Archive for the ‘Level 1’ Category

« Older Entries
Newer Entries »

How can five percent unemployment possibly be a good thing?

Thursday, November 19th, 2009

For an individual, being unemployed when you desperately need a job is never a good thing. However, a little unemployment in an economy is not necessarily a bad thing. First of all, some people don’t want to work – at least not in jobs that get listed on tax returns like stay-at-home moms and dads. That’s called voluntary unemployment, but it really shouldn’t even be counted in unemployment statistics. There are also always going to be people who are between jobs – having just left one job and waiting to start another, but not in real danger of long-term unemployment or desperate to find work. Economists call that “frictional unemployment.” Even if everybody who wanted a job had one, there would still be some “frictional” unemployment as people transitioned between jobs.

In reality, however, it’s extremely rare that every single person who wants a job is employed. Unemployment moves up and down in a cycle along with the rest of the economy and, while increased unemployment in a minor economic downturn is not a good thing, it isn’t an economic death knell. Some people will also be involuntarily unemployed because of structural unemployment – unemployment that happens because wages (the price of jobs) can’t change with demand or the right types of employees aren’t available for existing jobs.

Structural unemployment can be lowered in the short term by sparking inflation, but the unemployment goes back to its previous rate, so trying to push the unemployment rate below a certain level tends to make the economy unstable. Milton Friedman, who won the Noble Prize for Economics in the 1960s, called this level “natural unemployment” or NAIRU (the non-accelerating interest rate of unemployment). It’s the level of unemployment in an economy at which prices and jobs are stable. The NAIRU for the United States in the past two decades has been about 5%, and for most of that time, the economy has been quite healthy.

So, it’s not good if YOU are unemployed (assuming you want a job), but unemployment is a natural, unavoidable part of any economy.

Why is there a stock exchange in Cleveland?

Wednesday, November 18th, 2009

All publicly traded companies can be bought and sold on one of the many stock exchanges that exist all over the country and the world, but rarely do you hear about any exchanges other than the New York Stock Exchange or NASDAQ. And wait… why do we even need more than one?

Why is there a stock exchange in Cleveland? Well, there isn’t one, but there used to be. Many of the small, regional exchanges that no longer exist were necessary because, without the Internet and computers, it wasn’t possible to buy and sell stocks quickly across vast distances. Today, huge exchanges like the NASDAQ only exist on a computer network – there is no NASDAQ trading floor.

Each different exchange only trades a limited number of companies and can impose rules on the companies it lists, or only allow companies of a certain size or stock price. The NYSE has a minimum share price and share volume so that only big companies can trade, so it’s considered a less risky exchange than say the NASDAQ which doesn’t have those types of restrictions. Exchanges can also only trade specific types of securities. The Chicago Mercantile Exchange (CME) only trades financial and commodity derivatives for example.

Being familiar with the differences between the various exchanges can help you make decisions about investing in companies traded on those exchanges and empower you to have an informed discussion of your investments with your broker or financial advisor.

How can you protect your identity from being stolen?

Wednesday, November 18th, 2009

It can take years of stress and thousands upon thousands of dollars to clear the wreckage left in your life after an identity theft. While nobody has figured out a way to protect your identity 100%, there are some steps you can take to protect your information:

  • Don’t give out personal information over the Internet, phone, or mail, unless you’re certain who you’re talking to and that you can trust them – identity thieves are sneaky! Be especially careful about giving out your social security number. Employers and financial institutions need your SSN for tax reasons, but lots of other people, like the cable company or your landlord, might not do business with you without it. Find out what they do to protect your information or if there’s any way you can avoid giving them your SSN.
  • Some identity thieves go through your garbage or steal your mail to find and use private information. Before throwing away anything that contains important personal information – like bills or receipts – shred them. Mail anything that contains sensitive information in big postal boxes at the post office, and inform the postal service if you’re going to be away so mail isn’t left in the open at your house for long periods of time. You can also opt out of pre-screened credit offers (which thieves can use to open cards in your name) by checking out any of the national credit bureaus’ websites.
  • If you’re really worried, you can institute a credit freeze – laws about this differ from state to state, but in most states anyone can do this. It won’t affect companies with whom you’re already doing business, but it does prevent anyone else from purchasing your credit report from a reporting agency. This makes it nearly impossible to for an identity thief to open a line of credit in your name. If you want to start a new card, you can temporarily lift the freeze and put it back.

Although there is no fool-proof method to safeguard your identity, by following these simple steps you can potentially save yourself a whole lot of money and hassle.

Sallie Mae is…

Monday, November 16th, 2009

Sallie Mae is slang for the Student Loan Marketing Association, an agency that helps college students get loans.

A Budget is…

Monday, November 16th, 2009

A budget is an estimate of income and spending over a certain period of time.  In other words, a budget is a way for you to figure out how much you can spend each month, or for however long you want, without running out of money.

Accounting is…

Monday, November 16th, 2009

Accounting is the process of maintaining and keeping track of financial records and transactions.

Life Expectancy At Birth is…

Thursday, November 5th, 2009

Life expectancy at birth is how many years a newborn baby can expect to live if current mortality rates remain the same – i.e., if the people in a given country continue to die from disease, famine, war, or anything else at the same rates that they currently do. It’s used to demonstrate the general health conditions of a country or region.

If a bank won’t lend to someone, why would you?

Thursday, November 5th, 2009

For a long time, banks and economists thought that the millions of poor people who now use microfinance services simply couldn’t afford loans, and they were right. They couldn’t afford the relatively large loans that banks offer to people in the developed world because even the lowest interest payments on a big loan would be way too expensive for them to make. It wasn’t economical for banks to lend small amounts of money to people who were far away from traditional bank branches and had a limited history of borrowing.

However, as many microfinance institutions have discovered in the last few decades, many of these people can afford a slightly different kind of loan: a microloan. Thus there are nonprofits and for-profit micro financiance institutions (MFIs) that realize it can be profitable to service the otherwise “unbanked” community.  Microfinance is self-sustaining when it attracts new kinds of investors who realize the potential and power in reaching the many more millions of people who desperately need, and want, access to financial services.
While individuals, companies, and governments are beginning to see the potential size and impact of the market, there are still plenty of people that really can’t afford a loan and, for the most part, they don’t receive any. Many different organizations – mainly charities and governments – offer other types of services that don’t charge any interest so that eventually these people might be able to afford microfinance services.

With the support of charitable organizations and everyone who donates to them, microfinance institutions and banks everywhere will be making lots more loans to people who can now afford them.

A Savings Rate is…

Thursday, November 5th, 2009

A savings rate is the percentage of your disposable income that you save. For example, if your annual savings rate is 5%, that means you save 5% of your disposable income every year.

A Borrower is…

Thursday, November 5th, 2009

A borrower is someone to whom money is lent with the expectation that it will be paid back. If you’re not planning on paying it back, it’s either a gift or you’re stealing.

« Older Entries
Newer Entries »