Super Irrational at the Supermarket - Dan Ariely

Dan Ariely highlights our irrationality at the supermarket in this brief, but interesting video. Why do we think bigger is always a better deal, even if it isn't? Would love to see him take a trip to one of the warehouse stores where, in my opinion, irrationality abounds. I look forward to Ariely's full article in the July-August HBR.

Recommended Reading: She Got Out of Debt, So It's Time to Party

This is a great "feel good" article from TwinCities.com about one new grad who took a good, hard look at her finances and cleaned up her act.

She Got Out of Debt, So It's Time to Party

"One twentysomething saw a shaky economy and a worrisome credit card balance. But she didn't fret; she set out to pay it off. Now, she embraces living within her means." Read more...

Look Mom, I Graduated! Now What?

The Class of 2009 is graduating into one of the worst job markets in decades. Lot's of articles are being written on the subject. What are the job prospects for these new graduates? If they have the means, many will go straight to grad school. Others will look in fields they otherwise might not have considered, like education. That could be a good thing. The bottom line is, they'll have to get on with their lives and do something. It's a bitter pill to swallow after years of hard work, but sometimes life doesn't work out exactly the way you planned. My husband likes to say that life is like a wheel, sometimes you're on the top and sometimes you're on the bottom. It's tough coming out of school into this market, but maybe learning to overcome adversity and pull through isn't such bad training for the road ahead. Just keep your eyes on the road.

I graduated into the recession of the early 80’s. I had a ream of rejection letters from every bank and Wall Street firm out there (most of which no longer exist, like Manufacturers Hanover and Chemical Bank, as a result of 20 years of consolidation). I got by tending bar and waiting tables. Ultimately, I went on to get my first job in my field, and my career got rolling. In tough times like these, take whatever job you need to in order to get by, but here's my 20-20 hindsight advice about what to do while you're treading water:

• Plug into networking opportunities in your industry (these 3 are great for women in financial services The Women's Bond Club , 85 Broads and The Financial Women's Association).
• Go to industry events to learn about what’s going on in your desired field as well as make connections.
• Do volunteer work, it’s also a great way to network while doing something productive.
• Read, read, read. Newspapers, magazines, the latest business books, all of these keep you abreast of the latest trends, what's happening in the economy, what the "new new thing is". I highly recommend Outliers and The Tipping Point, both by Malcolm Gladwell. Also, Who Moved My Cheese by Spencer Johnson.
  
• Lastly, tap your school’s alumni network to the fullest extent. Those of us who’ve been there and done that, love to help young grads.

What do you think? Please post your comments.

Recommended Reading: The Marketplace of Perceptions

I've written a lot about deferred gratification, and trade offs, and also about the importance of reading the fine print when making decisions. I recently came across this April 2006 cover article in Harvard Magazine by Craig Lambert discussing how we make economic choices, and the external forces that shape those decisions. It's fascinating reading. What do you think?

"Behavioral economics explains why we procrastinate, buy, borrow, and grab chocolate on the spur of the moment" Read more...

Dollars are Made Out of Pennies

I've talked a lot in previous posts about setting priorities, and teaching our children to set priorities or defer gratification. How does that translate into dollars and cents in every day life? How do you get a child (or even many adults) to grasp that skipping a Starbucks Frappuccino or a Snapple can pay for a PS3 game? Sometimes things are easier to understand if you break them into pieces. A big project seems undo-able until you break it down into tasks and milestones. The same is true about prioritizing and saving for an expenditure.

Let's start at the beginning. Dollars are made out of pennies. This is at the core of how money works, but to many it's intangible, especially if they usually pay with invisible money. How does saving 25 cents now translate into that $50 game later? The answer, of course, is to save a quarter here and a dollar there until, over time, you have the $50. Now we're starting to talk about math a child can understand. So, the Frappuccino vs. PS3 game choice isn't a one time trade off, it's a many times trade off. How many times? If the Frappuccino costs about $4, and the game costs about $50 then the answer is more than 10 times. That may sound like a lot of times, but it doesn't have to be the only trade off. More trade offs gets you to $50 faster. I know, this isn't rocket science. Still, I'm always surprised to learn how many people don't get it.

I once read a column in the Wall Street Journal where the author talked about playing "the soda game" with his kids. It's a great idea. Here's how it works. You're at a restaurant. You give your kids a choice: they can order soda or you'll give them whatever the soda costs. Suddenly that $3.00 investment in soda is theirs instead of yours. Most kids (but not all) will happily take the cash in hand. A good lesson, but doesn't work for everyone because there's still the element of "other people's money".

Here's a story my father told me when I was a kid that really makes the point about trade offs and deferred gratification. When he was a little boy, his Aunt and Uncle owned a Five and Dime Store a few towns away. His uncle told his Aunt that she could keep all the change in the drawer at the end of each day for whatever she wanted to buy. She saved the change, and bought a house. Like I said, dollars are made out of pennies.

Do you have examples of trade offs you make? I'd love to hear them.

Reality Check: A Night at the Prom

The New York Times article A Prom with all the Glitz, but Every Dollar Squeezed from April 30th got me thinking. Another example of the interesting ways that people prioritize during tough economic times. Prom is a milestone in most teenagers lives, and can be a happy memory. I went to a very small Prep School, way too small to have a Prom. We went on to live perfectly happy and successful lives having missed Prom, but I confess that I went to a public school friend's Prom. What is striking in this article, is not the desire to go to the Prom, but the things deemed necessary as part of the experience. Here are historical tidbits I borrowed from About.com:

• Prom has been around since 1811, and is derived from the late nineteenth century “promenade ball”.

• Proms are inspired by debutante balls, which are events that formally debut teenagers from prestigious families.

• In the early 1900s, Prom was just a simple tea dance for high school seniors.

• Proms thrived in the 1950s due to a post-war economic boom.
  

• Girls didn't originally purchase new clothing for proms—dress codes found on invitations simply called for “your Sunday best”.

Over the years, we've come a long way from a formal in a decorated High School Gym. The price tag has come a long way too. Back when I went to the Prom, the boy rented a Tux and bought the girl a wrist corsage, the girl bought a gown (more on this later) and a boutinierre for the boy. The boy bought the prom tickets. The big after Prom event was sleeping on the beach (I'm sure there were regionally adjusted equivalents). Today's Prom price tag includes expenditures such as hair salon, nail salon, make up artist, limo, photographer, and a trip to the beach for the weekend. How did we get here?

Forget the obvious questions like, did teenage girls suddenly become incapable of doing their own hair, nails, and make up (or each other's)? Forget that the limo thing probably originated as a way of ensuring that kids weren't driving around drunk on Prom night. So, here's what I think happened. Kids who grew up watching the red carpet on TV started emulating it. Businesses were all too happy to market to this crowd (can't blame them, business is business). Most important though were parents willing to pull out their credit cards and foot the bill, or allow their children to spend their own hard earned money on one-time excess. I will stop right here, and be very clear that I think the Prom is a nice milestone in a kid's life. It's a bonding thing, and part of the closing of the High School chapter of their lives. However, I do not think this rite of passage needs to include channeling Beyonce or JayZ for the weekend (I almost fell off my chair when my daughter told me that couples were choosing their music for when they got out of their limo, and were captured on the official Prom video).

So, I cheer for the parents and children in this article who are realistic enough to make tough choices and set priorities, even if it means facing up to the fact that food and shelter are higher on the list than hair and nails. I challenge the parents who say they will make whatever sacrifices necessary to ensure their child doesn't miss out on Prom with all the trimmings, to ask themselves what they are teaching their children about coping with adversity. Remember, there's a difference between what you want and what you need. If the key objective is going to the Prom, then whether the dress was seen before should be irrelevant. I've said it before, if it's clean and paid for it's nobody's business.

Okay, okay you think I'm being harsh and judgmental. Well, unfortunately sometimes life presents us with harsh realities and tough choices. Sometimes those choices don't have to be all or nothing. You can make a list and set priorities. In my professional life, we do this all the time. Make a list of all the things to be delivered with the project, separate the "must haves" from the "nice to haves", determine what can be done within time and budget constraints, and redline (or defer) the rest. This is a life skill we should be teaching our children. This is part of preparing them to be responsible adults.

Here are some suggestions:

• Skip the professional make-up job. This is a 100% consumable spend on something that lasts for a couple of hours and will be washed off. I include in this the offers at department stores to "do your make-up" if you purchase some amount of make-up. While this is slightly less than one time use, will this make up ever be used again and is it needed. Most girls already have make-up, and can pick up a shade of eye-shadow and a new lipstick at CVS or Target for less than $10. No one will know the difference (and who cares if they do?).
• Skip the salon "up-do". The amount saved will go a long way toward the cost of the dress or the Prom ticket, and again this is a one and done use of money. I've rarely met a teenage girl who either can't fix her own hair, doesn't have a friend who can fix hair, or doesn't have a Mom (or Dad) who can fix her hair.
• Skip the photographer, and take your own pictures.
• If this is a dress to be worn once, don't invest too much money. It's an investment with no return. This gown will not be reviewed by Joan and Melissa Rivers on E! Stay away from stores that specialize in selling Prom gowns, this is their Super Bowl. There are plenty of discounters like Loehmann's where you can get a beautiful dress for under $200. Consignment or Charity Thrift shops in affluent areas often have really high end stuff (tuxes too). Call it vintage, and suddenly it's chic. My college roommate bought a fur coat for $35 at the Wellesley Thrift Shop (and she was a trust fund baby).
• In general, the whole fake nail thing is a huge waste of money Prom or no Prom, so skip it.
  

As a matter of full disclosure, my oldest daughter went to Prom twice when she was in High School. She did her own hair, nails and make up (not because I couldn't afford to pay for a trip to the salon, but because she and I both agreed it was a waste of money). I think that's an important dialog to have with a child. The difference between what you can afford, and what's worth spending on. I helped her pay for the gowns, but they were not over the top (and they are still hanging in her closet, like souvenirs, and were never used again). So, now that Prom season is upon us, I hope you have that dialog with your child too. If times are tough financially right now, use this as a teaching opportunity about setting priorities rather than about ignoring reality or charging up credit cards with nice to haves. Remember, in the choice between movies and socks, socks win. Since this is a milestone on the road to adulthood, teach your child how to make adult choices by making them yourself as well. What do you think?

Must Read from NYT: Without Cafteria Trays, Colleges Find Savings

Without Cafeteria Trays, Colleges Find Savings in today's New York Times highlights the synergies between economic and environmental good sense. "Schools are shelving the once-ubiquitous trays in the hopes of conserving water, cutting food waste, softening the ambiance and saving money." The savings on both water and wasted food are significant, not to mention potentially avoiding the dreaded "Freshman 10". No more loading up the tray with extra items that end up in the trash (remember: Enough is as Good as a Feast), but what are they going to use for sleds? Read more...

Reading is Fundamental

My children love to tease me about discussing what I read in the Wall Street Journal at the dinner table, but guess what; the dinner table is one of the places I got key pieces of my education, so I'm paying it forward. This is just one example of reading and talking about what you read. The more you read, the more various pieces of what you've read start to interconnect. Reading isn't just about reading books, magazines and newspapers though. It's about reading labels, reading advertisements, reading the fine print, reading disclosures, reading the unit pricing at the supermarket, and thinking critically about what you've read. In order to make informed decisions in your daily life, Reading is Fundamental.

I remember watching television as a child, and commercials would come on advertising something as new and improved or 25% better or 20% bigger. My father would say "25% better than what?" Over and over he said this about claims on cereal boxes and laundry detergent, and as commercials came across the TV screen. He taught me that you had to read the label to find out, and that usually the answer was not what you were expecting.

The supermarket is chock full of reading material that is often surprising. Teaching your children how to read labels, how to read unit pricing and decipher the best deal, and how to read through marketing claims is a terrific life lesson. It prepares them for critical reading, thinking and decision making later in life.

My key point here is not that critical reading helps you be a good supermarket shopper (although this is a good life skill). My point is that taking the time to read the details is essential to making informed decisions, and informed decisions are at the heart of making economic sense in a world of seductive marketing and invisible money. Here are some other examples where reading is fundamental:

• Pre-approved Credit Card Solicitations
• Free Credit Report Offers
• Any Offer of "3 free months of membership"
• Mortgage Terms
• CD and Money Market Account Rates

These are only a few, but I think you get the point. Like my Dad used to tell me: "don't focus on the big print they want you to read, read the fine print next to the asterisk".

Note: Since I talk about commercials in this piece, I have to give credit where it's due. As these ideas came together I remembered the little voice from TV commercials of my childhood saying: "Reading, It's Fundamental".

Founded in 1966, RIF is the oldest and largest children's and family nonprofit literacy organization in the United States. RIF’s highest priority is reaching underserved children from birth to age 8. Through community volunteers in every state and U.S. territory, RIF provides 4.5 million children with 16 million new, free books and literacy resources each year.

In 1966, former teacher Margaret McNamara brought a bag of used books to four boys in Washington, D.C., whom she tutored in reading. When she told the children they could each pick out a book to keep, their astonishment and delight led her to discover that these children, and many of their classmates, had never owned any books.

By that summer, Mrs. McNamara had gathered a group of school volunteers, and on November 3, 1966, they launched the book distribution and reading motivation program they called Reading Is Fundamental.

From November 1966 through the early 1970s, RIF expanded from a pilot project at three elementary schools in Washington, D.C., to a program reaching children in 60 of the city's public schools. More about RIF...

In the News: Are Teenagers Discovering the Difference Between What They Want and What They Need?

I had to come back to my post Enough is as Good as a Feast to add this link to an article in today's New York Times entitled "Losing Its Cool at the Mall" http://tinyurl.com/c7wblw, a very interesting piece on the changing spending habits of teens (reported to be down 14%). Although this is bad news for some retailers, particularly Abercrombie & Fitch which is featured in the article, it's good news in terms of growing economic common sense in the teenage population. Is it fleeting?

Lights, Camera, Distraction!

"17 Again" debuted at No. 1 at the box office, pulling in an estimated $24.1 million. I have to admit, I kind of want to see this one. Looks like "It's a Wonderful Life" meets "Back to the Future". Still, I'm pretty much of a cheapskate (big surprise) when it comes to going to the movies. Just ask my kids. There isn't a lot playing that motivates me to spend close to $30 (that's for me, and only one child to watch, and a Jumbo Popcorn). Bring the whole family? You must be kidding! I'll wait for the DVD, or maybe if it's free movie day for Optimum Rewards customers, I'll take a kid or two and go.

You'd think that now that times are tough, movies would be hurting, right? Nope, just the opposite. Overall box office receipts were up for the fourth straight weekend, surging 21 percent over this same weekend last year. So where's the recession? It turns out the recession is helping drive box office results. Why? Because when times are tough, people love distraction.

The surging box office results remind me of a story my father told me when I was a little girl. As I've mentioned before, my family owned a small department store started by my great grandfather. I never met him, but he was a very good business man. Anyway, one day a mother and daughter came into the store. The little girl pointed out to the mother that her socks were full of holes, and she needed a new pair. The mother scolded the little girl and said "you know we only have enough money for the train and the movie!" (Back then there was no movie theatre in town, and you had to take the train a few towns away to watch a movie). This said a lot to my great grandfather about priorities, if people would spend for movies over socks for their children. So, he opened a movie theatre in town. Great business sense! Pretty sad story about how people prioritize expenditures.

The desire for distraction plays out in many ways in a down economy. I read recently that sales of romance novels (like the harlequin kind), and fantasy/sci novels are way up. Even libraries are seeing increased demand for these titles. Disney DVD sales are down, and Netflix rentals are up.

Distraction is not a bad thing. A little escapism in a good book (okay, my definition isn't a harlequin romance, but whatever works) or movie is a nice reprieve from the realities of today's economic crisis. Here are a few thoughts and suggestions on employing some economic sense to your escapism:

• Reacquaint yourself and your children with the public library. Not only are the books free, but the trip gives you a free mini-outing together. Libraries are open pretty late, and on weekends so you can squeeze it in during non-working hours. The library frequently has a fund raising book sale where you can buy books for about $2. This is a great deal, especially if you don't want to deal with deadlines.
  
• If the library really isn't an option, buy your books at a discount store like Sam's, online from Amazon, or used from Half.com. I used to cherish my books (and still do, some great ones I wont part with), but realistically do you really need to own all of them? As one of my bosses used to say, if the square footage to store the books is worth more than the books you're storing, you need to rethink. Consider reselling the titles you don't want to keep on eBay (or their site half.com), or you can resell on Amazon. No time? Donate them to the library or a local hospital.
• Use the current economic hard times as a teaching moment for your children. Were there books you loved as a child? Read them together. When I think back, I actually read a lot of books as a child that taught good economic sense, self-reliance, and how to deal with hard times. I'll talk about some of these books in a future post, but I'm sure you can think of some that you read as a child.
  
• Rent DVD's from Netflix (if there are other subscription services out there fine, but Netflix is what I know and love). They have plans that are less than $10/month, and you can take your time watching the movies if you're busy. They also have thousands of titles you can watch online. Same as books, how many DVD's do you really need to own? Even titles from the $5 bin at Walmart (another good source) aren't necessarily keepers, and just clutter up your house. Again, sell them online or donate them to the library or a local hospital (keep track of what you donate and take a tax deduction). I especially like the hospital option. Many children's floors have DVD or VHS players in the rooms, and a library of movies for borrowing/viewing. If you've ever been in the hospital with a sick child, these are a real blessing.
• If you really want to go to the movies, check out the schedule for the bargain matinee (at least you'll save a couple of bucks), or if you're a Cablevision customer, get an Optimum Rewards card so you can see movies for free on Tuesdays at Clearview Cinemas. I feel a lot better about a $7 tub of popcorn, when my ticket is free.

So, go ahead and enjoy some escapism. Just don't get distracted from economic sense. Socks without holes really should be more important than an afternoon at the movies, but if you want to strike a balance try buying the socks (or whatever that boring, but necessary item is) and renting the movie.

I'm putting together a list of great books I read as a child for a future post. If you've got suggestions about memorable books from your childhood, I'd love to hear them.

The One Week Rule

During my last year at college, we all talked about getting our first real apartments (as opposed to the ones we had while we were at school). The apartments we were going to pay for with the salary from our first real (translate as "career") job. We all knew you had to follow the one week rule. Looking back, I'm fascinated that we all knew this rule, but in retrospect we don't know where we learned it. It was just there. Passed along by word of mouth, and somehow taken in by osmosis. It's that actual teaching process that now interests me, as I'd like to make sure we restore it.

What is the one week rule? Basically, it's this: your monthly rent should not exceed one week's salary. That's it. If you make $500 a week, you can afford a $500 a month apartment. This is very simplistic, but for any good rule of thumb to work, it needs to be very simple.

The one week rule works equally well for determining how much house you can afford. Actually, the one week rule it turns out, is what lenders call the front-end ratio. The front-end ratio is the percentage of your income used to make mortgage payments. It's calculated by dividing your monthly housing expenses (principal, interest, taxes and insurance or "PITI") by your monthly gross income. So, going back to the one week rule, this should be about 25% of your monthly income.

This is all pretty simplistic. There are other factors out there, like car payments, credit card payments, etc. that have to be considered (these make up what lenders call the back-end ratio). Ever see the episode of the Cosby Show where Cliff pretends to be the landlord to teach Theo a lesson about money? In short, you can't spend your whole paycheck on rent. Anyway, simple as it is, I think the one week rule is a very good starting point for deciding how much you can afford to spend on housing.

Here's my question, how did we all magically learn the one week rule? When did people stop learning it? How do we get back on track, and start passing it on to our children? If you learned a rule of thumb similar to my one week rule, what was it, and where did you learn it? I'd to love to hear about it and share it.

Til Debt Do Us Part

Over the past couple of days, I've encountered several articles about weddings. Topics range from how to let your guests know you want cash a a gift http://tinyurl.com/d7spze, to how to save on wedding expenditures http://tinyurl.com/cghrqn. Couples are expected to spend 6.49% less on weddings in 2009 than in 2008, according to The Wedding Report, an industry tracker. I think that percentage should be much bigger. Somewhere along the line, the wedding industry, and the overall concept of what a wedding should be, got out of control. This applies to parties related to other milestones as well (i.e., Sweet Sixteens, Bar Mitzvahs, Baby and Bridal Showers, etc.). A wedding is about getting married, and celebrating that with your friends and family. It shouldn't be a reason to get into debt, and it shouldn't rely on the checks from your guests to help you break even. You don't have to resort to wine and sponge cake like my mother used to threaten me with, but do you really need a sushi station and a flaming Viennese table?

A long time ago, a colleague of mine told me a story about her own wedding. Her father gave her a choice. He said she could either have a $25K wedding (I think that was the number, but not important), or she could use the $25K to put down on a house and have a small informal gathering with family and friends. She took the money, and never regretted it. Close family and friends had a golf outing and a barbecue when she and her husband returned from their honeymoon. This option is not for everyone, but think about it, a house is a place to live for years to come, a party lasts for a few hours.

By now you're thinking I'm just a Grinch. Not at all. If you want a fancy wedding, or a fancy sweet sixteen for your daughter (I won't go into how sexist and outdated I think these are) go for it. But, please save up for it first. Think about what's important to you versus what you think will impress others. Don't get sucked in by the reality TV shows, these are not most people's reality. Remember, if you can't afford to pay cash for it, you can't afford it.

If your marriage is meant to last, it won't make a difference how many guests you had at your wedding, whether you gave away Lenox swans or some other piece of clutter people end up feeling bad about throwing away, or whether you (heaven forbid) rose up out of the dance floor surrounded by dry ice smoke. Why start out your life together in debt? Like I've said before, enough is as good as a feast.

Just one thing. If you can't afford an open bar, either don't serve liquor or put wine on the table. A cash bar at any family occasion is just plain tacky.

Did you have a great wedding or other family event without going into debt? I'd love to hear your story.

Enough is as Good as a Feast

This is my favorite line from "Mary Poppins". Sometimes we glean wisdom from the strangest places, but good economic sense rings true wherever we find it. How much is enough? From a career perspective, it's always current compensation + n. At least in my industry, but that's not the focus of this post.

At the heart of our current economic woes is leverage. Using leverage to spend more than we earn, and losing sight of the difference between what we want and what we need.

So, how much is enough? This question can be applied to so many aspects of our day to day life. How big should a restaurant portion be (seriously, does anyone need a half pound burger?)? How many game systems does a kid need? How many pairs of jeans? How big a house? How fancy or big a car?

I made my children wait a very long time before I finally bought them a PS2 a few years ago. They have a few games. Maybe they get one at Christmas, but that's about it. Until they were teenagers, I refused to buy anything rated "mature". No one became a gaming addict. I was shocked to learn from my boys, that a lot of their friends had all the systems. Why? No wonder they spent all their time playing video games! How much is enough? How can a child learn about making choices or deferred gratification if they've been taught that they can have one of every flavor?

How many pairs of jeans, or handbags, or shoes are enough, and what kind? Does a kid really need 5 pairs of jeans, one for every day of the school week? Will they suffer permanent social outcast status if, heaven forbid, they wear the same pair twice in the same week to school? My family owned a clothing store, so I never wanted for nice clothes. Still, my parents impressed upon me that they still had to pay wholesale to the business for our clothes, so I got what I needed rather than anything I wanted. My father grew up during the depression, and while the family owned a business and was in good financial shape for the times, he wore the faded clothes from the store window. I cringe when I hear about people charging clothes on credit cards, and paying them off over time. Much too much focus on who has what kind of clothes! Don't get me wrong, I love fashion as much as the next person, but I couldn't sleep at night if I was in debt for it. Like my mother used to say: "if it's clean and paid for, it's no body's business".

No discussion of today's economic troubles can skip the how big a house question. This question really has a few parts. How big? What needs to be in it? Is owning always better than renting? Again, how much is enough? A few decades ago, families were frequently larger than is typical today, but they often managed to live in much smaller houses. I've met people who were one of 8 or 9 kids who grew up in modest Cape Cod houses with one bathroom. They turned out fine, and I don't think anyone went dirty. They learned to share, and how to wait their turn. Both excellent attributes. Over the past decade, there has been an explosion of home decorating shows on TV. They've raised the bar to a whole new level in terms of what amenities a house should have. Granite countertops, stainless steel appliances, marble bathrooms, all "necessary" if you want to maintain your home's resale value. Do you need these things? Really? These things are nice, and you might enjoy living in your home with them, but if you can't afford to pay cash for them then you can't afford them. So then save up for them, right? Unfortunately, that's not what happened. Deferred gratification went out the window. Enter the Home Equity Line of Credit (HELOC), and the Mortgage Refinancing with Cash out. Take out a second mortgage on your house? Sounds scary, but that's essentially what a HELOC is, just sugar coated. Refinance your mortgage, and take out your equity to spend on home decorating? I refinanced my mortgage twice, once from 30 years to 20 at a lower rate, and then again from 20 to 15 years at an even lower rate (always fixed rates!). It never occurred to me to sign up to pay more for longer! This of course explains why there are now so many people who once upon a time bought houses they could afford, but now have much bigger (now underwater) mortgages and are in deep trouble. They do, however, in many cases, now have granite counter-tops, wall mounted flat panel TV's, and restaurant grade appliances. None of these will be much consolation if they lose their house. I'll save "should everyone own?" for a future post.

I'll return to my basic premise that you can't spend more than you earn. HELOC's and Refi/Cash-outs are just another example of invisible money. Money, whether visible or invisible, still has to be counted. Borrowing more than you can afford to pay back on a bet that the collateral you put up will keep rapidly increasing in value is just what it sounds like: gambling. This makes a lot of Main Street an awful lot like many on Wall Street. Think about it.

Bottom line, Mary Poppins had it right. Enough is as good as a feast.

Postscript: I had to come back to this article and post this link to an article in today's New York Times entitled "Losing Its Cool at the Mall" http://tinyurl.com/c7wblw, a very interesting piece on the changing spending habits of teens (reported to be down 14%). Although this is bad news for some retailers, particularly Abercrombie & Fitch which is featured in the article, it's good news in terms of growing economic common sense in the teenage population. Is it fleeting?

A World of Invisible Money

I was raised by a very fiscally responsible family. I was taught the value of hard work, saving, and most importantly, deferred gratification. When I started raising my own family, I somehow assumed that my children would glean, by osmosis, the same money sense I had gleaned from my parents. But as they grew up, I realized that this wasn't happening. And it wasn't just my kids that had no concept of financial reality, it was other kids and younger colleagues, too. What happened? I pondered this for some time. I had set a good example for my children. I worked hard, saved, lived within my means, shopped frugally, and had no credit card debt. Then one day it hit me when my very bright 16 year old daughter asked me if she could deposit cash in the bank. I was dumbfounded! At first I couldn't even grasp what she was asking me. What's the bank for, if not for depositing cash? How could my bright, beautiful daughter who'd come to the office with me since she was small, who'd travelled with me on business trips to Europe, who knew there's always a breakfast buffet at a hotel and that you can call the concierge if you forget your toothbrush, not know that you could deposit cash at the bank? Then she told me. "Mommy, I've never seen you deposit cash". She was right. Why would I? My paycheck is direct deposited, and aside from depositing an occasional birthday check, I never go to the bank. Money has become invisible. It goes electronically to the bank from your employer, and comes out magically when you put your ATM card in the machine. Even better, now we all just pay with our debit cards, so we barely touch cash.

Before I go any further, let me make it very clear that I love technology and the convenience of direct deposit and debit cards. To me, the best part about debit cards is that I don't need to carry cash or write checks, and they are not credit cards (which I knew from an early age are bad, but that's another post).

When I was a little girl, I had a passbook savings account. I learned to deposit the 50 cents a week allowance I got, so I could save up to buy things. When I was 8, I started working in my father's clothing store for 25 cents and hour. I deposited my earnings in my savings account, and learned that every month you got a bonus entry in the passbook called interest. My father used to send me down the street to the bank with a green pouch to deposit money from the store in the bank (unbelievable in this day and age, but that was small town America in the late 60's and early 70's). Okay, this is all very nostalgic, but why does it matter? It matters, because I saw money being earned, counted, deposited in the bank, and earning interest. Money was real, tangible, and visible. You earned a finite amount, and you could spend a finite amount. The money you had in the bank was the money you put in the bank. A simple equation.

How did our economy get into so much trouble? While it makes good populist TV to blame greedy Wall Street fat cats (and there were some), the bottom line is that too many people lost sight of that simple equation. You can't spend more than you have. Invisible money is fine, and very efficient, as long as you learn that behind the scenes is real money that has to be counted and kept track of. The challenge now, is to teach an entire generation how to keep track of their money and determine what they can actually afford. But that's the stuff of future posts.

If you have stories about how you learned (or didn't learn) about money while you were growing up, I'd love to hear them.