brip blap

In 1986 I was living in (then) West Germany as an exchange student. I was lucky enough to get a visa to visit (then) communist East Berlin with my German and American classmates. Exchange rules were very strict, and the amount of money (and type of currency) you were allowed to change were very tightly controlled. I changed a fair amount of Deutschmarks, not knowing how much I would need for a day trip. We had to return to West Berlin each night - presumably for security or because 16-year olds posed a threat to the regime.

So after paying the equivalent of $1.50 for a massive lunch and buying the few souvenirs we could find (I never did locate any good t-shirts with the logo “I went to a Warsaw Pact country and all I got was this lousy t-shirt”) I was left with a fair pile of change. Because of the currency exchange rules, it couldn’t be changed BACK into West German currency, so as we boarded the train our chaperone came around and told us we’d better not be holding any currency, because we’d get in trouble with the border guards. Since I had already endured one frightening yell-down from the East German guards while crossing back into West Berlin because of my (apparently banned) souvenirs, I decided to comply.

We hurriedly bought Fanta and assorted snacks but still had some change left. We then noticed that there was a throng of people shouting and gesturing at us on the end of the platform, yelling at the train. We noticed a shower of glittering coins flying out of the windows ahead of us. Assuming this was the thing to do, we chucked our coins out the window, too.

This was the first intimation I had, despite East Berlin’s immaculate, clean and very pleasant appearance that communism’s rosy presentation of economic stability might be a false front. Today, it also gives me pause when I reflect on the fate of one of the world’s mightiest, and shortest-lived, empires.

When I first returned from Russia I was invited to give a lecture on the Russian economy at a local university. At the time I was considered somewhat of an “expert” (please take careful note of the quotation marks) on the accounting theory surrounding foreign currency translation - particularly regarding the ruble - and the difficulty in making a true “translation” of Russian accounting information into Western accounting standards. For this class of beginning accounting students, I started with an anecdote: imagine if you walked into your local McDonald’s today and bought a Big Mac for $3. Your salary might be, say, $40,000 per year.

Now imagine you walk into that local McDonald’s a year later and a Big Mac now costs $200, but your company upped your salary to $2.6 million per year to keep pace with hyperinflation. You can still manage a Big Mac. Two months later your salary is still $2.6 million - the company’s not going to readjust monthly, only annually - but hyperinflation continues apace. Now a Big Mac costs $25,000. It has become an impossible luxury, almost 1% of your gross salary. That’s as if it cost $400 when you were making $40,000 per year. And your savings? Your lifetime savings of $2 million are now barely enough to pay for 80 Big Macs.

Does that sound ridiculous? Yes, but that’s exactly what happened in Russia in the early 90s. Prices changed daily, even hourly. Savings effectively disappeared. With private ownership of land impossible, all net worth other than STUFF disappeared. A good TV was a better investment than a savings account. A freezer could preserve more value than a bank. Banks were offering 100% interest rates or more and it wasn’t a good deal.

That can never happen in America, could it? Chances are it won’t. But if you think about it, the conditions that created hyperinflation are possible in the US. Don’t believe me? Imagine another oil embargo. How much will your food cost if the trucks that deliver it have to pay $12 per gallon for gas? What if a terrorist attack in a US port causes the US borders to be closed? Many of the fruits and vegetables in your local supermarket this time of year are imported from Latin or South America. How much will a tomato cost if the borders close? What happens if major institutions like Citigroup start collapsing? Do you think it’s impossible for the US to attack Mexico to gain access to its oil? I know you are picturing me wearing a tin foil hat, but bear with me.

This is the worst possible case. For the record, I don’t believe it will happen. But then I remember my friends in Russia, who grew up during the last years of the Soviet Union. When they were children the twin cancers of a bloated, inefficient and incompetent central government and a disastrous, expensive foreign war were eating away at the core of their nation. The Soviet Union was a country so powerful in the late 1960s that the United States felt it had to fight wars all over the globe, not to stop but just to slow its spread. The “evil empire” had gone from a backwards agrarian dictatorship to the second-most advanced military and technological power in human history in two generations; there was no reason for the average Soviet citizen to doubt that rate of advancement could last forever. They heard it on the news - calming words from the central government that it could avert a depression. The total collapse of their country in less than a decade caught every single person in the former Soviet Union (and in the world) by surprise. I don’t think even the most optimistic anti-Communist hoped for this in their fevered dreams. Today only the most rabid anti-American would hope for a collapse of the world’s largest economy, but now I think it is imaginable. I hope history will not repeat itself, but that hope has been futile since history began.

When I think of my friends in Russia and their hoarding of US dollars under mattresses and their almost complete and utter distrust of every single financial institution, I also remember that odd sensation in East Berlin in 1986. I remember throwing money out of the window, almost seeing it melt into nothing as it flew through the air. I hope I never see that again, but I particularly hope I never see it in my own country.

photo credit by me)

Once again here’s an infographic, thanks to Ellipse BeautyLight.

Here’s a tshirt I saw on a little girl once, which read:

1. I want it.
2. You buy it.
3. Any questions?

I doubted the kid chose such a ridiculous shirt - I know from personal experience that kids are more likely to clamor for Angry Birds or Cars t-shirts than they are for ones with words - so what parent would buy such a shirt?

My first reaction was to hope that it was meant just the way it sounds - as a joke. My son (who was a reluctant napper in his toddlerhood) had a t-shirt that said “Naps are the enemy.” It’s a joke. I put it in the same category as “I’m with Stupid” t-shirts. But part of me thinks that this message, humorous or not, is going to be repeated again and again around the child, to the child, and (because it’s funny) approvingly. I don’t want my kids to think naps are a bad thing, and I don’t want this girl to think she gets anything she wants just because she asks for it.

That t-shirt summarizes an awful lot of what is wrong with the debt/consumer society. Could you imagine what kind of values that little girl is going to have if she continually sees her parents whipping out the credit card to buy her every little toy (now) or shoes or makeup (later) when she demands it? She’s going to be a financial wreck when she finally goes out on her own. The saddest thing is that her parents probably think they are being nice. There is a saying that “the road to hell is paved with good intentions.” If a parent thinks they are being nice to a child by giving in to their every desire - giving them a “perfect childhood” - they are laying the groundwork for the road to (financial) hell.

So what would you put on a t-shirt? Would you wear this one:

let me tell you how to be rich

• step 1: spend less than you earn
• step 2: figure out how to earn more
• step 3: start over at step 1

It’s not funny, because I couldn’t think of anything clever, but give me some ideas - there has to be a cute or clever way to get this message across. “My piggy bank can kick your piggy bank’s a**?”

What’s the slogan for your t-shirt?

 

An excellent infographic, courtesy of our friends at Statista. I’ve written before about how to become a billionaire. The world population as of 2010 was 6,840,507,003. Only 1,226 of those humans are billionaires, which is - in percentages - 0.000018 percent. The wealth increase in the world’s billionaires has been in their net worth, not in the number of billionaires. As I wrote about in my earlier article, your chances of being a billionaire were far, far better if you were an American in the latter half of the 20th century, but in the first half of the 21st you’ve got a much better chance if you’re not an American. So who wants to be a billionaire? Honestly, I don’t. I’ll settle for hundred millionaire, because I’m simple like that. Hah.

Bubelah had a good idea the other day as we discussed diets: saving money is, at its core, like dieting. You try to deny yourself something in the present for the sake of future gain. With money, it’s saving now for security and independence in the future. With dieting, it’s avoiding more food than you need now for the sake of future weight gain. I know that’s not EXACTLY what’s going on, but stick with me, OK?

So I thought about it and here are a few types of diets and the equivalent money-saving behavior.

• Low-carb: In a low-carb diet, you avoid most foods with carbohydrates, but eat freely of foods that don’t have carbs. Low-carb foods include meat, nuts and cheese, and you can eat as many calories in these areas as you like. Vegetables are moderate in carbs. Bread, fruit, sweets and everything else have lots of carbs.

You won’t spend money on certain things, but you’ll go crazy on others. You may think a vacation is a waste of money, but don’t think anything about ordering an expensive dinner with a few glasses of wine and a $7 cup of coffee. Or you avoid buying that Starbucks latte every morning but get a new cell phone every year.

• Low-fat: Low-fat diets avoid fatty foods like meat, dairy, and sweets and favor low-fat items like pasta, vegetables, bread and grains. Low-fat diets still require some calorie watching, unlike low-carb.

You avoid spending money on anything ‘fun’ or unnecessary, but take it easy on the basics. You don’t look for ways to reduce your heating bill, but you never, ever eat out. You squeeze all the joy out of money by only using it for bare necessities. You save money, but you get no joy out of it.

• Calorie diet: This diet requires that you look at the calories in food and keep it under a certain number every day. You can drink one shot of a milkshake, or 14 cucumbers, but you have to make sure you eat less than X number of calories.

You cut back on everything. You still go out for dinner - but you drink water and skip appetizers. You watch TV - but only basic cable or no cable at all. You own a house - but you turn the heat down to 50 and wear a sweater all winter long. You save money, but it gets very hard to keep up with the discipline.

• Prepackaged meal diets: You sign up with a company that sends you prepackaged meals designed for optimal weight loss. I assume they make claims that the lunch is designed to interact with your metabolism in a certain way, and the “diet” pizza for dinner is actually a diet pizza.

You turn your free will over to a budget. If you spend all of your dry cleaning budget for the month, you don’t do any more. If you want an iPod, you wait until your ‘stuff’ balance reaches the amount you need, then get it. You can stick with this forever, but you may not save as much money if your ‘prepackaged meal’ budget is “diet” pizza and “diet” hamburgers - just a little bit too good to be true.

• Fasting: You eat normally, but skip eating one day a week and only drink water, or watered-down juice.

You spend money like crazy but skip going to the movies one weekend and tell yourself you’re saving money. It feels good until the next day, when you go to Nordstrom’s.

• Mediterranean: You eat a diet similar to the diets of people living along the Mediterranean sea, where the incidence of heart disease is much lower. You eat grains (pasta and bread), vegetables, fruits and olive oil in abundance. You eat some seafood, less poultry and very little red meat. You drink wine, and little dairy.

You identify the money spending behavior that makes you happy and spend there; you identify the ones that don’t and cut WAY back on them. If you enjoy books, you buy a book once in a while. If you enjoy premium teas, you splurge. But to do that, you realize that you don’t need a 4-bedroom house to be happy, only a 3-bedroom, so you downsize a bit.

So my question is, which diet are you following? Is it one I didn’t list?

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In the midst of years discussing financial apocalypse - which is probably a little bit overstated - I realized that the idea of saving money in times of crisis is a lot different from saving money in a time of plenty. Cutting back on Nintendo games is a lot different than learning how to heat the house with paper scraps.

A common debate that has occurred over the last decade in my consultant-infested workplaces has been the debate over “good” investments. I have had colleagues who cling to the stock market; some who swear by real estate; some who preach the mantra of gold and commodities; and some who have just decided to spend their money as it comes and damn the consequence. I fall somewhere in the middle - increasingly skeptical of the stock market but more skeptical of the idea that commodities or real estate can pick up the slack for the whole US market.

But in times of distress, learning to save money on things that make a difference can matter a lot, too. Learning to grow your own food is different than chopping off a few bucks on eating out. The former will create value out of nothing - the latter simply cuts out an expense you didn’t need to have. For the record, I don’t think we’re there yet. We don’t need to all start planting potatoes for the next great famine. And I’m not convinced that we need to hammer down on luxuries yet, either. If I dropped Netflix it equals less than .1% of my income. You might say, well, take .1% here and .1% there and soon you have a few percentage points, but you don’t - I don’t have that many minor expenses.

I do think now is the time to start focusing on stupid expenses. Nobody needs a new TV now. You might need a new computer, though. You don’t need a new CD - but a book (depending on the book) might be money well spent. Is it time to start wearing that crappy old shirt that’s out of fashion a bit longer? Yes. Is it time to keep wearing that worn-out old coat that doesn’t protect you against the cold enough - no. Spend money like a smart person. That means you need to apply a simple question to every expense: do I NEED this? If the answer is no, pass for at least a few days. You’ll see a difference in your bottom line in a hurry.

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