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Stimulus, defined

Why the government is suddenly so eager to give you money

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🌰 In a nutshell: Stimulus is when governments pump money into the economy during a downturn.

📦 Unpack that a bit: When the economy stalls, people stop spending. They may have lost their jobs, or watched their neighbours lose their jobs, and tightened their belts accordingly. (They want to preserve their liquidity, in other words.) By giving people money — either directly or indirectly, through jobs — the impact of an economic slowdown is reduced.

👶 Tell a toddler: “You know how you get a bit cranky between meals? The granola bar I keep in my bag for those moments is like a stimulus.”

🤷🏽‍♂️ Whose idea was this, anyway? John Manyard Keynes, if we’re going to name names. The British economist developed the idea after the Great Depression, as he believed governments made a bad situation worse by not spending. “Let us be up and doing, using our idle resources to increase our wealth,” he wrote in 1928. “With men and plants unemployed, it is ridiculous to say that we cannot afford these new developments. It is precisely with these plants and these men that we shall afford them.”

👊Why stimulus matters:

“We are all Keynesians now“. Milton Friedman said that, suggesting that even those who advocate for “small government” and a hands-off approach to the economy realize that, when times are tough, the government has to jump in and keep money flowing. Those who beg to differ say governments shouldn’t spend money they don’t have.

📰 In the headlines:
• Massive stimulus packages in Canada, U.S. put cash on Main Street in departure from 2008 crisis — Financial Post
• Many Gen Zers might not qualify for the stimulus check — Business Insider
• The $1,200 stimulus checks are arriving. People are mostly spending them on food — Washington Post

🔀 See also: Imagine if the stimulus cheques came every month. That’s a serious proposal, and it’s called the UBI.

#economics #glossary #money #recession #spending

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UBI, defined

Why the pandemic has pushed the idea to the top of the policy agenda

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🌰 In a nutshell: UBI stands for Universal Basic Income.

📦 Unpack that a bit: As Annie Lowrey explains in her book Give People Money: “It is universal, in the sense that every resident of a given community or country receives it. It is basic, in that it is just enough to live on and not more. And it is income.” Or as Lowrey titles her book’s introduction: Wages for breathing.

👶 Tell a toddler: “You know how people work to get money to buy food? With a Universal Basic Income, everyone would get some of that money automatically from the government.”

👊Why UBI matters:

Thinkers of all stripes have supported the idea as a way to end poverty, help the middle class, reduce bureaucracy, and help society deal with the rise of automation — and now to soften the economic blow of the coronavirus pandemic. Though of course, there’s a difference between one-time cash infusions and an ongoing UBI.

📰 In the headlines:
• Pandemic Strengthens Case for Universal Basic Income — Washington Post
• Coronavirus Pandemic Proves We Need Universal Basic Income — Vice
• Spanish Government Aims to Roll Out Basic Income ‘Soon’ — Bloomberg News

💬 In a sentence: “Universal basic income is about giving people cash without question, and trusting that they know how to use it in the most effective way they can.” — Luke Martinelli, economist at the University of Bath, UK, quoted in Nature.

🔀 See also: Andrew Yang’s 2020 campaign for the U.S. Democratic presidential nomination, in which he called for a $1000 monthly cheque to all Americans called The Freedom Dividend.

#Financial Literacy #glossary #money #savings #spending

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Liquidity, defined

How quickly can you get your hands on cash? That’s how liquid you are.

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🌰 In a nutshell: Liquidity is how easy it is to get cash.

📦 Unpack that a bit: How quickly can you buy or sell something at a price that reflects its value. If you buy a teddy bear for a dollar today and you can sell it for a dollar tomorrow, that’s a very liquid asset. If no one wants to buy that bear tomorrow, or if you have to sell it for 50 cents, it has low liquidity. Market liquidity describes this at scale: How easy it is for all of us to trade assets — be they stocks, bonds, or stuffed animals — with one another.

👶 Tell your toddler: “Water, milk and juice are liquids, meaning you can easily pour them into a cup. Liquidity describes things that flow easily. When we talk about money being liquid, we mean it’s easy to move it from one cup to another.”

💬 In a sentence: “Cash is universally considered the most liquid asset, while tangible assets, such as real estate, fine art, and collectibles, are all relatively illiquid.” — Investopedia

👊Why liquidity matters:

“One person’s spending is another person’s income. That, in a single sentence, is what the $87 trillion global economy is,” explains Neil Irwin in The New York Times. So when money stops flowing — when liquidity dries up — the economy stops.

🔀 See also: Stock Market, Liquidity Trap

#assets #cash #money

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Volatility, defined

When the price is up, down, and up again so quickly, you can’t keep up (or down).

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🌰 In a nutshell: Volatility is instability in the price of an asset.

👶 Tell a toddler: “Some people like to go canoeing on quiet lakes. Other folks like to go whitewater rafting. It all depends on how much you like volatility.”

💬 In a sentence: “Investors see more volatility ahead as coronavirus hammers markets”- Axios, April 9, 2020

🌎 IRL: Cryptocurrencies (including Bitcoin) are examples of highly volatile assets. They have uncertain futures and have strong reactions to current events.

👊Why volatility matters:

An asset’s volatility will impact how risk-averse individuals approach investment. Need your money to be liquid soon? A highly volatile stock with the possibility of high returns may not be your best bet. But for those looking for long term gains, a volatile asset — purchased at the right time — could prove profitable.

🔀 See also: Cboe Volatility Index, or VIX. This measure of the stock market’s likely volatility is based on the S&P 500. If someone asks you if these are volatile times, the VIX can tell you. And as traders say, “When the VIX is high, it’s time to buy.”

#volatility

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Circuit Breaker, defined

The stock market version of a chill pill

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🌰 In a nutshell: When the stock market is going crazy, a circuit breaker gives it a timeout.

📦 Unpack that a bit: If the market drops by a substantial amount in a single day — 7% from the prior day’s closing price for the S&P 500 — trading is automatically stopped for 15 minutes. The specifics of how big a drop triggers how long a timeout can be quite detailed. The idea is to give everyone a chance to take a deep breath, reflect on the situation, and hopefully stop any panicked selling.

👶 Tell a toddler: “When you get upset and I call a timeout, it’s so we can all calm down. Sometimes the stock market needs that, too.”

💬 In a sentence: “The circuit breakers were adopted in the wake of the Black Monday crash of Oct. 19, 1987, when the Dow plunged 508 points, or 22%.” – NPR

👊 Why circuit breakers matter:

Stock markets are built to be responsive. Sometimes, they appear to be too responsive.

🖐 The other hand: “Some academics say circuit breakers actually exacerbate selloffs because investors may see the market approaching a halt and sell in a panic to exit trades before the level is reached,” according to The Wall Street Journal. You know how telling someone to “just relax!” rarely works? Like that.

🔀 See also: Stock Market, S&P 500

#stock market

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#KIDSTHESEDAYS

Plum E., 9, Texts Money with her Dad

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For kids, money can be confusing. Like, why can’t we make more of it? And who makes it? And can we rob them?

Kidding, but seriously, kids have formed many of their money habits by age 7. So, talking to a kid honestly and EARLY about money can set them up for life.

We like talking to kids about money. Here’s what they’re saying…

##kidsthesedays #$100 #allowance #bacon #money #texts #value

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Words That Sweat

Here are the words to avoid when applying for your next loan.

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As the world continues to deal with the economic consequences of this pandemic, governments are offering zero-interest loans to individuals and small businesses. If you’re in need of a loan in Canada, there are helpful resources here, here, and here. But before you apply, check your words! Because, mentioning family, religion, or your future could cost you.

A recent study called, wait for it, “When Words Sweat”, examined the text of loan applications that ended in default. Turns out, they had a lot in common.

Sifting through 120,000 loan applications from the online crowdfunding platform Prosper, researchers found that “defaulters used simple but wordier language, wrote about hardship, explained their situation and why they need the loan, and tended to refer to other sources such as their family, God, and chance.”

The safer bets, on the other hand, didn’t sound needy, hopeful, or dependent.

If you had a loan application rejected, a bot likely did it

Though the researchers built their own machine learning tools to unearth these conclusions, banks, credit unions, and lenders are also using data like this. Credit scores are important, sure, but when it comes to applications, there’s time spent reading between the lines.

Did you mention your divorce? Did you say please? Did you insist that you have a good work ethic? All of these “sweaty words” correlate with a higher default rate.

The bottom line: Money talks. It has its own language, and it pays to get fluent.

#Banks #Borrowing #Machine Learning

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The trouble with investing camps

Short-term thinking is exactly the opposite of financial literacy

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Teaching financial literacy to the next generation is vital, right? Right. So it’s a good idea to send your kid to investing camp or encourage them to play stock market games, right? Maybe.

At least according to Beth Kobliner, personal finance guru and author of Make Your Kid a Money Genius (Even if You’re Not). Her logic is two-fold:

Camps and games often promote the idea that with some research, your kid can pick winners. And no offence, but well-paid and full-grown financial analysts do that for a living, and even they aren’t so great at it.
These time-limited activities are all about quick wins, and “this approach contradicts the diversified, long-term investing strategy that will be more likely to succeed in the real world.”

Short-term thinking is exactly the opposite of financial literacy.

There’s no real harm in learning financial literacy in this way, of course. Just be sure that’s not your child’s only exposure to the world of investing.

#camp #Financial Literacy #investing

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Extended warranties aren’t worth it

You’ve just plunked down $89.99 for the Veg-O-Magic 5000 because this is the week you finally start on that all cucumber juice diet. So, do you buy that extended warranty for just a few bucks a year? Money that you could otherwise be investing? I mean, you’re gonna be juicing until you’re 125, right? Maybe, […]

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Most big-ticket products are already covered with a year-long warranty — and your credit card may well extend that term.
Companies make huge profits off extended warranties, as much as 60% according to Bloomberg News. Why? Mainly because …
Things don’t break as often as we think. Consumers estimate a new TV has a 13% chance of failure over three years but the actual rate is more like 5%, according to one study.

The good news: Extended warranties are a bad buy because products are well built.

A well-built Veg-O-Magic ought to last well beyond your taste for cucumber juice. And if it needs a fix, pay out of pocket. Chances are, you’ll end up ahead.

#cucumbers #Financial Literacy #spending

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Do you put your adult children ahead of yourself?

72% of parents are putting their adult children’s needs ahead of their own retirement

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Your adult children likely need money. And you likely want to give them some. The instinct to put your kids’ interests in front of your own is, for a lot of adults, the parental condition: When our babies are hungry, we feed them. When our teenagers are emotional wrecks, we (do our best to) comfort them. And, when our adult children need money for a down payment on a detached semi in an up-and-coming neighbourhood with great public schools and artisanal coffee shops , well, many moms and dads are backing up that dream with their own bank accounts.

According to a recent Merrill Lynch report, 72% of parents are putting their adult children’s interests ahead of their own retirement needs, gifting money for major purchases (down payments and student loans) as well as more day-to-day expenses (childcare, car payments, cell phone bills). Obviously the desire to lend a hand comes from a good place. But is that hand actually helpful for either party?

“I think Boomer parents recognize that it’s a whole different ballgame for their kids,” says Liz Scheick, a Certified Financial Planner at the New School of Finance in Toronto. Sure, parents have been assisting cash-strapped kids for generations, but the Millennial and Gen Z cohorts face a unique set of challenges as the first generations predicted to earn less than their parents. Incomes haven’t changed much in the last twenty years, but living expenses, real estate, and education costs have skyrocketed.

To offset these injustices, U.S. parents are spending $500 billion on their adult children, twice as much as they’re saving for themselves. And in many cases they’re doing it at their own peril. According to the AARP, it takes between $1-1.5 million to retire. Currently, 1/3 of Boomers in or nearing retirement have saved $25K or less.

Helping adult children first can be like “lighting yourself on fire”

“We use the analogy of lighting yourself on fire to keep someone else warm,” says Scheik, who guides clients through intergenerational wealth management on a regular basis. It’s not about hard and fast rules, she says.

“What’s important is that (as a parent) you make decisions with an understanding of the implications.” Just as important is debunking the myth that the whole human ATM act is in anyone’s best interest. Experts are agreed that the greatest financial gift a parent can give is a sense of independence and responsibility. Instead of bailing them out of their next jam, Scheik says parents may want to consider paying for financial planning services.

“The sooner you teach your kid about saving, the better.”

#Boomers #Generation Z #Retirement

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Knitcoin #1: Squirrel Saves!

Welcome to Knitcoin, the first in a series of short videos for our shortest investors. By the age of 3, kids grasp basic concepts about money and how it can be used. This is a great time to introduce the habit of saving and how it helps money grow over time. Frankly, it’s a decent […]

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Welcome to Knitcoin, the first in a series of short videos for our shortest investors.

By the age of 3, kids grasp basic concepts about money and how it can be used. This is a great time to introduce the habit of saving and how it helps money grow over time. Frankly, it’s a decent lesson to (re)learn at any age.

By age 7, most kids have formed the money habits that will shape the rest of their lives. Wealthie’s creating short content for smart futures.

🌰 How does Squirrel make money?
🌰 Can people make their own money, too?
🌰 What are some FUN ways to make money?

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The three things to know about money

And what Rihanna learned the hard way.

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If you took all the personal finance advice out there and distilled it down to three things to remember, you’d likely end up with what Barry Ritholtz recently laid out in a (paywalled, ugh) Bloomberg column:

1️⃣ Spend less than you earn;

2️⃣ Prioritize investing for your future;

3️⃣ Figure out what matters to you, and spend accordingly.

Number 1 has proven especially hard for a whole lot of people. Even the people with a whole lot of money. We live in a culture of more, we’re surrounded by #humblebrags, and chasing more leaves people with less.

Case in point, Rihanna.

RiRi sued her financial advisor in the 2010s after coming close to bankruptcy because she’d overspent. Her advisor clapped back with, let’s face it, some obvious advice worth reading everyday:

“Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?”

Start celebrating the things you’re not buying. Use this “time on the inside” to reset and boost your savings where you can. Remember that you don’t need riches to start investing, you just need time. And when in doubt, take a moment, and revisit Rule Number 3.

1, 2, 3.

#saving #spending #things that come in threes