Today at TILE we talked about lending on an international level. The devastating earthquake in Haiti raised two clear questions in our office. First, what can we do to help? But also, what was the economic situation in Haiti before the earthquake even hit? We know that Haiti was wracked with debt, but what does that mean? What is the difference between lending to a country and lending to an individual? What happens when a country defaults, or backs out, of its fiscal commitments? Are all countries able to raise money and attract investments equally, and if not, why not?

For the most part, countries go about getting a loan (or raising debt) the same way individual borrowers do. They decide how much they need, make a case to the potential lender, an outside agency assesses the risk, and terms are decided. Clearly, there are differences in the size of the loans (how much a country needs versus a local business), the types of lenders (a bank or credit union versus The World Bank, institutional investors, and other countries), the magnitude of risk, and the terms of the loan (such as the life span of the loan and amount of interest paid).

When a country doesn’t pay back its financial commitments, they don’t have to file for bankruptcy, but they will most likely find themselves in a legal battle on the international stage – and with a damaged reputation. Often it is in the interest of the country and the lenders to renegotiate the terms of, or restructure, the loan. For the country, it is better to say, “I can’t pay you right now, but I will pay you over a longer time frame.” For the lender, it is often better to accept a lower return on investment (or profit on the loan) by extending the time frame and/or accepting a lower interest rate. For example, if you lent a friend $1,000 and then found out they couldn’t pay, what would you do? Would you prefer to “restructure” that loan so that you received $800 or just accept that the money is gone? It’s better to get most of your money back rather than none. But regardless of the outcome of the restructuring, you probably won’t lend any more money to that person in the near future!

Key components of lending are motives and risks. Motives relate to understanding the need to raise money as well as the interest of the lenders to lend. What is the money going to be used for? Building bridges? Investing in new industries? Or something else? Why might it be a good decision to lend money? Most likely it is financial gain – the lender sees the potential to make money on the interest or the investment. Risk is the cornerstone of any financial transaction – it is a metric for the likelihood that everything will go according to plan. That is why each country (like companies and individuals) receives a credit rating (similar to a personal credit score) – the lower the risk, the higher the score. In addition, the terms of the loan represent the market’s view of that risk. Greater perceived risk usually means a higher interest rate (getting paid for taking a higher risk) and more stringent conditions. The same concepts apply when lending to individuals (how you are perceived/assessed if you go to take out a loan or apply for a credit card).

While attracting lenders is important to a country that is seeking to grow, so too is the ability to attract companies that want to build their businesses abroad. Most countries want businesses to invest in them – it is good for the economy – but if there is too much uncertainty when it comes to doing business in a country, companies will most likely find another place to go. Google’s recent announcement that it may stop doing business in China fits into this category. Google’s motives were to expand the brand and reach of the company. Its risks, like many international companies that expand globally, related to the expectation that international law and privacy protections would apply. Understanding all the risks, and costs, they still chose to move ahead.  Kind of like finding themselves in the position of dealing with a borrower that is “defaulting” on their loan, Google is calculating the costs (time, money, and people) if it gives up and moves on. Should they restructure? Go to court? Or do they just walk away – and send a really big signal to other companies who are considering investing in China?

So how does this relate to Haiti and what does it mean for the TILE Community? While a natural catastrophe is much different than other uncertainties, like government instability, the treatment of debt and prospect of investment is similar. First, it is very likely that Haiti’s debts will be forgiven and/or restructured. Second, it will need sustained investments and capital to rebuild its infrastructure. Admittedly, though the current outpouring of humanitarian aid is critical in the short-term, the long-term health of any country is long-term investment – something Haiti didn’t have much of even before the earthquake hit. In terms of the TILE community, we encourage you to consider our Causes when looking for ways to help the victims Both charity:water and ACCION have earthquake response efforts in Haiti. In addition, think about the difference between short-term and long-term investments. Are your financial actions, whether in Spending, Growing, or Giving, more like applying a band-aid, or are they really addressing the long-term roots of the problems you face?

- Amy

Today at TILE we continued to talk about the tensions that exist within economies. When does one player have a competitive advantage over the other? Does it always make sense to widen the gap if you are the one with the edge? How does the disadvantaged player close the gap?

In the context of today’s headlines, there are a few examples of how competitive advantage (and disadvantage) plays out in the economy. For example, the dynamics between developed and developing nations in Copenhagen climate talks, between Wall Street banker pay and the national unemployment rate, and TARP versus non-TARP firms.

Did you notice that the developing countries staged a walk-out in Copenhagen to protest the lack of cooperation they perceived coming from the developed countries? In essence, they were saying, “you enjoyed economic growth without any constraints on energy use… so either let us do the same, or compensate us for the new rules.” On the other hand, the developed countries, in general, said “we are only willing to sacrifice so much.” In this context, there is a greater good involved – fighting climate change – that can and should drive each side to find a middle ground. Nonetheless, the “haves” are not always willing to make enough of a sacrifice to incentivize the “have nots” to change the game.

There also seems to be tension between Wall Street and the unemployed. While Wall Street looks to be doling out record bonuses this year, many average Americans are still suffering through a drastic period of high unemployment rates. This “standoff” between the two groups plays out in Washington, DC, where we will find out who has the most influence in shaping government rules and regulations. Wall Street is lobbying for more freedom, more tax breaks, and less intrusion. Main Street is asking for help in the form of loans to small businesses, job creation, and social services.

We also see competitive advantage play itself out in the TARP versus non-TARP firms. Those companies that have paid back TARP funds are less encumbered by government oversight (e.g. on compensation and capital). This means they can compete more easily in the marketplace for talent and deals (because they can pay more competitively). In order to overcome this competitive disadvantage, firms like Citigroup and Wells Fargo went to market in a rush this week, selling large amounts of equity at discounted prices in order to pay back their bailout funds. Traditionally, selling at a huge discount is not something you would do unless you felt you were at a serious competitive disadvantage.

What is most important is simply to recognize that more often than not, countries, companies, and individuals do not compete on a level playing field. The perception of strength will dictate strategy. Remember that story about the turtle and the hare? At the same time, if the player who is at a disadvantage thinks there is no chance to compete or catch up, they may just walk away – and that might not necessarily be the best outcome in the long run for anyone. Think about it: consumers benefit from increased competition (better products, better prices) and citizens benefit from countries’ desire to have a cleaner planet.

What does this mean for the TILE Community? In economics it is really important to consider positioning – advantaged or disadvantaged. Do the companies you have in your portfolio have a specific advantage over others in their industry? Is that a part of your investment decision process? On a personal level, what advantages do you have over others? Is it always the best strategy to make that gap wider, or are there times when you might help others that are looking to reach a similar goal? Appreciating the tensions will help you find the best strategy – in the world of finance and in life.

- Amy

Today at TILE we talked about the economics of climate change. What does the climate summit at Copenhagen mean for our global approach to climate change? Why can’t businesses, in general, see the impact they have on the environment? Why aren’t they more enthusiastic about switching to a greener model?

In economics, we talk a lot about supply and demand – the push and pull tension between what is available and what consumers want. In the area of climate change, tension is a constant because a lot of the conversations hinge on energy supply and demand. There is tension between developed nations and less developed nations, between traditional business metrics and “greater good” metrics, and between short-term and long-term outcomes.

Developed nations such as the U.S. and U.K. grew prosperous, in part, by using economically cheap yet environmentally costly fossil fuels. In fact, during America’s industrial boom, steel towns like Pittsburgh used to have “blackouts” during the day from all of the coal in the air. Developing nations point to this and claim that they should not be restricted by the rules more developed nations are trying to impose (like carbon reduction) yet did not observe in their own development. Another argument points out that while nations like China emit more carbon than the U.S. in total, Chinese individuals pollute far less than Americans do. Some statistics showing the climate footprint of an individual in the U.S. (19.78 tons of carbon emitted per person per year) versus China (4.58 tons), highlight the imbalance and the tension between developed and developing nations. (U.S. Energy Information Administration)

There are also international tensions between traditional definitions of “business good” and “greater good.” Businesses measure success with financial metrics – and climate metrics can often get in the way of profit! Businesses aren’t interested in (or rewarded for) sacrificing money in the bank today for cleaner air tomorrow. So it oftentimes takes legislation to influence corporate change. For example, if the international community takes a unified stance to increase restrictions on how much coal a company can use, it may limit production and increase the cost of their product in the short term. But it could also ensure that all companies around the globe are operating on a level playing field and mean a better, more healthy world tomorrow. Right now, what we see is that most businesses are driven by short-term instead of long-term considerations, but negotiations in Copenhagen will seek to create new rules both for how nations address climate change and how businesses operate.

So, are we at a point where we can change the game? Can we live in a world where countries, companies, and people think in terms of a “double bottom line” – economic growth balanced with longer term environmental rewards that benefit everyone? Lately, there are more and more examples of companies that “get it.” Stonyfield Farms is not only an incredibly profitable company but has been able to uphold an ambitious organic, environmental, and social mission even after its sale to Groupe Danone. In fact, it has begun to successfully spread these values into the larger organization. Consumers have started to vote with their wallets and demand more sustainable products and suppliers. Some corporate giants have heeded the call and begun to switch the way they do business. Carrotmob, on the other hand, is a web-based network of consumers that encourages local businesses to compete with one another for making the most socially responsible decisions. The reward for the winner is a “mob” of happy paying customers.

I hardly have to ask what this all means for the TILE Community. The youth of the world have the most to win or lose from this issue and it is important that you recognize the power you have right now. Nothing will change if you just talk about it. Take action – there is a lot you can do. First, vote with your wallet. Money is the most immediate way to communicate to companies that your demand for responsible products should lead them to increase supply. Second, consider investing in companies that practice a double bottom line. Your advisor can help you identify the companies that work for you and your portfolio. In essence, you’ll start to reward those companies by creating more demand not just for their product but also for their stock. Finally, be open to make those short- and long-term tradeoffs in your own life. It may be tough to push back against your high-carbon lifestyle at first… but there so much at stake.

- Amy

Today at TILE we talked about Black Friday, the biggest shopping day of the year. Why are people willing to spend the day after Thanksgiving shopping in a way they don’t during the rest of the year? Why join the consumer insanity… or why choose not to? In a season based on being thankful and generous, is this the only way to spread your holiday cheer?

Even though it isn’t officially in the holiday calendar, Black Friday – the Friday following Thanksgiving – seems to be one of the largest non-holiday “holidays” of the year. Stores create a ton of incentives for individuals to brave the crowds. They offer special deals and sales (buy more, not less), access to the hottest products (before they jump off the shelves), and a “you’ll miss out if you don’t join the fun” mood. While the objective is basically commercial (or business-focused), Black Friday has become a very sentimental and exciting day for many.

This year in particular, businesses want and need to see people in stores. Even though the expected number of holiday shoppers is estimated to increase to 134 million from 128 million a year ago, the overall holiday season spending is expected to fall 1% to $437.6 billion (The National Retail Federation). This means individuals are spending less per purchase and businesses are competing for a larger piece of a smaller pie. While overall sales have slipped a notch, consumers seem to be taking advantage of low prices and Black Friday is becoming more important. According to market research firm IBIS World, sales over the weekend will reach almost $43 billion or 3% higher than last year. That means that 10% of all holiday spending is happening in the weekend following Thanksgiving!

What if going shopping on Friday isn’t your thing? Maybe you’d rather just sleep in? Eat leftovers? Head to the gym? Or finally finish that paper? Admittedly, no one at TILE is planning on shopping that day either. Mostly citing a desire to stay away from huge crowds… and a tendency towards habitual holiday shopping procrastination! That being said, there was a general feeling in the office that we like it when friends and family “think outside the box” as a means to spread cheer and say thanks. Specifically, as a team we’re encouraging one other to consider alternative gift giving – maybe a donation to a favorite cause? Volunteering time together? Some of our Give Causes even devote sections of their sites to gift ideas. You may consider giving one of the “Little Black Boxes” from charity: water.

At the end of the day, we all have so much to be thankful for – friends, family, and so many opportunities to do so many things. At TILE, we are thankful to be involved with a good business that is also a good cause – with great people who show up every day. What are you thankful for? How will you spend your holiday? Just remember, if you’ve waited until the last minute to go shopping… giving is just a click away.

- Amy

Today at TILE we talked about budgeting. Why does that word, at first glance, bring an uneasy feeling to the pit of your stomach? Why do budgets matter? What are the key ingredients for a successful budget? And how amazing does it feel when you figure it out?

Budgeting is a hard topic for everyone, young and old alike. Like the many excuses we come up with for avoiding exercise, there are some common themes in the budget battle: Cash is too hard to track; I’m not sure I really need a budget; Are the benefits of budgeting even worth all the work? To get over those hurdles, it is important to remember that a budget, especially at the beginning, is just about tracking what you do – not about setting limits or making immediate changes. To get started, you need: 1) the right mindset (understanding, not change); 2) a system to do it (a spreadsheet or your SPEND.GROW.GIVE. account); 3) a way to track cash (maybe an iPhone app, or a tiny notebook tucked into your bag); and 4) a willingness to look through a few months’ worth of data. Once you find a rhythm (just like exercise) you will find it is hard not to do it!

The next step is to appreciate that you may not get a clear picture of your spending habits right away. There are also going to be times when keeping track of every single purchase feels overwhelming and like too much of a struggle. Here are a few ways to think about budgeting that will keep you sane:

• It’s A Challenge… The Good Kind. Can you look at the process as a personal challenge? When you consider that taking control of your budget is empowering, you’ll probably dread it less.
• Finding Trends. Three days’ worth of spending data doesn’t make a budget. The most useful information comes when you can recognize the patterns or trends in your spending across weeks, months, or seasons.
• Expense Buckets. You can probably tell the difference between a fixed expense (“Need to Have”) and a variable expense (“Nice to Have”). If you start feeling overwhelmed by all of your transactions, start by separating your expenditures into these two buckets, as it could make your decision making and understanding of trends easier. That being said, only you will know if weekly mani-pedis are in the “Need to Have” bucket!
• Flexibility. Be nice to yourself. If you misplaced a receipt or a didn’t track a few cash purchases, that’s okay. Make a general category called “Other” in your budget. As long as the majority of your expenses don’t end up here… you’re doing just fine.

So why do all this work? Mostly because it keeps you more informed. Rather than scratching your head at an overdraft fee, you’ll know what to expect in advance. You can also have much richer conversations with advisors and funders about your needs today and in the future. Even more, a budget helps define long term goals like vacations, large purchases, the percentage of your income that goes to charity each year, and your investment goals. It makes you more responsible and more adult. For example, what does it mean to your budget to take one job versus another? Buy or rent one apartment over another? Achieve true financial independence from your family?

Think back to when you were a little kid and started saving for a special toy. Do you remember the feeling of pride when you added money to the piggy bank? Knew exactly how much you needed to save up in order to convince mom to take you to the toy store? Or finally saved enough? These early experiences really illustrate what a budget can do for you. It can help you make more informed choices. It can mean there is more money to invest… and more to give. It can mean taking that trip you always wanted to take. But mostly a budget is one of the best tools for teaching the essential life lesson of making choices. When you make informed and smart decisions, independence and empowerment go hand-in-hand.

- Amy

Today at TILE we talked about voicing our opinions. Have you ever had something to say, but weren’t sure that anyone cared to listen? Have you thought you had a great point to make, but weren’t sure where (or how) to make it? Ever feel like today’s leaders don’t consider the next generation’s voice when making decisions?

According to the 2007 World Bank Development Report, “Parents do not represent the views and aspirations of young adults as they do those of younger children. Yet youth may still lack the opportunities or self-confidence to represent themselves in public fora. Young people need to be encouraged to participate more fully in public life. And governments and other agencies need to learn to communicate with young people, make their programs attractive to them, and deploy the immense talents of youths as partners in service delivery.”

The Young Global Leaders of the World Economic Forum are trying to answer that call. This group of 30 and 40ish types (young by traditional standards) is taking part in the “Global Redesign Initiative.” The goal of the initiative is to move leaders beyond words, to action – with a focus on six specific topics:

• Mitigating Global Risks & Addressing Systematic Failures
• Creating a Value Framework
• Ensuring Sustainability
• Strengthening Economies
• Building Effective Institutions
• Enhancing Security

Recognizing that young people have an interest in the future of the world, amazing insights, and few meaningful outlets to share their thoughts, the Global Redesign Initiative is looking for your input. Armed with your comments and feedback, the initiative will move leaders to action. So if you think you can redesign the world, now is your chance to stand up and be heard. Share your ideas over the month of November and they will be presented to global leaders at the World Economic Forum in Davos at the end of January. Join the online conversation at: http://taskforce.tigweb.org/ygl_youth.

What does this mean for the TILE Community? First, it is important to recognize that it takes more than just having a point of view. Let yourself go further, take initiative, and participate. Admittedly, it isn’t always easy to find ways to engage – but this is an example of a group that really wants to hear what you have to say. As we mentioned in our September 22nd post on “The Power of Networks,” communities are a great way to help people take action. Second (relating all this to personal finance), remember that benefits and responsibility go hand in hand. It is one thing to have financial means and it is another to take responsibility for understanding your money and putting it to good use (spending, growing, and giving). The more you practice empowering yourself (taking action) the more you will realize how amazing it feels.

If there are terms within the discussion topics you don’t understand, look them up in the TILE Library. And if you still have questions, ask us. We want to be a place for you to come and learn and ask the questions you can’t ask anywhere else. So try lending your voice to the Global Redesign Initiative – sharing your opinions on an issue you care about is a great place to start building the kind of future you want to live in.

- Amy