October 2007

This past week, a faculty member casually asked me about my recommendation for a MP3 player for her son… so I casually asked how old her son was. “He is nine years old” was the answer!! Man.. I never felt more outdated in my life… I still don’t have a MP3 player.

Here is another example I found on Amazon forums:

Question: Best mp3 player for a 9 year old, what do you suggest?

Answer: I purchased a Samsung YP-T7J from Amazon.com last year for Christmas for my eight year old. I liked it because it isn’t so small she would forget she had it and it was easy to navigate for a child. Actually she showed me how to use it…lol.

What’s with kids (and/or kids’ parents) and electronic gadgets these days? Is the idea of having some free fun without battery powered devices becoming obsolete or something?

I am not sure if it’s a good trend (technological advancement) or a bad one (technological dependence), but whatever it is, it’s certainly much different than how things were when I was a kid, and it will certainly have some impact (again, I don’t know whether positive or negative) on the growth and development of future generations.

To put things into perspective, here are a few things my friends and I did in ancient times to “have fun” - when MP3 players were unheard of and computers were rare (or too expensive for our parents). Most activities were just plain free - and those which required some hardware, didn’t cost more than a few peanuts:

1. Skipped stones on water: Do people even remember this anymore? It involved throwing some flat-ish stones across a body of water and watching them bounce multiple times. We spent hours trying to experiment with different shapes and sizes of stones, and various throwing actions, to generate the maximum number of bounces.

By the way, according to a MSNBC report, the world record for this activity is held by Russell Byars who made a stone bounce 51 times!

2. Collected stamps, coins, comics, and all sorts of silly *collectible* stuff: Nothing I collected ever turned into anything valuable, but it sure kept me busy. Plus, except for a few bucks of initial parental contribution - and occasional raiding of my own pocket money, it didn’t cost anyone a fortune.

3. *Handwheeled* bicycle tires: I don’t know how to explain this, but *handwheeled* comes closest to what we used to do. We used to find trashed/damaged bicycle tires and then run around while rolling them alongside with our hands (or sometimes with short sticks). This was usually accompanied by weird sound effects from imaginary vehicles.

4. Played with marbles: Again, loads of fun without the need to spend a lot of money. I remember playing with them ever since I was old enough to understand that marbles are not meant to be swallowed. Most marble games were extremely simple to play, but generally used to be very competitive.

5. Flew kites: Where we lived, almost every apartment/house had a flat roof open terrace. On dry, windy days, flying kites was one of the popular activities - among the young and the not-so-young. Kite fights, if you have ever heard of them, are awesome.

6. Played with spinning tops: I have played with all sorts of tops as a kid - my favorite ones being wooden tops which were spun with the help of a long thick string. It took quite a bit of practice to get the top spinning right. Years later, I found out that this simple toy is based on one of the most complex engineering concepts.

7. Made paper toys: This wasn’t really origami or anything … just a few simple folds to make things fly or float, but it was a lot of fun. Apart from the fun part, constructive activities like these allow a lot of scope for creativity - without burning a hole in your pocket.

8. Played hide and seek and outdoor chasing games that didn’t require a dime of hardware: There must be like infinite chasing and hiding/seeking games in existence, but I don’t see kids playing them anymore. Perhaps they like their video/computer games better.

Never felt the need for electronic devices as sources of entertainment - in the form of MP3 players or video games or whatever that was available (walkman, etc.) at the time. That explains why I felt like a caveman when I heard about a nine year old kid asking for a MP3 player.

I wonder what’s going to happen a few generations down the line - when all remaining memories of these old-fashioned frugal games will be wiped out. I guess there will be some sort of a Moore’s Law effect with regards to the ever decreasing age at which children start playing with expensive electronic gadgets.

Maybe we are looking at prams with iPod connections and infant-operated GPS units for our Baby Einstiens.

Feel free to share any particularly interesting, essentially non-hitech and inexpensive activity you indulged in as a kid. Maybe we can build a global library of such endangered (or already extinct) activities for future reference.

Image credits: discovermagazine.com, www.namibstamps.com, www.edwebproject.org, www.landofmarbles.com, www.kitelife.com, www.nwce.gov.uk, www.igniteseattle.com

• Our Journey To Financial Freedom #4 - Lifestyle and Spending Choices by Super Saver @ My Wealth Builder.
• You Don’t Need to Save Money–Just Use The Equity in Your Home! by Jeremy @ Generation X Finance.
• Financial Incentives To Being Healthy (For Insurance Purposes, Anyway) @ I’ve Paid For This Twice Already.
• Is It Better When You “Win” It? by Lazy @ Lazy Man and Money.
• How Well Do You Follow Financial Advice? by Ben @ Money Smart Life.
• How To Cut Costs On Hair Care Once and For All! For Serious Savers Only by SVB @ The Digerati Life.
• Weak Correlation: Another Reason to Have Global REIT by Sun @ The Sun’s Financial Diary.
• 8 Job Tips for New Graduates by Anna (as a guest writer) @ Blueprint for Financial Prosperity.
• Busy Schedules: Money Saver or Money Waster by Nickel @ Five Cent Nickel.
• Six Tips for Making Dreaded Calls to Customer Service a Little Easier @ Chief Family Officer.
• Money-saving Tips for the Entire Family by FMF @ Free Money Finance.
• Eight Ways to Invest in Yourself by MBH @ Mighty Bargain Hunter.
• I Just Purchased A Minivan - Here’s How I Purchased Our Used (But New-To-Us) Vehicle Without Borrowing Any Money by NCN @ No Credit Needed.

A couple of weeks ago, I discussed about my default habit of leaving the original plastic covers on consumer products … for as long as they keep sticking to the shining surfaces. Along similar lines, here is another “save it for later” habit that I have developed over the years.

I nibble on chocolates for as long as it’s humanly (and hygienically) possible. I eat a very small portion, bit-by-bit, on any given day, and then I wrap the rest of it for future bit-by-bit sessions. Generally, the habit extends to any food item that I really like - although, it’s more obvious when it comes to chocolates because they are more readily available than other tempting foods and can last for several days (probably even months). In case of rare dessert treats, especially if it’s a very nicely prepared portion of tiramisu or flan, there is a good chance that I will spend more time on dessert appreciation and consumption than on the entree - in spite of the small serving size of the dessert.

Again (like for the earlier “saving it for later post“), as I introspect on the possible underlying reasons, the only explanation I can come up with is the desire to make the pleasing experience last as long as possible. I don’t remember having to consciously build on this habit in the past - so probably, I must have had one of those “light bulb moments” during my childhood, when I suddenly realized that instead of wolfing down that well earned chocolate bar (which, by the way, was extremely rare in those days) in a few minutes, I might as well enjoy the goodness for the next several days! [well ... that's more like a "duh" moment].

On further introspection, I think it’s one of the most valuable self-taught lessons in my life on efficient resource management. Over the years, I have applied it to food, pocket money, salary, clothes, good will, accidental gifts, windfalls, campfires, etc. and I have to say that it has worked pretty well in most cases. It always feels great to save some good fortune (or valuable resources) for later use instead of blowing everything up in a matter of minutes.

Here is another example: think in terms of an awesome 4^th of July fireworks celebration - how would you like it if, instead of a 40 minute dazzling display, all the firecrackers were exploded in the first minute itself?

On a cautious side, there is obviously a limit to how far one stretches this habit of saving the good stuff for later. All nice things (food items or not) have a viable time frame - in the sense of a “best if used before” date. Delay the “consumption” for too long and things will start to rot. The trick is to find the right balance - and as trite as it may seem, that’s always where the buck stops … doesn’t it?

Image credit: concise.britannica.com

More than a month ago, I discussed certain features of my slow but steady investing progress, and expressed concerns over owning two different ETFs that essentially track the same markets (EEM - iShares Emerging Markets ETF and VWO - Vanguard Emerging Markets ETF).

At that time, a few readers suggested that I should choose VWO over EEM because the former offers a lower expense ratio (0.3%) than the latter (0.76%).

In the process of educating myself on this subject, I came across an interesting article comparing the two ETFs in question.

Here is an excerpt from the article on Seeking Alpha:

Another thing in the article that I thought was strange was the author’s implication the VWO is a better choice, if you have to have emerging market exposure, than EEM because the expense ratio is a lot less. For the record VWO’s expense ratio is 0.30% (according to the article) and EEM’s expense ratio is 0.76% (according to Yahoo Finance). I think of this as forest for the trees analysis. At this point I will note that VWO has an OEF equivalent (VEIEX). Since VWO’s inception in March it has lagged EEM by at least 200 basis points (I am eyeballing the chart). For one year EEM looks to have outperformed the OEF equivalent by about 300 basis points. And for two years EEM seems to be ahead by about 1000 basis points. Even if the numbers are off, EEM has clearly outperformed by more than the expense ratio at every normal time interval since its inception.

The author seems to imply that EEM is a better performing ETF in spite of it’s higher expense ratio. I am still trying to find more information on this issue before I decide to go with one or the other ETF.

Meanwhile, I tried to check up the constituents of each ETF and found this article. Looks like there are differences in the weights these ETFs assign to different markets - although they may be tracking the same markets. That’s probably one of the reasons why there is a difference in their performance.

Any insights into this?

Very soon, I am going to add words like “sale”, “discount”, “deal”, “clearance”, etc. to the list of the most abused words in the US … right after words like “values”, “children”, and “integrity” (watch for gross misuse of the latter set of words in the upcoming political debates).

For me, the words sale or discount imply the availability of a consumer product at a price lower than it’s “regular price”. As such, it is obvious that the product should have been sold at a regular price for some amount of time, before a retailer declares a certain percentage reduction on the regular price of the product and calls it a “sale”.

For example, let us assume that a shirt (of the size I want) at a local retailer sells for $20 on most days of the year. On certain days, the retailer announces a sale, gives a 25% discount, and sells the same shirt for $15. Now this is what I call a sale.

However, I have been observing an increasing number of advertised sales that are simply useless gimmicks and just not worthy of any attention. Here are a few examples.

The Perpetual Sale

This is a kind of 24/7/365 sale - it ends on Monday night and starts again on Tuesday morning - it ends on the last day of October and starts again on the first day of November. Stuff is forever on sale. That doesn’t make any sense to me. For these perpetual sales, where is the concept of “regular price”? What is the percentage discount based on? Is it based on some arbitrary sticker price that can be easily manipulated by pasting new stickers on top of old ones? If so, then it’s stupid to call it a sale. I mean, what difference does it make to the consumers if you sell the same shirt - one day for a 50% discount and some other day for a 2% discount - if ultimately, it’s going to cost $15 to the consumer through every day of the year?

Continuing on the same note, what’s the point in selling the same shirt at a 25% discount through all days of the year? If a store needs to advertise a perpetual discount on a certain product, to me, it seems like there is a problem with the initial pricing of the product - sounds like the product is overvalued in the first place.

Another example of perpetual discount pricing is seen with pizza outlets. Every week, various pizzerias fill our mailbox with dozens of coupons announcing some new “deals”. Not surprisingly, there is nothing new with most of these coupons - every week, the same pizzas are sold for about the same price - and yet, each week it’s a “new limited time offer”.

The Urgency Sale

This follows from the “limited time offer” announcements that I mentioned above. A couple of classic examples of this type of sales are:

• “Call in the next 5 minutes and we will give you an additional 25% discount“

• “This offer is valid only if you sign this agreement right now“

• “Once in a lifetime opportunity!“

In spite of sounding stupid, such sales tactics call upon customers’ sense of urgency and usually coax them out of their money for senseless stuff (I know someone who bought a remote controlled “fart machine” for $22 under such kind of urgent persuasion).

Many television advertisements, with fake testimonials from “happy” consumers, fall in this category. These ads will run every day of the week and ask you to call in the next 5 minutes to get some additional discount.

The Useless Sale

Great! so there is a 80% discount sale in your favorite retail store. You think happy thoughts of getting all the stuff you always wanted and rise early to get to the store before all the good stuff gets scooped up. You start looking for the XL-size t-shirts that you wanted and after wasting an hour searching for them, you realize that the 80% off is only on 5XL size fluorescent yellow t-shirts with fluorescent pink sleeves! Everything else is priced higher than usual!

Sometimes, the product you want is available, but there is this only one singular piece that’s in stock and there are about 500 people who will be looking for it on the same day as you are. So, good luck on that.

The Mass Hysteria Sale

Shout “sale! sale! sale!” outside your car in just over a month from now, on the day after Thanksgiving, and you will know what I am talking about. In fact, you can start having fun a couple of days earlier if you hang around Best Buy or Circuit City.

These are just the examples off the top of my head… I am sure there are more out there.

Interestingly, since many advertisers consistently keep using such sale strategies, something must be obviously working for them. I wonder if we are getting the meanings of words like “sale”, “discount”, etc. incorrectly hardwired in our genes or something.

• I’m Investing Regularly, but How Do I Know if I’m Doing Well? by Jeremy @ Generation X Finance.
• My Financial Success Story - I Spend Less Than I Earn by Patrick @ Cash Money Life.
• The Clearance Craze by Melissa (as a guest blogger) @ I’ve Paid For This Twice Already.
• Save Money By Making Your Own Beer by Lazy @ Lazy Man and Money.
• Basics of Prenuptial Agreements by Jim @ Blueprint for Financial Prosperity.
• Look Before You Leap: Roth IRA Conversions in 2010 by Nickel @ Five Cent Nickel.
• Can Your Healthcare Costs Go Up If You’re Obese? by Glblguy @ Gather Little by Little.
• Would You Pay $45,000 to Live Seven More Years? by FMF @ Free Money Finance.
• Haggling Scares Me by Justin @ Zen Personal Finance.
• List of money-related forums and discussion boards by MBH @ Mighty Bargain Hunter.
• How I Live Without Using Credit Cards - My Simple System For Living On A Budget by NCN @ No Credit Needed.

This is a guest post by Dough Roller - a happily married, father of two, on a path to achieving financial independence. Want to know how people fight their way out of $55,000 in debt? … head over to his inspiring blog to read all about it.

Earlier this month, this blog published a reader comment that sparked some controversy - it seemed to imply that most personal finance bloggers were rich and didn’t have any major financial obstacles in their life. [Editor's note: the comment author wanted me to remove the quoted part of the comment - so that's gone now.]

I read this and thought the reader was describing me. My wife and I have gone from a negative net worth 15 years ago to substantial savings today. Although none of what we have was inherited or handed to us, a high salary has allowed us to max out our 401(k) and save a little extra. Add in real estate appreciation and no major financial setbacks, and you have two “middle-class millionaires.”

But if life were only that simple. While many experience financial hardship as adults, I traveled through the winter of my financial discontent as a child. It was painful, but it taught me a lot about money, business and people, and shaped my attitudes about personal finance. Here’s what happened and what I learned from the experience.

Money is a Terrible Thing to Waste

My parents divorced and both remarried before I can remember. I lived with my mom and stepfather, visiting my dad and stepmother on the weekends. When I was about 10, my stepfather opened a store that sold fishing and hunting gear. Was the store near where people fish or hunt? Nope—it was smack dap in the middle of the city and 40 minutes from our home. Go figure. Because my stepfather had to keep his day job to make ends meet, I ran the store by myself during the summers. I was about 13. To make a long story short, the business was a financial disaster.

As the bills mounted, my parents paid them with a second mortgage on our home. (Do you see where this is going?) I can remember our family literally having no money. My stepfather got paid once a month, and on payday (the happiest day of the month) my mom and I would put two or three dollars of gas in the car. Then we would head over to the grocery store to buy food because by the end of the month there was virtually no food in the house.

As finances worsened, my parents told me that they would be filing for bankruptcy and that we would need to move out of the house. The stress on our family was immeasurable. The bitter irony of the situation is that what ultimately saved us was a tragic loss. My father (not my stepfather) died in a car accident.

His death resulted in my receiving social security benefits until I graduated from high school. Those benefits went to pay my stepfather’s bills from his failing business. Was this fair? Maybe not, but it kept my parents from bankruptcy and from losing our home. Money was still extremely scarce and my stepfather continued making bad financial decisions–like the time he cancelled the car insurance to save a few bucks just weeks before a massive hail storm. There is nothing like driving a car around that resembles a golf ball with 120,000 miles on it, but at least we had a car.

Childhood Lessons about Money and Life

Here is what these childhood experiences taught me about money and life:

• Living paycheck to paycheck is miserable. Saving money isn’t easy, and some situations may make it impossible. My childhood experiences motivated me to do everything I possibly could to save money.

• Turning a hobby into a business can be a really bad idea. There is something to be said about doing what you love. But running a successful business requires a lot more than just passion.

• My choices about money affect those I love. We don’t live in a vacuum. Our choices about how we make, spend, save and give money can have a major impact on our families.

• Life can really suck sometimes. As my mom would tell me, life isn’t fair. Indeed, we all have our joys and our tragedies. I was blessed by having a loving mom, yet experienced the tragedy of having a Dad leave so soon.

• We are the sum of our circumstances multiplied by our choices. Each of our circumstances differs but they almost always involve struggles. From those struggles, we can learn and we can choose. Indeed, the financial hardships I experienced as a child have resulted, I believe, in the financial freedoms I enjoy today.

I have tried to draw on the difficulties in my life to make good choices, such as in my education and in financial planning in my adult life. When I write, I try to share what I learned (and continue learning) in the hopes of benefiting a reader facing their own challenges, financial or otherwise. For example, I recently shared My Best and Worst Financial Decisions.

So now it’s your turn. How did your childhood experiences shape your attitudes about money?

Here is a link to The Dough Roller’s feed if you would like to add his blog to your daily reading list.

Here are some interesting money articles published over the week.

• Five Reasons Why Having A Child Isn’t As Expensive As You Might Think by Trent @ The Simple Dollar.
• Five Fabulous-Paying Jobs Anyone Can Do—Except They’re Totally Illegal by Nick @ Punny Money.
• How to Work Extremely Hard and Get Nothing Done by Ben @ Money Smart Life.
• Sleeping With Money: Merging of Families and Very Different Finances by John @ Queer Cents.
• Why Do We Read and Follow Money Tips But Never Become Rich? by David @ MoneyNing.
• 132 Items of Clothing Gone! @ Clever Dude.
• Money Vs Time Off: Why We Don’t Take Vacations by SVB @ The Digerati Life.
• Some Financial Consequences of Depression @ Mrs Micah.
• Are You a Rate Chaser? by Sun @ The Sun’s Financial Diary.
• Things I’ve Learned About Money by Not Having a Lot of It. by Lynnae @ Being Frugal.
• Borrowing to Invest: Helpful or Hurtful? by Nora @ Wise Bread.

I know this is selfish and evil, but I need to get this out of my system.

Of course, the rising oil prices cause sharp momentary pain at the gas pump and gradually increasing pain at retail stores; but, there is a silver lining to this dark cloud that I am discovering about now.

If you head over to a campus recruiting department at any college around this time of the year, you will know what I am talking about. Companies are picking up students like hot cakes - full time, part time, interns, and co-ops.

It’s difficult to trace the exact routes of all the excessive oil profits, but I guess you can observe some end effects when it comes to recruitment stats. Big companies, small companies, service companies, manufacturing companies, software companies, and many other companies … the money eventually trickles down to all of them and then they all try to get a piece of the action.

The rising demand for oil (one of the reasons why oil prices are hovering high up) and record oil profits in recent times have spurred a major chunk of the industry into a frenzy of new projects, all over the world, worth many billions of dollars. And now, they are needing thousands of people to work on these projects - in US and abroad.

I cannot say whether this is just a short term boom or a fairly sustainable trend, but unless all the developing countries (currently developing … and those which will be on rapid development paths in future) suddenly stop using oil or unless they figure out a way of using sea water as fuel, I would stay bullish on the prospects of this trend sustaining itself for several years down the line.

Right now, “strike while the iron is hot” seems to be my favorite phrase. It appears like a good time to head out there and grab a piece of the recruitment pie.

Ironically, a couple of days ago, I wrote something about oil consumption and environmental concerns. Oh, well … three cheers for hypocrisy .. hyp hyp hypocrisy!

Image credit: edweb.sdsu.edu