All

Adults

Kids

Teens

The Economics of A Lottery Win

Running the Numbers on Winning Numbers

0:00 / 0:00

A Billion with two Bs…

After 40 draws came up dry, the largest lottery purse in US history has claimed a winner, and they’re somewhere in Los Angeles County.

Talk about a Hollywood ending.

Two billion-dollar lottery wins in six months. It may have you thinking, “geez, should I get in on this?!”

2 billion is such a big number that if you counted to 2 billion, saying one number every second, it would take over 63 years.

Here are some other numbers to consider:

The odds of winning this $2.04B were about 1 in 292.2 million. In other words, you had a better chance of getting struck by lightning, getting eaten by a Grizzly, AND playing in the NBA than winning the lottery.

Still, in Pennsylvania, retailers were selling 200 tickets a second over lunch this week.

How Winning Works.

So, let’s say you DO win the lottery. Or maybe you just did. Congratulations! I’m so glad I’m your best friend in the world. Do you need me to clean your room or live in your mansion or anything?

A few things to consider: you won’t actually receive the $2B, for reasons we’ll get into. Before we do, you have a decision to make. You can receive your money as a lump sum, or you can receive your money in 30 payments over 29 years.

Which. To. Choose?

Option A. The Lump Sum.

Opt for the “lump sum”, and that $2 billion drops down to $997.6 million before you’ve even had a chance to pick up the bullet-proof briefcase. Turns out you pay a penalty for taking it all in one haul.

Next, you’ll be taxed on the lump sum federally and locally (although not, coincidentally, in California).

The Powerball winnings are expected to take a 50% tax hit, leaving you with a final sum of $498.8 million. It’s nothing to sneeze at, but it’s also a long way from $2B.

Option B. The Annuity.

Your other option is to take 30 payments over 29 years. The Annuity Option. With this option you won’t get “penalized” with a hit off the top, and before taxes, you’ll actually receive the full $2.04 billion over 29 years.

At the time of posting, the annual after tax amount for this option isn’t known. But whatever it is, Option B will leave you with a significantly larger sum than Option A’s lump sum leftovers.

So, perhaps this seems like a no-brainer — “take the bigger number!” But wait. What IS the bigger number? As a savvy, financially literate investor, you could take Option A’s $498.8 million lump sum, invest it in a diversified portfolio, and in 29 years of compounding at 6%, you’d add over $3.96B to that smaller lump sum.

An extra $4B? Maybe compound interest is what people mean when they say less is more…

#behavioural economics #compound interest #Financial Literacy #investing #lottery #mental accounting #money #odds #winning

All

Adults

Kids

Teens

The Business of Money

The cost of making (new) cents.

0:00 / 0:00

It’s not just the crown that’s changed over following Queen Elizabeth’s recent passing. Everything, from Britain’s mailboxes to its money, is getting a “royal makeover”, and it’s costing the UK a pretty ~~penny~~ pence.

Here’s a closer look at the business of giving money a (literal) facelift.

New bill, who dis?

Britain’s not the only country updating its bills now that King Charles is in charge. According to Guinness, the late Queen appears on a record 33 currencies! And, while this is uncharted territory for the UK – Elizabeth became the first, and only, monarch to appear on British bank notes in 1960 – luckily, other countries can offer a few tips.

In 2018, Canada released a new $10 featuring civil rights pioneer Viola Desmond—winning Bank Note of the Year (a real award, we swear). The US is also planning to put Harriet Tubman on the $20. Fiiiiinally.

But expect to see Queen E. on bills for the next few years, because of the cost of putting King C3 on an #irl C note.

The real cost of a dollar? 7.5 cents

The New York Times estimates that producing new coins to celebrate Charles’ reign could cost $600+ million. Canada’s limited-edition 150th anniversary $10 bill cost $5.7 million to design, test, and develop. And in the US, printing costs range from 7.5 cents per $1 bill to 17 cents for a hundred. (The penny, now retired, used to cost twice its face value to mint…)

Of course, they say, you’ve gotta spend money to make money and, well, turns out this is literally true…

Paper or plastic?

When Canada switched to polymer bills, manufacturing costs jumped from $0.11 per bill to $0.20. Ultimately, the move paid for itself: the harder-to-counterfeit “plastic” money also lasts 2.5x longer.

The Queen will live on… as a meme coin

The market for rare currency featuring the Queen skyrocketed after her death. Crypto got in on the action too, with 40+ new meme coins minted within 24 hours after the announcement of her death. Like most meme coins, the swings were wild: the Queen Elizabeth Inu jumped nearly 30,000% before the inevitable dump. Another coin saw $2.7 million worth in trade volume in under 12 hours. It’s the web3 equivalent of unlicensed Royals merch.

#coin #cost #economics #Financial Literacy #money #queen #spending

All

Adults

Kids

Teens

Will Superstition Make You Rich?

The Economics of Superstition and the Markets.

0:00 / 0:00

Human beings are a notoriously superstitious bunch. Especially when money’s involved. But eating the same thing for lunch every day won’t help you become a successful day trader any more than it’ll help you win an NBA title.

Here are a few of the stranger superstitions investors have tried to use to beat the market.

October’s spooky for stock brokers

Wall Street’s scariest days may have come during the spookiest season, from the Crash of 1929 to 1987’s Black Monday to the ‘97 “mini-crash,” but October’s bad rap is an overblown urban legend. September’s historically been the worst month for stock market performance, dating all the way back to 1897.

Friday the 13th slashes stocks

Traders + teen camp counsellors 🤝 are terrified of Friday the 13th. But superstitions around lucky (and unlucky) numbers aren’t just a North American phenomenon. Taiwanese traders’ preference for placing limit orders ending in 8 costs them, coincidentally enough, 8.8% in annual returns.

The Super Bowl Theory

This one’s pretty straightforward: if an NFC team wins the Super Bowl, the market will have a good year. If an AFC team wins, it’ll have a bad one. So, wait, if the Bears win, we’ll be in a bull market? Go figure.

Beware the full moon

According to Wall Street, the moon controls the tides and the market. Eclipses – lunar and solar – see lower returns and trading volumes. Lunar cycles can supposedly influence our moods. Or maybe investors are just afraid of werewolves.

“Sell in May and go away”

This classic UK saying warns investors to take summers off, but the data doesn’t support the extended holiday. Conventional wisdom doesn’t either. Instead of trying to “time the market” using a catchy rhyme, it’s smarter and safer to invest for the prosaic long haul.

Algorithms can be superstitious too

In 2012, a British art student created “Sid the Superstitious Robot” to trade based on some of the classic superstitions mentioned above. After only three weeks, Sid’s fund lost 12% of its value, helping prove that the same superstitions we think will protect us actually cost us in the long run.

#Financial Literacy #investing #markets #money #superstition

All

Adults

Kids

Teens

Inflation’s Hitting the Tooth Fairy

My six-year-old just mentioned that her friend got $20 from the Tooth Fairy. Is that the going rate?

0:00 / 0:00

Twenty bucks is nearly four times the national average, which hit an all-time peak in Canada this year at $5.99. It’s possible the Tooth Fairy was feeling generous, but equally likely she forgot to make change before flying in.

Given the predictability of this particular payday (20 teeth over about six years), tooth loss is a great opportunity to talk about, you know, fiscal responsibility. Sound about as fun as oral hygiene? Okay, we get you, but the tooth fairy really is a good way to table topics like saving and investing, even inflation (the rate of increase in prices over a given period of time).

Let’s look at the numbers: 20 teeth x 5.99 = $119.80. Your child’s mouth is building an empire, so it’s as good a time as any to talk about what that money could do over time.

Delta Dental is an American insurance company that has been tracking the tooth fairy’s financials since 2001. It turns out the amount kids find under their pillow is a good barometer for the overall economy. Your average baby molar fetched more in 2006 than it did in 2008 following the economic downturn. And the fact that rates are higher than ever this year is an encouraging sign of post-pandemic recovery. Another principle at play is what’s known as income elasticity of demand. This is the idea that when people (or fairies) have more money on hand, there are certain things they tend to splurge on disproportionately. Children are one of these items.

So while the TF’s feeling generous, take advantage of a happy time and a teachable moment—while it lasts. One columnist recently argued that given the terrible hours, unsafe working conditions, and non-existent travel budget, the Tooth Fairy may be ready to join The Great Resignation. Who could blame her? She’s an essential worker who doesn’t even get dental insurance.

#Financial Literacy #investing #kids #money #savings

All

Adults

Kids

Teens

Always take the doubling pennies

Exponential growth starts small but picks up speed fast!

0:00 / 0:00

When Soren Wheeler was a kid, his father stumped him with this exponential growth model:

“He would say, I want you to mow the lawn every day for the next month, and I’ll either give you a million dollars to do that, or I’ll give you a penny today, and two pennies tomorrow, and four pennies the next day, and so on, for a month.”

Wheeler once told this story on Radiolab, the science podcast he helps produce. His response then was the same any kid — and really anyone — would have: Take the million!

But if you go with the pennies, you’ll make nearly $20 million dollars for a month of yard work. The lesson Wheeler remembers: “Things can turn out way bigger than you think.”

Exponential growth model in a nutshell: Things can turn out way bigger than you think

His advice became particularly relevant a year ago, as we all become armchair epidemiologists, obsessing over how a virus might spread. It is also why compound interest is famously called the seventh wonder of the world. Exponential growth starts small and picks up more speed than we can literally imagine.

So, the best course of action: Start Early. Take the doubling pennies. Get a bigger piggy bank.

#chores #exponential growth #highlight #lessons

All

Adults

Kids

Teens

Stimulus, defined

Why the government is suddenly so eager to give you money

0:00 / 0:00

🌰 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

All

Adults

Kids

Teens

UBI, defined

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

0:00 / 0:00

🌰 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

All

Adults

Kids

Teens

Liquidity, defined

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

0:00 / 0:00

🌰 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

All

Adults

Kids

Teens

Circuit Breaker, defined

The stock market version of a chill pill

0:00 / 0:00

🌰 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

All

Adults

Kids

Teens

Words That Sweat

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

0:00 / 0:00

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

All

Adults

Kids

Teens

Do you suffer from money illusion?

The greatest trick your money ever played was convincing you that its value would stay constant

0:00 / 0:00

If you think the first dollar the tooth fairy left beneath your pillow is still worth a dollar, we’ve got some bad news. First, the tooth fairy is magical, but she’s not THAT magical. And second, you may suffer from money illusion.

That gift was (probably) a real dollar, so the money itself wasn’t a mirage. The illusion comes in your thinking that a dollar back in the day is worth a dollar today. It’s a natural phenomenon; after all, the actual currency still says “one dollar.”

The thing is, we don’t naturally account for inflation, which these days runs about 2% a year. That means it’ll take $1.02 to buy as many groceries in 2021 as a dollar gets you today. Over time, that really adds up: Consider that a 1986 dollar could buy as much as two 2020 dollars. And that also means that if you didn’t get a 2% raise last year, your salary actually went down.

Knowing about money illusion means you’re no longer fooled by it.

What’s to be done about this? First, know that it exists and know that unless you’re actively growing your money, it’s shrinking. And second, when it’s time to tell your kid about the magic of the tooth fairy, take the opportunity to tell them about money illusion as well.

#Inflation #investing #Tooth Fairy

All

Adults

Kids

Teens

Why “buy the dip” is good advice for nachos

If you’re in line at a taco stand, get the guacamole. Yes, it costs extra, but we firmly believe it’s worth it for the creamy green fruit that manages to be nutritious, delicious, and the perfect compliment to a corn chip. But what if the dip isn’t the most perfect guac? What if it’s too […]

0:00 / 0:00

But what if the dip isn’t the most perfect guac? What if it’s too salty? What if you’ve had better dips? Buy the dip! It’s still likely to be delicious.

Always buy the dip, whether it’s guac or stocks

And here’s the metaphor for investing: When the stock market dips and stocks get cheaper, it’s worth buying them. You may never know if they’re the cheapest they’re gonna get. But history suggests, over time, that the market will get back to where it was and then keep growing. So you’re snapping up a deal. If you’re invested for the long term and you’re dollar-cost averaging, you’re better off always buying. Is it the best deal ever? Are the avocados organic and at the peak of mushability? You don’t know and likely can’t know. You can’t time the market. So buy the peak, the trough, the up, the down, the salsa, and the dip.

#dips #investing #stock market