Darwin's Finance

Is Paying Kids for Good Grades Wrong?

Darwin — Mon, 08 Feb 2010 12:47:05 +0000

I watched an inspiring 60 Minutes episode on the Canada Harlem Children’s Zone project whereby several blocks of a blighted section of Harlem were transformed into a safe area spanning many blocks and the charter schools within were staffed and run completely differently than the NYC public schools. The program employs very innovative techniques and is under the leadership of a really incredible guy named Geoffrey Canada.

The message of the project is “aimed at doing nothing less than breaking the cycle of generational poverty for the thousands of children and families it serves”. During the interview, one question that was posed struck my interest. Mr. Canada was asked about the financial incentives provided to kids for getting good grades. He replied,

“I love bribing kids. Do I wish they’d get good grades because they want to? Sure. But until then, I’ll do what it takes”

…or something to that effect. The bottom line is that it’s working. So much so, that Obama cited the program in his campaign speech as a program that should be replicated nationally.

I was Paid for Good Grades

That got me thinking back to when I was a kid. In retrospect, I was paid for getting good grades. It wasn’t a formal arrangement, and I never knew what was coming, but I do recall several semesters both in high school and in college where my parents would reward me for a job well done. It might have been 50 bucks in high school or for college, a few extra bucks in the monthly budget for room and board, etc. I don’t recall specifics, but I recall being thankful for the recognition of my achievements and on the rare occasion where I didn’t have a good semester, there was no reward. There wasn’t a conversation per se, like “no money this time since you didn’t fulfill your potential”, there was only positive reinforcement when I did something right. There’s much research that shows that negative reinforcement doesn’t have any discernible benefit in influencing outcomes (it actually backfires often times) and positive reinforcement tends to be a very strong incentive. However, I recall both. I recall making my parents proud and the occasional pat on the back, but I also remember the financial reward. That’s just me and every kid’s different, but if it works…

Surely many parents will be thinking, “I got good grades and I wasn’t bribed…my kids get good grades because I’m a great parent, not because I pay them”, etc. However, what matters to me is results and the reasonable means by which we pursue them.

What to do with Our Kids

Good grades by way of cheating? Never.
Verbal Praise and positive feedback for good grades? Of Course.
Good grades via financial incentives? Maybe.

People respond to economic incentives. This is endemic to human nature. Be it praise, personal well-being, securing better future potential for a high paying career, or near term cash rewards – kids that get good grades do so for self-serving reasons known only to them. There’s nothing wrong with that in my opinion since kids are human after all, like you and I (what’s the REAL reason you work hard for your employer? Because you like them?). The trick is maneuvering the right levers and balancing reasonable expectations and rewards without stoking the wrong kind of behaviors and morals in your children during their formative years. For instance, if you pay your kid for everything – from walking the dog, to making their bed, to shoveling the snow, will they expect recognition and rewards at every phase of their life? Will they ever do something to help someone else out just because it’s the right thing to do? These are questions all parents struggle with.

Our kids are just approaching school age – we have our first in kindergarten now. I’m just starting to ponder these questions and our approach to verbal praise and recognition and the question of whether to integrate financial rewards with his performance. We have a few years to figure it out, but it’s going to go quickly.

Parents – I’m interested in your thoughts. What has worked, what hasn’t and are there innovative methods you’ve heard of to motivate kids?

Easy Ways to Find the Best Finance Blogs

Darwin — Sun, 07 Feb 2010 13:14:35 +0000

There are a few ways people like to keep track of their favorite personal finance and investing blogs. There’s the old fashioned way of just bookmarking a site and visiting when time permits to check out the latest posts. That’s very inefficient and sooo 2000.

Then, there’s the RSS and Twitter option. I recommend following both if it’s a site/blogger you like. For a primer, see this video on how RSS works but basically, it’s like opening a newspaper each day and seeing the title of tens or hundreds of articles from your favorite writes – which can be read in full by clicking a little box (no download delay, article opens up immediately). Twitter will generally ensure you stay up to date with recent posts and other tidbits the blogger passes along, but if you follow a lot of twitter handles, you’re likely to miss recent posts by your favorite blogs unless you either check your stream incessantly or the blogger does nothing but tweet their own horn – which is not cool. I might only tweet about a new post once for every 5-8 other tweets sharing info on savings tips, other blog posts I found to be interesting or random stuff nobody else would care about but you may find amusing.

Blog Aggregators

Finally, there are some great blog post aggregation sites. Basically, you can get the most recent 1-5 post(s) from many bloggers all at once in an easily served up fashion. In some cases, by just mousing over a title, you can read the first paragraph of each article to see if it’s worth reading in full. While this isn’t all that different than using say, iGoogle for your RSS feeds, these aggregators will certainly introduce you to new blogs you’ve never heard of. Also, depending on the aggregation site, you’ll find top blogs ranked by different criteria. Let’s take a look at a few:

Wisebread Top 100 Personal Finance Blogs List – Well, it’s actually got more than that. But, this is a massive list with all the top bloggers listed by various stats that you can easily sort – Alexa, RSS, Twitter counts, etc.

Great Nexus - This is a another neat site that has various topics like Investing, Personal Finance, Technology, etc. and there are various mediums presented from recent YouTube Vids to top bloggers. The most recent 5 posts from bloggers are prominently displayed.

PFBlogs.org – This is a neat blog aggregator that’s been around for a while. Tons of money bloggers have their most recent posts highlighted here in sequential fashion. However, you can see how many clicks went out for each post and “Friends of PFBlogs” have their posts highlighted more prominently throughout. Since that’s a paid membership, none of the friends are spammers and they tend to be the more established blogs that participate.

Alltop – Alltop now has hundreds of topics (I linked to Personal Finance). Similar to Great Nexus, you can see the prior 5 posts by several top bloggers in a particular niche. It’s a nice giant newsreader basically. However, you didn’t get to pick the blogs. Sometimes, lousy blogs seem to get through, but for the most part, you’ll find the more prominent blogs you were already familiar with in the top slots, plus you’re likely to find some new ones.

NewsFlashr Business Blogs – This one tends to be more investing oriented, but it sorts by time posted similar to PFBlogs. This will introduce you to a different set of bloggers than most of the outlets above.

How To Use These Finance Aggregators

I use these primarily for two purposes as a reader – 1) as a giant newsreader and 2) to familiarize myself with new blogs in various niches. Each time I check them out I’m not disappointed. You’re likely to find new content or blogs you wouldn’t have come across otherwise. From a blogging standpoint, I’m on each of these (awaiting Nexus actually) and while I don’t get a ton of traffic from any one of them in particular, it’s nice to have my content out there and be associated with all the other great PF blogs out there. I suspect some of these “Top 100″ Lists are the source of many of the advertising requests I get (both the good and the bad). So, there are likely some intangible benefits besides traffic you get from these as a blogger.

Do You Have Another Favorite Aggregation Site?

If you’re not already following my RSS, it’s a click away! Follow Me Here.

Rethinking the College Investment

Darwin — Sat, 06 Feb 2010 22:51:09 +0000

Kids entering your life? It’s never too early to start planning, we’re told. When a seven pound bundle comes through the front door with enough equipment to fill the room that used to be your office, all of a sudden planning becomes less of an option and more of a requirement.

For the last couple of decades, college planning has become an additional career for a lot of families. Specialized tools and plans have developed, to the point that today you can find many an online calculator and a maze of tables designed to tell you whether you’re making the grade. The relatively new – and vastly improved – federal savings device called the 529 Plan is growing by billions annually as parents start the set aside process while diapers are still part of the weekly shopping list.

Tuition, Fees and Costs are Headed Upwards

There’s a sea of statistics that drives those investments: students over the 2010 academic year will average $7,020 in tuition and fees at public universities; the average figure for private schools this year is $26,273. You can count on those public school figures rising substantially over the next few years. The average surcharge for an out of state student at a public university is $11,528 (statistics courtesy of CollegeBoard.com).

And that’s to get in the door. Throw in books, room and board and the average overall cost in 2007 averaged about $13,000 for a public school and well over $30,000 for a private institution. These figures, drawn from the National Center for Education Statistics, are part of yet another spreadsheet that shows an increase of about 50% for costs at four year schools over the last ten years alone.

What is it that you’re Investing In?

Those figures and the rate at which they’re accelerating are enough to send a parent who wants to do right by his or her student into a financial spin. The costs are intimidating and they’re just going to get worse…students are leaving college tens of thousands in debt; every week some pundit somewhere publishes a piece asking the obvious – is a college degree worth it?

When I worried about my daughter’s college education, I did so with my own education as the template. But when I enrolled in the local public university, total fees were just over $600 per year. I couldn’t do for my daughter what my parents did for me, and it’s likely the same will be true for upcoming generations.

Invest in those College Credits Wisely

That’s why college should be considered on a rate-of-return basis. Another figure from College Board tells us that 31% of all full time students are now enrolled in a two year, or community college. The figures also show that average tuition is just over $2,000 for those schools. Being a “transfer student” isn’t just for athletes any more; it’s for smart students with limited budgets who can get the core courses for a bachelor’s degree out of the way cheaply.

It’s also for parents who want to maximize that college investment – not stretch it, but put it to work most effectively. Saving twenty two thousand dollars over two years on tuition, room and board is going to open up options for that student when considering where to go to complete the degree. Maybe it’s an out of state school that’s suddenly affordable.

Or maybe completing the bachelor’s degree through a combination of community college and a public university, puts enrollment in graduate school within reach. Perhaps the saddest thing about the incredible scramble that higher education has become today is the fact that the dollars involved can stifle ambition in young, capable students.

When I was a confused adolescent, the dinner table discussions were always about “where would you like to go to college?” Perhaps today the focus needs to be, “How far do you want to go?” That puts expectations into focus and makes the college goal more about achievement and less about the cultural experience that it has been for previous generations.

Article Source: Bob Hartzell is a freelance writer for Get Degrees®. Easily find and compare program costs from any top rated online colleges and universities.

The preceding was a guest post. If interested in guest posting, see these guidelines.

Highest Saving Account Rates OnLine

Darwin — Sat, 06 Feb 2010 06:27:02 +0000

As of February 6, 2010, these are the highest savings account rates that can be easily achieved online without geographical restrictions, credit union restrictions, military service requirements, etc. While these interest rates may seem somewhat anemic, they are actually among the highest in the country given a 0% Fed Funds rate and the cost structure benefits of online banking over conventional brick and mortar outfits. The nice thing is that the interest rates on these larger established banks have been relatively steady compared to some other bait and switch banks I’ve seen that offer rates significantly higher than the market rate, then precipitously cut the rate once you’re there. All of these savings accounts are FDIC insured up to $250,000.

EverBank 1.51%

Ally Bank 1.49%

WTDirect Savings Account 1.41%

ING – The Orange Savings Account 1.2%

Weekend Reading – “There Will Be Blood” Edition

Darwin — Fri, 05 Feb 2010 13:05:11 +0000

This week it was announced that New York Attorney General’s office is filing civil charges against the former CEO of Bank of America Ken Lewis, saying he misled investors about Merrill Lynch when it acquired the bank in late 2008. Whether this is politically motivated or there is legal merit, it is evident that after over a year of populist simmering over the fallout of the financial crisis, this is probably just the first in many such announcements. There Will Be Blood.

With that backdrop, the good news is that I want to share my favorite reads from the past week from around the money blogosphere. Also, I’ve included my top articles from within my network (make sure to check out my new blog ETFBase) as well as outlets that featured my content recently.

Favorite Reads:

Dividend Guy – 7 Warning Signs You Need to Repair Your Portfolio

Financial Samurai – Do “C” Students Deserve “A” Lifestyles?

Moolanomy – 25 Best iPhone Apps for Personal Finance

Steadfast Finances - Personal Finance Equations You Should Know

Consumerism Commentary – Personal Balance Sheet (I like checking out what other bloggers make – pretty cool that Flexo shares)

Len Penzo – Inflation 101: Why Avatar Isn’t the Biggest Movie of All Time (And What Movie Is)

Within My Network (I’ve been busy!):

Most Incredible Investment Strategy – Yup!
ETFs are Better than Mutual Funds – See Why
Obama’s New Tax Plan: Winners and Losers
Why Pay High Credit Card Rates when You Can…
Option Spread Strategy – It’s In the Money!
Extroverts Do Better? Here’s Why
No Good Deed Goes Unpunished – Charity
New ETF Review: Wildcatters Energy Small Caps
41 Stocks Increasing Dividends EVERY Year
Drill Later, Not Now – and NOT for the Greens
Laid Off? Think Fast! Budget Moves
Innovative Ways to Hedge this Market

Carnivals that Featured My Articles:

Carnival of Personal Finance

The REAL Reason Why the US Should Wait Generations Before Drilling

Darwin — Thu, 04 Feb 2010 12:31:04 +0000

“Drill-baby-Drill” was the mantra of Sarah Palin’s speeches when she had all that momentum leading up to the dreaded Katie Couric interview where it became evident she was quite clueless in virtually every aspect of foreign policy, governance, finances and energy. Alaska being well-known for little else brought drilling back to the national spotlight and political debate during the 2008 race. There are basically two main camps in the US at present:

Drill Now! Proponents believe that by drilling our own oil both on land and offshore, we can “reduce our dependence on foreign oil from countries that hate us”.

No More Drilling! Proponents here generally consist of liberals and environmentalists that don’t want to see the tapping of domestic resources continue given the environmental side effects of extracting and processing oil. Republicans and most businesses prefer unabated drilling with the notion that it will bring down the cost of oil (increasing profits to most businesses), create jobs, create more political stability in the US, etc.

While it’s true that we import much of our oil from countries that basically hate us, it’s not that simple. I mean, if that were completely true, why wouldn’t we just import “only” from countries that don’t hate us? Well, I guess those are few and far between in the oil exporting community, but if we relied on say Canada, Nigeria (doesn’t really have a government to speak of), Great Britain’s offshore finds and other developing economies rather than the Middle East, Venezuela and to a degree, Russia, we wouldn’t be giving money to the “bad guys”, right? Not really. Oil is fungible. It is the most efficiently traded commodity on earth and it’s denominated in US dollars (hence why it makes sense to hedge your own energy costs with inflation on the way and a declining dollar). If we stopped importing from Saudi Arabia, we’d end up paying roughly the same elsewhere (after switching costs) if enough supply even existed elsewhere, and some other country would just slurp up the slack and buy from them instead instead of their current source. It’s like the incredibly silly gas boycotts young impressionable people seem to fall for every couple years. They don’t work based on very common, basic economic principles.

Local Benefits vs. the Greater Good

Why do some Americans want more drilling while others don’t? Alaska, for instance, derives incredible revenues (by taxing the drillers) for their oil reserves. These funds help sustain a state which, aside from tourism and energy, has little more to offer. There will never be an economic center in Alaska, nor will the next Research Triangle Park or Silicon Valley be initiated there. Oil is Alaska’s lifeblood financially speaking. Meanwhile, events like the Exxon Valdez and other spills endure as reasons not to drill in the U.S. Let the bad guys do the dirty work is the concept.

The Real Reason We Shouldn’t Drill for Oil Now

I have an entirely different rationale for why we should add as little new drilling capacity in the US as possible. It is based on long term strategic concepts. The Us tends to act on short term thinking. Our politicians enact policies that benefit their political career and they tend to not act in the best interest of the country as a whole (I mean, how else could you explain the recent healthcare negotiations where votes were “bought” with state-centric bribes) – so we’re talking the next election cycle. Countries like China enact policies that play out over decades.

We should not drill here because oil will eventually become very, very valuable. I’m not talking the $140 per barrel we saw in 2008, but rather, an order of magnitude more valuable in present day dollar terms. Why? We’re not going to “run out of oil” as the peak oil proponents would have you believe – ever. What will happen – and follow me here – is we will asymptotically approach barriers throughout humanity that will render oil too expensive to be worth extracting. Right now, oil is so damn cheap to extract and refine into various distillate products, that even the poorest countries on earth, the poorest people, can afford it. And in the US, we use so much of it that with 5% of the global population, we consume a quarter of the world’s oil! People pay more for bottled water than they do for refined gasoline. As much as people whine about high gas prices, when you think about what it takes to discover, extract and process oil, and the utility it provides, it’s really quite cheap.

Well, what’s happening is that oil is so cheap, that the replacement rate in all of the world’s largest finds cannot keep up with the extraction rate. Basically, we’re part of a runaway equation whereby the global society is consuming oil faster than it can be replaced. No amount of technological improvements or new finds can rectify this situation because a new find takes over a decade to fully exploit and the “developing markets” are now developing faster than anyone imagined – and that translates into energy consumption. Peoples that once never consumed fossil fuels are now doing so at increasing rates and the US itself hasn’t slowed down much. As more countries start to behave more like the US, the spiral continues. (peak oil predictions)

This, in turn, will eventually translate into an ever-increasing price of oil as it becomes more expensive to extract with newer, more innovative, more expensive extraction techniques. This more expensive oil will result in newer, “greener”, “sustainable energy” technologies to become financially viable. The reliance on these newer technologies will gradually slow the consumption and rise in cost of oil. This will be a dance that plays out over decades, more like generations.

How We Win – Monopoly is Beautiful

Imagine if we held onto our cheap oil – the stuff that’s easy to extract in its current form. While the rest of the world plunges into either darkness, expensive oil, or comparatively expensive sustainable methods, we’re sitting on massive, easy to extract virgin oil reserves? We would be the envy of the world. While Saudi Arabia, Iran and Iraq disintegrate into complete wastelands due to their lack of other natural resources or any viable goods/services to export in a capitalistic global society, and every other large reserve globally has been tapped, the US could slowly start tapping oil at today’s relatively low production costs. With our reliance on the newer green/sustainable technologies vastly supplanting reliance on oil, the remaining legacy machinery, vehicles and industry that were relying on expensive oil could still have relatively cheap oil flowing from none other than the US.

This is a greatly simplified view of how the global oil market would play out in this scenario, so take a look visually at a hypothetical example. Using today as a baseline 100% oil reserve, you’d see a gradual rise in price in equivalent current $USD as the world’s remaining reserves are gradually depleted. Several decades out, when it becomes evident just how scarce oil is and how expensive it is to extract the remaining difficult finds, the price begins to spike. Somewhere along that curve, the US opens the floodgates.

Chart 1 – This is What a US Monopoly on Oil Would Look Like

In summary, oil reserves decline, oil becomes very expensive. Other technologies move in supplanting some use while price stays high. Somewhere along that curve of pricey oil, the US finally opens up the spigot (before it’s too late and oil becomes totally obsolete) and allows metered drilling. The US enjoys a virtual monopoly on the world’s oil supply. While it is drilled by private industry, the US derives massive tax benefits from the high price and cost of new licenses/royalties. Look at how Norway operates now. Imagine that ten-fold. No more national debt.

Industry and the Taxpayer enjoy windfall revenues.

For what?

For being patient.

Thoughts?

Winners and Losers Under Obama’s New Tax Plan

Darwin — Tue, 02 Feb 2010 15:29:11 +0000

Monday, the administration released their budget plan which was purported to reduce the tax burden on middle-class Americans. There will be clear winners and losers under the plan, so here are the high points:

Winners

Making Work Pay tax credit—$400 for individuals, $800 for a couple filing jointly—through 2011. This was already in place for 2009, 2010.
Middle Class Income Taxes – Extending the tax cuts enacted under Bush for families making less than $250,000 and individuals making less than $200,000.
Hiring Businesses – Budget would give companies a $5,000 tax credit for each new worker they hire in 2010. Businesses that increase wages or hours for their current workers in 2010 would be reimbursed for the extra Social Security payroll taxes they would pay. I question how helpful the second part is. Would this just make companies rethink a new hire since they could employ overtime for less money now? Some new hire decisions on the fringe may suffer.
Research Outfits – Make the research and experimentation tax credit permanent, saving businesses about $83 billion over the next decade.
Business Capital Outlays – Extend a provision allowing businesses buying equipment such as computers to accelearte depreciation through 2010, saving them $20 billion over the next decade.

Losers

High Income Earners – Raise the top two income tax rates for individuals, from 33 percent and 35 percent, to 36 percent and 39.6 percent, respectively. Result: nearly $1 trillion in higher taxes on couples making more than $250,000 and individuals making more than $200,000 by not renewing Bush-era tax cuts for them.
Investors - Increase the top capital gains tax rate from 15 percent to 20 percent for families making more than $250,000 a year and individuals making more than $200,000. This may have a gradual impact on stock market returns. With a higher capital gains rate, high net worth investors may shift to other assets with a more desirable net return profile.
Oil and Gas Companies & Multinationals - Increase taxes on U.S. companies with major overseas operations, and plans to increase taxes on oil and gas companies to the tune of about $39 Billion over the next decade. Also, restrict the ability of international companies to defer taxes on profits made overseas, raising about $26 billion over the next decade.
Charities – Since many charities rely on contributions from high income earners, the new limit on itemized tax deductions high earners can claim for charitable donations, mortgage interest and state and local taxes, will likely hurt.
Banks/Financials - Enact a “financial crisis responsibility fee” on large firms that may be “too big to fail”, raising $90 billion over the next decade.
Fund Managers – Change the way profits by investment fund managers are taxed, raising an additional $24 billion over the next decade.

Don’t Miss These Key Tax-Related Articles:

Thoughts on these proposals?