So you need a costume tonight...

Here's a bunch of cheap DIY ideas if you've put off getting a Halloween costume until this very moment! Enjoy and have a safe night trick-or-treating!

The next not-so-random years

I just finished A Random Walk Down Wall Street by Burton Malkiel and there was one part that captured my attention:

First was a table that read:
Era III- January 1982 - March 2000: the age of exuberance
S&P 500= 18.3%
Bonds 13.5%
Inflation rate= 3.3%

Then this quote:

“During our third era, the age of exuberance, the boomers matured, peace
reigned, and a non-inflationary prosperity set in. It was a golden age for
stockholders and bondholders. Never before had they earned such generous
returns.”

I’ve always been optimistic that small investments over time will produce good results for my husband and me. However, seeing this information, am I just a product of my upbringing?

Literally all the formative years of my life, my first eighteen years, are encapsulated during this age of exuberance.

This age of exuberance was preceded by two other ages: the first was good and the second was bad. Adding the third phase into the mix and we are due to have another 10-20 years of bad times. In other words, the fourth age isn’t going to be pretty.

Given this information, how does the idealist adolescent in me reconcile poor returns that will dominate the young adult years of my life?

it was an itsy-bitsy-teenie-weenie yellow pokka dot...

Fun money quote of the day:

“a firm’s income statement may be likened to a bikini- what it reveals is
interesting, but what it conceals is vital”

~ in A Random Walk Down Wall Street by Burton Malkiel

The chicken or the egg (or evolution)?

Yesterday I wrote about a phenomenon that pointed out “that investors who made written plans by the time they were 40 years of age wound up with 5 times as much money by age 65 as those who didn’t have written plans” (Fortune Magazine, 1999). However, I felt that this occurrence was due to another factor: A person’s own willingness to be actively involved in their finances.

This made me think about an article in Money magazine (August 26, 2008) that rubbed me the wrong way. It was an article highlighting Law professor Lauren Willis and her belief that you can’t teach financial literacy. Excerpt:

Question: What's so bad about financial education?

Answer: It doesn't work. Sellers of financial products spend billions drowning out
well-meaning messages to consumers from nonprofits or government
agencies.
Also, financial products are always changing - credit and insurance
products have changed dramatically in the past 20 years - making it hard for
educators to keep up.
…
Teaching them is a waste of money. Studies show that sending people to either high school personal-finance classes or adult retirement seminars does not result in better financial behavior.

Anyone else have the hair on their neck standing up? This article got a lot of bad press, and negative reactions all around.

I kinda dismissed this article thinking: look at me! I’m learning financial literacy! I can do it, and so can everyone else!

However, months later, it’s still (obviously) rumbling around in my head.

I have to wonder if this too has a chicken and egg conundrum. Perhaps financial literacy can’t be taught to those who have no interest in it, or shouldn’t be taught to those who want to learn get-rich-quick schemes. Financial literacy can be taught, but only to those who want to learn about the basics.

In Psychology, we call this a third-variable or latent variable problem. When a statement holds up as true, but not because of the statement itself, but rather because of some extraneous factor.
Let me give you an example: Shark attacks and ice cream sales go hand-in-hand. When shark attacks increase, so do ice cream sales. This is a true statement. However, it’s pretty apparent that shark attacks do not cause people to crave ice cream (help, help me! I’ve been bitten- and I need Ben and Jerry’s!).

No, instead it is the temperature of the weather that increases both attacks and sales. When the weather is hot more people are likely to go to the beach (and therefore increase their chances of being attacked by a shark) and more people desire a cold, frosty treat when the mercury rises.

(Another puzzle for you: violent crime and church attendance go hand-in-hand. When there is more crime, more people attend church. This is a true statement, but why?)

I bet what Law professor Lauren Willis said was true. In general, you can’t teach financial literacy. Increased knowledge about finances leads to worse financial behaviors. However, it’s not the knowledge itself that is the problem, instead it is the demographic: the general public. The general public may not have a true interest in the subject or possibly they only want to do the cool, over-hyped, get-rich-quick schemes.

There is a demographic that is the exception to this rule. This exception is the personal finance community, a group of people who have taken on just this task, and are probably a lot better at it than the general public. Which is, of course, Money magazine’s target demographic.

The chicken or the egg (or an almighty creator)?

I’ve been reading Live It Up Without Outliving Your Money! by Paul Merriman which was a great read! It nicely explains why asset allocation is so important and gives step-by-step explanations on how to increase your portfolio performance.

However, like in many books, I see supporting evidence such as this: a study in Fortune magazine found that “investors who made written plans by the time they were 40 years of age wound up with five times as much money by age 65 as those who didn’t have written plans.”

I know he’s trying to underscore the importance of having a written plan, but we seem to have a chicken and egg problem here. Does writing down a financial plan guarantee more returns? No, probably not. If a person does nothing with their finances beyond writing a financial plan they are not going to see an amazing gain in their portfolio.

Or is it that people who are likely to pay attention to their finances (and thus make a written plan) make more money than someone who doesn’t? Probably so.

feeling a bit better

Hey everyone! I’ve been knocked out by a nasty sinus infection, but I should be clear-headed by Monday. So, until then, have a nice weekend!

Carnival of Money Stories: Edition #81

Welcome to this week's edition of Carnival of Money Stories, I’m SoCal Savvy and I’m very excited to be hosting this event!

I am pleased to welcome all new readers to SoCal Savvy. I’m newly married and out-of-work. On one income I’m making our bucks stretch and still enjoying everything Southern California has to offer us. I want to save a buck, but also enjoy life as a twenty-something in the city. It’s a process, but I want to share what I’ve learned and get feedback from others!

If you like this carnival, please - help me, yourselves and the carnival by:

Subscribing to this feed
Submitting the carnival to sites like PF Buzz, Reddit, Digg, Stumble Upon, or Technorati
OR
Linking back to the carnival.

There were many submissions to the carnival this week, but many were not "money stories" or "money experiences" as specified by the carnival guidelines. (If you’ve never hosted a carnival you wouldn’t believe how many self-promoting ads and much spam there is!) Here are the submissions that made the cut:

Editor's Picks
Being creative pays off big time for The Personal Financier

Personal Finance Analyst provides five funny ideas on what to do with your gas guzzler. However: I’m not sure I’d want my mother-in-law to live in my driveway….

If you had revealed your deepest, darkest financial secret to Broke Grad Student you could have won a computer!

Credit
The Stylist Tycoon proves that you can reverse credit card fees.

Ask Mr. Credit Card poses a scenario where you are asked to help your son by co-signing the loan, and the possible bleak result.

Debt
Soon to be Debt Free writes what happens when you wrestle with inner demons- and lawn mowers.

Taxes
Ever wonder if those politicians really know what their talking about? The Wandering Tax Pro gives them an earful.

Market Crisis
Advice from an old classmate of Joe Manausa

Maintaining an even keel in a topsy-turvy market, simple advice from Uncommon Cents.

Investing
Which investor do you see yourself in? Money and Such reviews how three investor friends have responded to the roller coaster stock market.

Asset allocation can be a retirement saver in this fictional scenario put forth by No Debt Plan

A needless run on the bank as viewed by Cash Money Life.

The topic of risk is explored by Investing School.

A reminder that we could all learn from our mistakes was presented by Stock Market Investing For Beginners

The Investor’s Journal.Com takes a look back his first stock purchase… ahhh… the naïve days…

Wealth
Now if only I lived next door to Oprah… Actorlicious provides 10 tips to gaining wealth.

Real Estate
To List or Not To List? BeThisWay ponders the question.

Wow-weee, Not the Jet Set finds a good surprise on a mortgage statement.

The bleak reality of neighborhood foreclosures by Funny about Money

Hopefully not too many people are indulging in the unintended consequence described by Kirby on Finance.

Serendipity is brutally honest with what it is like to be in foreclosure.

Other
Don’t we all fear getting ripped off by the mechanic? Just this happens to Debt Prison and he’s steaming mad at them!

What would happen to your goals if your expected bonus didn’t come? Budgets are $exy reevaluates.

A good deal for the East Coast commuting contingency presented by BluePrint for Financial Prosperity.

Harvesting Dollars didn’t get the pink slip, but wonders about those who did.

The most magical mailbox belongs to Almost Frugal as she got over five hundred euro in checks and a 6% interest rate on her French ING account! (My own California mailbox is quite jealous!)

Constructive complaining can be lucrative as Two Pennies Earned shows.

Another pet peeve of mine- pressure driven sales! Living Almost Large has a bad experience with a rude HVAC serviceman.

Financial Wellness Project loses money on free books because it is so easy to do so.

Until Debt Do Us Part reminds us that we all must take care of ourselves when tackling tough issues.

Saving even $14 is a big deal for Free Money Finance

MoneyNing shows that money philosophies can be handed down from father to son.

Thanks to everyone for submitting such great work! Tune in next week to blog host The Financial Wellness Project for the 82nd Carnival of Money Stories.

~SoCal Savvy