No New Baby Boom

It looks like an expected baby boom is failing to materialize.  Birth rates in the U.S. fell for the fourth year in a row, with fewer than 4 million births, the lowest since 1998.  Having children is certainly behavior, and from that standpoint, this seems like good news.

Some of the points made in this news article include:  “birth rates for teen moms have been falling since 1991 and hit another historic low,” and “the birth rate for single women fell for the third straight year.”  In most cases, these mothers would be the hardest pressed to find the financial and time resources to care for their children, especially in a down economy.

That economy is the main reason given for the overall decline “with experts calling it more proof that the weak economy has continued to dampen enthusiasm for having children.”  “The theory is that many women or couples who are out of work, underemployed or have other money problems feel they can't afford to start a family or add to it.”

In this example, people get it.  Behavior has consequences.  Good critical thinking about the impact of starting or adding to a family leads to the decision to wait until they are financially, and perhaps emotionally, in a better position.  There may even be hints of stronger discipline and responsibility.  The argument that you can’t support a family of four on the minimum wage never made sense.  How could anyone with only a minimum-wage job or a minimum-wage skill set, assume he has the right to head up a family of four?  That always struck me as faulty reasoning.  Based on this report, it’s nice to see that kind of cart-before-the-horse thinking is beginning to subside.

A second article presents the same facts with a slightly different interpretation.  The writer implies that this might be a reaction to the economy, but could also be the beginning of a new trend, mothers delaying the birth of their first child until later in life.  It will take more time and data to establish whether this is true or not.

No matter the cause, this behavior increases the likelihood of parents being financially prepared before taking on the responsibility of raising children.  This is a very good sign in a society deep in debt but committed to supporting those who still find themselves unprepared.

The Power of Suggestion

I wrote last month about psychics and the dangers of believing their claims of special powers without scientific evidence.  When claims or ideas make us feel more confident or secure, we are less likely to challenge them.  We spend our time and money supporting hype or trickery instead of making wise decisions.  Here is another example where lack of evidence and a scientifically unsophisticated populace lead to waste.

A recent Stanford study published in the Annals of Internal Medicine reviewed 237 published studies comparing organics to conventional foods.  They found that both scored equally on vitamin and mineral content with very few nutritional differences, “though evidence from a few studies suggested that organic milk may contain significantly higher levels of omega-3 fatty acids” (emphasis added).  Furthermore, “not all the organic produce tested was 100 percent pesticide free,” and “the pesticide levels of all foods fell within allowable safety limits.”   

In other words, there was no firm evidence that organic food was a healthier choice.  Plants really don’t care.  They take up the same nutrients in the same form regardless of the type of fertilizer used.  When you peel or wash off produce, you remove most of the pesticides and other unwanted matter, and some organic or natural pesticides are actually more dangerous than synthetic ones.  These facts negate any presumed mechanism by which organics would be healthier or safer.

The article goes on to portray organic as a fad, not a justifiable option.  Other sources have labeled it as trendy and chic, comparing food to fashion; your choices say something about you.  Grocers take advantage of this perception through advertising, as the demand for organic, natural and specialty food continues to outpace other segments in the grocery industry.

What are we really getting for the extra money? – Good feelings and possibly a sense of social superiority (for imaginary reasons), as pointed out in this article.  Recent reminders that these high-end grocery purchases carry no guarantees came in form of a Whole Foods brand of rice  on the high-arsenic list and the recall of a Trader Joe’s peanut butter after a suspected outbreak of Salmonella infections.  After choosing to pay perhaps 15-20% more for supposedly healthier groceries, how much sympathy should people expect when the car breaks down with no emergency fund to fall back on?  Limited resources must be spent wisely.

Defenders of organics state that the long-term effects of exposure to pesticide and preservatives are unknown, but we now have a large population of baby-boomers and older, most of whom have lived long, healthy lives on a steady diet of non-organic foods.

This whole issue is not really news.  The report was based on reviews of over 200 previous studies, and I have frequently used organic foods as an example of how some people throw away money on unproven products.  It should be common knowledge by now, but fads are hard to deal with.  I have little hope of converting many people on this subject.  Back on February 27, 2012 , I explained how “it’s tough to get people to change their mind when their opinion is not based on logic.  The more you talk, the deeper they dig in to protect long-held beliefs.”   The power of suggestion and the hype of organics are strong,  but I hope a few may be willing to reconsider.

Late addition from NBC News (October 22):   "The nation’s pediatricians have weighed in on the issue for the first time, and they say that when it comes to nutritional value, organics are virtually indistinguishable from conventionally produced foods."

The Magic Money Tree

I wrote about this issue over a year ago, but this recent article gives me an opportunity to reinforce the idea.  Data from a Bankrate.com survey shows that truly free checking accounts are becoming less common and that other banking fees are increasing as well.  The cause, of course, is the well-intentioned efforts of our government to play hero by protecting us from those evil bankers.

What a large number of Americans don’t seem to understand is that there is no magic money tree to fund programs, pay insurance claims or make up for business losses brought about by regulations.  The money in our economy moves within the system and does not appear out of thin air.  When shoplifting increases, the store loses in the short term but eventually finds a way to pass losses along to their customers in the form of slightly higher prices, otherwise they go out of business.  If the local government workers get a raise in pay or benefits, our taxes increase or some other expense must be cut.  If regulations on credit cards change in the name of consumer protection, the banks figure out other ways to make up for it.  We are all part of that system, and actions within the system can usually be traced back to our money.  This reduction in “free” checking and increase in other fees is a typical example.

Some wonder why stores, banks or insurance companies don’t just take it out of their “obscene” profits.  The answer is fundamental to investing.  If you are willing to settle for a low return on your money you choose a low-risk investment.  Put it in the mattress for absolute safety but no return.  Put it in an FDIC-insured bank account for a small amount of interest.  The more risk you take, the more return you deserve, because sometimes the risk doesn’t pay off.  That’s why stocks, investments in businesses, usually return more than bonds, which are merely loans to companies.  Usually government bonds pay less than corporate bonds for the same reason.  In general, if you buy shares of a company that drills for oil or flies airplanes you take on more risk than if you buy shares of a company that delivers electricity to your house.  If your friend wants you to invest in a new invention or to start a new business, you expect a much higher return.  (Hint: If anyone tells you of a high-return investment that's "a sure thing," you can bet it's a scam.)

As companies face new threats, their risk increases so they owe their investors a higher return.  Threats may be the possibility of increased lawsuits, new government regulations, or merely facing the unknowns of being first to enter a new market.  They shouldn't permanently take these losses out of profit, which represents a return on overall investment, because the risk is higher, not lower, and their investors deserve a higher, not a lower, return.  They are not just being greedy or evil.  The result, however, will often be that we, the consumers, pay more for the same product or service as an indirect result of that added risk.

 Perhaps politicians understand this and are just trying to fool us when they take credit for a new law or mandate to protect us, but let’s give them the benefit of the doubt and assume that they don’t get it either.

Credit Where Credit Is Due

According to this USA Today article, household debt in the US is shrinking.  “Consumers went into the recession carrying debt of nearly double the nation's gross domestic product. That's down to below 85% now, and on pace to approach 75% by late next year.”  My first reaction was, “Good for us!”  Americans are showing more discipline with their spending.  This is a good, long-term sign.  Being overextended affects our physical and mental health as well as our ability to cope with financial emergencies.  As we found out not too many years ago, when too many people take on too much risky debt, we face serious societal consequences.

The article states that this debt reduction is a good short-term sign; because when we once again get comfortable with our debt level, spending will increase, leading to more consumption, more jobs and higher economic growth beginning as early as next year.  The slow recovery in home equity is seen as the only problem.

I don’t have anything against economic recovery, but let’s not be too hasty.  First, disregard home equity.  As I have argued in the past, you will always need a place to live.  Regardless of what we hear from realtors, loan officers, investment advisors, and others who profit from the transaction, to think of home equity as an investment is self-deceptive.  Second, let's try to minimize other debt.  There are simple ways to minimize or eliminate auto loans, and people who pay off their credit cards every month are the banks’ worst nightmare.

How many times do we have to be hit over the head before we are more careful about borrowing money by delaying gratification, prioritizing wants over needs, and treating debt as an obligation or burden rather than as a convenience?  It’s only been a few years since bad borrowing decisions and pursuit of extravagance plunged us into a recession, whose negative effects still linger.

Yes, when I saw that news, I was encouraged about the potential for improved behavior in financial discipline.  I was not even discouraged by another article telling how a big chunk of the decrease in debt is attributable to defaults and foreclosures.   When the bank writes it off, the debt goes away – but comes back to haunt the rest of us as higher fees and restrictive lending policies.  (Remember, we are all connected by that economic web; there’s no magic money tree.) 

Long-term, a new sense of financial discipline can be a very good thing for America.  It will take willpower and patience, but it’s worth it to avoid the well-known consequences.  (If you still think the last recession can be blamed on banks and Wall Street, you missed this.)  And once we get our personal houses in order, perhaps we can force our government to do the same.

Responsibility, Popcorn and High School Graduation

People have asked if I will ever run out of material for this blog.  Maybe someday I will be lucky enough to find only examples of favorable behavior in the five dimensions and it will get boring, but so far I’m still in business.

Last Thursday was a big day for responsibility, with two examples in the news.  The first concerned a lawsuit over microwave popcorn and the second was about new data on high school graduation rates for black males.

Responsibility is about taking control of your life, recognizing your role in the consequences you face and not blaming another or expect someone else to pay for your problems.  It often goes hand in hand with discipline.  If I can’t stop smoking, I may want to call it an addiction, blame the tobacco companies and make them pay me.  If I am overweight, I may want to blame the fast food restaurants for tricking me into eating a poor diet and get the government to require extra labeling or warnings.  Where there is no responsibility, problems are not solved, because the only one who can solve them refuses to own them.

The first example is of a man who blames microwave popcorn for his respiratory problems.  The resulting lawsuit promises him over $7 million in compensation (plus a side settlement).  Reading the article we find that he ate 2 bags of microwave popcorn a day (over 20 times the average*) for 10 years and sued the store selling it and the maker for not warning him of the dangers.  Microwave popcorn already has seven or eight warnings on the side of the package.  What’s one more?  (For a humorous view of this Google “Pearls Before Swine” for September 23, 2012.)

When hearing a story like this, most people roll their eyes and pass it off as yet another outrageous example of “jackpot justice” – out of our control.  Someone got hurt and found a lawyer, a big company to blame and a sympathetic jury.  The last line of the article reads, “CNBC predicts the recent verdict will spark a rash of future lawsuits.”  Who will be on those juries?  Will they understand that lawsuits against grocery stores (or even threats of them) will push up grocery prices for everyone?  Will they consider that 14 bags of popcorn a week might be a little extreme, not exactly the definition of moderation, and that no company should be expected to account for every possible extraordinary behavior by their customers?  (You can overdose on anything, even water!)  Can we stop this by expecting more responsibility from each other or do we condone it as members of those juries?

The second article brings good news of an increased high school graduation rate among black, male students, from 47% in 2008 to 52%, though it’s still not high enough and continues to lag behind whites.  The CEO of the Schott Foundation for Public Education that conducted the study is quoted as saying, "These outcomes are not evidence of flaws of young men, but evidence of willful neglect by federal, state, local elected policymakers and leaders."  The implication, of course, is that the low rate is due to actions of others, not those of the students.  But graduation is something done by an individual not done to him, and since 2008 five percent figured it out.  To excuse these “young men” and pass the blame on to policymakers and leaders is placing the burden of fixing the problem in the wrong place – typical of responsibility issues.  To achieve his aims this CEO should instead take the approach that Bill Cosby has taken for years, challenging the parents and children to work hard and succeed, and not accept such excuses.

*Calculations:  Average popcorn consumption = 52 quarts per year.  That’s one per week.  Popcorn eaten at home = 70%.  Uncooked sales for home use = 90%.  Therefore cooked and eaten at home = 70% x 90% = 63%, 63% x one quart (bag) per week = 63%.  14 bags per week / 63% = 22.2 – and that’s not all microwave.