving the big bad guys with our blood, but face it, just like reader Sakura said, “If we save the bad guys, we can save ourselves.”

146. on 03 Oct 2008 at 8:35 am146Joe

     @ Pham.

     The reason why I believe the bail out deal is horrible is because this. Why should we bail out the big bad guys? When have they ever focused on us, the average working class? It has been reported that since Bush has been in office they top 400 richest people in the America. (The Biggest Bad Guys/Girls) made well over 700 billion dollars. Also, those top 400 people have more money combine than the lowest 150 MILLION PEOPLE of America. They can handle their own problems easily, but they just don’t want to spend any of their money.. Our money on the other hand, is free game..

     ** I would like to point out the cartoon on the front page, “Quick! Give Me Your Tax Dollars!”

     That accurately portrays the situation.

     ———————————————
     Granted we do need some sort of rescue, this isn’t it. It should involve the people who made the mistakes to fix it.

     (I know that the mortgages had a hand in this too, but really that’s the bank’s fault for giving out the loans to people who couldn’t financially handle them. But what caused the stock market to drop was the people the smaller - but still - Big Bad Guys on Wall Street to pull their money out of the banking system and put it into stocks so they would have solid investments. That’s is the real reason of it. It was the fact that the bank which was doing some what O.K. had no money after everyone started taking their money out. That’s what really caused the problems.)

147. on 03 Oct 2008 at 9:15 am147Joe

     (This is more ranting from my last post. I just had to check the news…. Sorry!)

     I would like to just say That I am watching the live debate in Congress right now. I just caught a glimpse of the revised Plan. It is actually better than what I thought. It does protect the tax payers, to an extent. It also does deal with environmental problems, including tax breaks for solar panels, and money for renewable resources.

     This is what they called the “sweetened” deal. To me it is better than the last bill. It really seems they are going to shape up the economy. They are planning on NO DEFICIT spending during the new presidency.

     So I still don’t know exactly everything about the bill. But it definitely seems better than the last one. But I still can’t back it fully if they are allowing the people who caused this a way out. No one has fully talked about that those people are going to be doing.

     But I will stick with my statement from before.

     “Granted we do need some sort of rescue.”
     ——————————
     Did this get off topic? I’m sorry if it did.

148. on 03 Oct 2008 at 9:35 am148christine yoo

     I disagree with Danielle U, it is not the bank’s responsibility to tell us how to save our money or not go in to debt, it is ours. It is our personal responsibility to read contracts before we sign them, it is our personal responsibility to know we cannot afford to buy a $300,000.00 house when we can’t even afford to buy a $100,000.00 house, it is not the bank’s fault, it is not the lender’s fault, it is the peoples’ fault, the people who did not read the fine print, the people who signed their life and their home away without understanding what an interest rate was or that their home could and would be taken if they defaulted, it is not the lender’s responsibility to hold your hand through things like this, it is yours and yours alone, if you sign your name you better know what you are signing and if you don’t, you have no right to go crying to Big Brother to bail you out when all you can do is say how he’s taking your taxes and taking your money and ruining the economy but when you need His help, you will go running.

     I am so tired of people trying to make excuses, whatever happened to personal responsibility? is no one left accountable anymore? Really? Are we just going to blame government for under-regulation? What about the people who signed their life away?

     Yeah, I signed many contracts for credit cards and student loans, more than I can even count now, but you can be damn sure that I sat and read every single word and if I didn’t understand something, I asked what that meant, and if they couldn’t explain it to me, I asked if they had a supervisor that could.

     When did asking questions become such a bad thing? When did our signature lose its weight, that is our name, our promise to do something on paper, wouldn’t you want to know what you are signing away? I know I do.

     And to comment on the banks not looking out for people, that is not their job. They are a business, a private business, they are there to make money, your money. They can pretend to look out for you, because the more they seem that way, the more money you will want to give them to hold.

     As I have stated in my first post I believe, the bank uses our money to invest, they are making money from the money we put into their bank, they make a profit, otherwise, why would they be in business? If they didn’t make money from what they are doing, how could they stay floating? Of course, they are making money, banks are not going bankrupt, they are investing our money into higher yielding accounts, think about it like this.

     You have a savings account that gets you about .03% every month. If you have $100 in that account, at the end of the month, you have $103.00, you have made $3 in one month. Now think about if you had $1,000,000.00 in that account and the interest rate is the same .03%, at the end of the month you have made $30,000.00, invest more, see more returns, that’s the name of the game, that’s why banks stay in business, that’s why the only way banks will bust is if people stop using them.

     They may seem like the middleman between you and the gas/electric/mortgage/student loan people, but they are not they are using your money for gain, because they are a business. They have no responsibility to us as people, but we, as people have that for ourselves.

     We need to read and learn and teach each other about what we know, because Big Brother and Mr. Banker does not care about whether we know about this stuff or not, they would prefer we were ignorant, i refuse to fall into that apathetic category, I will not be complacent on the place that makes profit on my money, I will not stay ignorant about the state of our economy, I will not stay silent about the bail outs, I will write to my Congressmen and tell them that my vote is contingent on how they deal with an issue, i will try to tell everyone I know what I know and I hope they will do the same, because this life is about learning and growing and changing, not staying stagnant, it’s about moving forward, not repeating the mistakes of our past.

149. on 03 Oct 2008 at 10:27 am149Joe

     @ Christine yoo

     I’m sorry, I just read that. I will have to disagree with you. It was the bank’s fault really. They were the ones who were selling off the mortgages to make a quick buck rather than collecting the payments and interest. They continually sold mortgages and collected them without knowing their risks. How could you not blame something that is doing it only to make money quickly?

     People bought homes because they were instant investments in 2001. People were buying them left and right because in some areas the value of the home doubled in as little as a year. It was the banks who gave out the loans to the people who couldn’t afford the houses.. They didn’t care the banks. They would only foreclose and sell the house again to make more of a profit. That’s when it back fired because they didn’t know what they were getting into. All those loans they gave out turned into what is today. All those people who couldn’t afford a home bought one, and when taxes and everything else in life went through the roof, is when they REALLY couldn’t afford the homes.

     So who was left with all those houses? The banks were.. The ones who gave out the loan in the first place. Who was going to buy the homes off the banks? Not those same people because they obviously couldn’t afford it. So those few who could really afford those houses already had them, or were going to buy them in such an unstable economy. So in the end the banks who thought they were being tricky by thinking they could foreclose and make even more of a profit.

     No they shouldn’t of been so naive, but neither should we. If we know how much the mortgage would cost, and how much we make. Then we shouldn’t of done it. The banks are the ones who looked at this too and saw it fit for a loan. If they had common sense then several of them wouldn’t of collapsed.

150. on 03 Oct 2008 at 1:24 pm150Gregg Mendoza

     H. My name is Gregg, and I’m a poor financial planner.

     I’m not in debt but I’m barely avoiding it. And as much as I think I should be worrying about the economic bail out and the financial crisis I must say that I’m really not even thinking about it. The reason why is that the situation feels beyond my control. It also seems to be an issue that doesn’t affect a person as low on the food chain as myself. Then there are my coworkers.

     I work at a call center in California and many of my coworkers don’t even have a bank. I’ve asked a couple of them about the bail out and they just shrug. I’ve been told by them “What does it matter? I don’t have a bank anyway.” I know it’s not true. I know that this will affect everyone but it’s hard to see that sometimes. Perhaps I’m just isolated. Perhaps I’m undereducated when it comes to finances. Either way it just seems like there’s nothing I’d be able to do about it anyhow.

151. on 03 Oct 2008 at 1:26 pm151Rafael

     Hi. My name is Rafael, I’m 25 years old and I’m currently studying Social Communication… I guess I also might mention that I live with my boyfriend, a college student as well, in a small but very lovely apartment in my favorite neighborhood in town. But as good as life has been with me, it’s also difficult, and you might agree with me, to balance work, college and love, and to get those three parts of my life to work. Being independent brings a lot of satisfaction, but it gets frustrating when you want to get yourself something, say a laptop, and not being able to because you have a very stretched economy and you have to worry about the priorities: food, electricity, bills, and so on… and I spend the largest part of my income on this stuff, so, no laptop for me.

     But I’m not bitching about it, I’m happy with my life and it gets easier when you have the love of your life right next to you… a LOT easier!

152. on 03 Oct 2008 at 1:58 pm152Danielle U

     In response to christine yoo’s statement: “it is not the bank’s responsibility to tell us how to save our money or not go in to debt, it is ours.”

     I agree that it’s not JUST the banks fault, it is the peoples fault too…but the banks and the education system should explain more about money and finance then they are currently. I think in our current society, people don’t really understand how money in the economy and in their hands works.

153. on 03 Oct 2008 at 4:31 pm153Daniel

     1. I’m a 19 year old dude residing in Southern California who goes by the name of Daniel. Cal State Long Beach is my favorite University - that’s why this is my Second year there. Gee, they actually tolerate me. I used to be a very talented young salesman at the age of 17. At 17 I was making more money working couple of days a week than most people would make working eight hours of day. I won a scholarship of $1500 for Leadership Traits and other things. And then I made the biggest mistake of my life. I wasted all of my money on crap. That’s me two years back then.

     Fast-forward to the now. I run a non-profit website (www.pualifestyle.com) to help young men and women improve their lives. Anywhere from relationships to Knowledge and Developing a World view are important topics. I can proudly say that I’m forming young leaders there. I mentor kids in school by both: Speaking to classrooms every now and then and volunteering two hours per week of my time to one on one mentoring. Why? I volunteer not to look good, but because these kids are the future. That’s why. To that, add club activities, personal coaching in Public Speaking and so on.

     Some people tell me I’m quite silly. I’m involved in all these activities that serve me no money and say that I’m wasting my talent and energy away. Sometimes I get discouraged, sometimes I laugh. Well. My goal is, bringing awareness to people. In any case, while I’m not struggling financially, I’m also not able to cover all the things I wish to have. Laptops, more money to spare on books or parties. Most of the books I get are given as gifts, library, borrowed. The parties/clubs I attend do are also free. That’s one of the advantages of giving value to people without expecting anything. Well, that’s enough about me.

     2. Ok, if people don’t know The Fed is the Central Banking of the nation by the age of 18. Then they need to go back to High School. Their central role is to oversee what other banks are doing. Apparently, the board of directors can’t be as effective as they are expected to be. What happened to WAMU? Ok, fine. WAMU failed on its own. But while they are not effective, they are certainly blind. Or maybe they just close their eyes when major banks destroy families as long as they take the money.

     I have no clue who drafted the Federal Reserve Act, all I know is that it was signed by Woodrow Wilson. Did you guys see that movie inspired by him? There is a reason why they say someone else did the work for him! (Ok, some of you will get it. I hope). I know it was enacted on December 1913, I believe. Not sure what date exactly. And as far as circumstances goes, the main issue - in my opinion - is that it could’ve given Bankers and rich people all the power. WOH! Look at what’s happened now. Again, there is a reason why that movie was created.

     3. Many people will argue that inflation is the result of misuse of money, stealing and so on. Yeah, that ought to be true. But what’s even truer is that inflation occurs when people are not informed. When they demand more and do less. That’s when inflation occurs. Through inflation, the rich get richer and the poor get poorer. Guess why? Some demand more and do less, while others demand less and do more!

     4. I love Free Market, but such concept is only ideal. It will never exist. And of course, the United States is not a free market. Even if the Government tries to tell you so. Booms and busts is simple. It happens all the time. Ups and downs. It’s like me and my girlfriend. We have ups and downs, what’s rare is to find an equilibrium point. BAM! What an analogy!

     5. Fiat currency is basically the government telling you: “I’m going to pay you with this and you accept it”. To make more meaningful, it’s like paying your friend with a service not with money, let’s say food and they accept it, but when you try to give him fish, he doesn’t accept. That’s more like it. So when the US said “No more gold”, that means gold was no longer an acceptable way of paying. I can not exactly remember why it was abandoned. So I won’t respond to that. But I do believe that all of us with common sense can benefit from a fiat currency. The only issue is, not all of us use our common sense. We have it, but we don’t use it. *sighs*

     6. It’s this: “*Bank talks* Your money is with me, I can use it as I wish. But no worries, you can get your money whenever you want”. Now, if everyone wanted to pay off their debt or took out their money out at the same time. What would happen is what happened to WAMU (sadly). People panicking at an especulation only made happen what everyone feared.

     Alright. I’m now going to get ready to head out. For all of the above I see no reason than for me to get the laptop. Actually… if I don’t get the laptop, will you join for lunch one afternoon in NY to discuss about writing business? ^_^.

     Ok, all kidding aside - I really admire what you’re doing.
     Much respect, girl.
     - Daniel

154. on 03 Oct 2008 at 9:45 pm154Patrick Michaud

     Hello, 28 years old returning to school. I am a stay at home dad with two girls. I am attending classes online with my beat up computer. Not having a degree caught up with me, with todays ecomony the cost to go to work (gas), and pay for daycare ($600 bi-weekly)out weighed my take home pay…I was paying to go to work!My wife has her degree and works but we pinch pennys to make this work, so I can better myself for the future of my family.

     I have decided to take a different road in talking about the financial system in the United states. I am going to talk about investing for your future and incase of emergancy.

     There are many options when it comes to investing money to help make the process of turing a $1.00 into a $1.50 easier. One option is certificate of deposits (CD). A CD is a short or medium term, interest bearing deposit that is insured by the FDIC that is offered by banks and savings and loans. Advantages of CD’s are that they offer a higher rate of return at time of maturity then many other investment of the same form. If you have the funds to put aside and let mature for a period of 6 months to six years, then this is a great option for a return on your money. The disadvantage of a CD is that if you have to or if you by choice take the money out early you will be subject to penalties. Again CDs have low risk because they are insured by the FDIC. Right now with the economy the way it is, banks being taken over by the government or being bought out, the FDIC is very important when you consider investing money.

     I recommend putting a portion of money in two different CD’s is the short term CD will offer them quick return on their money and not tie it up for a long time incase the need for extra income comes sooner than expected. The longer term CD will be an investment strictly for the growth of their emergency fund. Once the short term CD matures you can take that money and reinvest either back into another short term CD or make the decision to invest that money in a fashion that might offer greater rewards.

     At a young age investing in stocks is less of a risk then it would be for an older couple. If you have time to ride the market the rewards can be great. The best advice I could give is talk with a broker that is trusted by friends and/or family. Stock investing comes with the risk that the company you invest in loses value, and in return the price of the stock falls dramatically from what you paid. If you have a good broker that is willing to move your money around when the risk of the stock you are invested in looks like it may decline, then the risk is worth the reward over the course of time.

     Spreading your money into investments that range from safe and quick returns to investments that might be a higher risk, but over the long term the rewards could great. Being diversified with liquid funds is important in making sure your future is secure. Placing all funds into a low interest paying account is safe but offers little return, and placing money solely into high risk/high return accounts chances losing everything you have worked for.

     Specifically I would recommend holding onto and keeping a balance of $600 to $1000 in low interest savings account that can be accessible in a very short period of time. This gives cash on hand in case of emergency. My next recommendation would be, as mentioned above, to put money in a short term, and a long term CD. This is money that should sit and mature, but if needed can be removed. This is also money that can be reinvested once the CD matures. For long term investing, I recommend putting money into stocks or mutual funds. This is money that might move around as risks become too high, but not to be taken out unless long term emergency calls for it. Last, but not least, I recommend investing money into a 410k type fund for retirement. This is money that employers usually match a percent of your predetermined amount from earned salary to invest into retirement. 410k type funds are not to be withdrawn until retirement age, and if done, penalties can occur up to 20% or more.

     Ensuring there is money on hand that may not produce great rewards, but be available for emergency purposes. Other money that is invested that will give decent rewards but is not be available today; although it can be accessed rather quickly in case of longer term issues that may arise. Finally money that is strictly invested for the long term, is money that should produce great rewards, as long as carefully watched, moved around smartly, and not removed until retirement age.

     Take advice from me…28 years old…back in school…pinching pennys because I choose not to invest early. Yes the economy sucks right now, but look at history, we will bounce back, and If you have the money to invest now, it will pay off down the road. Skip that extra hamburger or starbucks coffee and put that money into an account that will pay you in the end!

155. on 04 Oct 2008 at 12:18 am155MokiMoki

     I’m going to turn 20 in just a couple of days and I work part time at a local retail store. I’m also going full time to a college university studying business and art. Though I’d love to invest in a tablet, I simply cannot. I’m happy to say I’m one of those people that don’t buy things they can’t afford. Believe it or not, I only have to pay $20 for my dorm and yes I do have a roommate. It’s not a college dorm; it’s just what it’s called. My financial situation lives around coupons and making constant decisions about certain things that I need vs what I want. I bargain hunt as much as I can because I’m not extremely rich. A lot of the things I have are hand me downs from my parents and cousins so I’m not exactly up with the fashion trend.

     I haven’t got the time to read the news paper to know what’s going on, but I heard from a friend that the bailout passed the House. I thought to myself, ‘Boy, people are going to mutiny.’ I can’t say how I feel about owing what, $10k? to the Government. It’s like Uncle Sam signed an application for a higher line of credit when that bill passed.

     I was talking to a coworker at work a few days ago and she said she’s very worried about it because she has a 3 year old kid and if the bill passes, he’ll have debt already. She has my condolences.

     It just doesn’t feel real to me. The only real debt I have is paying back $10 worth of scented candles (the healthy kind) my other coworker bought for me.

156. on 04 Oct 2008 at 12:43 am156Pham Duy Nguyen

     hey Joe

     i just hear the news too, and i also still me stand: the bailout plan isn’t what we want, but it’s what we need

     the problem is that those banks that are in trouble, they hold too many mortgages and mortgage-backed securities whose values have fallen below the value of money the banks have borrowed. and we all know that banks need capital to operate. In order to borrow another dollar and make a new loan, a bank needs an extra, say, 10 cents of its own money (capital) — so that if the loan declines in value by 10 cents, the bank can still pay back the dollar it borrowed. If a bank doesn’t have enough capital — because declines in asset values wiped out the 10 cents from the last loan — it can’t make new loans, even to credit-worthy customers.

     which leads us back to the bailout plan: those banks need more capital. too bad it means US people’s money. but as i said, this is not People’s Street Vs. Wall Street, it’s more like us saving our neighbors so that we could save the neighborhood.

     anyway, the “new” plan does sound a little bit better, though i can’t stop looking at it as a sale pitch going through various negotiating phases. but at least now the US people have limits to executive compensation, a provision for an ownership stake for the American people in all the rescued companies, and only half of the $700 billion has been approved as of now.

     oh and Daniel: nice to see you here, i’m also a member of your forum, though just joined few weeks back. i learn a lot from you guys too. thanx

157. on 04 Oct 2008 at 5:35 am157Joe

     I believe that, that’s everyone’s stance on the bill. We don’t want it, but we need it (I just couldn’t think of a terminology like that.) Also it comes to the point too that even if we think we know what the bill is, we wont.. Theirs SOO much more to it than what we know (I don’t even think the government knows what the bill is exactly, never mind the fact what started it. They just put big words and names into bills and statements to sound smart, even if they don’t make sense.)

158. on 04 Oct 2008 at 6:57 am158CCGAL

     This is an interesting and thought provoking idea - to generate good conversation, promote interest in this blog, and add to the connectivity we are creating using web 2.0 - wish I’d thought of it!

     I’m not sure I can add much to this already rich with content discussion, but I can at least introduce myself, and share something from the “past 50″ perspective.

     My husband and I live in a rural and isolated community in the farthest north-west corner of California (USA). This is a place where logging and fishing were dominant industries for over a hundred years. In the 1970’s, the Redwood National Parks Expansion Act, followed shortly thereafter by several years of poor oceanic conditions, and most recently the newest regulations on the already incapacitated fishing industry, decimated our economy. Our community went from being one of relative comfort to practically poverty stricken in a very short time. This after being hit by a Tsunami in 1964, no less. Our community actually sought out, campaigned for, and was selected for the location of a new super-max state prison in the 80’s, which, while revitalizing our economy somewhat, forever altered the area in ways I cannot even begin to discuss in this introduction.

     It is good to know about finance and economics, and I encourage everyone to learn as much as possible for knowledge is probably the most useful tool to combat adversity, right after inherited wealth. However, Sporadic High Intensity Trauma can and does occur, and the ability to experience change and (pardon my cliché) “Roll with the Punches” is the most important skill you can develop, bar none.

     I preach from personal experience on this one; when it comes to overcoming adversity, as defined by an American standard (as I am certain that living in other less developed countries is a level of adversity that I do not comprehend) I am an expert in trauma survival.

     My husband has a degree in Business Administration, and I completed a 4 year federal apprenticeship in a mechanical trade, and later obtained a certificate in an additional field. We are both advocates of continuing education, and we read voraciously to improve our knowledge base. However, during the course of our working lives (hubby retired, I have a ways to go) we have been suddenly and without warning placed in the unemployed column as the places of business we worked for went bankrupt, merged with other companies and laid off duplicate staff, went out of business, and even my federal employment at a Naval Shipyard was terminated because the shipyard was decommissioned.

     In 1978, I gave birth to a child with a disability. For 30 years now I have devoted myself to keeping him out of an institutional setting. Talk about an unforeseen, life-altering event! You have no idea. Really.

     But Wait! There’s More! (Funny if you’ve ever watched a late night infomercial.)

     Elderly parents.

     My father was 57 when I was born. That means when I was the ripe old age of 18, the time when many life path decisions are made, like which college to go to and what to study, I was learning about adult diapers, stroke, and how many people giving round the clock care are needed to keep a loved one out of a bad nursing home.

     Mom, being 30 when I arrived on this planet, was very soon there-after needing care - thank goodness I have a sister!

     My husband’s mother was living independently in her 70’s when we married, but within 6 month became ill, nearly died, and became our responsibility for the next 11 years until she passed away just shy of 90. I am proud that we were able to care for her in our home for all about about 3 months of that time.

     Illness can strike anyone at any time, and we have not escaped that little life altering component, either. My husband has had so many operations in the past 15 years we lovingly refer to him as our six million dollar man because I’m pretty sure the medical bills are getting darned close to that. Medical insurance has literally been a life saver, but those pesky 20% portions add up fast. Having accidents (like a car wreck, no fault of your own) or a debilitating disease, or a botched surgery that damages an important nerve in your body can affect you on every level you can imagine and then some.

     So how does all this relate to the topic of finances and fiscal solvency?

     Well, it doesn’t matter how much or how little you know about the theory of money, if you understand that creating value for people is the cornerstone of creating money, and you recognize that you can overcome anything, you can be happy and successful. You may have to define what happy and successful means to you, personally instead of blindly accepting the myths propagated by the media.

     You see, when all is said and done, and much more has been said than done, life is a crap shoot, a roll of the dice, a gamble. You never know what’s coming next, and the only constant in the world is change. You can’t control the wind, but you can adjust the set of your sails.

     If you’ve led a relatively comfortable life thus far, you may have read this brief synopsis of my life and think it has been horrible. If, on the other hand, you have experienced far worse, you may have thought, “piece of cake, wish that’s all I had to deal with.” Your life experience and your fund of knowledge is the lens through which you view the world, and that includes the topics suggested for this contest.

     So my advice to you, no matter who you are or what you do, and no matter how much or how little you have, is simply this: enjoy anything and everything you can about each and every day you are alive and on this planet. Oh, and add value whenever you can; it pays huge dividends.

159. on 04 Oct 2008 at 7:05 am159H Lee D

     Hi! I’m coming up on 33 years old and am a teacher, as is my husband. We have been married for 3.5 years and have some debt: a mortgage, a car loan, a student loan, and about $2K on a 0% credit card. The card will be paid off before the 0% ends. Otherwise, we pay bills on time and credit cards in full. We bought our house near the end of the housing boom but make a large enough down payment that even with the depreciation of real estate around here (Phoenix), we still don’t owe more than it’s worth.

     I started learning a little bit more about finances in the last year or two and started a 403B. I still am “beginner” at this, but we have a budget and stick to it. We had a lot of savings, but I went through cancer recently (coming up on my one-year cancer-free anniversary) and was out of work and had many bills. At the same time, the house literally starting falling apart (the back room was actually separating from the house). So the savings is gone, but we’re slowly building it back up.

     Are we struggling? To say yes would be dishonest. We really just don’t have money to do many fun things that cost money, but we’re not struggling to pay bills, we’re not paying credit cards with credit cards, our credit scores are both excellent. Because of all the garbage that’s gone on, we’ve had to cancel a fairly substantial vacation that we had planned, but again, I consider that more an inconvenience than “struggling.” It would be nice to be able to do more stuff, but that will return in time.

     I’m aware of people’s troubles, though, as I teach in a very poor neighborhood in the inner city. It has really opened my eyes to how some people live, and it’s not all because of drugs or being lazy (as some would like to believe).

     As to your other questions … I will admit that I don’t know the answers to any of them, but I will go and look them up and be a little bit farther down the path of financial awareness.

160. on 04 Oct 2008 at 7:25 am160Zaheer

     Hi, I’m Zaheer and I will be going to college in less than a year. (I hope to get some scholarships…)

     I think the reason most people were/are so wary about the bill is because they don’t really know what is happening. I haven’t seen any data, but I would think the average American does not know more about the economy than inflation, stagnation, debt, etc. Many Americans don’t realize how dependent Main Street is on Wall Street, and believe that the bill will help only the rich bankers who created the problem in the first place.

     As Joe said, even some people in the government (mostly members of the Congress, I would think) don’t understand the problem because they do not have the background in economics. Probably the only officials who understand the entire bill are those in the Treasury and the Federal Reserve.

     This bill is definitely not the end. There will be much more legislation designed to prevent another disaster by reinstating governmental oversight/regulation.

161. on 04 Oct 2008 at 8:18 am161Ayriway

     OK, my name is Ayriway and I’m part time Design student and I’ve been working part time jobs since forever (right now I’m a recpeptionist in a hotel). I’m not broke or in debt but I don’t have extra money to do things I like (I love web design and photography). I’m a lousy financial planner and I have no savings whatsoever, I have a sort of in-the-moment kind of life, I think that as long as I have enough money to eat and pay my bills, it would be alright.

162. on 04 Oct 2008 at 10:31 am162Doreen

     Hi, I’m Doreen, 31 yrs of age and I work in a Special Needs School assisting with Special Needs Children. I have little savings and yes I do have some debt unfortunately but I’m trying to work on it. I am struggling financially for one, because I don’t get paid enough at all for everything that I do on my job. I have no benefits there either. I’m trying to pay my debt off with what little pay I get at my job. It just doesn’t pay to stay with the job I’m at because I’ll never get ahead and get out of debt. Thanks for this discussion. I’m looking forward to reading more of the posts! Oh, and I’m really, really excited about this contest!!

163. on 04 Oct 2008 at 10:53 am163Rob

     My two graduate level courses were in micro and macro economics quite a few years ago. The bailout plan sounds really bad until you compare it to the alternative. The computer club that I lead has several members who lived through the depression. They may not remember it, but they do remember the long term effects on their families. We do not want to have a repeat.

     I very much distrust Bush and his judgement. He could be screwing the middle class (again), but I don’t see an alternative.

164. on 04 Oct 2008 at 10:55 am164Layne

     Hi, I’m Layne and I’m 25. I finished my AA a couple years ago now, then stumbled upon a pretty decent job and worked full-time, taking some time off school to save up, move out on my own (excuses, excuses!). Then went through some personal ish, a period in which my savings was all but destroyed, while my credit card debt ballooned. Fast forward a year later, I went after and landed an even better job with awesome pay and benefits, just moved into an inexpensive but very nice apartment with my boyfriend (we got a GREAT deal on this place), and am working to pay off a few thousand dollars in credit card debt. And owe a bit more to my parents–yuck. I’m WAY overdue, but I’m finally going back to school next semester–this time, on my employer’s dime as they’ll reimburse all my tuition and expenses. While I’m kicking myself for not being finished with my Bachelor’s by now, at the same time I’m happy I waited because now I’m in a situation where someone else will pay for it, and, oh my god, I DON’T HAVE TO PAY THEM BACK!

     But what annoys me most about my current debt and my financial situation, is that I can’t claim that I was ignorant, didn’t know better, was taken advantage of, etc. I’m pretty darn familiar with personal finance and economics, and definitely more so than the average person. But the cards fell as they did, and I’m thankful to now be in a position where I can rebuild, pay down my debts and start significant savings. But it feels so much more challenging to rebuild in this economic climate. I mean, on one level I feel like a lot of people at my “level” do–this financial crisis isn’t REALLY affecting me. I don’t have tons of money in the bank, or a mortgage… with the amount I have in the bank, I feel my money is totally safe. And I’m not worried about my 401k because it’s just a baby and I’ve got a long way to go until retirement. I’m [somewhat] confident our economy will recover long before I retire.

     On another level, I do feel I could be doing better if it weren’t for this bust. Obviously. Like, if we were booming, I’d see my baby 401k grow up a lot faster. And I’m sure I could get my credit card debt payed off much quicker (and avoid throwing money away each month), if I could find a 0% interest no fee credit card (or offer on one of my current $0 balance cards) to transfer my debt onto. Then I could put more into savings sooner, which 20 years from now would make a BIG difference (oh how I LOVE the time value of money!!). But it’s not like it was a few years back and good credit card offers are hard to come by.

     This may be a little off topic, and may even sound silly, because after all I do have credit card debt, but I really believe that–used PROPERLY and CAREFULLY–credit cards can help you make your money work harder and to save more in the long run, especially when you start dealing with larger and larger amounts of money (example: have $50,000 in credit on 0% or even very low interest card, while you have $50,000 in the bank or invested earning more interest, then pay off the cc balance before the interest promo ends–you got a free loan from the credit card company and earned lots of interest on the money in the meantime). Again though, those nice offers don’t seem to be available these days.

     But as someone else said, the key to use credit cards smartly, and always have enough cash to cover the balances. In these hard financial times, it’s way to easy to use credit cards to cover basic living expenses, because there just isn’t enough money. I see people drowning in debt like that all the time. And it seems that a lot of kids, even those educated about finances, can get into trouble with credit cards. However I do believe that personal finance should be a required basic college course–it would help people immensely. Still, with the interweb and everything, there is SO much information out there, that I think people do need to take responsibility for educating and informing themselves, too.

     So anyway… as for this whole financial crisis. It’s kind of interesting to watch it happening and to live through something like this. I just hope it’s fixed, and rather quickly, please. But in the meantime, there’s nothing I can really do about it, except hope in the long run this bailout does “save us all.” LOL. I just have to laugh at that though, because I really kinda feel it’s going to be one of the biggest disasters ever.

165. on 04 Oct 2008 at 11:26 am165Thomas

     1. Tell me a little bit about yourself and your finances. First just give me a brief synopsis to introduce yourself. How old are you and what is your occupation? Do you have any savings or debt and do you find yourself struggling financially?

     Hi, my name is Thomas. I’m a 17, and a freshman at university. I’m currently doing a dual-enrollment program, meaning that I am actually a senior in high school and a freshman here at university. I’m unemployed–I was never able to get a job back home (the old catch-22: you need a car to get a job to get a car), and in the past month I’ve applied to about a dozen positions, but have still received nothing back. I hope to become employed around October 17, after a major career convention thing held by the school. So, my finances look pretty bad, and new expenses keep appearing. I found out last week that one of those pointless rF remotes is _required_ for a 0.0000 credit “Freshman Seminar” course, but not for any other class. And like hell am I going to pay $100 for that!

     3. Inflation. What causes inflation ; who benefits from inflation and who does it hurt?

     Inflation is the decreasing worth of currency. Typically, farmers most benefit from inflation. In addition to farmers, many people who have a current debt and live within their means have the possibility to benefit from inflation. Why is this? In short, their debt becomes devalued: normalized, it can become significantly less of a burden so long as wages “keep up” with inflation. Instead of paying a required $100 on a debt, you may pay yesterday’s $80 or today’s $125: either making the required or exceeding the required. Inflation most hurts lower-class and middle-class households. In modern time, the inflation rate exceeds the annual increases in wage or salary. This is especially so for those without employment: whatever money is saved goes down the drain faster. These people often include students and the elderly, as neither group can typically live within their means and whatever money saved is stretched beyond belief.

166. on 04 Oct 2008 at 12:19 pm166Sarvesh Patil

     Hi Jennifer!
     I’m Sarvesh from India. I’m 22 and currently in 3rd year at Medical
     University. Studying to become a doctor. My education is financed by
     my parents. So I’m not under debt and I haven’t taken any education
     loans. I’ve been reading finance blogs since a year now. And I have
     adopted many good habits since. For example…

     1. Tracking Expenses.
     I write down every tiny little thing that I spend on. This in turn makes me concious of my spending habits. And it has also helped me figure out where a major portion of my money goes. For example Going to the movies with friends and eating out create a lot of un-necessary spending. I’ve replaced this activities with less expensive ones. Like going to Jog with friends. And I do treat myself to a good dinner and a movie with friends once in a while. But not often.

     2. Frugal Living.
     I’ve also used a 30 Day list. If I feel I want to buy a item that is not a necessasity then I write that item down along with a date. When I check back on the item 30 days later. I realize that I really dont want that item and thus save unnecessary spending. Im also a big fan of De-clutter-ing. I was a pack rat before. But it has worked in a positive way. As the money I generated from selling things that are not used much on ebay helped me give a head start in Saving money.

     3. Saving Account.
     On the 1st of each month I keep 50% of my allowence and I shove away remaing 50% into my high intrest saving account. On most months I do well with just the amount I keep for myself. I use a envelope system after creating a monthly budget to cut spending habit. My savings are increasing well and the compound interest just motivates me to save some more.

     4. Investing.
     I dont have the kind of money to make it big in Stocks or Real Estate. Though these are my future goals. Rightnow I have started investining in “Systemic Investment Plans”. They dont require me to go out of my way and need a little contribution every month to keep the mutual funds investment running. I need to learn a lot about investing and I’ll be joining Finance classes in my next holidays. (Being a medical student does not mean you have to be naive about your finances.)

     Thats what my system is made of. Im quite satisfied with what Im saving and doing rightnow. But there is always room for improvement. I wont say that everything will turn out to be perfect. I’ll be a success in every aspect of my life, but I’m going to try. Making small corrections everyday. Just the way airplane needs to make small corrections to stay on route. In the end it will all work out.

167. on 04 Oct 2008 at 4:33 pm167Thomas J. Brown

     My name is Thomas and my wife and I are in the process of buying our first house. The process has taught both of us a lot about finances, and we’ve been very fortunate to have done things, “the right way,” as we’ve been told by our lender.

     We’re living in somewhat of a frightening time with regard to our nation’s economy, and some people had suggested that we might not be able to access our savings when the time came. As rumors began to circulate that Washington Mutual was the next to go belly-up (they had hundreds of billions tied up in mortgage loans, over 20 billion of which was subprime), several people suggested that we close our accounts and move all of our money to a different bank. Because, you know, that worked out so well in It’s A Wonderful Life. And Mary Poppins.

     My wife and I agreed that we didn’t want to be part of a run on the bank (a friend who works at a small local bank said a lot people were opening accounts with them using money they had pulled from WaMu), so we left our money where it was.

     When the news came that JPMorgan Chase bought WaMu, I was nervous. Yes, our money was federally insured, but when would be able to access our funds? Would we be unable to purchase a house due to an inability to secure our down payment?

     This past Friday afternoon, my wife and I went to our WaMu branch and got a cashier’s check for the most money either of us have ever spent in our lives. The teller didn’t even bat an eye, and on Monday, we’ll be signing our closing documents.

     I liked WaMu, and I’m not too excited about it becoming JPMorgan Chase, but at least I can feel secure that my money is still my money, and I can expect to get it whenever I need it.

168. on 04 Oct 2008 at 4:50 pm168Roger

     Hey, my name is Roger. I’m a 21 and currently attending the University of Washington attempting to finish my Informatics degree as a full time senior. I am currently employed at a sporting goods store part-time. My finances aren’t too bad, although I am at the moment looking into joining a local credit union because my current bank “WAMU” and I don’t want to deal with the whole JPMorgan Chase thing. I currently have no debt issues, and plan to keep it that way.

169. on 04 Oct 2008 at 6:23 pm169Dan

     My name’s Dan, I’m a recent college graduate who picked up and moved slightly more than halfway across the country for a job a couple months ago. I’ve got about $8k left of student loans, a steady source of income, but not much in the way of savings.

     The question of financial literacy is an interesting one to me, because I find it hard to pinpoint exactly where my personal finance education came from. I have Steph (of Poorer Than You) fame to thank for getting me really thinking about it, but I have a pretty strong mistrust of debt of any kind that predates knowing her… possibly more than is healthy. (The reason for my low amount of savings is largely because the notion I can’t shake is that my best return on investment comes from paying down my loan.)

     My parents never financed anything short of their house, and from my very first credit card, told me that paying it down was the only way to fly, because if I needed to borrow money, a credit card was far from the best way to do it. Maybe this lesson worked too well.

     Obviously -some- parents can be a great source of information about personal finance… But when you’re young, you can’t be expected to know whether your parents are any good at managing their own money, because adults are apt to blame someone or something else for their financial woes, whether it is their fault or not. “Daddy says we can’t pay the rent because the government takes all our money. Then he tells me to go away ‘cos he’s watching NFL sunday ticket on his 60 inch plasma TV.” (Dramatization. May not have happened.)

     Maybe with the country’s finances in the crapper the way they are right now, a mandate to make personal finance a part of public education could go through. A little bit of good advice can go a long way. I mean, in one class, you could at least lay down some tenets that would, if they stick, steer kids away from a lot of common pitfalls. Like “live within your means”, “if it looks too good to be true, it probably is”, “stay the hell away from buying any rock T-shirts or hip-hop gear or anything like that, arcade games, pick out one that you can do, -one- that you can do, okay? as opposed to a whole bunch of them that you don’t know what the hell you’re doing”.

     In some cases, the kids teaching the parents would not go amiss…

     My (rambling) two cents.

170. on 04 Oct 2008 at 7:29 pm170Daniel

     Pham Duy Nguyen,

     I’m glad that you’re enjoy the forum. It’s really a place for everyone.

     Cheers!

     http://www.pualifestyle.com

171. on 04 Oct 2008 at 7:38 pm171Nicholas

     I’m Nick, and I’m a typical 16 year old, trying to solve the mysteries of life. I’ve aspired to attend Stanford University since I first visited the campus when I was in 1st grade. My family has been blessed with a above average income, but I’m afraid that it may not be enough to pay for my complete tuition.

     I’ve done a lot of research about money, and I’ve spent a good 3 years of my life trying to wrap my mind around the economy and how money works in our system. I hope to be able to master the economy by the time I’m 18, and all this while saving my money for college.

     Of the five topics listed, inflation seemed like a good topic to explain. Everyone has heard about it, but I guess not many people really understand what it’s about. So, here’s my shot at explaining it.

     Inflation is the rising of goods and services. When you pay for something, it generally falls under either category. Food and “stuff” counts as goods, and lawn care services and taxis are services. The reason why it’s so important today, is because it’s a very good indicator of how the economy of a country is doing.

     The most obvious cause of inflation is by adding too much money into the system, thus devaluing the currency. This is one of the main causes of inflation in the US. Another way that prices go up is by having a larger demand for goods and services than there is a supply of them. Prices go up to discourage the buying of the product, so less people will be able to afford the said product. Lastly, inflation can occur when the price of making a product goes up. One example dear to my life is the price of wheat. Since the price of growing wheat has gone up (due to those biofuels >.>), the price of many wheat based products such as bread and bagels also goes up.

     Usually debtors gain when inflation goes up, and consequently, creditors lose. For example, say Bob lends Joe 1 dollar. If inflation makes the dollar less valuable, and it’s only worth 9/10’s its original value. Now that means that Joe only “really” pays Bob 90 cents back, while he was given 1 dollar originally. Thus, Bob doesn’t get the full worth of his money back.

     When inflation goes up drastically, most consumers and corporations are less likely to spend money, which hurts the economy as well. All in all, inflation is not usually a good thing for anyone.

     Well, I hope I coherently explained inflation for you. I really hope I win the laptop! Good luck to everyone else who participated in this contest.

     `Nick

172. on 04 Oct 2008 at 8:33 pm172Joe

     @ Nick

     “I hope to be able to master the economy by the time I’m 18, and all this while saving my money for college. ”
     I hope you do, because I’m 19 and I hardly understand half of it!

173. on 04 Oct 2008 at 9:40 pm173Rob

     @Nick and Joe

     Greenspan, Bernanke, and Paulson are much older than you and have studied economics and have had a major role in guiding the economic health of the U.S.

     I have listened to many hours of Greenspan speaking before congress over the last 20 or more years. Bernanke studied and is an authority on the Great Depression. Paulson headed Goldman Sachs. And if you have read the news lately, it is pretty clear they didn’t have a clue about the trouble the U.S. is in.

     Good luck in mastering the economy because these guys have done a pretty bad job of it.

174. on 04 Oct 2008 at 9:50 pm174Beeb Ashcroft

     Hi there!

     First off, thank you for hosting such an awesome giveaway! I love the title and concept behind your blog - good stuff!

     My name is Beeb. I’m a 25-year-old journalist, and I was fortunate to be raised by extremely frugal parents. Because of this, I learned great habits that have served me extremely well in my adult life. I have no debt, and am able to make the money I have go as far as it possibly can. I’ve always been a hardcore penny pincher, and this year I became a hardcore coupon clipper as well; and I’ve been able to use all the money I’ve saved that way to pad my savings. I try to think creatively and find affordable alternatives to expensive things that I need (or want!). Above all, I avoid debt like the plague! And there you have it, a little bit about me and my spending habits.

175. on 04 Oct 2008 at 10:16 pm175Pham Duy Nguyen

     ROB: which leads us to another question: how are you supposed to learn and master the money system anyway, especially when your major isn’t economy (i study computer)? i mean, i consider myself a very money-aware person who is always on the lookout for his money and saving, and i read financial books too, but i’m just not sure if i’m doing it the right way.

     i guess, to somehow mater the financial system and thus get yourself away from any money-wise problems, you’d have to do… what? reading more books? listening carefully to people talking money (like Rob do)? or actually enroll yourself in some kind of financial class (though i’ve found none like that)? to be aware of how bad you are at something is great, all right, but to know how to actually improve yourself to get away from that sinking hole is whole different thing. i try to do my best, but sometimes it just got me unaware and completely not knowing what to do, like this current US situation. I’m now 19 and i think i’ve been doing not a very good job at mastering the economy either.

176. on 04 Oct 2008 at 10:35 pm176Lisa

     I’m Lisa, a 23 year-old full-time university student majoring in Chemistry/Earth and Ocean Sciences.

     My finances at the moment are in pretty good shape, due almost entirely to my parents. Before he passed away my Dad expressed the desire to pay for university so I’ve avoided student debt.

     My parents have always been very debt-averse, they saved up enough cash to buy a small mobile home and some land in the late 60s, and then saved enough to upgrade to a house in the late 70s where my Mom still lives today. They never had a mortgage and always drove used cars, paid for in cash. Following their example, I have never put anything on a credit card and not paid it off at the end of the month.

     I didn’t get an allowance, but when I was seven they got me a paper route on Saturday mornings. Half of the money went into investments and the other half went into my savings. If I wanted something unnecessary (a trampoline, a new bike, a stereo) I had to save up half and they would cover the other half. When I reached my teens I wanted to get rid of the paper route, my Dad told me I could quit the paper route when I got another job. I had the route until I left for college.

     I learned everything I know financially from my parents, and I was incredibly lucky to have such a positive example at home. However, there should be much more emphasis put on teaching economic fundamentals in schools as many students don’t have the same advantages. The people who have positive examples to learn from will do so whether or not they are taught antyhing about it in school, but those who don’t need to be exposed to sound principles early and often in order to break the downward cycle of debt.

177. on 04 Oct 2008 at 11:30 pm177Rob

     Pham Duy Nguyen:

     A course in economics is a good start. But you have to learn to read between the lines.

     The Bush administration has been masters at controlling the perceptions of the American people. Carl Rove is an evil genius in manipulating the public.

     Normally, the party in power does everything it can to make the economy look good going into an election. Why have the Republicans allowed everything to look so bad a month before the election?

     Can’t they put some lipstick on this pig? Or have they already and the reality is MUCH worse than we are being led to believe?

178. on 05 Oct 2008 at 1:46 am178JB

     I’m a 17 years old guy from Hungary, one of the many countries trying to escape the devilish cycle of debt this system created. It may not be apparent at first sight - we are no third world country after all - but trust me, the signs are all there: the debt of our country has skyrocketed, annual growth is down, unemployment rises, government cuts education and health care budgets.
     You said “Financial literacy unfortunately is not taught well in our public schools”, well to be honest, nothing is taught well in any public school of any western country. The reason for this is not just the lack of money (it is the symptom) - in reality, the government seeks to create uneducated masses easily controllable trough the media.

     So let’s talk about inflation and interest. We were all taught how a single dollar deposited in a bank 2000 years ago would have became unimaginable wealth by now trough compound interest. What they forgot to tell us is that the interest rates we get at a bank are far below standard inflation levels - which means that in fact our money would loose value instead. Of course this is a silly idea - no currency has existed for such a long time. The reason of this is simple: as the currency looses value, the economy collapses, with it the country collapses, and in the end new nations emerge with new currencies. And the cycle continues.

     So what is inflation? Think about balloons - as you inflate them, they grow. But at one point, it just explodes. The same applies to our monetary system - money is created out of nowhere. But that money has interest on it - and to pay that interest, more money is needed. Thus the central bank has to increase the money supply exponentially. You might then ask why doesn’t this system collapse immediately - the reason is simple: because the inflow of money creates economic growth: but this growth cannot keep up with the growth of the money supply, thus only delaying the imminent economic crisis.

     The greatest problem of them all: there is no solution for this problem until money exists. As if at any point all our debts would be paid off, money would disappear. If the money supply would start to decrease, economic crisis would still happen. It is like cutting the gas while driving. You can either stop in the middle of the highway, only to crash into the car behind you, or speed up and crash all the same.

     It is sad to see that with all this knowledge one can do nothing to stop the process. I doubt even the masses can do anything now - we have to wait and see. If we are lucky, we can avoid war - the slim chance exists, because as evil as they are, the true rulers of the world are not stupid, they know that there is no way anybody can win a world war in the 21. century. Power will shift once again - to China or India.

     But I doubt anyone who knows this wants to sit on his ass watching TV. Maybe if we achieve a critical number of people aware of the issue, we might change the system. So the best thing you can do to help: spread the word.

179. on 05 Oct 2008 at 6:48 am179SavingEverything

     To live as a student means to live in your own world; grow out of your world and enter the global economy.

     Where’s the legal full disclosures, as well as the independent party that may conduct the drawings? How do we know the drawing will be conducted once and the winner that is drawn will be officially the winner, without prejudice to the type of reply here?

180. on 05 Oct 2008 at 7:18 am180james

     i believe the economy is by far in a worst state that how it is portraied in the media. i believe bush feel that i am in my last termand cannot run again so i might as well do all the damage i can beforehand and let the other president deal with it.

181. on 05 Oct 2008 at 7:31 am181Loretta

     To better keep in contact with family and friends; to better understand today’s current world problems; and to better continue my contribution to life around me, I would appreciate immensely and enjoy a new computer to enable these lifelong endeavors and education.

182. on 05 Oct 2008 at 7:37 am182Joe

     @ Rob,

     Yea, I gave up trying to master the economy, finding it impossible. But however obtaining a grasp on it isn’t, that in itself is hard to do.

183. on 05 Oct 2008 at 7:39 am183christine yoo

     joe- do you realize you are faulting a business, a business out to make money for doing exactly that? ultimately, it is the peoples’ fault for all the reasons i already stated, you cannot fault a business for doing what they do in a free market, make money, they can try to do it fast, they can try to do it slow, but ultimately they will make money if they want to survive

184. on 05 Oct 2008 at 8:41 am184D'Juan

     For everyone here, I have a question. I was just reading information on some of the info supposedly added to the bailout bill, and came across this writeup explaining how banks were going to be allowed to hold zero reserves in the bailout bill:

     http://www.dailykos.com/story/2008/9/30/01617/5440/126/615177

     The bill was revised to allow the possibility starting February 1, 2009 or June 1, 2009, and it hasn’t been completely decided, but I still have questions.

     If this were to happen, doesn’t that even further weaken the fractional reserve banking that the US economy uses, considering the fact that banks would be allowed to loan lots of money that they didn’t have?

     Wouldn’t it technically allow a bank to loan out money when it had NONE in reserve?! In what ways would that affect our economic situation? Would there be a good side to this situation? If so, what would the good side be? Would there be both positives and negatives?

     I’m trying to get the best understanding of the possibilities that we may face, and considering the deep conversation and the knowledge I’ve already taken away from this topic, I figure this would be the best place to ask because I can’t see any good in that possibility. And I’m an optimist.

     Thanks for reading!

     -D’Juan

185. on 05 Oct 2008 at 8:57 am185Joe

     @ Christine

     So what your saying is that, Those banks who gave out all those loans to people who couldn’t afford it were justifiably right? The reason people get denied of loans in the first place is because they can’t afford them. So why would the banks suddenly think that every single person can afford this house loan? If they were playing their cards right we wouldn’t of needed the 700 billion bail out deal.

     I believe I have every right to blame those who caused this problem for the world. If everyone wasn’t so power hungry, and such greedy animals we wouldn’t be in the situation we are today.

     Now do You realize that everyone will blame each other, wrong or right of the cause? Because in the end, nobody want’s to take responsibility, they just want to take the money.

186. on 05 Oct 2008 at 10:01 am186D. Pham

     Hi, I’m DP and I worry too much about my finances. I’m 25 and have been savings since my first job at 16. I currently work 2 steady jobs and 1 freelance gig. I work hard and save harder in order to buy my own piece of american real estate. In all truth, I’m ready. I have enough for a down payment. However, with the way things are going, I’m so incredibly scared of parting with so much money. I’m afraid that prices will fall lower and I will regret buying so early. I’m afraid commiting myself to such a debt and finding myself out of a job. I also had a health scare earlier in the year and am afraid it will come back. For now, its easier to do nothing about buying and just continue savings.

187. on 05 Oct 2008 at 10:33 am187Jen

     Hey,

     I am 17, and a freshman at a college in NYC, so I’ve seen the whole Wall Street crisis, and as well as Lehman brothers and others close. Ive had a job at a supermarket for about a year now, and so I’ve saved most of my money in my ING savings account. I have no credit card, just a checking card, and no debt unless one counts my 3500 Stafford loan. In high school i was surrounded by people who always spent their money, and so I tried not to do the same. My parents are extremely frugal, we are an immigrant family and so we make lower average income. They still impress me however, they have managed to buy two houses, and still pay the mortgages ( although, its getting harder).

     The way the free market works is that the demand is relatively higher for those products for which the desires are intense. The offer is relatively less for those goods produced at high cost or who have little use. The price is the factor that matches supply with demand. When a thousand people decide to buy a product at a price, they choose on the basis of the desire for the product. According to Friedman, the economy will fix itself, but this time it doesn’t seem to be the case.

     I’ve been following the above discussion which i must say is very interesting. With the economy, what we are going through now are consequences of things that occurred many years ago. All this makes me wonder if its the end of the free market in the united states, or at least the idea of it? Today again, the free market has shown its inability to be self-sufficient. We have to control it better globally. In my opinion, the U.S aspires to be a free market, but I think it is necessary that the government should intervene to balance the market and most importantly to ensure a fairer distribution of wealth.I think we’re at the failure of the free market without government control, this is proving to be a fallacy because big corporations are capable of everything to make money. And most unfair is that profits are private, while the losses are social.

     thanks,

     jen

188. on 05 Oct 2008 at 12:35 pm188Richard

     Hello.

     Right now, my only debts are student loans. I was lucky that my parents were financially savvy and I picked up a lot from them. For instance, credit card bills paid in full each month, save as much as possible, and pay in full instead of financing.

     @Jen

     The social losses are called externalities in economics. For instance, take a factory that pollutes. For the company, it would be cheaper to ignore the pollution costs, because any increase in cost would be a loss in sales. In order to get this external cost properly reflected, government regulation is needed to force the company to pay for the damage pollution causes.

     What else does the government regulate? 40 work week, minimum wage, clean air & water, safety standards, etc. Free market is a nice dream, but without government intervention, companies would run rampant and control much of America.

     A common name for this problem is tragedy of the commons. Read more at wikipedia.
     http://en.wikipedia.org/wiki/Tragedy_of_the_commons

     Richard.

189. on 05 Oct 2008 at 1:57 pm189Joe

     @ Richard

     I would like to point out their are environmental policies that prohibit pollution. So technically they could be fined a lot more than what it would cost to correct the problem. So it wouldn’t be cheaper for them to ignore it even without the government regulation since the laws are already in effect.

     However some plants continue today to pollute at an alarming rate and nothing has been done to stop them yet…

     (That and who would really want to deal with a bunch of hippies protesting?)

     That alone is worth the correct standards.

190. on 05 Oct 2008 at 2:08 pm190Joe

     Sorry, I didn’t read the last line of that paragraph, I just basically said what you said but in more details

191. on 05 Oct 2008 at 2:40 pm191Theodore

     Hi, my name is Theodore and I am a self-employed individual in my mid-twenties. The only major debt I have is student loans, which at the moment is about $10k worth, so its not too bad as I have seen people with $50k plus in student loan debt. The major mistake I made with these student loans is when I was deferring the loans. I made a slip up in the paperwork and never got my student loan payments deferred. Unfortunately, I didn’t realize the mistake at the time, and my loan was sent to a collection company. The collection agency gave me the choice of paying the loan off in full (impossible at the time) or consolidating at a fairly high interest rate. So now I am stuck with this high interest rate for the remainder of the loan Don’t let this happen to you.

192. on 05 Oct 2008 at 2:50 pm192Queen of the Click

     This is a great giveaway!

     I am a teacher and can’t afford a house in Brooklyn, NY. We’ve saved for years and unless we want a $3,000+ mortgage a month, we can not afford a house here. Of course the banks would love for us to take a million dollar loan, but I am not interested in that (I’ve read Rich Dad, Poor Dad).

     Oh and just so you, Broke Ass Student, know I actually teach my students real life skills like not to use credit cards. I believe using credit and spending beyond your means is one of the major problems of our system. The other problem that exists in our society is disclosure. Company’s spending wasn’t reported accurately and now everyone needs to suffer.

193. on 05 Oct 2008 at 3:57 pm193Danielle U

     I don’t agree with what James said: “i believe the economy is by far in a worst state that how it is portraied in the media. i believe bush feel that i am in my last termand cannot run again so i might as well do all the damage i can beforehand and let the other president deal with it.”

     You can’t just blame the president for the current problems that we are having. There are many factors involved with our current economical state. Just choosing to blame the president is a bit of a cop out.

     The loan companies/ banks and programs like Fannie Mae were giving out home loans too liberaly…that has nothing to do with the president. You can’t blame him for anything with them except making a bill to give them money to bail them out.

194. on 05 Oct 2008 at 4:09 pm194Jg

     Hello,
     I wish I had seen this sooner. This has been a lively forum on many issues surrounding finances. I hope that some of us come away from it a bit wiser.

     In my own situation I have lived the easier path of mounting credit– but always managing to pay it off eventually– what I have finally perceived is that credit does a double dose of debt to us. On the surface is the credit load we carry and the finances that go out of our pockets directly because of it– but the hidden loss is the loss we realize (or fail to realize– pun intended) regarding potential savings/investments.
     For all that easy credit I was able to finance a lot of things, but it robbed me of the most important purchases I could make– those of long term investments. As we grow older there is no way those same “kindly” credit companies will make our lives better. Just ask any senior citizen who is struggling to make ends meet and deciding whether to buy medicine or food this month. I still have time to rectify some of this loss– but any young people reading this are encouraged to stop using credit and begin investing– today. That I know you won’t regret.

     I am currently paying off a student loan (yes, even at my age) from my seminary education. My age is against me– not in terms of the time for repayment– but in terms of what I needed the education for. I had hoped to be ordained, but at this point may have to remain a local pastor (at much less pay)– the economy plays a part in this and so is an unpredictable set-back. yet, if you are young and reading this– dream now, dream big, and go for that dream while you can still afford to do so.

     Blessings to you all,
     jg

195. on 05 Oct 2008 at 4:20 pm195Jennifer Lynn

     Submitted by Ben;

     “I may not be answering a specific question but, I would like to tell you how and when my life changed by learning how to empower my self to change my financial future.

     I am 19 years old and I have been on a quest to improve my financial literacy. I found a book call Rich Dad Poor Dad By: Robert Kiyosaki when I was in the 8th grade and ever since I have been devouring all the financial information I can get my hands on. I have read all of his books and many others that involve business, real state, stock market, and accounting. I read tons of blogs and magazines and attend seminars in my local town like real state government, and community conferences.

     I agree that schools does not teach this subject and many cases that is why many Americans make bad financial decisions.This year I will be joining the Air Force as a apprentice contractor. I sought this to learn not earn. Then while in the Air Force I will be attending a college for my MBA. I only tell you this so you can see my future goals and just by saying them out loud motivates me to continue my learning. Thank you for your time and wish me luck.”

196. on 05 Oct 2008 at 4:35 pm196Barbara Baker

     Hi everyone… (Wonderful Contest if I may add!!!!)

     My name is Barbara (from Texas). I am 34 and a mother of three awesome kids (aged 15, 6 and 5). I have a wonderful husband who supports and stands behind me as I am working towards my Bachelors degree in Computer Science (multimedia). I am holding strong with a 3.5 GPA…sure, it could be better, but with 3 kids, a husband and typical house duties…I do the best I can in giving shared time between all my activities.

     Right now our debt is horrible and we are struggling more than ever before. My husband is the only one that works because about two years ago my daughter was abused at a daycare. I had never put my kids in any type of daycare prior to this event (it was on the second day of ever attending). I decided earlier and had discussed it with my husband about taking classes at our local college. Because of what she went through I had to drop all the on campus classes and go for online learning so that I could tend to and take my daughter (just 2) to the doctors on a weekly basis, the psychologist ever couple of weeks and other treatment therapy needed. She is now 5, I’m still taking online courses and tend to my baby girls medical needs. She will be continuing therapy until age 9. Since my daughter needs a lot of attention and I couldn’t see anyone other than me providing this for her, I cannot find a job that is willing to work with the hours I would need to take off in order to care for and take her to therapy when scheduled. As much as I hate that this has happened to our family, we are strong and are getting through it together. We don’t have a fancy car (we don’t even have one period). I walk two miles a day to drop off and pick up my girls from school. On appointment days, a friend of mine shuttles me around. During the hours my kids are at school, I work on the internet by means of studying (entering contests to help with things we would otherwise never afford to have) and helping my husband at the shop.

     I want to get out of the rut we’re in but know that it’s going to take some time…that’s why if I can help out with other things; I do what I can to make it happen.

     Thanks so much for the opportunity to enter this giveaway for a chance to win something that would be very useful in our home. You all are wonderful and I just want to thank you for this!!!

197. on 05 Oct 2008 at 4:37 pm197Joe

     @ Danielle U

     I’m sorry, I have to be the antagonizer (Is that a word?), Its just how I am..

     You can blame many things on the president. He is the leader of the country, and assumes all responsibility for it when in term. He is the one who didn’t deal with the economy, even after it went in the crapper. I don’t really want to get into what he can be blamed for (war, taxes, education problems, etc. etc. etc. (still not getting into it.)) I blame him for things that I find justifiably right to be blames for. Your actions speak louder than your words. I believe that everyone should speak up and and not make a fool of yourself, do whats better for everyone, not just yourself.

198. on 05 Oct 2008 at 4:40 pm198Jared

     Hi. I am currently an undergraduate student of economics in a Midwestern university. My finances are currently stable, due to frugality and saving throughout my teenage years. With graduate school approaching, however, they are bound to worsen.

     @ Richard

     Government regulation is one alternative to internalize negative externalities in the marketplace (such as pollution), but it is not the only solution, and it certainly is not always “needed.”

     The free-market can, in fact, internalize these through private means. For instance, if a corporation is polluting a river, consumers may punish said corporation and lower their profits by simply not buying their product. The “free-rider problem” sometimes renders this approach ineffective, but it is not correct to marginalize, or outright ignore, this alternative.

     Moreover, I would contend that the stringent regulation of businesses inadvertently increases the political power of certain large corporations. If the government did not hold sway over certain industries, corporations would have no need to send lobbyists to Washington to, in affect, buy politicians.

     - Jared

199. on 05 Oct 2008 at 5:17 pm199Joe

     BTW, Good luck to everyone. Loved to have the political chats, usually I get yelled at if I even bring that up subject with friends (They know the road it leads to… too well)

200. on 05 Oct 2008 at 5:23 pm200Lis C.

     well my name is Lisette, just like someone that left a comment up there :), i am about to be nineteen this december and i am in college right now, i, like many many other students am having trouble coming up with the money to pay for my classes but hopefully i will be able to manage : ) my parents are helping me out, so at least i’m not alone

201. on 05 Oct 2008 at 5:39 pm201henry

     I’m 20. As a fourth-year student, I can’t say I’ve experienced any true financial troubles. My parents (and scholarships) cover my education for now. I plan to attend a graduate/professional school of some sort, so I’m at least peripherally aware of the need for financial planning.

     All is not exactly peachy for me. I admit to not being a wise money manager, and find it difficult to get into good habits with regards to finances. The economy, as everyone has pointed out (and experienced firsthand), is not treating me well either; my attempts to earn some money for savings do not get me very far. Perhaps it is a good thing to experience difficulties early in life, rather than run into them later.

     My personal experiences with inflation are two-fold. First is in my day-to-day life. When you go grocery shopping on a regular basis, you start getting a feel for how much things cost. And it’s clear when things increase in cost, especially when you don’t see the corresponding increase in wages. The other instance when I come face-to-face with inflation is when I travel to visit my family in China. Not only is the increasingly less dictatorial government allowing the Chinese yuan to slide rise against the dollar, but China’s economy is operating at breakneck speed, with corresponding rises in princes. It’s very interesting; watching a third-world country attempt to be a first-world power, a Communist government and society wrestle with the best (and worst) of a free-market economy.

     In terms of who benefits from inflation… As a student borrower, I can say that I benefit. With the low (or nonexistent) interest that lenders often charge students, it seems to me that I am coming out on top, since I pay back money that is worth less than it was when I borrowed it. I’m sure others benefit too, and in perhaps more insidious ways, but that’s all I can think of for now.

202. on 05 Oct 2008 at 5:56 pm202Kevin

     Hi, My name is Kevin and I am currently an 18 year old college student. Financially I have a savings as I have been saving all of my life to pay for college. Despite my savings, I am currently attending a junior college so that I can get in state residency in the state with my desired colleges.

     The FED effectively controls the money supply through the interest rate. By increasing the interest rate it encourages savings, and reduces the amount of money readily available; furthermore by reducing the interest rate it encourages people to take out loans, and increases the money supply.

     Inflation in its most commonly accepted terms is an overall increase in the money supply. This causes an overall devaluation if you will of every dollar in the money supply. This helps those who are in debt by making the “real” value of their debt less, and hinders those who are saving by devaluing what they have saved.

     The United States is one of the best examples of a free market. While a few other countries may be a better example with less regulation, the United States has the most comprehensive history of a Free-Market state. An economic boom is a overall increase in level of economic output and aggregate demand (not just quantity demand) rising employment and regretfully inflation. While inflation is not always bad and it is unavoidable this is one of the major contributors to the economic bust and thus the cycle.

     Fiat currency in its most simplistic terms is money that is accepted because the government says it must be accepted. The gold standard meant that every dollar represent gold, however this was abandoned due to its problematic nature with crisis often arising.

203. on 05 Oct 2008 at 6:23 pm203james

     good luck to everyone

204. on 05 Oct 2008 at 6:24 pm204Jen

     indeed, best of luck

205. on 05 Oct 2008 at 6:40 pm205Patrick Michaud

     sweating it out….crossing fingers…even threw salt over shoulder…but has to sweep it up because I can not aford to waste it…he he he

206. on 05 Oct 2008 at 7:08 pm206Barbara Baker

     I hope I don’t get counted against for adding this comment after the contest has ended…but…I’M GOING SILLY CRAZY WAITING!!!!

     I know I probably don’t have the luck in the world to win this, but I’m still anxious to find out who it’s going to be!!!

     Good luck to all, I’m crossing my fingers for me though

207. on 05 Oct 2008 at 8:06 pm207Christopher Ried

     Irgh.. I hope you won’t count me out since I did not see till later you had wanted discussion. It was not there until after I wrote my comment.

208. on 06 Oct 2008 at 8:14 pm208Richard

     @Jared

     Private means of controlling external costs do seem like an interesting alternative to government regulation. While I do know some people who are dedicated on this front, the vast majority of people don’t care enough to do anything about it. I don’t think enough people could collectively get together and influence anything but a few token issues. It’s a nice idea in theory, but I haven’t seen it applied too well in practice.

     Richard.

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