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Super cool stuff about money. From the folks that brought you SPEND.GROW.GIVE. Have a question or a suggestion for us? We love to hear from you. Click here to Ask TILE.

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Tips for Non-Ridiculous Holiday Spending

(image source: lalawren)

The local drugstore has decked its aisles with annoying Christmas songs, and that can only mean one thing: we've entered another season of socially-sanctioned splurging. We're not going to tell you to cut up your credit cards here - you can find that advice somewhere else. Like, somewhere where there's no such thing as presents, puppies, or delicious food. (The Economist, maybe. Zing! No, just kidding. Love you, Economist.)

Here's what we will say: After the orgy of holiday excess is over, you might find yourself in a pretty bleak situation. Spring will be months away, and you'll have already spent much of the cash you could have used for an emergency Xbox or a therapeutic jaunt to Jamaica. We therefore recommend: Self-Aware Splurging.

That means a few things:

1. Before you start shopping, make a list of everyone you want to buy a gift (or do something nice) for. Then chew on the end of your pencil for a second and come up with the amount you think you should spend on each person. This will make buying gifts a lot easier because you can limit yourself to items that cost $20 more or less than the number you put down.

You'll also get a rough idea of how much you're about to blow in just one month. Feel free to revise certain numbers up or down as appropriate.

2. If you can, try to separate the "here today, gone tomorrow" money from your "food and shelter" money. Shopping will not be fun if you have to check your account balance every five minutes. You could put most of the money in a savings account connected to your checking, and just transfer it in as you go.

3. Before you completely spend down your fun fund, step back and ask yourself, "When people find out how much money I've spent this season, how much do I want them to think went to charity?" Yeah. Do this while you still have time to donate, and you'll feel a lot better about yourself. (And appear 16% more attractive to others!)

Easy enough, right? Now march bravely into that garish drugstore, secure in the knowledge that you are the master of your holiday spending plan. Or just watch this TILE classic digital short, "Budgeting 101."

* Don't be like Europe or the United States this holiday season - try to keep your spending in check and your debt to a minimum!

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BTW, all our trade statistics are wrong.

(image source: kevin dooley)

We're loving The Economist lately. A recent article explores the mystery of international trade by asserting that Earth is exporting more to aliens than it is importing. Ha. They write:

"In theory, countries’ current-account balances should all sum to zero because one country’s export is another’s import. However, if you add up all countries’ reported current-account transactions (exports minus imports of goods and services, net investment income, workers’ remittances and other transfers), the world exported $331 billion more than it imported in 2010, according to the IMF’s World Economic Outlook."

You know about trade imbalances (a.k.a. net exports, a.k.a. trade deficit, a.k.a. trade surplus); the United States imports $500 billion more than it exports, Japan exports way more electronics than it imports. Or so we think. Apparently, many countries fudge their balance sheets in order to make it look like they're taking in or sending out more wealth than they really are. It's mostly developing nations that get away with this fuzzy bookkeeping, but it's a nice reminder that statistics – while important – are only part of the story.

Unless there really is some kind of gargantuan intergalactic space market we're not aware of. In which case we apologize for spreading anti-extraterrestrial propaganda.

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The Worldwide Web of Debt

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It seems kind of crazy at first. but countries sometimes don’t have enough cash to cover their expenses. So they turn to other countries for assistance, and you end up with a system that looks something like the crazy chart above. (Click the chart to see the whole story.)

The most common way countries borrow money is by selling bonds, which are basically IOUs with an interest rate attached. When an economy is stable, its bonds are considered a pretty good investment. That’s because the likelihood of of the government defaulting on its debt is relatively low.

But then things like Greece happen. And now Italy. And, well, the United States. Debt is a pretty big deal, and we’re living in interesting times. Check out this infographic, and stay tuned.

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No Basketball for You!

(Image source: JoshuaDavisPhotography)

Seems like we've been hearing the term "collective bargaining" a lot recently. This summer, it was at the center of massive protests outside the Wisconsin statehouse and a small crisis in the NFL. And now it's the star player of the 2011-2012 basketball season. But... what is it?

Collective bargaining isn't so complicated - it means just what it sounds like it means. A group of people get together to try to strike bargains with other people. Usually the first group is made up of union members, and the second group is made up of company or agency management (otherwise known as "The Man"). The bargains they try to strike are usually about compensation, benefits, working conditions, and so on.

It can be a tense process, but only occasionally does it go as far as the NBA lock-out that's kept your favorite teams off the courts for the past month. So what's the deal? Why is the NBA punishing you, loyal fan? What did you ever do to them?

Unfortunately, you're just an innocent bystander in an old-fashioned dispute over resources. The players want the right to earn as much money as possible, and the owners want to limit their salaries and keep a little more of the pie for themselves. There's more to the story, of course, but it brings up an interesting question: Doesn't it ultimately cost the players AND the owners (not to mention the fans) if the season is stalled?

We don't know why the conflict has gone on for so long, and only time will tell how long the deadlock with last. So the main question we're grappling with now is... WHAT ARE WE SUPPOSED TO WATCH?!

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Side Effects of the "Girl Effect"

(image source: Vivian 81)

Despite being chronically infected with cooties, little children are our species' best hope for survival. Genetic survival, yes, but also economic survival.

In fact, there's growing interest in how empowered girls can become the saviors of their families, their villages, and their nations. Between Nicholas Kirstoff and Sheryl WuDunn's Half the Sky movement and the sheer number of female-focused Millennium Develoment Goals set by the United Nations (and carried out by our friends at Millennium Promise), the young women of the world are going to see an astounding shift of power in their lifetimes.

Even giant corporations that at one point relied on sweatshop labor are getting into the action. Nike's charity foundation is working to help end worldwide poverty, and their current giving strategy focuses on empowering girls. Their program is called "Girl Effect," and it's investing resources into education, policy, and public health programs that give young women greater freedom and opportunity.

It's amazing work, and worth supporting. According to the head of Nike's foundation, funding female-focused programs “brings to life this very simple but powerful idea [that] the least powerful person on the planet can transform it.”

But it's important to remember that young men are our future, too. In the United States, where programs for empowering girls have been relatively successful, girls now do better than boys in school overall. They outnumber men in college enrollment, and, in today's punishing economic climate, they're more likely to have a job. The unemployment rate for men over age 16 was 9.4% at the end of 2010; for women it was 8.6%.

Just another thing to think about as you're planning your holiday giving. Can you find a way to support girls in developing nations and keep an eye on the boys at home?

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Interest Explained

(Image source: WSJ)

One of the reasons that finance scares off a lot of well-meaning people is that it's full of conflicting messages. Take interest rates, for example. In some cases, you want a really high interest rate. In other cases, you want to get the lowest rate possible. And when it comes to "sovereign debt," reporters at Bloomberg and the Wall Street Journal work themselves into a real panic when interest rates are rising too quickly. Here's how it works: An interest rate is essentially the cost of borrowing money.

When you take out a loan, you pay a certain amount of interest for the privilege of borrowing. If the bank is pretty sure you'll pay back what you owe, your interest rate will be lower. If you have horrible credit and the bank sees you as a risky borrower, your interest rate will be higher.

If you fail to pay off your credit card balance in full, you'll have to pay a lot of interest in exchange for the company basically lending you money you don't have.

When governments want to raise money by selling bonds - which are really just IOUs with more rules and regulations attached - it offers to pay a fixed amount of interest to anyone purchasing a bond.

On the flip side, sometimes banks and other institutions will pay you for the privilege of holding on to your money. If you deposit $1,000 into an interest-bearing savings account at your bank, it doesn't just sit there. Your bank will "borrow" that money from you to use as it pleases. (It usually pleases banks to use your money to make more money for themselves.) But in return, it will pay you a small amount of interest on your deposit. In this case, you want to get the highest interest rate possible.

When you want interest rates to stay low:

If you're the one borrowing money, you obviously want to pay as little interest as possible. (Pay those credit card bills on time, kids.)

If you're a government, you also want to pay as little interest as possible on the bonds you're selling. But that isn't so easy...

If your economy is stable and running smoothly, more investors will want to buy your bonds. That's because there's less risk of losing their money. In exchange, you (the government) can pay a relatively small amount of interest to these investors. But if things start to get out of control - as they are in Greece and Italy right now - your bonds become a riskier investment. After all, the more unstable things are, the more likely you are to default on your debts. In exchange for this increased risk, a smaller pool of investors will demand a much higher interest rate.

So there you have it. High interest rates on government bonds ("sovereign debt") indicate economic instability, and that's bad. High interest rates on your credit card balance indicate that you're not using credit responsibly, and that's bad, too. And high interest rates on your savings and investment accounts? That's good. Very good. Way to go.

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columnfive:

Inflation and You: Looking at the Consumer Price Index Market Basket [Infographic]

Does it feel like your groceries are getting more expensive?   Well there’s a way to tell if they really are.  The Consumer Price Index (CPI) market basket measures more than just the food in your grocery basket to capture inflation.  It is developed from detailed monthly records kept by government officials who are hired to track and record prices of reselected items in stores.  See how the CPI market basket works to measure inflation:

(Click on the infographic above to learn more.)

Via Column Five for Credit Sesame

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The Avon Lady Brings Light and Economic Opportunity to Sub-Saharan Africa

Solar Sister is a social enterprise that brings an interesting opportunity to woman entrepreneurs in and around Uganda. The business model is similar to that of the cosmetics company Avon - women sign up to become salespeople and then sign up others to become salespeople and so on. The customers are friends and family in the community, and the product is a sustainable, solar-powered lamp. Everyone wins.

If you'd like a pretty visualization of how it works, or you just want to learn more, go to solarsister.org. But before you go, meet Katherine Lucey, Solar Sister's founder and CEO. She does a great job explaining what a social venture (or enterprise) is, and how a thoughtful kind of capitalism can be used to eradicate poverty in a village or a whole region.

[lounginglackadaisically]

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brain-food:

I love the internet. 

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Cool: Mission-Driven Investing

There was a lot of talk about mission-driven investing at a PAM event on wealth management and family philanthropy yesterday (yeah, we go to these things so you don't have to).

Mission-driven investing is similar to regular investing, but with a little more heart. It's a type of socially-responsible investing (SRI, see awesome video below) that focuses on generating earnings while at the same time supporting companies and ventures that fulfill your particular philanthropic mission.

Sterling Speirn of the W.K. Kellogg Foundation puts it this way: "Mission-driven investing is another tool that we can use to leverage our resources. Among other things, it allows us to preserve and grow our financial resources, while realizing greater social change by being able leverage our endowment to help vulnerable children.”

Seems like a pretty smart set up for a foundation. Instead of depending entirely on outside donations, why not put your existing donations to work for you? And hey, while we're at it, why not direct your investments toward ventures you believe will make the world a better place?

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An Extremely Specific Wall Street Protest Sign

See? Being somewhat financially literate makes you sound smarter and can even lend legitimacy to your worldwide protest movement!

And now, prepare to be schooled:

Mortgage Backed Securities (MBS) are kind of complicated. In trading terms, the MBS is a security where a pool of mortgages is the underlying asset.

Basically, when a bank loans someone money to buy a house (a mortgage), it gets a kind of I.O.U. from that customer. The most common mortgage is a 30 year fixed rate loan in which the borrower will be responsible for paying a fixed dollar amount each month for the next 30 years. Banks make a profit on these loans by charging interest to the borrower, but 30 years is a long time to wait for the bank to get its money back (and lend it out to another home buyer).

To solve this problem, the government created institutions (with fun names like Fannie Mae, Ginnie Mae, and Freddie Mac) to buy these mortgages from the banks, bundle them together, and sell them to investors in the form of a Mortgage-Backed Security.

So the bank gets cash to make more loans, while the investors wait to collect those mortgage payments plus interest from the home buyers. Depending on who issues them (i.e., the government or private banks), these securities can be very safe or extremely risky.

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China

A surprisingly common question users ask us about the economy is "What's up with China?"

Many of us have been told that we ought to start studying Mandarin to prepare for the coming Chinese financial takeover. But it's safe to say that your older brother's friend who lived in Beijing for a semester isn't the best source of information on this.

That's why this data visualization from the Heritage Foundation* is so cool. Instead of hearing what some guy thinks China will do, you can actually see the nation's worldwide financial strategy in a few pretty maps.

We'd link directly to the infographic itself, but Fast Company's design blog does a really great job of explaining what you're seeing. Just click the image to see the whole thing with their notes.

Maybe it will help you decide what language classes to take next semester!

* The Heritage Foundation is not a neutral or academic organization, so while their data is interesting, we don't advocate basing your life plans or class schedule on this infographic alone. The organization describes itself as "a research and educational institution—a think tank—whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense."

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We asked some of the teenaged contestants in Junior Achievement New York’s business plan competition the same question we ask everyone:

What does money mean to you?

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Now that they've got their business plans, they're on their way to earning millions. But what will these young businesspeople of Junior Achievement NY do with the money?

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Not too long ago, Junior Achievement of New York put on a little high school business plan cage match at NASDAQ in Times Square. TILE was there. Now you can be there, too!

Here's a little bit more about the organization behind the event (in their own words), if you're interested:

For more than 80 years, Junior Achievement of New York (JA New York), the local affiliate of JA USA, has delivered economic education and empowerment programs to NYC and Long Island students. Through a dedicated volunteer network of corporate and community individuals, JA New York provides high-quality K-12 in-school, workplace, and summer educational programs. JA New York educational programs impact important societal issues including youth, economic and educational development and focuses on three key content areas: work readiness, entrepreneurship, and financial literacy.

[life]

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life:

Today marks 80 years since Al Capone was found guilty of tax evasion.

Alphonse Capone, born in 1899, rose from petty crime on the streets of Brooklyn to become a multimillionaire, undisputed boss of large swathes of Prohibition Chicago, and arguably the most infamous criminal kingpin of all time. Even now, in the post-gangster-rap era, the word “gangster” immediately brings to mind the smirking, fedora-clad Capone.

see more — Al Capone: The Original Gangster

Just a reminder people. You have to pay your taxes. You can rob, smuggle, bribe, and murder all you want, but the IRS is NOT messing around.

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The American Dream That Leads to a Minimum-Security Prison

(photo credit: epicharmus)

A young textile factory manager's son survives civil war in Sri Lanka and escapes to the prestigious Wharton Business School in Pennsylvania, where he begins to pull himself up the rungs of the finance world ladder until he finds himself at the very top. Then he goes to prison.

We've told you about rogue investor Raj Rajaratnam before. He was accused of insider trading at Galleon, the hedge fund he founded, and then found guilty. Now he's been sentenced to a record 11 years in the clink. That makes him one of two prominent figures in the world of Wall Street to be publicly punished for the kind of rule-breaking that contributes to global financial instability.

Some people are speculating about why he was handed such a big sentence when countless other insider trading perps get off with less than two years or nothing at all. Well, among his other, more objective crimes, it seems like he was kind of a jerk. The kind of jerk that represents greedy excesses that the people currently occupying Wall Street are angry at. The kind of leader who pays for "dates" and "entertainment" for fellow male executives at company getaways. And (though admittedly this is kind of awesome), the kind of manager who offers $5,000 to any employee willing to be shocked by a stun-gun in the office.

Though he's obviously going to fight the sentence in an appeals court, it's likely that Mr. Rajaratnam will soon join his comrade-in-public-humiliation Bernie Madoff at a low-security prison in North Carolina. Two down... how many more to go?