African American Money: CEO Lawrence Watkins with George Kilpatrick

Lawrence Watkins and George Kilpatrick Break down the secrets to success.  Click the image to listen!

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President Barack Obama Seeks to Stop Foreclosures for All Americans

His massive stimulus plan now signed into law, President Barack Obama is turning to attack the home foreclosure crisis at the heart of the nation's deepening economic woes.

His goal is to prevent millions of American families from losing their houses because they can't make mortgage payments.

"We must stem the spread of foreclosures and falling home values for all Americans, and do everything we can to help responsible homeowners stay in their homes," Obama said Tuesday as he signed his tax cut and spending package into law.

The ambitious plan he was announcing at a Phoenix high school Wednesday was expected to offer government cash to mortgage companies that reduce interest rates — and therefore monthly payments — for homeowners in danger of default, according to several people briefed on the plan. What remained unclear was how the government will decide who qualifies for relief.

One Democratic official familiar with the plan said it also would allow homeowners to refinance their mortgages if they owed more than their homes were valued. Still another section would give bankruptcy judges more authority to change mortgages. That last provision has been opposed by lenders, who said it would add risk and lead to higher interest rates.

 

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Credit Card Companies are Changing the Game On You

By Dr. Boyce Watkins

www.DrBoyceMoney.com

In case you weren’t sure, credit card companies are not out to help you. If you are financially illiterate and uninformed, they are going to exploit you. If you are worried about the financial crisis, they are going to prey on your fear to get money out of you. They are also doing exactly what the rest of us are doing: trying to remain protected in a fragile economy.

The stimulus is stymied. The bailout is a failout. The stock market has consistently given a “thumbs down” to every piece of legislation passed in response to this crisis. Our economy is like the sick man who won’t respond to antibiotics. While the results of the latest package are yet to be seen, the truth is that no one is sure what will work. Every company is out to protect their assets and hold on to their cash, which means they no longer have much interest in loaning money to you.

Yes, this is true even if you have a good credit score, which is the ironic part.

Customers are opening their monthly statements to find that credit card companies have started to either ration credit (give less of it) or raise the interest rate being paid on outstanding debt. This doesn’t even count all the dirty tactics used, like using your payments to pay off low interest debt first, quietly getting rid of the grace period or charging interest on your balance from the prior two months vs. the current one. Even when you’ve been making payments on time for years, banks keep raising the bar to maximize shareholder wealth. When liquidity is scarce, those giving out water demand a higher cost per bottle. Additionally, higher default rates have justified the increase in interest rates, but higher interest rates increase the likelihood of default. It’s a nasty cycle, really.

Lawmakers are trying to intervene. Congressional hearings have taken place. Banks are being scolded by senators who keep telling them that this form of business practice is unethical and that they are gouging the American consumer. All this might be true, but what is also true is that you can’t force banks to loan you money. Also, it is very difficult, if not impossible, to legislate a strong economy.

If you have a less than stellar financial history, there is an even greater opportunity for your credit card company to raise your interest rates. If you have defaulted on other loans or are a slow payer in other areas, then they have no problem telling you to pay up or ship out. The days of easy money are long behind us, and companies are dramatically shifting their business practices.

The bottom line is that THEY’VE GOT YOU. They know that you’ve become addicted to the debt they so readily offered in the past, and this debt has become the lifeblood for the lifestyle to which you’ve chosen to become accustomed. They know that they can charge you a higher interest rate because you can’t do anything about it. Like a drug addict who is angry about paying more for his product, you really don’t have any other choice.

Well, maybe you do.

Here is one solution: tighten your economic belt. That means putting together a financial fitness plan today that consists of getting rid of as much debt as possible. I’ve mentioned in prior articles and on our website that paying off debt can be one of the best investments you make with your money. This is especially true if you have a stable job and are paying a high rate of interest to your credit card company.

So, the Dr. Boyce Challenge for this month is simple: Create a budget which includes the steady elimination of credit card debt. That means you should list every single expense you have for the entire month on one piece of paper or a spreadsheet. Don’t leave anything out. Count the money you want to use for getting your hair done, your nails, paying your mortgage, car note, whatever. Count everything. That will be your first step toward obtaining financial fitness.

As you create the budget, allocate at least 10% of your monthly after tax income toward reducing credit card debt. So, if you earn $3,000 per month after taxes,$300 per month should be allocated toward removing credit card debt, not including interest. So, if you owe $5,000 in credit card debt, you can remove this debt in roughly a year and a half. While $300 may seem like a lot of money to find in your budget, it’s there if you look hard enough. In fact, if you spend $10 per day on lunch and/or coffee, you can find the bulk of the money by taking your lunch to work. Make this one of the first bills you pay, not the last. The last bill is the one that only gets paid half the time. It’s easier to negotiate with creditors if you don’t need them so much. Take small steps toward finding your financial freedom.

Next month, we will move to step 2 of the Dr. Boyce Financial Challenge. While I confess that this change won’t be easy, I can promise that it will be worth it in the end. Be strong and remain focused, this is your opportunity to shine.

Dr Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lipo 101: From financial fat to fitness”, to be released in April, 2009. For more information, please visit www.DrBoyceMoney.com.

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Black Financial Scholar Boyce Watkins Tips on Consumer Confidence

Keeping Your Cool During A Financial Meltdown

by Dr. Boyce Watkins
http://www.boycewatkins.com/

If you listen carefully to the words of Treasury Secretary Henry “Hank” Paulson and Ben “Big Ben” Bernanke (chairman of the Federal Reserve) you might notice a trend in their language. The word “confidence” is used a lot when they speak. Many of their monetary proposals are not necessarily valuable for their financial power, but also for their psychological power.

Some of you may wonder what confidence has to do with anything. After all, if you’re broke, confidence doesn’t exactly put money in your pocket. If you’re 100 pounds overweight, confidence won’t help you win the Olympic 100 meter dash. When you are flying on a crashing plane, confidence doesn’t keep the plane from slamming into the ground. But confidence is important to an economy, and one of the most significant drivers of economic growth. In fact, over confidence has driven US economic growth for the past 10 years. Here are some reasons that confidence matters in the minds of Hank and Big Ben:

1) Confident consumers spend money
If you think you might lose your job next year, are you going to max out your credit cards? I certainly hope not. If you are worried about being able to make ends meet, are you going to buy that big screen TV? Not unless you want your wife to leave you. So, even if it doesn’t hold any truth, the mere forecast of a weak economy is enough to make many Americans hold off on consumer spending, one of the great driving forces of the American financial system.

2) Confident companies invest money and hire workers
Investments involve risk. Your hunch may work out, and it may not. If you don’t believe the economy is getting better, you are not going to consider taking that risk. No one plans to go to the beach if the weather man says that it’s going to rain. When economic rain is in the forecast, companies pull out their umbrellas and hold off on new projects. This reduces the number of jobs in the economy, because nearly every job created in America is the result of someone making an investment.

3) Confident Americans do not take their money out of banks
In case you didn’t know, your bank does not have your money. Your money is part of a large base of financial capital that is loaned out to individuals and consumers seeking to get a good return on their investment. So, without investing, your bank would have no interest in paying you any interest at all. So if, say, 30% of all customers of the same bank decide to get their money out at the same time, the bank would have serious financial problems. It is a lack of confidence that could cause customers to “run” on their bank and take out their money.

4) Confident investors keep their money in the stock market
The stock market is a place where fortunes are made and lost. Some part of that fortune is psychological, given that no asset can have a value which exceeds that which someone is willing to pay for it. When investors lose confidence, they take their money out of the stock market, and reductions in demand for stocks lead to massive paper losses in the market. Additionally, most Americans are “momentum traders”, meaning that when the market goes up, they tend to buy more, and when it goes down, they tend to sell. History shows that it is actually the opposite approach that tends to work best.

5) Confident banks make loans
Banks have to keep a certain portion of their funds on hand at all times to meet federal requirements. If they are fearful that their customers might come and demand their cash, they hold onto their capital to ensure that it is available. If they are afraid that their borrowing customers will not be able to repay loans due to a weak economy, they also hold back on issuing new loans. The truth is that when economic forecasts are grim, conservative bankers become even more fearful than the rest of us.

The bottom line of this article is that confidence matters. So, the next time you hear Ben Bernanke give a speech, you can be confident that he is going to use language that makes you feel more secure. Whether you choose to believe those words is up to you.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good”. For more information, please visit http://boycewatikns.com/

Boyce Watkins Advice For Dealing With The Financial Crisis

Black Money Tips: Ways to Get Rich

 

The smart way to get rich - MSN Money

Feel like taking a risk in hopes of hitting the jackpot on a rocket stock? #mediaarticle #articleBody #segment {HEIGHT: 1100px!Important}

Before you make the leap, you might want to get a grip on risk

Prices go up, prices go down, and you never know which way they're headed next. A lot of folks would say, well, that's risk. But really that's only half the picture. The other half is what you do in response.

After all, there's nothing wrong with risk itself. What's important is how you handle it. To know how to manage the risk-reward equation, you're first going to have to get a grip on what you're playing with -- and how much you can afford to lose.

It's pretty hard to talk about investment risk without falling into a lot of clichés about roller coasters and bungee jumping and being able to sleep at night. That imagery is entertaining but maybe not terribly helpful. Instead, let's start with the basics. We don't want to lose money, right?

"Obviously, negative return is risk," says Lee Schultheis, the CEO and chief investment strategist at AIP Mutual Funds in White Plains, N.Y.

Pros such as Schultheis use some pretty powerful computer-driven tools in their analysis of risk. Here are just a few of the concepts that are important to them:

• Standard deviation, much beloved of finance professors, measures how much the results of a process tend to vary. The higher the standard deviation, the more unpredictable the results.
• Correlation, used by those managing diversified portfolios, tells you how much two assets move together to reinforce -- or offset -- performance.
• Value at risk, often used by hedge funds, measures the likelihood that you will lose all of your money in any time period.

All three are mathematical concepts and require some comfort with statistics to calculate -- but not to understand. Each translates the uncertainties of risk into mathematical estimates of likelihood that offer a good basis for planning.

If you have an investment with a high standard deviation, close correlation to other investments or a high value at risk, you're taking on significantly more risk. If more than one of those factors is involved, watch out.

Let's say you're thinking about doubling up an investment in technology stocks. Results in that sector are going to be erratic to begin with.

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Long Term Financial Consequences of Divorce

s you may already know, June is the most popular month in this country for weddings. So now that the marrying month is almost over, I thought it might be a good idea to turn the focus to - what else? - divorce!

I don't mean to be a downer about it, but the reality is, the divorce rate in America has hovered pretty close to the 50% mark for years now. And while there are lots of financial (not to mention emotional) complexities related to divorce, financial planners say one of the most common mistakes people make after getting un-hitched is simply failing to update the beneficiary forms on their retirement accounts.

And that can lead to all kinds of unintended financial consequences years, or even decades, down the road.

Here's why: if you get divorced, you'll probably make a point of updating your will to exclude your ex-spouse. But what you may not realize is that your will has no bearing whatsoever on who inherits any money sitting in your qualified retirement accounts - including an IRA, 401(k), 403(b) or traditional company pension plan - at the time of your death.

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black money,african american money,black love,black relationships

Black Money, Black Wealth, Black Liberation: What black people should do right now

I spoke this weekend at an Entrepreneurship boot camp for The Urban Philly Professional Network. The head of the organization created something I consider to be profound and promising. He regularly gathers the black entrepreneurs of Philadelphia for networking events, training and motivation for their endeavors. I am proud of him because he has shown a consistent commitment to two issues of critical importance in the black community: black people working together and black people engaging in the ownership of capital.

Black entrepreneurship is not just about money. It’s about LIBERATION. The easiest way for me to control another man is for him to know that I am the reason his kids get to eat every day. That man will do exactly what I tell him to do, when I tell him to do it, and how I tell him to do it. Historically, African-Americans have been consumers of products and sources of labor. We have rarely been in a position to own or control capital. This country’s empire of wealth was built without black participation, as our ancestors were unable to transfer assets to their children. We all know that. Slaves were a form of human capital from which our country’s foundation was created. Theft from the black community is in the trillions.

As a result of this legacy, nearly every inch of the financial capital base of American institutions is controlled by someone else: The media, corporate America, academic institutions, you name it. Fox News freely spouts racism because Rupert Murdock and others like him control media infrastructure. Universities earn over 1 billion dollars per year from the families of black athletes because HBCUs don’t have the capital base to compete for these players. Jeremiah Wright and Barack Obama end up with distorted images because they’ve attempted to repair their reputations by appealing to the same institutions that destroyed their images in the first place. There are few black alternatives to media and corporate America, so our messages, leadership, outcomes and incentives are typically beyond our control. The controller of capital is the controller of destiny, so the social implications of capital ownership are vast.

The legacy of disproportionate capital acquisition also breeds a mentality in those who are controlled by capital. Some might call it the slave mentality. It affects all of us, from truck drivers to college professors. The slave mentality says your sole objective for obtaining education or skill is to work for someone else. We seek to find a job, rather than create one. Even most black doctors, lawyers and college professors fall victim to this mentality, as this is the tradition for many people of color. Risk aversion in the black community is strong enough to choke a horse, and any dreams of “going at it on your own” are squashed by relatives who encourage you to take the high paying, “prestigious” position at IBM or Stanford University.

The problem with the slave/laborer mentality is that there is a huge social price being paid when one spends his/her entire life drinking from someone else’s fountain: You are not free to pursue social justice and the platform on which you stand can be taken out from under you at a second’s notice. When injustice occurs around you, you are trained to sit silently and hope for the best. You don’t dare rely on ideas like “academic freedom”, because capitalism usually trumps idealistic concepts like democracy and freedom of speech. You can speak freely as long as it is financially convenient for the organization that controls you.

When I met with the black entrepreneurs and business owners of Philadelphia, I reminded them of the significance of their contribution to Black America. Owning a business is not about making a dollar, it’s about providing a critical supplement to the work of Dr. Martin Luther King, Jr. Black Entrepreneurs aren’t just finding a source of income, they are building black institutions. I reminded them that General Motors wasn’t built in a year, and that they should be proud of the trees they’ve planted, even if they are smaller than the strong, sturdy oaks around them.
There was a time when a high ranking position in the British Empire paid a lot better than joining the American Revolution. Black Entrepreneurs are the financial Harriet Tubmans of the black community: liberating people in mind, spirit and resources.

Many of us are so “blinded by the bling” that we take our eyes off the prize. Even those with high incomes remain as vulnerable as Katrina victims, as one unfortunate event can lead you to financial ruin. High income without an understanding of wealth building, diversity of resources and long-term financial stability is a recipe for financial disaster.

An understanding of the strengths and weaknesses of capitalism is critical to any social movement in America. Socially responsible financial machinery can serve to empower and sustain movements toward justice and equality. Models of entrepreneurship should be taught to every black child in America. Children should understand the nature of revenue generation, cost minimization and how business models work. The path to liberation in a capitalist democracy goes straight through Financialville. Controlling capital means controlling lives, and it’s tough to be free without it.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and founder of YourBlackWorld.com. He is also the author of Financial Lovemaking 101, the definitive guide on black love, black money and black relationships. For more information, please visit www.BoyceWatkins.com.

Dealing with Bill Collector Harrassment

By Dr. Boyce Watkins - Syracuse University


Bill Collectors really want their money, like the rest of us. Some of them seem to feel that it is O.K. to resort to flat out thuggish intimidation to get their money back. That might work on The Sopranos, but it shouldn't work in real life.

Part of the reason abusive bill collectors can have their way with the public is because many citizens do not know their rights. Bill collectors prey on the uninformed in a terrible way: they threaten to have them arrested, they harass their relatives, call all hours of the night, the list goes on and on.

One woman successfully sued a rogue bill collector after he called her repeatedly with threatening language. The woman, a senior citizen, was told by the man to "Stop with the sob stories and pay your god damn bill!"

The Federal Trace Commission states that complaints against bill collectors are rising, reaching the highest level they've seen in the past 3 years. Most of the complaints focus on vulgar language, trying to collect more than the amount of the true debt, and extra fees, such as court costs.

There are rights that can protect you from bad and malicious bill collectors. You want to keep these in mind as you work yourself out of debt:

1) There is something called "The Fair Debt Collection Practices Act". If you are not familiar with this document, get familiar with it. You can read it by clicking here.


2) A bill collector cannot contact you at work if your employer does not approve of the contact. Let the bill collector know that this is the case and they must legally stop contacting you at your job.

3) Bill collectors cannot call you before 8 am or after 9 pm. The only exception is if you give them permission to do so.

4) A bill collector can only contact your friends and family if they are trying to find a way to get in touch with you. However, some of them may do this in order to harass or embarrass you. If that is the case, you may want to tell your friends to tell the bill collector, "She does not live here and I do not know how to get in touch with her. Please don't call here anymore." Then, get the bill collector's information from your friend and reach out to them when you can.

5) You can get them to stop contacting you altogether by sending them a letter telling them to stop. You still must pay the debt, but they won't be calling you during dinner.

6) The bill collector can not curse at you or use foul language and they must tell the truth about how much you owe. They cannot threaten to sue unless they are serious about it, and they can't touch your 401k or IRA.

7) If they call you, you can demand that they send you a written notice of the amount you owe and who you owe the money to. If you do not believe that the debt is yours, you can write a letter to them stating that this is not your debt. They must then send you proof that the debt is actually yours.

If you feel that a debt collector has violated any of these rules, you can contact the Federal Trade Commission at www.ftc.gov. Remember that you are not powerless in this situation.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of "Financial Lovemaking 101", the definitive guide to love, money and relationships. For more information, please visit www.financiallovemaking.net.

Dealing with the Recession the Right Way: How to be Great in 2008

By Dr. Boyce Watkins
www.BoyceWatkins.com

You may have heard from the “financial experts” on TV that the recession is coming. For lack of a better phrase, many of us might be tempted to say “no duh”. Hearing a rich person on TV tell you that hard times are on the way is like being knee deep in water and getting a rain alert from the weather man.

Most Americans knew the recession was here when they started losing their homes in the subprime lending crisis. Many others learned about the recession when they could not afford heat for their homes, health care for their families, or college tuition for their children. According to a recent Gallup poll, 50% of all Americans expect their standard of living to decline. We don’t need a Suzie Orman, Larry King or some random journalist to tell us that.

As a financial researcher, I saw the recession coming 2 years ago during my fellowship with the Center for European Economic Research. The data showed, quite clearly, that Americans were managing their money like a pack of drunken sailors. We were over spending, over borrowing, under saving and under investing. That combination is never good in the long-term. Financial chickens always come home to roost.

We weren’t exactly seeing a good example from the Federal government, who has taken the word “conservative” out of the term “Conservative Republican”. Spending on a war that cost entirely too much, we were borrowing in a manner that even scared people who don’t care about politics. If our government were a college student, he would be getting an angry phone call from his mother.

It is not my belief that we should worry about the government when it comes to getting through the recession. The highly publicized “stimulus package” is only designed to stimulate you to do more of what got you in this mess in the first place. Giving Americans money back in hopes that they will spend it is like getting the drug addict high again to avoid the hangover.

“Personally responsibility” is a phrase often used by conservatives toward the poor. But it is also the key phrase here, as many have demanded that the government bail out those of us who bought homes we could not afford, stopped saving for retirement, or took extra hits from the “credit card crack pipe”. All of us make mistakes, but it is important to learn from the mistakes to move forward in prosperity.

Here are some quick lessons we can learn from the current economic downturn. The recession “out there” in the broader economy has little to do what is going on in your own home. In fact, my grandmother used to say that growing up “The Great Depression was business as usual for black folk. We didn’t know there even was a depression in the first place and we never really saw it come to an end.”

1) Budget Budget Budget – Most Americans don’t keep a budget and it leaves us in a financial mess. Spending money without a budget is like driving your car without a map. At the end of the day, you don’t really get anywhere meaningful and just end up running out of gas.

2) Use government help as a stepping stone, never as a crutch – if the government sends you a tax refund, save it. They are also making it easier for those with more expensive homes to get 3% mortgages, subsidized by tax payer money. Subsidized mortgages are a much better use of tax payer resources than blowing it on Iraq. Look into these options and learn what opportunities are available for you.

3) Take stock of your financial life – Calculate your net worth, which is the market value of all your assets, minus the debt you owe. Being in debt is not a terrible thing, but not trying to get out of debt can be a problem. If you are a professional, take account of the amount in your retirement savings and find out if your company has options for retirement investing.

4) Kill a Credit Card Today – Find a credit card and slice that son of a bitch in half. Most of us have 4 or 5 of them, so just pick one and see if you can go on a cash budget. In fact, you may want to give yourself a cash allowance in order to control your frivolous spending. Credit cards really do seem like free money, which impacts the perception of our spending.

5) Declare a One Month Spending Freeze – For four straight weeks, try to only pay necessary bills. Don’t go to the mall, don’t go out to eat, don’t buy any new clothes, shoes, hair, or fur coats for your puppy. Take the extra income you will get from the freeze (calculated in your budget) and put that money into your retirement plan or brokerage account. If you don’t have one, get one right now.
Habits are created by a series of seemingly insignificant actions, all headed in the same direction. The depths of despair serve as incubators for our greatest achievements. Let’s be wealthy and great in 2008.

Is the Iraq War Worsening the Recession?

Americans recently expressed in an AP poll that rather than having a huge economic stimulus package to help with our nation's pending recession, they would rather stop waging an expensive war in Iraq.

Getting out of Iraq was tops in the list of remedies for economic problems, along with spending more on domestic programs and cutting tax rates. The most recent Congressional idea of giving rebates to the poor in hopes that they spend the money was at the bottom of the list.

The economic stimulus package has a cost of $168 Billion and will give rebates to taxpayers of between $600 and $1200. Only 19% of those polled stated that they planned to spend the money, as the government hopes they will do. Financial personality Suzie Orman, on Larry King Live, said that she hopes Americans will not spend the money.

Others tend to agree.

"Let's stop paying for this war," said Hilda Sanchez of Waterford, Calif. "There are a lot of people who are struggling. We can use the money to pay for medical care and help people who were put out of their homes."

Currently 65% of Democrats think the U.S. should leave Iraq, with only 18% of Republicans agreeing. 61% of all Americans think that the U.S. is already in the middle of a recession.

Dr. Boyce Watkins, Finance Professor at Syracuse University, says the recession was a long-time coming.

"When you consider that Americans have been spending their money like drunken sailors for the past few years, the recession was a long time coming," says Dr. Watkins, a regular CNN contributor. "The sub-prime lending crisis was a clear sign that many Americans are in financial trouble."

According to the National Priorities Project, a group that studies the Iraq War, the cost of the war has nearly reached a half trillion dollars. While American contractors have benefited financially, the average American has not. Millions of Americans have no health insurance and the public school system has been considered disgracefully inadequate.

The Federal Reserve has contributed to the economic stimulus package by aggressively lowering interest rates. Federal Reserve Chairman Ben Bernanke has been called "Bold Ben" by some who charge that he pushes too hard to reduce interest rates when the economy is struggling.

Some question whether the government's policies are good for consumers.

"What is good for the economy as a whole — spending a rebate — is not the best idea at an individual household level if you are buried in debt," said Greg McBride, senior financial analyst at Bankrate.com. "Issuing rebate checks to give a boost to consumer spending amounts to a Band-Aid over the much bigger problem of consumer debt burdens," he said.

Dr. Watkins also argues that in addition to the economic crisis set for the short-term, America should prepare itself for a pending retirement crisis.

"The perfect storm for a retirement crisis has been created," says Watkins, author of 'Financial Lovemaking 101'. "Americans are not saving, pension plans are disappearing, social security is dying, people are living longer and the cost of health care is rising. Something has got to give."

Your Black Money Myths: 3 Myths About Investing

When it comes to money, there is a lot of hoopla. As I witness the financial frenzy that comes with each fad, I am reminded of the days of snake oil salesmen, taking advantage of the hopes and dreams of many to fill the coffers of the immoral. When I watch the late night “Get rich quick” schemes, I wonder if anyone is getting rich other than the professional, perpetrator or pastor selling the book being featured. Some of the advice shown on television isn’t bad, but as a Finance Professor, some of the advice makes me shudder. Not to say that all of the self-proclaimed “financial experts” are immoral or incorrect, but it is not hard to find flaws in their perspective.

Being mislead causes the most pain to those who do not understand money. Many people do not understand the basics, which can make them vulnerable to those who use long words to confuse them. When I teach Finance courses to my students, I enjoy finding simply ways to communicate complicated concepts. The ultimate goal is for the student to be able to discern the good advice from the bad.

I have compiled a list of quick and dirty myths about money and finance that can help you to get started on your path toward financial understanding. While this is just the tip of the iceberg, perhaps the ice will whet your appetite to learn more about the world of financial management.

Myth #1) An investment is only good if it helps you to earn more money

According to quite a few financial advisors, every penny you invest should be put into assets and ventures that are going to give you a financial return. The “gurus” tell stories about how investing your money to make more money implies that you are smarter than the person next to you. By virtue of your being smarter, you are therefore entitled to a happier life. Money is also made into the most important thing on earth, and you end up feeling bad if you are not, as you are sometimes told, hoarding every penny and allowing those pennies to dominate your personal life.

There are quite a few scenarios in which money should be used to make more money, and there is nothing wrong with that. But more money doesn’t always imply you will have a wealthier life. There are times when buying a car or taking a vacation can be much better uses of your money than buying another stock, bond or piece of real estate.

In fact, if the sole objective of money is to make more money, then that means you should just send your children to Dr. Kervorkian (the man who kills people for a living), since kids are expensive and don’t give you any of your money back. Don’t be so hard on yourself when it comes to investing. Investment is like working at the office or having sex: it’s ok, as long as it’s done in moderation.


Myth #2) Only some investors have a portfolio

What is a portfolio? A portfolio is a set of valuable investments that give you something back. When I ask my students “How many of you have a portfolio?”, only a few of them raise their hands. I then explain that making an investment is equivalent to putting a scarce and valuable resource toward the creation of something more valuable over time. Most of the students fail to realize that money is NOT the only scarce resource you can invest. You can also invest your time, your energy, your health and even your love. All of these amount to allocations of scarce resources, and most of us make these investments every single day. The decision to get out of bed is an investment, since you could easily spend your time lying around watching TV. The clothes on your back are part of your portfolio, since you have invested to obtain them, and they do provide you a return (your reward for investing in clothes is that you get the peace of mind of looking good and not having to walk around naked!).

The point here is that you should have a more complete way of thinking about investing. Money is only one type of investment, and it is sometimes the least valuable asset in our life portfolio. You have probably heard people say “time is money”. Well, that’s not exactly true. The truth is that time is MORE VALUABLE than money! If you are 22 years old, and you waste your time, you will never get to be 22 years old again. No amount of money can make up for being, say, falsely incarcerated for 15 or 20 years. However, if you lose money, you can usually get it back later. So, whether we have money or not, we are always investing.

Myth #3) The stock market is one of the best places to make money

The stock market is not a great place to make money, at least not in the short-run. It is a great place to keep the money you’ve already made. Don’t get me wrong. There are many people who’ve made their fortunes trading stocks, but that is not the norm. Additionally, even though there are many who’ve made a fortune trading stocks, more fortunes have been made using other investments. The stock market is what they call an “efficient market”, which means that it is tough to find a good bargain. This is a lot different from some other markets, where you can find a pretty good deal if you look hard enough.

When looking for a place to invest your money first, you should start with the investments that offer the highest return for the lowest risk. In other words, if you find something you are familiar with, you are likely to have a better outcome. One place to start might be with an investment in YOUR SELF. Do you have enough education to have the kind of career you would like? How about going back to school for that college degree or MBA? In my own research, I have determined that the returns to this kind of investing far exceed the returns generated from the stock market or other places.

You might also consider investing in Real Estate or even in the business of a relative. If you have a friend that is going into business, and you have reason to believe that this person is fulfilling an unmet need, has a guaranteed customer base, and is reliably going to give you your money back, then this kind of investment might be better than going right to the stock market. Just make sure that you sign a legal contract so there are no misunderstandings.

You can also make a lot of money by cutting your spending. Consider the following two options. Let’s say you have a credit card that charges 15% interest with a balance of $10,000. You have $10,000 available for investment, and you can either use the money to pay off the credit card or invest in stocks. Let’s also assume that you expect to earn 10% on the stock market (roughly what the US stock market earned during the 1997 – 2001 time period). There are two things you must remember about this investment:

1) The amount you are paying on your credit cards is greater than what you would earn from the stock market.
2) The amount you would earn from the stock market is risky, so it could be higher or lower than the average. The amount you are paying on your credit card is going to be the same, no matter what.

So, you have two choices: You can either a) invest the $10,000 in the stock market, earning an average of 10%, or you can b) Use the money to pay off your credit cards, ridding yourself of the 15% interest expense. If you go with option a) (investing in the stock market) and assume that you are guaranteed 10% on your money, you will earn $1,000 and have to pay $1500 in credit card interest (15% x $10,000). This leads to a net loss of $500.

If you go with option b) (paying off the credit cards and not investing in the stock market), you can save $1500. So, there is a $2,000 ($1500 – (-$500)) difference between these two choices.

The point is simple: “A penny saved is a penny earned”. You can rephrase this statement as “A penny not paid in interest is a penny earned in interest.” By using excess funds to pay off high interest debt, you have found one of the best investments around.

The point of this article is the following: Investing in the stock market is nice and glamorous, but it’s not the way to make money. If you really want to make money, you should start with investments around you: Buying a home, paying off credit cards, or going back to school. These investments give higher returns than the stock market and lead to a wealthier life.


Myth #4) Putting all your eggs in one basket might be OK

“Diversification” is an important investment concept that most investors do not think about. It is the idea that you should not put all your eggs in one basket when investing. Many investors do not follow this rule, instead putting all of their money in one place. This is a BAD idea! Consider the employees at Enron (the company that went bankrupt a few years ago). Some of the Enron employees had their entire retirement plan with one company. Many of these people lost their life savings when the company went bankrupt.

Every good thing eventually comes to an end, and if you are properly diversified, you are protected when things really do fall apart with your investments. Diversification means that you not only buy a large selection of stocks, but you keep your money in different types of investments. For example, if a person has a portfolio to invest, they should keep a few thousand in different kinds of stock, some of the money in their savings account for a rainy day, some of the money in real estate, and some of it in the family business. Spreading your money around protects you well when things go bad in the market.

Another thing about investing is that it should be GLOBAL. If you buy a portfolio of stocks, you do not want to have your money focused on the United States. There are mutual funds which allow you to invest all over the world, where many of the best opportunities are. Make sure that you are diversified across boarders, so if one country’s market fails, you will have investments all over the world to protect you.


Myth #5) If a stock has done well in the past, it will continue to do well in the future

Most people think that if a stock has a good past performance, it is going to continue to be a good stock in the future. All of my own academic research, as well as the academic research of many others, shows that this assumption is almost always WRONG. There are some rare exceptions in special cases, but for the most part, the past performance of a stock or mutual fund manager is no indicator of what is going to happen in the future.

You see it all the time: magazines will rank the best performing stocks, top industries, and best performing mutual fund managers. This publicity is great for the fund manager, because he/she knows that most investors do not know the truth. The truth is that when ranking investment managers and stocks on the prior year’s performance, there is almost no positive relationship between the performance of the past and that of the future. Notice that I say “almost no positive relationship”. That is because my research shows there are some rare cases in which there is some relationship, but this is not something worth betting the house on.

The best way to invest in stocks is not to chase winners. The best approach is to simply invest in solid companies for the long haul and keep your portfolio diversified. If your portfolio is properly diversified and you leave money in your investments for several years, you will most likely find a natural growth which allows you to sleep at night. Those who chase every hot stock down the street end up driving themselves nuts.

Dr. Boyce D. Watkins
www.myfinanceprofessor.com

Black Money May Suffer: Recession is Expected

The economy is threatened with a major recession. The housing crisis has caused ripple effects, as many banks have been forced to scale back their lending. Additionally, unemployment is at a two-year high. This has some wondering if the economy is headed for a major downturn.

Wall Street seems to think so. Known as a "leading indicator" for the economy as a whole, the recent slide in stock prices is a signal to some that the economy and corporations are headed toward lower future earnings.

At the beginning of 2007, economists surveyed cited a 1 in 3 chance that the economy would go into a recession. Now, they say it's 50/50. Some think that a recession is a sure thing.

President Bush and Congress are exploring options to avoid a recession, including tax rebates. Lower taxes encourage spending. Federal Reserve Chairman Ben Bernanke is proposing lowering interest rates. Lower taxes and lower interest rates encourage two economic stimulants: more spending and greater investment.

"The recession gorilla is there. The question is can the Federal Reserve do enough to avert a recession?" stated Brian Bethune, economist at Global Insight. "We think the odds are close to 50 percent that there will be a recession. It is high — no question about it."

There is a question of whether the Federal Reserve, the financial governing body for the US, agrees that a recession is on its way.

"The Federal Reserve is not currently forecasting a recession," Fed Chairman Ben Bernanke said last week. "We are forecasting slow growth."

Technically, a recession is a period of two straight quarters of negative economic growth. In other words, six months of slumping.

Some have concerns for African-Americans, who tend to feel the greatest effects of economic downturns. They have also been hit disproportionately by the housing and foreclosure crisis.

Additionally, there is fear that if consumers expect a recession to occur in the near future, they are going to stop spending in order to prepare. Businesses may also stop investing to prepare for the recession. If this is done on a large scale, the effects of the recession will worsen.

Finding Ways to Save Money

Saving Money can be tough, but it's not impossible. So, I figured that, in order to help us get our January started off right, I would give you some quick tips to save cash. The motto for today is "You have to have your mind right to keep your money tight", so think of this as every bit of a psychological exercise as much as it is a financial one:

1) Keep a budget - if you don't know where your money went, it's hard to know where it's going. Plan your spending and make sure that you are aware of just how much is coming in, going out and expected to be made in the future. This can help you plan cut backs or extra spending.

2) Take your lunch - did you know that by spending $7 per day for lunch, 5 days per week, you are spending $1,820 per year? If someone were to take that money and invest it in a portfolio earning 8% per year for 30 years, they would have $206,175.44. Now go snack on THAT.

3) Cut 10% out of your spending right now. Find that bill that you don't need or whatever else, and force yourself to make it happen. Pretend that your boss just gave you a 10% paycut and you have to take things out of your budget. Come on, you can do it!

4) Slice up a credit card or two - credit cards are America's financial poison and we are all addicted on some level. Get off the credit card crack pipe and start making healthy financial decisions.

5) Use a grocery list - don't shop without a list, so that your spending can be focused. Overspending at the grocery store gets me in trouble, which is why I have been getting fat. But not anymore, I am going to keep that list in my pocket. So, you see? We all have our vices, but it is up to each of us to work through our personal demons.

Dr Boyce on NPR - Black Family finances

As a finance professor, I see regular misconceptions in media about black people, black families and black wealth. America somehow has chosen to believe that the reason for wealth disparities in America is that African-Americans have simply chosen to be lazy and engage in the practice of bad money management. They also cite the fact that black families are not married as regularly and that this is a reason for poverty in the black community.

I could not disagree more.

The reason for the wealth disparity between blacks and whites is very simple: For 400 years (a very long time), America had a clear tradition of not allowing black people to pass wealth onto their children. As a result, all the big buildings in Manhattan, all the major media companies, and all the large corporations in America are owned, run and controlled by the white community. Period. Most wealth is inherited wealth and we were not allowed to inherit.

Black people choosing not to get married is no worse nor better than the fact that many families in America choose to get divorced. Honestly, I think divorce is far more devastating to the life of a child than not getting married. If one throws in the fact that non-custodial parents are obligated to pay child support, then the income gap, in a perfect world, should disappear. One can argue that two parents are better than one, but at the same time, 3 parents would be better than 2, and 4 parents would be better than 3. You could make this argument forever, and to use the one vs. two parent disparity as the fundamental basis to explain America's commitment to racial inequality is ridiculous.

Bottom line: Love is what matters, and if you look at the lives of Al Gore's son and kids in the suburbs who engage in just as much deviant behavior as kids in "the hood", you will see that a parent's decision to get married or not can be good for the child or bad, depending on the circumstances.

In other words: I get sick of people trying to say that black families are immoral or culturally inferior. Our culture is just fine thank you. Also, racial inequality and wealth gaps are due to one thing: historical discrimination. If you want to talk about creating a fair america, then you must first correct the huge imbalance created by racist ancestry. Trying to be fair from this point on (as Ward Connerly tries to argue) is like a lifelong crook stealing billions and then promising not to steal anymore. A fix must be applied to past wrongs before you can move forward in fairness.

I did this NPR interview on the topic not too long ago. It was done with Farai Chideya, a woman I had a huge crush on during my time in graduate school. Don't tell her I said that (haha!).