• Didn't have health insurance in 2015? Here's the bad news

    If you didn't have health insurance in 2015, you may get an unpleasant surprise on the tax return you will be filing by April 2016. The penalties for not having insurance have gone up...and they are high enough to make a material difference to most people. If you had no insurance for any part of the year 2015, your penalty will be $325 or 2% of your household income--whichever is higher. So if you made $30,000 after exemptions, your penalty would be $600. 

    Moreover, if you have gotten a break on your insurance payments purchased through an exchange because your income level was low, but your income turned out to be higher than you anticipated...you also might have to pay back some of your discount.

    Figuring out what you may owe--and making sure that you don't pay too much--is easier if you have good tax preparation software or a knowledgable tax preparer. In any case, you need to have and fill out some forms that might be new to you.

    First of all--if you have had insurance for any part of the year, make note of it. If you have been healthy all year, you might not have had occasion to use it. Did any of your employers provide it? Are you covered through your parents? If you are, gather documentation. Those of you insured through a government exchange need to locate Form 1095-A, and those insured through an employer need to locate Form 1095-B. These forms should have been mailed to you by the end of January. Your coverage is checked off on the form month-by-month...and, in most cases, you need to have had full year coverage to avoid any penalties.

    Other relevant forms related to healthcare coverage penalties and credits include:

    Get busy. And for 2016--get insured. The penalties for 2016 will increase to the higher of $695 or 2.5% of your household income. 

    Source: "Individual Mandate Penalty You Pay If You Don't Have Health Insurance Coverage," healthcare.gov, 2016.

    Follow up

    • Did you have health insurance coverage last year? Did you get a copy of Form 1095-A or 1095-B for 2015?
    • Get informed ahead of time about the open enrollment periods coming up. Check out the healthcare.gov site now--it gets overloaded during the enrollment periods.


  • Time to think about your taxes

       video from Forbes Magazine

    One of the seasonal rites of Spring is tax preparation. It is easy to forget that U.S. personal taxes are actually a pay-as-you-go program. If you are an employee, you have been paying your taxes with every paycheck--for the whole previous year. If you are self-employed, you had better have been making quarterly tax payments, or you will owe interest and penalties. 

    But because April 15th is the reckoning date--and when the forms are due, now is the time to think about how you are going to prepare your tax returns. 

    The Forbes video outlines your options, and includes some advice about dealing with the IRS interface in general. Tax costs represent a sizable portion of our income, so attention to the forms and deductions are well worth our time and attention. 

    Source: "Tax Season 2016: Ways To File Your Return,"  by Kelly Phillips Erb, Forbes, January 24, 2016.

    Follow up:

    • How will you be filing your taxes this year? Do-it-yourself? With a trusted tax preparer?  Have you gathered all your information together?  If not, just try to do a little bit every day, until you get the momentum to finish. Set an appointment date with your preparer now, or pick a date well in advance of April 15th to have your input ready. 
    • Refund or tax due?  How much?


  • Solar industry bludgeoned in Nevada

    Protesters in support of solar energy, outside of the Nevada Public Utilities Commission; 
    image from online version of the Marketplace podcast.

    Solar City, with the support of citizens interested in both the environment and in saving money, recently lobbied the commissioners in Nevada in support of residential solar energy installations. Nevada is an obvious candidate for solar installations--Las Vegas gets 210 days of sun per year. Solar installations were growing rapidly in the state. But lobbyists for the existing power providers in the state had a different agenda. Adam Burke summarized the situation like this: 

    Solar City pulled out of Nevada after state regulators cut the price that utilities have to pay for surplus electricity generated by home solar installations. The price cut undid the home solar industry’s business model. 

    The situation is this: "net metering" means that the public utilities charge a price when they sell electricity to residential buyers. Then, hen residential customers have extra electricity to sell back to the power companies during daylight hours (which helps provide service during peak hours of usage), the utilities buy power from consumers at the same rate.

    But Nevada just passed a law that would reduce the price the power companies would pay to consumers by 75% over the next few years. This means that if a customer generated 4 extra kilowatt hours of power during the day that they fed back into the power grid it would only allow the consumer to use one kilowatt hours during the night without incurring an extra charge. If the consumer used 3 kilowatt hours, they would have to pay full price for 2 of the kilowatt hours--even though they had provided more power to the utility.

    This ruins the feasibility of the financing model that Solar City has set up.  Solar City does the installations for free, but they get paid over time by the excess electricity generated by residential clients.  This is attractive to consumers because they save on the upfront cost of a solar installation, which can be $20,000-$50,000. 

    This really hurts the consumers who have already installed solar as purchaser/owners (who were counting on the savings over a certain payback period to justify their investment). Those who lease from Solar City will also be affected because they will no longer be generating the savings to make the lease payments. 

    The public utility was seeing lower profits as more residential customers went to solar. This was their way of ensuring future profits...and killing the solar power business in Nevada. 

    Will other states and utility companies follow suit?

    Source: "In sunny Nevada, a defeat for the solar industry," by Adam Burke, Marketplace, American Public Media, February 23, 2016. 

    Follow up

    • In the long run, who benefits from a thriving solar power industry?  Who benefits in the short run?
    • What is a "payback period"? What payback period was mentioned in the article for Richard Stewart's solar installation? Does this make financial sense?


  • Individual wants to "invert" himself to lower his tax bill, just like a corporation

    Illustration by Glynnis Sweeney for the NYT

    Thinking up strategies to lower one's tax bill keeps a lot of CPAs--and Enrolled Agents and tax attorneys--employed. A now popular tax strategy is the corporate "inversion." It works like this: a U.S. corporation arranges to be bought by an Irish corporation or a Dutch corporation or a corporation in a number of other countries that make this loophole work. These countries have lower tax rates, and they don't tax worldwide revenues. As a now-Irish corporation, the formerly U.S. corporation only has to pay U.S. taxes on the income they earn in the United States--not on their world-wide income, as is currently the situation under U.S. tax law. This scheme is called an "inversion" because often the company that is buying the U.S. corporation is smaller than the U.S. company.

    John Schwartz wrote in the New York Times that he, too, wants to take advantage of this scheme. He figured that since corporations have personhood, and he has personhood, that it should work for him, too. 

    But it turns out that corporations get the best of both the world of being a person when it comes to social issues, and the world of being a legal-entity-other-than-a-person for the purposes of taxation. Citizenship gets in the way of this tax scheme. Schwartz would have to renounce his U.S. citizenship...and he would also still have to pay U.S. taxes on the money he earned in the United States (which happens to be the only place he is actually earning any money. Also, if Schwartz wants to continue to travel, he has to have citizenship in SOME country, so that he can get a passport.

    Actually, Schwartz might just be trying to use humor to help more people understand the issue of corporate tax revenues plummeting from schemes like this--in order to drum up popular support to change tax laws around this point. The Treasury Department issued some rules last year (WSJ), but the tax professionals have found ways to get around them; inversions are still on the increase. 

    At any rate, inversions are not possible for individuals, so we should just get busy and do our taxes before the deadline.

    Source: "Just send the tax bill to my Personal Irish Subsidiary," by John Schwartz (with a lot of help from Adam Chodorow, a law professor at Arizona State University), New York Times via the Irish Times, February 19, 2016 online and February 21, 2016 in print.

    Follow up:

    • All kidding aside, what corporations have recently done a tax inversion? For each, list companies have been part of the merger, what other country was involved, and what specific benefits in terms of tax rates or other advantages were achieved by the inversion.



  • Robots That Walk and Lift Like We Do...

    Boston Dynamics Robot testing via YouTube

    The robot walking on snow in the video above is pretty impressive.. but this Buzzfeed Business link shows even more robot exercises:

    • walking through snowy woods unassisted
    • lifting 10 lb boxes off the floor and stacking them. 
    • lifting a box that gets pushed out of the way by a human that seems to be deliberately thwarting the robot
    • recovering from a push on the chest with a broomstick
    • recovering from being pushed completely down.

    The robot is adaptable and uncomplaining. Maybe even resilient. 

    What does this mean for those of us who have menial jobs? It probably means that a robot will be doing them soon...and doing them better. Our online shopping habits are even creating jobs for robots...which can locate and load warehoused merchandise in record time--without health care costs, pensions, absenteeism, dawdling, or worker's compensation injuries. 

    Preparing ourselves for this future means developing our thinking skills--and maybe even learning to write computer code. It also creates investment opportunities and ways to streamline business operations. It probably opens up creative logistics solutions. What else might it mean?

    Source: "These New Walking Robots Are Completely Terrifying," by Brendan Klinkenberg and Jessica Misener, Buzzfeed News, February 23, 2016.

    Follow up

    • What is "Singularity"?  Who conceived of this event? Are we almost there yet? Is this a good thing or a bad thing...for business?
    • Check out Boston Dynamics . How is it organized?  Who owns Boston Dynamics stock? Where is it positioned in the market? What other projects are they working on?


  • Cheap Flights from Norwegian Air

    Norwegian Air Shuttle is carving out a market niche for itself the old-fashioned way: by lowering prices and creating demand. Transatlantic one-way fares are as low as $175. 

    Vacationers, who are more responsive to price changes than business travelers, have been taking advantage of the rock-bottom prices being offered by Norwegian Air Shuttle over the last few months. One way Norwegian has cut costs, to enable them to offer lower-cost flights, has been to outsource labor to Thailand...and the "labor" includes pilots, who are unionized at the established carriers.

    Maybe this outsourcing practice has contributed to the hurdles that Norwegian has faced. Regulatory approval has been delayed in the United States, as well as Cork, Ireland and London. This has hampered Norwegian's expansion to the 37 cross-Atlantic routes they are aiming for. The triumvirate of big, established cross-Atlantic air carriers (Delta, British Airways, and American) are also against this upstart, since competition will cut into profits if they are forced to lower their prices too. 

    The new and fuel-efficient Boeing 747 Dreamliner also contributes to the cost-savings that Norwegian is able to offer. Some of the other airlines have aging, less efficient planes. 

    Source: "Norwegian Air Flies in the Face of the Trans-Atlantic Establishment," by Jad Mouawad, New York Times, February 22, 2016. 

    Follow up

    • What international trade agreement governs the regulatory approval for airlines in the United States? How is that process working for Norwegian Air and why?
    • Do some internet research. What airlines have merged over the last 10 years? What is an oligarchy? How does an oligarchy affect competition and pricing?


  • The Honest Company: from celebrity vision to IPO

    The Honest Company was co-founded in 2011 by actress/model Jessica Alba and the business team of CEO Brian Lee, COO Sean Kane and Chief Product Officer Christopher Gavigan. As she stated in a 2014 interview in Inc. MagazineAlba had a strong motivation and mission:

    "I founded The Honest Company on this idea: Everything that touches you and your family--everything in your home--needs to be nontoxic, needs to be effective and beautiful to look at, and needs to be affordable."

    Her product branding was a success with the buying public: The Honest Company grew from its 17-product launch in 2011 to $170 million in sales by 2014. Meanwhile, it attracted venture capital ($52 million, then $70 million).  In 2016, an IPO is planned, as well as a move of the company headquarters to a larger facility, and expansion from North America into England, Australia and China.

    The Honest Company has grown its business through the following distribution channels and acquisitions:

    • online monthly subscriptions (80% of sales)
    • initial retail distribution through Costco and Whole Foods
    • expansion into Target and Nordstroms
    • temporary pop-up retail store (2015-2016) for its line of beauty products
    • buying Alt12Apps, of which BabyBump, Pink Pad and Kidfolio are a part

    Sources: "Jessica Alba's Honest Company is Planning an IPO with a $1.7 Billion Valuation," by Alex Barinka, Bloomberg Business, February 9, 2016. 
    "The Honest Company," Wikipedia.

    Follow up:

    • Expand and define the following acronyms: CEO, CFO, IPO.
    • Read the linked source documents. What Honest Company product ran into skin irritation trouble and how did The Honest Company react? What impact, if any, did the incident have on its brand?


  • CEO pay: when it spiked...and why

       Graph from the online cover sheet for the podcast linked below.

    There is a lot of rhetoric on the campaign trail about the travesty of CEO salaries that are 350 times those of the average worker.  But trying to deal with this particular "pay gap" now is like "closing the barn door after the horse has run off." 

    The real problem occurred over 20 years ago--in the mid 1990's, as you can see in the chart above. 

    According to the Planet Money story, the seed idea for CEO pay structure was proposed by economist Kevin Murphy, but popularized and promulgated by soon-to-be-President Bill Clinton. It's an idea that seems to make sense--Chief Executive Officers should be compensated based on their company's performance. Who is going to argue with that? So a law was passed limiting the deductibility of CEO base pay...but there was no deductibility limit on compensation that was tied to performance.

    The simplest way to tie compensation to performance was to issue stock options--the right to purchase stock in the future at a (hopefully) bargain price--if the company is thriving. If an executive is given the right to purchase 1000 shares of stock for $10 per share, she wants the stock price to go up to much higher than $10 per share, so she can exercise her option to buy the stock and then sell it at a profit the same day. Moreover, if this executive got 1000 stock options in 1994, then she is going to expect 1000 more in 1995 (if not more). If she is waiting a while to exercise her options, these options will pile up. 

    Corporate boards had no trouble granting those options, because they thought they were "free." After all, they didn't cost the corporation any money. The corporation just had to release more shares when CEO's wanted to cash in their options. Accounting rules didn't even require this kind of compensation to be shown as any kind of expense or liability on the books. Since there were "no consequences," in the year before the new tax law was passed until the year after, stock option compensation increased by 40%.

    All of these stock options didn't get recorded as compensation expense...but the CEOs really did get the extra money. So who was really paying? 

    As it turns out--it was the other stockholders. It took compensation specialists like Don Delves to realize this problem and start trying to explain it to corporate boards. When the pie that represents the shares of stock has to designate a wedge of new shares, the value of each of the older shares has to decrease because they are not filling up that whole pie any more. These stock options, when exercised, were silently transferring value (i.e.wealth) from the shareholders to the CEOs and other senior managers with stock options. And none of it was transparent in the financial statements.

    Ultimately, the Financial Accounting Standards Board (FASB) got involved. The FASB understood that the stock options were not really free, and they started to require them to be accounted for. Their value had to be estimated as of the grant date, based on several factors, and accrued as deferred compensation, according to FASB Statement No. 123, which was published in October 1995. This meant that the corporation's financial statements would show less income and net worth when these stock options were granted. This new reality did NOT make the boards of directors of corporations happy, so the escalating practice fell out of favor.

    The result was that the CEO compensation that had been $4,000,000 on average in 1992...and was $19,000,000 by 2000...fell to $12,000,000 on average by 2014. Nevertheless, it is still hundreds of times what the average wage earner makes.

    Source: "Episode 682: When CEO pay exploded," (podcast) by Stacey Vanek Smith, with Jacob Goldstein, NPR Planet Money, February 10, 2016. TRANSCRIPT

    Follow up

    • What does "deductible" mean, as used above?  How is a deduction different from a tax credit?
    • What does "exercised" mean, in reference to a stock option?
    • Listen to the podcast. What was the reaction in Silicon Valley to the issuance of FASB Standard No. 123?  Why? 
    • What do you think should be done about the very high CEO pay relative to the average worker in a company, if anything?


  • Apple vs. the FBI: business and customer privacy vs. security

        video from TheLipTV

    Apple is fighting a court order to unlock the phone of one of the accused shooters in the San Bernardino tragedy in December 2015. The Federal Court has ordered Apple to create software to unlock this iPhone. More specifically, the Court wants Apple to create software that will disable or go around the "security feature" that erases all the data when the password is guessed too many times. Investigators want to keep trying passwords until they unlock the phone. Prior to an encryption change a little more than a year ago, law enforcement had a "back door" into phone data to get around the password protection. 

    In opposing the court order, Apple says it wants to protect its customers' privacy.  Check out their Letter to Customers.

    But Apple may also be concerned about foreign governments (or maybe other entities) requesting the same software for their own as-yet-unknown uses.  Although it may seem to be a totally reasonable request for a government entity in a situation where a criminal may be involved, where does the line get drawn? And once the software is available, can it be stolen or misused?

    Or has Apple chosen the customer protection strategy when it really is more concerned about protecting its encryption model, as a business asset?

    The government is using the All Writs Act of 1789  (it has had more recent applications) as a precedent for taking the action to compel a means to unlock the data. As noted in the video, this is a classic situation of privacy vs. security. 

    Source: "Apple battles federal government on court order," by Kai Ryssdal and Ben Brock Johnson, Marketplace, American Public Media, February 17, 2016; podcast.

    Follow up

    • What are the pros and cons of this Federal Court order?
    • Is Apple's response for business reasons or on principle? What are the plusses and minuses to Apple of taking a stand against the court order, from a "branding" or marketing perspective?


  • Accounting for the costs of t-shirt production

    So how much did the Planet Money t-shirt cost to produce?

    As the last blog in the t-shirt production sequence, let's do some accounting. Computing the "cost per unit" is an important managerial accounting activity. Knowing the unit cost helps manufacturers set prices. Note: all of the costs listed above are direct costs traceable to the t-shirts. What are not included are the indirect costs of managing the project. These also must be covered for a business to make a profit. 

    Another note: You probably noticed that "Shipping" appears twice. The 10 cents of shipping costs are the costs of shipping the t-shirt by container around the world during production. The "shipping and handling" costs were incurred in getting the t-shirt rom the NPR warehouse to the funder/purchaser within the United States. Total cost: $12.42 pre shirt.

    ...And "Order Fulfillment" is the office help that translated the Kickstarter requests into filled orders with shipping labels. 

    If you want a quick video review of the project, see Vimeo and work your way through the chapters.

    Source: " Episode 503: Adding Up the Cost of the Planet Money T-Shirt," by Robert Smith and Jess Jiang,, NPR Planet Money, originally aired in 2013, rebroadcast and updated in August 2015. 

    Follow up

    • Review the figures above. What costs are surprising?
    • Compare and contrast these costs to the costs of American Apparel producing a t-shirt in the United States.
    • For a manufacturing company whose main product is t-shirts, what costs would be included in the indirect costs (mainly fixed costs) that would also have to covered for the business to make a profit? (example: office salaries)


  • Logistics: the world-wide journey of a t-shirt in production

    From the condensed video version of Episode 500: a container being loaded onto a ship

    Today we are re-visiting the Planet Money t-shirt production odyssey: the logistics of moving the raw materials and finished goods all around the globe as part of the production process. The container ship plays a key role in allowing the raw materials to be moved around the globe to efficient spinning, weaving and sewing facilities. The t-shirts even made some other stops along the way before they reached their final "wholesale" destination--the Planet Money producers. The shipping costs to get the t-shirts from there to the end-user was much more expensive than shipping the t-shirts around the world during the production process. 

    Listen to the podcast to hear the fascinating side-story about what shipping was like before there were containers and container ships. It will give you an understanding of the t-shirt production process in the modern economy.

    Surprisingly, shipping the t-shirt components around the world did not cost much. In a t-shirt whose total cost was about $12.42 per shirt, the shipping costs comprised only ten cents of the total--less than 1% of the cost.  Listen to the complete 20 minute podcast: 

    Episode 500 podcast

    Sources: "Episode 500: The Humble Innovation At The Heart of the Global Economy,"   by Robert Smith and Jess Jiang, NPR Planet Money, originally aired in 2013, rebroadcast August 12, 2015, updated August 26, 2015. Transcript.

    "A Glimpse Into The Global Forces That Create A Simple T-Shirt," by Jessica Leber, fastcoexist.com, December 11, 2013.

    Follow up:

    • Listen to the complete podcast. Briefly describe the history of the container ship. When was it imagined, and by whom? What hurdles did it have to surmount to be accepted?
    • How has the container ship changed the global economy? What are the positives and negatives of this for consumers, workers, corporations and countries?


  • Bangladesh clothing manufacturing: a personal look

    Episode 497--the condensed video-format episode of the t-shirt production odyssey

    The Planet Money t-shirt production odyssey (the story began in the previous blog) did not end in Indonesia. That was just where the t-shirt yarn was spun. The cloth was woven and the t-shirts were printed and sewn elsewhere. The men's t-shirts were made in Columbia; the women's were made in Bangladesh. In Columbia, the t-shirt manufacturing operation is "just another business." But in Bangladesh, the growth of the garment industry is changing the way of life.

    Young women, such as the featured workers, Minu and Shumi, are typical workers. They moved from abject poverty in the country into the city to get factory work. They send money back to their villages, but they also have enough money to make some decisions on their own. This is a first for women in Bangladesh.

    The working conditions at the factory in which they work have some safety and hygiene features. But the factory buildings in Bangladesh are inherently dangerous, as evidenced by the 2013 explosion of the Rana Plaza, killing over 1,000 workers.

    The Planet Money t-shirt, mainly due to economies of scale, was pretty expensive to produce--about $12.42 in costs for each shirt. Of that cost, $1.00 went to a combination of knitting the fabric, cutting the fabric, printing the fabric and sewing the final t-shirt--all of which were done in Bangladesh. For a comparison to what this would cost to produce this t-shirt in the United States, it costs American Apparel about $7.47 in labor to make a t-shirt in the U.S.

    To learn more about the lives of the garment workers in Bangladesh, listen to the complete 21 minute podcast: 

    Episode 497 podcast.

    Sources: "Episode 497: The sisters who made our t-shirt," hosted by Robert Smith, and written by Zoe Chace and Caitlin Kenney, NPR Planet Money, originally aired in 2013, rebroadcast August 12, 2015, updated August 26, 2015. Transcript.

    "A Glimpse Into The Global Forces That Create A Simple T-Shirt," by Jessica Leber, fastcoexist.com, December 11, 2013.

    Follow up:

    • Listen to the full podcast. Life conditions for Minu and Shumi are not only very different from their family-of-origin's, they are also very different from each other. What is the primary difference between Minu and Shumi in terms of life outlook? How does that illustrate how the garment industry is changing Bangladesh?
    • What are "economies of scale"? Give an example from your own daily life.
    • What do you usually pay for a t-shirt? Who gets the difference between the cost-to-produce and the retail sales price?


  • Super Bowl ads-as-usual

      Avocados from Mexico--aired during Superbowl 50; linked from YouTube 

    Ah, the Superbowl. Something for everyone. Some folks like the football. Others watch more for the sometimes-amusing ads.  This was a year of good but not-too-outrageous ads. In any event, when companies are paying $5 million for 30 seconds of air time, students of marketing can get a "senior-seminar" look into high-stakes advertising.

    What works?  For the most part, it seems like animals and celebrities are (as usual) the go-to product-pushers. According to the Chicago Tribune, one of the best ads featured dachshunds dressed in wiener suits running across a field toward humans dressed as Heinz Ketchup and mustard. The ad above was also included among their five favorites. 

    One ad stands out for its public service message: the Colgate ad. It shows someone letting the water run while brushing his teeth...and points out how the water wasted during that time might be used for a week by others in the world.  It was an ad for toothpaste wrapped in a public service message--though Colgate did not get public-service-announcement rates. 

    I wonder how many views (in addition to the Superbowl airing) these ads will get? Probably a materially significant amount (even for the somewhat creepy PuppyMonkeyBaby Mountain Dew ad).  Those extra views cut the cost-per-potential-customer...

    Source: "No Budweiser Puppy, but Animals Galore," by Sydney Ember, The International New York Times, February 7, 2016.

    Follow up:

    • Watch the 5 ads that the Chicago Tribune picked as their favorites. Then watch the ads they thought were the worst. What are your initial reactions to the ads?
    • Now analyze the ads and make a chart. What market was each advertiser trying to reach? What techniques did they use? What was risky? Why do you think the advertiser placed the ad during the Superbowl? (Was it to counteract a rival brand? To spur sales short term? To reach the market that watches the ads AFTER the Superbowl, on YouTube?) Can you draw any conclusions about what succeeded?


  • Recession 2016

       graphic from www.ishn.com 

    Just like the El Nino predictions, there are predictions of a recession in 2016.  Are these realistic? Here are some of the factors that doomsayers (as evidenced in the article linked below) are considering:

    • There is a "reversal of a 15 year cycle in which capital flowed into emerging markets, while debt grew." This means that if those investments didn't pan out...in various Asian countries, Latin America, and in Africa... that the default on the debt may increase the chances of recession. There are toxic loans, worldwide.
    • The drop in oil prices not only means problems for the oil companies, and oil-producing countries...the fact that there is an economic slowdown means that the lower prices do NOT produce more demand, as one would expect. This creates a vicious downturn cycle.
    • When "emerging economies' " currencies fall relative to the U. S. dollar, then the market for U.S. products decreases. This exacerbates the economic situation, trending toward a slowdown.
    • American consumers are not spending the savings they are experiencing from the drop in gasoline and heating oil prices...they are putting it in the bank. This contributes to the economic slowdown and a possible recession.

    Source: "If there is a recession in 2016, this is how it will happen," by Neil Irwin, New York Times, February 4, 2016.

    Follow up:  Do you think there will be a recession in 2016? Why or why not?


  • Hiding financial data from your significant other

    13 million Americans hide an account from their significant other 

       image from the article linked below; Damien Meyer, AFP,  Getty Images

    Do you think that you should be able to keep your financial life a secret...even from your significant other?

    Apparently, at least 13 million Americans think that it is OK. And "millennials" are even more likely to hide things than their parents or grandparents. What is going on?

    Basically, many are wary because of past relationships, or having grown up in a household of divorce. Some just like control. At any rate, it is worth discussing the expectations with your significant other, as money issues are a major cause of relationship conflict. 

    Source: "Honey, I shrank our bank account (and didn't tell you)," by Nancy Marshall-Genzer, via David Brancaccio, Marketplace--American Public Media, February 3, 2016.

    Follow up:

    • Are you in a relationship? Or do you accept financial support from your parents? Do you share all of your financial information with them? Why or why not?
    • What are you allowed to keep secret? What are you compelled to share? When you have children, does the situation change? Explain your position.
    • Check out this website, which advocates hiding assets from your spouse. When do you think that is practical? When do you think that is ethical? Explain your positions.


  • Madoff: "I lost 50 billion dollars"

      ABC trailer for Madoff

    The largest Ponzi scheme in U.S. history was masterminded by Bernie Madoff. He has inspired several articles, documentaries, and vlogs. But to understand what actually happened, it is important to understand what a Ponzi scheme is.

    A Ponzi scheme relies on a constant flow of new investors contributing cash. This cash is then paid out to previous investors as "earnings" on their investment, even though it is NOT earnings...it is new capital. 

    One way to clearly "catch" a Ponzi scheme is to do a Statement of Cash Flows. This is a financial statement that separates cash from earnings, cash from buying and selling investments, and cash from financing through loans or stock issuance. It seems as though none of the financial professionals ever did this statement, as it would have shown that the payouts were coming from investments, not earnings. 

    Bernie Madoff seemed to be a guy who was interested in making money for his friends..and the friends of friends. He wanted to be a "good guy." But he was also charming and a master salesman. He knew that he could conger up investments by making it seem as though the investment opportunity was only for the most exclusive customer. 

    Like a game of musical chairs, where Madoff was convincing even the financial professionals that the music would never stop, the Madoff investment business assumed that everyone would be able to claim their rightful due...eventually.

    But, like all Ponzi schemes, it relied on an endless flow of new investors...as well as the silence of insiders who could track what was going on.

    If you don't know how this story played out, and you haven't read all of the real-life articles, you may want to tap into the online ABC access.  It is a fictional rendition, but it parallels the facts.

    Source: "In 'Madoff,' what was he thinking?", by Mike Hale, New York Times, February 2, 2016.

    Follow up:

    • Who turned in Bernie Madoff? What happened to those people over the next few years?
    • What other Ponzi schemes have wreaked havoc on investors?  For example, who was Charles Ponzi, and what was his deal?
    • Where is Bernie Madoff now?  Do you think this is justice?