# Tag Archives: Finance

## Cost Of Raising A Child

For some reason as I was driving home yesterday, a thought occurred to me:

If one group of people paid \$5.00 for a beer and another group of people paid \$2.00 for a beer, would one group of people drink more beer than the other?

Or

If one group of people paid ~\$200,000 to have a child and another group of people paid ~\$0.00 to have a child, which group of people would have more children?

A middle-income family may spend \$234,900 to raise a child born in 2011 to the age of 18, a 3.5 percent increase in a year, according to a government report.

That is a lot of money.  But the costs are not fixed:

The typical two-parent middle-income family spent \$12,290 to \$14,320 in 2011 on each child, the study found. Households that make less spend less, USDA researchers said. A family earning less than \$59,410 a year will probably spend \$169,080 in 2011 dollars to rear a child, while parents earning more than \$102,870 may pay \$389,670, according to the study.

And it can get worse than that.  According to this calculator the cost of raising a child can be as high as \$434,180 if you earn more than \$100k.

Earn less than \$57,800 and you pay \$133,710.  That’s \$7,300 this year alone.

With government assistance to those poorest among us, that \$7,300 can be completely covered reducing the real cost to near zero.

So, given the differences in the cost of raising children, I came to the conclusion that wealthy individuals have fewer children than do those less wealthy.

Was I right?  According to the Census I was:

The births per 1,000 women below 100% of the poverty line in 2008 was 96.3.  Births per 1,000 women above 200% of the poverty line that same year was almost exactly half : 47.7.

If income levels are pulled out, there is a steady climb in births per 1,000 from the wealthiest to the least wealthy.  A notable exception are the very poorest mothers:

 Income Births Per 1,000 Less than \$10,000. 33.7 \$10,000 to \$14,999. 103.8 \$15,000 to \$24,999. 86 \$25,000 to \$34,999. 80.3 \$35,000 to \$49,999. 72.3 \$50,000 to \$74,999. 64.4 \$75,000 to \$99,999. 57.4 \$100,000 to \$149,999. 51.8 \$150,000 to \$199,999. 49.3 \$200,000 and over. 49.8

Certainly much more than the cost of raising a child goes into the decision of whether or not to have a baby.  Perhaps something as simple as the cost of contraception goes into the amount of pregnancies among the wealthy and the poor.  But it would be foolish to wave away the fact that the cost of raising a child is much higher for those who have more money and thus acts as a drag on the birthrate among that population.

## Hard to See This Coming

In an effort to curb banks from “predatory lending” and “profit taking”, Washington lawmakers enacted legislation that our Dear Beloved Leader signed into law.  Basically the new law makes it harder for banks to raise rates it charges folks who fail to make payments.

First, I often find it hilarious when groups of people chastise banks or lenders for trying to make money for “selling money” or lending money to people.  Especially when these people fail to pay that money back.  Fail to pay it back either “on time” or “at all”.  As if these lending institutions exist for the sole purpose of handing out discretionary money.  At times likes these, I always ALWAYS trot out my favorite “put your money where your mouth is” argument.  { by the way, didja catch that pun?!?  money where your mouth is? }.  If someone you know, or even if it’s you in this situation, think that people, banks or institutions should lend money without regard to being paid back, go to prosper.com and lend your own money to people who can’t afford to pay it back.  This is the perfect opportunity.  You don’t have to be a fancy shmancy bank with billions of dollars.  Even a couple hundred bucks would be appreciated.

Okay, back to the point.  When banks are restricted in their ability to sell their product to a group of people, they will react by:

1. Stop selling that product
2. Charging the non-regulated customers more for the same product
3. Like the force of water, work around the obstacle

In this case, the banks choose option #3:

(AP) It’s no mistake. This credit card’s interest rate is 79.9 percent.

Typically, the First Premier card comes with a minimum of \$256 in fees in the first year for a credit line of \$250. Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line.

In a recent mailing for a preapproved card, First Premier lowers fees to just that limit – \$75 in the first year for a credit line of \$300. But the new law doesn’t set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.

The new law restricts the fees for selling money.  So, in response, the banks just raise the rate of interest.  Awesome.

But even with these new rates, does a credit card appeal to certain people?

As harsh as First Premier’s terms seem, that could be a blow to those who rely on the card, said Odysseas Papadimitriou, CEO of CardHub.com.

“Even when the cost of credit is astronomical, for people in true emergencies, it’s much better than not having access to credit,” said Papadimitriou.

Sure.  In fact, for some people, even at these rates, the borrowed money passes the marginal value threshold.  Then again, so did the flat rates the government restricted.

## Could This Turn Out Any Other Way?

Look, there are over paid people in this world.  Athletes.  Movie stars.  Middle managers at large corporations.  Sure.  I get it.  And to a l ot of people, people who really work and work physically, the money that some of the people make is gross.  That being said, the market adjusts pretty well and compensates those people fairly well.

Is shoveling horse manure more physically demanding than running a large Fortune 50 account?  Yup.  Are more people suited to shoveling manure than managing said account?  Just as sure.  Hence, the value of the skill is different and the compensation changes.

Which just makes this news predictable:

Anastasia Kelly, general counsel of AIG , Rodney Martin, head of one of AIG’s international life insurance businesses; William Dooley, who runs the financial-services division including AIG Financial Products; Nicholas Walsh, vice chairman and head of the international property and casualty unit; and John Doyle, who runs the U.S. property and casualty division, said in written notices Dec. 1 that they’re willing to leave by the end of 2009…

In October, Feinberg cut 2009 compensation for AIG’s top 13 employees by 57%, including limiting most base salaries to no more than \$500,000. Another 12 top employees had already left before the review began, according to the WSJ.

Now, you can argue that execs are overpaid.  And you might even be able to convince some people of that fact.  But what you CAN’T prove is that THESE execs are overpaid in relation to their peers.  These people, in theory, are among the best in the world at what they do.  There might be only a few hundred who have the ability to rise to the positions these people have.  And that is among billions of people.  They SHOULD be paid well.

Now they will, just not at AIG.

## The Fruits of Our Labor

Quick.  Below, which company would you want to own?

52 Week View Range: \$0.06 - \$5.10

This is one Company.  See the second one below.

52 Week View Range: \$1.50 - \$9.14

Is it even close?  One company is taking off.  Not hard to do, the market has come back by some 60%.  However the other company, even in one of the best markets we have seen in years, is tanking.

The first company is Government Motors.

The second one is Ford.

Go Obama!

## Sleight of Hand

I have to admit I was suckered.  I bit.  Hook line and sinker.  DAMN it!  When I saw the headline I should have known:

#### Senate Dems Aim to Curb Fed’s Powers

But instead I clicked through.  And got suckered yet again:

WASHINGTON – Senate Democrats on Tuesday proposed stripping the Federal Reserve of its supervisory powers

WOW!  Virginia and New Jersey really got to these guys!

My excitement and wonderment lasted, ohh, about 14 words; and that’s counting “Washington”

and creating instead three new federal agencies to police banks, protect consumers and dismantle failing institutions.

Doh!  I should’ve known!  In fact, I’m pissed I missed it.  I mean, really?  A Democrat trying to reduce the size of government? Sheesh.