Saturday, May 12, 2018

Quick Personal Finance Lesson: What these 4 things are costing you each week/month.

I like the focus of this blog post here: Beware the Four Horseman of Personal Finance.

It cites 4 basic things to AVOID in order to vastly improve your personal financial situation: Cigarettes, Alcohol, the Lottery, and Dining Out.

Using average weekly spending on these items, I will show you how much these things cost you in time relative to some an hourly wage.

Depending on individual purchasing behaviors, the following numbers could be just right, too high or too low. You can adjust the numbers for your or your families situation.

1.  Cigarettes: Average price is \$5.45. If you smoke a 4 packs a week it will cost you \$21.80

2. Alcohol: A 24-pack of beer costs approximately \$15.23. Assume only one per week.

3. Lottery: It is difficult to find accurate averages, so I am going to use \$25 per week as a relatively low estimate (remember, these are averages).

4.  Dining Out: \$50 per week. This number might be too low but I am going to use it to represent the difference between the cost to you of a meal out as opposed to one you would make at home.  Of all the things listed above, eating food is a requirement!

So, our total for the 4 categories is \$112.03 per week.  If we divide this number by an hourly wage you can calculate how many hours you have to work in order to earn enough money to buy all these items each week.

If you earn the minimum wage of \$7.25 per hour you would have to work 15 1/2 hours (nearly 2 days!) to make enough to purchase this items.

\$9.00 per hour = 12 1/2 hours (a day and a half)

\$10.00 per hour = 11 1/4 hours

\$15 per hour = 7 1/2 hours (almost one day).

Keep in mind the wage is NOT taking into account a subtraction for taxes or other deductions, so effectively the hourly wage would be lower and the hours worked would be HIGHER.

If we were to extrapolate the spending out to a months worth (4.3 weeks in the average month), the \$112 per week would be \$481.60.  One year: \$5,779.

\$481.60 PER MONTH in spending the YOU CAN CONTROL.

Mic Drop!

Monday, April 2, 2018

Tariffs and Marginal Analysis--what economists care about.

A big issue this week is the Trump administrations levying of tariffs on imported steel and aluminum.  Just yesterday China announced that it would levy counter-tariffs on a whole host of US goods it imports.  Blah! A potential trade war coming down the road?
I am not sure, but I wanted to show you all how economists, for the most part, view policy changes like this. This applies not only to tariffs but to all other policies, from taxes, regulations to the minimum wage.  I see two aspects:
(1) The "Big Picture" is what economist call "Thinking at the Margins" (you learned this in Chapter 1). They are not so concerned about how the stronger participants in a market behave in reaction to changes in policy, but how it affects the smaller, less obvious participants.
The "marginal players", if you will.  Perhaps unseen, but not unaffected.  This is where the action lies for economists. It has the potential for making the most impact on buyers and sellers, therefore employment and production.
(2) Relative Elasticity (learned in an earlier lesson!). Elasticity is an underappreciated concept and is rarely discussed as a larger part of any policy debate. It underlies any/all decisions made by producers and/or consumers. When government imposes a policy that changes prices it will affect participants buying and selling behavior---some more than others but affect it indeed.
I quickly put together a couple of slides to give you a visual.  Going forward, always try to think "at the margins"  and relative elasticity as to how policy (any policy, not just tariffs) affects people. I think it puts issues more in focus and helps to narrow the debate.
I hope this is helpful! I welcome comments!

Wednesday, January 31, 2018

I updated my 2007 in-class Stock Market Activity. I did pretty well in the over the last 10 years.

I recently found the companies I used for a stock market activity for class in 2007 and updated the value with current prices. The number of shares I purchased is in the second column.

I fictitiously invested \$25,000 in each of these companies. You can see the results below.

Inflation was roughly 18% over that time span, so my overall rate of return is pretty darn good!

Wish I had the money at the time!  :)

Thursday, January 18, 2018

When is the value of an export not the value of the export?

Here is a graphic I found on Twitter (lost the source).  It is a vivid example of how the trade numbers are a bit of an illusion.

The graphic on the right is the one I am interested in. It shows the dollar cost to produce an iPhone to be \$600.00. This is the total value as it leaves its final assembly point in China.

When it is shipped from China to the US, China is credited with \$600 in exports and the US is debited \$600 for importing the phone.  It appears the US has a trade deficit with China at this point---which is the case with the conventional way export and imports are accounted for.  The final producer gets the spoils of being the full value exporter of the good. However....(see you below the graphic)

 Source HERE

The graphic on the right tells a more complicated story.  The inputs that go into making the output (finished i-phone) come from a vast network of the supply chain. The pie chart shows China adds only \$6.50 of the \$600 total cost of the i-phone (caveat: there could be other Chinese suppliers that supply inputs in some of the other categories in the pie chart).

\$6.50!  But they get credit for a \$600 export and we get dinged for the same amount as an import.

Keep in mind what is good for the goose is good for the gander---the same logic applies to goods we make in the US with imported inputs (intermediate goods).

Bottom line: We have to be careful when we hear reported in the media about the "trade deficit" we have with China (or Mexico or...).  The number is not what it appears to be.

Wednesday, January 3, 2018

Another reminder of the importance of the supply chain for a good.

Here is a graphic from a French publication that nicely illustrates the importance of the regional and global supply chain for inputs that go into making an output, in this case the Honda Civic assembled in the UK/EU region.

These supply chains are very tight and help contribute to efficiencies that keep prices low(er).

It is also a nice lesson in Comparative Advantage.

 Source HERE

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