Broke-Ass Student Is Giving Away A Free Laptop
Sep 28th, 2008 by Jennifer Lynn
Yay, I’m so excited!! All right guys, tonight will kickstart my official “HP Freshman 15″ Hewlett Packard Laptop Giveaway. This fabulous prize comes fully loaded and will be given to one lucky participant on October 5th.
This Broke-Ass Prize Package includes;
- HP Pavilion dv7t series notebook
- HP xb4 Media Docking Station
- HP 500GB Pocket Media Drive
- HP Photosmart C6380 All-in-One Printer, Scanner, Copier
- HP Protect Messenger Bag
The entire package has an estimated value of $1,700 and this promotion is open to everyone, including those not in the United States.
How To Enter For Your Chance To Win
As you (may or may not) know, my main passions are writing and learning so I’ve decided to base my Laptop Giveaway contest off the spirit of these two pillars.
“To stop being a student means to stop living“
I find it very disheartening how little the Average American is aware of how our monetary policies work in the United States. Many families are struggling under the burden of excruciating debt and grasping to keep their heads above water. This literally is financial suicide and only perpetuates a vicious cycle we become enslaved to. Financial literacy unfortunately is not taught well in our public schools, so let’s begin with examining how our financial system works here in the United States.
Here are some questions I’d like for you to examine. These are just rough guidelines and you can approach it however you wish. And you don’t need to tackle all of these, just introduce yourself and focus on one if possible.
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?
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? Who drafted the Federal Reserve Act? When was the Federal Reserve Act passed through Congress and under what circumstances?
3. Inflation. What causes inflation ; who benefits from inflation and who does it hurt?
4. Free Markets. What creates ‘booms’ and ‘busts’ of our business cycles, and is the United States a free market?
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?
6. Fractional Reserve Banking. How is new money 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?
[Edit - it seems people are copying and pasting for answers and some have expressed this is also waaay too much. If you can please introduce yourself and just tackle one subject area, but try in your own words. I want to promote open discussion so keep your eyes peeled on the comments as well because the conversation is also taking a course of its own. Even if you say, "Well, I don't really understand this.." or "my opinion of this is ..." As long as you're contributing to the comment conversation, you're entered in the drawing.]
Leave a comment at the end of this post with your opinions on what you nip up and feel free to share any resources you may have used. I’m hoping we can open a conversation and I’m going to let you guys decide where the discussion goes.
All comments must be submitted by 10:00 p.m. EST on October 5th and each unique comment will receive a number. I’ll randomly draw a number before midnight EST on October 5th and announce the lucky broke-ass winner of the HP Laptop Prize Package shortly thereafter.
Discuss.
=^..^=
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
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.
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?
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.
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
Hmmm, I would say most people’s parents know nothing about financial literacy, so how would they teach this to their children?
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.
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.
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.
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.
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.
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?
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?
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.
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 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 personally am very frugal and try to not spend more than I earn, which at times is difficult
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.
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.
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.
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?
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!
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!!
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
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.
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. : )
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?
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.”
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
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.
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.
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.
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).
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.
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.
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.
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.
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!
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)
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.
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.
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.
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.
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!
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?
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.
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.
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.
- 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.
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.
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
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?
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.
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.
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.
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!
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!
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 sev