Thursday, November 20, 2008
Wednesday, November 19, 2008
Why the Government Does Not Want You To Panic During Financial Crisis
by Dr. Boyce Watkins
http://www.boycewatkins.com/
If you listen carefully to the words of Treasury Secretary Henry “Hank” Paulson and Ben “Big Ben” Bernanke (chairman of the Federal Reserve) you might notice a trend in their language. The word “confidence” is used a lot when they speak. Many of their monetary proposals are not necessarily valuable for their financial power, but also for their psychological power.
Some of you may wonder what confidence has to do with anything. After all, if you’re broke, confidence doesn’t exactly put money in your pocket. If you’re 100 pounds overweight, confidence won’t help you win the Olympic 100 meter dash. When you are flying on a crashing plane, confidence doesn’t keep the plane from slamming into the ground. But confidence is important to an economy, and one of the most significant drivers of economic growth. In fact, over confidence has driven US economic growth for the past 10 years. Here are some reasons that confidence matters in the minds of Hank and Big Ben:
1) Confident consumers spend money
If you think you might lose your job next year, are you going to max out your credit cards? I certainly hope not. If you are worried about being able to make ends meet, are you going to buy that big screen TV? Not unless you want your wife to leave you. So, even if it doesn’t hold any truth, the mere forecast of a weak economy is enough to make many Americans hold off on consumer spending, one of the great driving forces of the American financial system.
2) Confident companies invest money and hire workers
Investments involve risk. Your hunch may work out, and it may not. If you don’t believe the economy is getting better, you are not going to consider taking that risk. No one plans to go to the beach if the weather man says that it’s going to rain. When economic rain is in the forecast, companies pull out their umbrellas and hold off on new projects. This reduces the number of jobs in the economy, because nearly every job created in America is the result of someone making an investment.
3) Confident Americans do not take their money out of banks
In case you didn’t know, your bank does not have your money. Your money is part of a large base of financial capital that is loaned out to individuals and consumers seeking to get a good return on their investment. So, without investing, your bank would have no interest in paying you any interest at all. So if, say, 30% of all customers of the same bank decide to get their money out at the same time, the bank would have serious financial problems. It is a lack of confidence that could cause customers to “run” on their bank and take out their money.
4) Confident investors keep their money in the stock market
The stock market is a place where fortunes are made and lost. Some part of that fortune is psychological, given that no asset can have a value which exceeds that which someone is willing to pay for it. When investors lose confidence, they take their money out of the stock market, and reductions in demand for stocks lead to massive paper losses in the market. Additionally, most Americans are “momentum traders”, meaning that when the market goes up, they tend to buy more, and when it goes down, they tend to sell. History shows that it is actually the opposite approach that tends to work best.
5) Confident banks make loans
Banks have to keep a certain portion of their funds on hand at all times to meet federal requirements. If they are fearful that their customers might come and demand their cash, they hold onto their capital to ensure that it is available. If they are afraid that their borrowing customers will not be able to repay loans due to a weak economy, they also hold back on issuing new loans. The truth is that when economic forecasts are grim, conservative bankers become even more fearful than the rest of us.
The bottom line of this article is that confidence matters. So, the next time you hear Ben Bernanke give a speech, you can be confident that he is going to use language that makes you feel more secure. Whether you choose to believe those words is up to you.
Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good”. For more information, please visit http://boycewatikns.com/
Monday, October 13, 2008
"Black Financial Expert Boyce Watkins on Credit Reports"
http://www.drboycefinance.com/
Where do Credit Scores come from?
Unlike babies, credit scores do not come from a financial stork. There are 3 major credit bureaus in the United States: Experian, Trans Union and Equifax. Companies subscribe to their services to obtain information about you to decide if you are credit worthy or not. Under the old system, the credit scores ranged from 375 to 900. Under the new VantageScore system, they range from 501 to 990. The new system is more consistent among various credit bureaus, so you don’t end up with scores that go all over the place.
How can I get a copy of my report?
I personally go to a site called Myfico.com, where you can order reports from all 3 bureaus or just one. You can also go to freecreditreport.com (you know, the site with the really funny commercials). The law says that you are entitled to at least one free credit report every year. Also, if you are denied credit for any reason, you can write the bureaus, sending along a copy of the rejection letter, and request a copy of your credit report. If you choose to pay for your report, it will likely cost you about $8 dollars.
What factors go into calculating a credit score?
The factors that go into calculating a credit score are a little vague and it’s protected like the recipe for KFC chicken. While the formula is well-guarded, we do have some guidelines on what factors are theoretically used to determine whether or not someone should loan money to you.
The factors are broken into what they call “The Four C’s of Credit”: Character, collateral, capacity, capital and conditions.
Character is their way of trying to decide if you are a good person or not. I don’t agree with this, since having bad credit does not make you a bad person. It just makes you a person who does not have a good track record when it comes to borrowing money.
Capacity is represented mostly by your income level and how much money you’re expected to earn in the future.
Capital is noted by the amount of cash you have in reserves and other liquid assets at your disposal. If you have capital, that means you can withstand a short-term decline in income and still make payments.
Conditions are reflected by the environment in which you live. It might include the state of the economy, your line of work and other external factors that might impact your credit report. For example, during the liquidity crisis in America, conditions for lending are very, very bad.
Now you know where credit scores come from. You probably have more questions, since there is a lot of ground to cover. To get more information, please feel free to learn along with me and my students by visiting http://www.drboycefinance.com/.
Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, ESPN, BET and CBS. For more information, please visit http://www.boycewatkins.com/
Thursday, October 9, 2008
Dr. Boyce Watkins on Bill Collectors
Bill Collectors really want their money, like the rest of us. Some of them seem to feel that it’s O.K. to resort to flat out thuggish intimidation to get their money back. That might work on The Sopranos, but it shouldn't work in real life.
Part of the reason abusive bill collectors can have their way with the public is because many citizens do not know their rights. Bill collectors prey on the uninformed in a terrible way: They may threaten to have you arrested, harass your relatives, call all hours of the night, and engage in other types of atrocious behavior to get their money out of your hide.
One woman successfully sued a rogue bill collector after he called her repeatedly with threatening language. The woman, a senior citizen, was told by the man to "Stop with the sob stories and pay your god d*m bill!" This kind of behavior is not acceptable, and bill collector harassment doesn’t have to keep you up at night.
The Federal Trade Commission states that complaints against bill collectors are rising, reaching the highest level they've seen in the past 3 years. Most of the complaints focus on vulgar language, trying to collect more than the amount of the true debt, and extra fees, such as court costs.
You have rights that can protect you from bad and malicious bill collectors. You want to keep these in mind as you work yourself out of debt:
1) There is something called "The Fair Debt Collection Practices Act". If you are not familiar with this document, get familiar with it. You can read it by clicking here.
2) A bill collector cannot contact you at work if your employer does not approve of the contact. Let the bill collector know that this is the case and they must legally stop contacting you at your job.
3) Bill collectors cannot call you before 8 am or after 9 pm. The only exception is if you give them permission to do so.
4) A bill collector can only contact your friends and family if they are trying to find a way to get in touch with you. However, some of them may do this in order to harass or embarrass you. If that is the case, you may want to tell your friends to tell the bill collector, "She does not live here and I do not know how to get in touch with her. Please don't call here anymore." Then, get the bill collector's information from your friend and reach out to them when you can.
5) You can get bill collectors to stop contacting you altogether by sending them a letter telling them to stop. You still must pay the debt, but they won't be calling you during dinner.
6) The bill collector cannot curse at you or use foul language and they must tell the truth about how much you owe. They cannot threaten to sue unless they are serious about it, and they can't touch your 401k or IRA.
7) If the bill collectors call you, you can demand that they send you a written notice of the amount you owe and who you owe the money to. If you do not believe that the debt is yours, you can write a letter to them stating that this is not your debt. They must then send you proof that the debt is actually yours.
If you feel that a debt collector has violated any of these rules, you can contact the Federal Trade Commission at www.ftc.gov. Remember that you are not powerless in this situation.
Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of Financial Lovemaking 101: Merging Asset with Your Partner in Ways that Feel Good. He does regular commentary in national media, including CNN, CBS, NBC and BET. For more information, please visit www.BoyceWatkins.com. This information does not constitute legal advice. For legal advice, please consult your attorney.
Saturday, August 23, 2008
Your Black World: Financial Literacy Expert Bill Thomason Speaks On State Of Black Money
Interview with Financial Literacy Expert, Portfolio Manager and Author, Bill Thomason, by Tolu Olorunda.
William Thomason is a finance expert with nearly 20 years worth of experience. In his tenure as a financial-analyst, he has been quoted by well-known publications, such as, the Wall Street Journal, Barrons, Smart Money, CNBC, and other financial press. He was once named by Ebony Magazine, as "One of the Nation's 50 Leaders of the Future." His 2006 book entitled, "Make Money Work for You – Money Lessons from a Portfolio Manager," lays out patterns and examples worth following, in favor of accomplishing financial-liberation. Of all his acquisitions and feats, Thomason favors his dedication to the education of Black and Brown kids as most essential. He founded a program called, "Wall Street Wizards." Wall Street Wizards was primarily founded to be "a non-profit organization established to bring career opportunities and financial literacy to urban youth." I had the pleasure of speaking with Bill Thomason on his background, the concept and impact of financial illiteracy, the lessons of the recent Subprime mortgage crisis, financial-empowerment, and much more:
Thanks for joining us, Bill Thomason. Can you describe your path toward becoming a Financial Literacy Expert, and why you decided to pursue a career in finance?
Well, I’ve been in the investment business for close to 20 years. Within those years, I’ve been an investment manager, a portfolio manager, author of a book, and I also worked in private equity. It came down to me realizing that I am a Black man in an environment where there aren’t many people of color. I’m from an environment where people struggle financially every day. I was talking to a guy today, and he told me of how he went to a car dealership to buy a car, and he asked the salesman why he was advertising on a Black radio show. The salesman replied saying, “Those are the people who are dumb enough to come in and I can sell them whatever I want.” When you look at the Subprime mortgage crisis, that’s a result of people signing their name on something they had no idea about. That is financial illiteracy. They paid for houses they knew they couldn’t afford. So why am I doing this? That’s why. The Black and Brown people are the ones who get taken advantage of. I am about trying to create and teach Black and Brown people the ethics of money, investing and finance, so they can better take care of themselves.
As a result of that, do you think most African-Americans are financially illiterate?
Yep; and I say that because the statistics bear it out. We have high bankruptcy, 'jacked-up' credits, and all other symptoms that classify financial illiteracy. The symptoms of financial illiteracy are bad credit, stress, untimely deaths etc – and we have them. A lot of times, you can’t get a job if you have poor credit, and that breeds the stress which leads to the untimely deaths.
Can you explain the value of investing, and how one can begin investing, even at the lowest increment of income?
Well, I think we need to start putting money into investment vehicles; and there are plenty of them, such as stocks, mutual funds, exchange-traded funds and real estate. Historically, stock markets have done well; so history is on the side of the investor.
At what age can one realistically begin the investing procedure?
The truth is that the parent should start before the children are even before. But realistically, as soon as a child is old enough to ask for gifts, the child is equally old enough to learn about financial-literacy. We already have a lot of challenges in front of us as Black and Brown people; so we have to learn how to invest and put money aside -- just to survive.
You founded the program "Wall Street Wizards." What is its objective?
Well, it’s to teach inner-city kids about mathematics, finance, economics, investing and money-management; and to bring financial literacy to our community, so our kids can learn how to be financial stewards. We’re also giving them a lot of other skills in this program; I like to say it’s ‘a life-skill program disguised as a financial literacy program.’ We‘ve got about 60 kids total, in San Francisco and New York. We have two programs operating in both San Francisco and New York. We try to expose them to career opportunities such as, investment bankers, portfolio managers, venture capitalists and private equity.
Your 2006 book was “Make Money Work for You – Money Lessons from a Portfolio Manager." How can the meager wage earned by the majority of our people work for them?
Well, that’s why I wrote that book. In the very last chapter, I tell the story of a woman who started when she was 40 yrs old, and put away portions of her income till she was 80 yrs old. At 80 yrs old, she had amassed $23 million buying stocks. She bought stocks that she knew, and invested in them on a regular basis. There is something called dividend-reinvestment, that shows you can buy stocks without ever paying a commission, and then, the dividends become reinvested to buy the investor more stocks. The woman in particular had a 1-bedroom apartment in New York. She was making a decent living, but wasn’t rich. So putting away $10, $15, $50 or $100 a month would go a long way.
Do you profoundly believe that if Black people took the route you delineate, they can actually liberate themselves from financial-disempowerment?
Yes. The front page of my website says “creating financially empowered individuals and communities." When you’re financially empowered, you can help uplift your community. The statistics, according to 21cf, prove that the Black Community - on an individual basis - is more philanthropic than any other ethnic group. We are philanthropic by nature, but we don’t invest wisely.
Was this financial illiteracy you speak of, revealed in the calamity of Hurricane Katrina and the inability of Black people to rescue their own kinfolk?
That’s such a deep question, and just like in the tragedy of 911, there wasn’t much financial-stewardship and accountability to ensure the donations reached the victims. A lot of people received the funds allocated to them, but a lot of people also didn’t get nothing. My family is from New Orleans, and so, I’m well aware of this reality. When you watch some of the documentaries that were filmed after the flood, and the gross-mistreatment of the New Orleans residents, you’re startled. Financial literacy is an all encompassing value that must be taught to those who intend to manage their financial lives, and put their financial life together. Our community predominantly goes to check-cashing venues to cash their checks, but those places take out a percentage of their earnings.
You spoke earlier about the shortage of Black and Brown financial experts. Can that be looked upon as indicative in the recent financial mortgage meltdown?
Well, I think there is a shortage. I say, go to Wall Street and find out how many Black people are walking up and down the aisle; and that’s just an example. So yes, I think it played a part.
How can the recent mortgage meltdown be avoided next time?
Read. Unfortunately, the old saying goes, “If you want to hide something from a Black person, put it in a book.” We need to read; study and educate ourselves. If you’re well educated, you don’t listen to someone who tells you to put your name on a document you know you can’t afford. We also need to pay our bills on time, and live within our means.
Lastly, what is the most important advice that you hope to extend to the Black Community at-large?
In the 1960s, we realized it was about our Civil Rights – we needed to be able to vote, live where we wanted, and receive equitable wage vis-à-vis our white counterparts – and now we have to fight for our Economic Rights. With Economic Rights, we would become confident enough to own companies. Every kid in my program – Wall Street Wizards – owns stock in Coca Cola. They also go to Shareholder meetings. We now have the right to invest, own stocks and build businesses, and we have to claim that Right.
To donate to the righteous cause of Wall Street Wizards, pls. visit: http://wallstreetwizards.org/
