A Healthier You

The U.S. health care system is overweight with ill-gotten profits and has arteries screaming for reform.


While America is great - even the greatest! - at many things, we've fumbled with our health care system for long enough. An astonishing 15 percent of all Americans do not have health insurance. That's the equivalent to every Hispanic American not having insurance. It is unacceptable for one of the world's most developed nations to disregard the health and lives of so many of its citizens.

In short, our health care system is a quagmire of regulations and directives not easily translated into English! American workers pay increasingly higher premiums, deductibles and co-payments, in a system that dictates which doctors you can and cannot visit. Health care spending is about 15 percent of Gross Domestic Product (GDP) in the United States. To see how we match up against other countries, examine the graph below:

As you look at the graph, you see that Life Expectancy increases as you move higher up the vertical axis. Health care spending in "international dollars" (a fancy method of equalizing country currencies in order to compare them...on an 'apples to apples' basis) is along the horizontal access as you move from left to right. In an ideal scenario, you want to be a country that is higher than the others (your citizens live longer because they are presumably healthier) and towards the left (your citizens get healthier at a lower cost than others). Looking at the graph, Cuba and Japan are two great candidates for having the world's best health care systems. In essence, Cubans and Japanese pay less for good health care that helps them to live longer. The United States has comparable life expectancies, but pays much more money to live longer. Sierra Leone is our polar opposite, as its citizens can't afford enough quality health care so the average life expectancies are lower.

There are many reasons why some countries can provide better health care for its people. Some places are ideally located, so access to clean water, an abundance of fruits and vegetables produced and favorable climate are naturally occurring resources that encourage healthier living in places like Costa Rica and South Africa. Poverty, however, is the primary discriminator between who is healthy and who is not, no matter where you live. This is the case especially in America where we have high economic inequalities by income, education, race, et cetera. Here, high quality health care is available only to those who can afford it.

Enter U.S. President Barack Obama. In recent stops across the nation, he has revealed that his version of health care reform will cover the approximately 45 million Americans that are uninsured and will cost about $1 trillion dollars over the next ten years. If it sounds like a lot of money, it is! To this, the President says:

Failing to reform our health care system in a way that genuinely reduces cost growth will cost us trillions of dollars more in lost economic growth and lower wages.

The bigger issue, of course, is how is he going to pay for it. In his June 13th weekly address he proposed major cuts to Medicare and Medicaid, he has also said that taxes will go up and [unnecessary] health care spending will fall.

There is a wealth of information - and opinion - on America's Health Care Reform plans. Educate yourself here first, then come back to our blog to continue the discussion!

All Aboard!

Not since the early 20th century have so many Americans had train on the brain.

In 1922, General Motors President Alfred P. Sloan took the initiative to get more Americans into passenger cars by enlisting the help of Standard Oil (now Exxon), Phillips Petroleum, glass and rubber manufacturers and politicians to build a convincing argument against mass transit. America's love affair with the automobile has blossomed ever since...although the love affair with GM recently soured....



Economics has a special love for transportation issues too. There is lots of opportunity for creating more efficient, more economical modes of transportation. And, during economic downturns, more people tend to choose public transportation over incurring private transportation costs such as gas and maintenance. For an example as to how well public transportation can work, look at Spain.

Case Study: Spain by Train

After the success of Japan's Shinkansen Trains and France's TGV, Spain opened its first Alta Velocidad Espanola (AVE, for "high-speed Spanish train") in 1992. It ran between Madrid and Seville. Since then, the network has grown to include more stations in the south and eastern regions. In terms of efficiency and economy, the route handles about 89 percent of railway and air traffic. The number of tourists to smaller town has increased, demand for business conventions is up and less competitive-areas now have the option to attract companies to their local economies. Here's an interesting video on the efficiency and overall satisfaction with the AVE.



Trains have numerous economic benefits as a preferred mode of regional transportation. The International Union of Railways (IUR) says a high-speed train (which, by definition travels 90 m.p.h. or faster) can carry eight times as many passengers as an airplane over a given distance, using the same amount of energy and emitting a quarter of the carbon dioxide for each passenger. The AVE reaches up to 300 m.p.h. during the morning rush hours between Barcelona and Madrid.

With clogged highways and overburdened airports here in the States, economic growth is suffering. President Barack Obama has set aside $13 billion for high-speed rail infrastructure in his landmark 2009 Stimulus Package. That's an initial $8 billion, then $1 billion annually for five years. The Transportation Department is to begin awarding monies by the end of summer. As of today, only one high-speed rail line is operative in America; it's the Washington D.C. - Boston line in the Northeast Corridor. The Federal Government has identified 10 corridors nationwide with great promise for high-speed development.

President Obama has this to say on high-speed rail systems in the U.S.:

"What we need, then, is a smart transportation system equal to the needs of the 21st century. A system that reduces travel times and increases mobility, a system that reduces congestion and boosts productivitym a system that reduces destructive emissions and creates jobs."

So now that we understand the benefits, what are the costs? The director of high-speed rail at the IUR says that high-velocity trains are not profitable. Despite hugh time and environmental savings system-wide, budget airlines still offer the cheapest prices between Barcelona and Madrid and the IUR director goes on to say that the systems in Japan and France are likely the only two to have broken even in terms of profit. There are major concerns in terms of safety, and reliabilty which can be very costly to maintain. CATO Institute economist Randal O'Toole found that aside from businesspeople and tourist, average Europeans still prefer driving to rail transit. In an article that appeared in USA Today on May 20th, he confirmed that taxes would rise for all Americans and that ticket fares would cover only some of the operating costs and none of the capital costs. O'Toole calculates that the cost of implementing a high-speed rail system in the U.S. would cost an eye-popping $500 billion, in stark contrast to the $13 billion the President has set aside through 2015. American highway infrastructure paid for itself in a matter of years from fuel taxation. What besides rail subsidies would sustain a nationwide system?

One idea is property taxes. Spanish real estate portal Kyero reported in June 2008 that property prices in towns and cities served by AVE stations outperform their provincial averages. As more stations are planned, it will be interesting to see how the introduction of high-speed rail impacts house price. This could in turn become a primary source of payment for train systems worldwide.

What are your thoughts on high-speed rail in the U.S.?

The Credit Education Series, Part 2 of 4

In part two of the Delasol Group's Credit Education Series, we will open dialogue about the all important credit report.

What does my credit score say about me?

Your credit score is a three digit number that helps to determine the amount of credit (in dollars) you can borrow and the interest (as a percentage) you will owe. In general, the higher your score is, the more money you can borrow and the less you will pay for the loan. The more credit you can responsibly manage and pay back on time, the more creditworthy you are on paper to prospective lenders.

As a side note, interest is the cost of borrowing. If you borrow $5000 from your bank, they expect you to pay back the $5000, plus interest. Interest is the dollar amount you pay for having the luxury to access cash that is not yours; it's the cost of borrowing! Before the 1980s, American banks used to charge everyone the same flat interest of about 20%. After credit scores became readily available to individuals in the late '80s, banks began offering credit with a variety of interest rates, thus tying the cost of borrowing (interest rate) to a person's degree of credit risk. Credit risk is the polar opposite of credit worth.

How is my credit score determined?

Here's the breakdown on your credit score*:

35% is determined by your payment history; that is, do you regularly pay your debts on time? Note that unpaid library fines, medical bills and parking tickets are included in your payment history.30% is based on the amounts you owe each creditor and how that compares with the total credit available to you. If you are maxing out your credit lines, your score will suffer.15% is based on the length of your credit history. The goal here is to have a few accounts (you only need 1 or 2 to establish healthy credit habits) and old accounts, which show that you are a good steward of credit over long periods of time.10% depends on how many accounts you have opened "recently", or how many "recent" inquiries exist on your report; Recent is relative, but know that your score can drop if it looks as if you're seeking several new sources of credit - a sign you may be in financial trouble, and therefore not very creditworthy.The last 10% is determined by the types of credit you have chosen to use. Installment debt is paid in a fixed amount each month, like a mortgage. Revolving debt doesn't have a fixed payment (like with credit cards) so the amount you owe depends on how large the outstanding debt balance is and your prevailing interest rate.
What is a FICO score?
Now when people say "credit score" they usually mean the FICO score. FICO stands for the Fair Issac Corporation, the good folks who invented credit risk scoring. Keep in mind that FICO isn't the only credit score out there (one estimate says that there are over 1,000!) but it is the primary score used by lenders. FICO takes into account the data collected by 2 of the 3 largest credit-reporting agencies, and gives credit scores for Equifax and Transunion*. The FICO score can range from 300 to 850.

Do I need to pay for a credit report?
No! You can get a FREE copy of your credit report from each of the three major credit agencies once a year. How? Visit AnnualCreditReport.com, the only authorized online site under Federal law. Review it carefully and address any errors in a letter sent to the appropriate agency, with any supporting documentation.

How do I get my credit score?
Now this tidbit you are charged for. As stated above, FICO is the most widely used score, and this can be obtained from myFICO.com. Here, you can also get a score from Equifax or Transunion. Remember, some scores are proprietary by the company you choose; as fotenoted below, Experian, while a major credit bureau, no longer partner with FICO to provide credit scores, and instead offers its own model.

What do I do after I get my credit report and score?
Whether or not you need to monitor your credit is debatable. If you are trying to establish healthy credit habits it is in your favor to check your credit yearly or even quarterly to get used to searching for errors and evaluating the outcome of your credit decisions. Or, if you plan on using credit for a major purchase in the next 6-12 months, it would benefit you to check your credit and address any errors beforehand. Not only will you be aware of how creditworthy you are, but you also take the steps to change your economic behavior to become more wealthy and wise about your financial future.

Part III of the Credit Education Series coming soon!!



* This breakdown obtained from the New York Times Online article "Credit Scores: What You Need to Know", 01.06.2009.
* Experian no longer has a partnership with FICO to provide credit scores as of 02.2009

Economic Indicators

A primary goal of this blog - and of the economic education services The Delasol Group provides - is to get people to relate how things in the larger economy affect their daily lives. Looking at national or regional economic data and news is an area of study called Macroeconomics. In contrast, Microeconomics focuses on a smaller ("micro") portion of society - individuals and businesses. While much of the information on this blog deals with your personal economy and other Microeconomic issues, it's important to keep up with Macro news too.



Case in point: the National Employment Situation.

Now this is the type of information that moves markets; literally. In fact, this data is so important that it's essentially locked up until the very minute it's released to the media and the public. National statistics that allow us to gauge how healthy the economy is and predicts future performance are called economic indicators. Here's a few of them here. The National Employment Situation is one too.

Today, the U.S. Department of Labor reported that the jobless rate rose from 8.5% in March to 8.9% in April and that roughly half a million people lost their job last month. Even with this dour information, it's optimistic that April's decrease was the smallest in the last six months. This could mean that the recession may be reaching a bottom - a turnaround point. If you visit the BLS website and search for the Employment Situation report, you can get even more details such as the unemployment rate by race, gender and industry. So how does this economic indicator affect you?

Let's imagine you were unhappy at your current job. You may be weighing your options: Should I go back to school for more education? Should I start my own business? Should I transfer to a new city? Awareness of what's going in the in Macroeconomy can help us make routine Microeconomic decisions. Knowing that businesses are still laying off workers may persuade you to keep your current position. However the fact that less folks were laid off in April compared to the previous six months may encourage you to explore your options and watch how the situation changes in the coming months.

We will continue to explore how changes in the Macroeconomy affect us as individuals. What other economic news have you heard about that you feel directly affects you?

Fear & Loathing in the U.S.

Gun sales are up in the United States of America.

And if sales of guns is up, you can logically expect that ammunition sales and background checks are up too. The Federal Bureau of Investigation's website confirms that more people are trying to buy guns this year than in 2008*.

What's driving this trend is primarily disgruntled voter speculation (see definition below) and...wait for it...CONFIDENCE; or more appropriately, a lack thereof.

The day after President Barack Obama was elected on November 4, 2008, many gun stores, like the one pictured above, earned record revenues as gun enthusiasts and amateurs alike filed in and stocked up on their Second Amendment Right. Aside from isolated theories that the Obama Administration will usher in a new era of anarchy and chaos, it seems as though the increase in demand for guns and the like are due to one of three factors:

1. Some are anticipating new gun-control laws;
   
2. Others are concerned about their public safety as the recession searches for a bottom;
3. But most are eying guns as a "safe" and practical investment when the volatility in the stock market leaves most of us too queasy to take advantage of low-cost stocks and commodities.
   

Wait, investing in guns??

First two definitions:

An investment is a choice by a person to place money into a security - such as a stock, commodity or bond - after careful research. The investor's research assures him or her that a little risk will probably generate a lot of (monetary) benefit in the future.

Speculation however, is the same scenario without careful research.

Guns are investments like any other. Say your great-great-grandfather owned a weapon at the turn of the 20th century and now you have it. Like comic books and currency, old guns are worth money. Since America became its own country, the right to bear arms has been integral to our national identity. About 50% of all American households own a gun and many more are gun advocates.

But are guns "good" investments? That depends on the current state of the market for guns. Last September, Soviet-era AK-47 rifles (one of the first assault rifles, it was designed by Mikhail Kalashnikov and debuted in 1947) sold for about $350. By the end of 2008 the price had more than doubled! This was clearly a good investment in September, as in just a few months you would have watched with glee as the value of your investment rose. If you decided to sell - or "flip" - the gun, you would have made a profit! Today, European-made AK-47s sell for just under $2000.

Whoa.

Scarcity - or the premonition of it - drives up demand for a product. For this reason, it's no surprise that many gun dealers support the hypothesis that President Obama is going to restrict gun rights, despite signs that reinstating the Federal assault-weapons ban (which lasted from 1994-2004) is unlikely. In reality, the ban has very limited support in Congress. But if people lack confidence in the executive and legislative branches of our government concerning gun laws, you'd better believe they're going to want to get theirs now! The increased customer demand for guns and bullets make the cost of these products increase as well. This explains why AK-47s are appreciating in value faster than before.

Knowing the recent history of gun prices is a good place to start researching them as an investment. Are you buying when prices are historically high or low? The goal of investing is to "buy low, sell high" in order to generate a profit, rather than a loss. Another research area is to determine if there is any reason to invest now rather than later. If you think prices are going to go up, you should buy now! If you think prices will fall, or gun inventories will be overstocked, you may want to wait it out or search for a more promising investment. A third research area before deciding to invest is additional costs. Buying a gun would mean buying ammunition, insurance, a safe and a license. Taking a little time to explore your options could be the difference between the costs of your investment outweighing the benefits! Bottom line: Your investment should improve your financial health, not hurt it.

*The F.B.I. is the clearinghouse for all Federal criminal background checks for potential gun-buyers.

The Credit Education Series: Part 1 of 4

By popular demand and by order of necessity, The Delasol Group brings to you an exclusive four-part series on Credit. In this mini-course, we are going to focus on ECONtreprenurial credit & debt management; that is to say, how to use your credit wisely and not allow it to use you! We eagerly welcome comments and suggestions to appropriately educate the masses on this hot topic.



First things first: Why is it important to establish credit?

The primary reason is because credit allows us to purchase things we do not have the cash for. Now don't be alarmed, there are many smart purchases that you may not have the money for, such as a home or an education. For these things - and other big money purchases - you need credit. It's not mandatory, but it's not common that you can shell out $25,000 in cash for a car or $300,000 for a house.

Another reason we establish credit is because borrowing money and paying it back responsibly allows us to borrow more money. If you are a small business owner, you will need to show some proof of paying regularly on your debts before a bank will give you a loan to expand. If you are a parent, you will need evidence of consistent debt payments to secure a student loan for your child's college education. Just like the saying, "It takes money to make money" it is also true that "it takes credit to get credit!"

Finally, the best deals go to people with good credit. You can expect lower interest rates on homes, cars and credit cards than someone who has a more troubled credit history.

Okay, so how can I build credit or turn my bad credit into something good?

Excellent question! There are two ways to establish or turnaround your credit:

1. Get your free Credit Report.
2. Check out Pay Rent Build Credit.
3. Purchase something on credit and pay it back on time and in full. Repeat.

Every 12 months you are eligible to get a free credit report. Every time you go to borrow money, rent an apartment or purchase a car, someone looks at your credit report to see if you are creditworthy or not. In recent years, it is common for potential employers to pull your credit report too, to ensure that as an employee you won't be more of a Liability than an Asset. Knowing what's on your credit report will save you from disappointment or embarrassment, and will let you know exactly where you need to start repairing your credit. There's only one place where you can get your free credit report. Click here to get yours!

Pay Rent Build Credit is a service that provides people with no or poor credit to build their credit without going deeper into debt. PRBC is a credit repository*, just like Equifax, Transunion and Experian. What makes PRBC different is that it is the first credit bureau to allow people to enroll themselves and lets them demonstrate their creditworthiness from non-debt bill payments. Things like Rent Cable, Daycare, Insurance, Cell Phone, Electric and Natural Gas payments. The "Big Three" repositories don't give you that option. The company gives you two options. If you have been paying on your bills regularly and on time, you can order a verification and key in payments you have made. If you would like PRBC to begin to track your timely bill payments, you should sign up to pay your bills online through one of PRBC's partners. PRBC then uses your timely bill payment history to create a credit report for you with both debt and non-debt payments. Pretty nifty idea! The Delasol Group fully supports this effort and invites you to view the website and watch the brief clip below on PRBC:



Now the third method of building credit - by actually using it - is usually either a complete bust or a bang! The Delasol Group would like to walk you through monitoring credit with your credit report in part 2 of our Credit Education Series. Stay Tuned!

* A Credit Repository is an organization that collects, updates, stores and reports financial information for people who make payments on stuff.

The Delasol Group's Online Guide to Saving & Interest Rates

When you save money, you are paying yourself. You are putting your money away until you use it sometime in the future. Here's the catch: the longer you wait to use your savings, the more you have! In the midst of the most recent and vicious recession that any American has experienced, saving is like the new black, or the new 20, so to speak. It's en vogue. So for those of you who are new to this or are simply out of practice, here's The Delasol Group's Online Guide to Saving.

Choose Wisely. It's important that you know now that small decisions can have a big impact. ECONtrepreneurs have an uncanny ability to quickly surmise smart economic decisions from not-so-smart ones. Should you save $100, charge $100 a month, or do both (Your answer depends on your cash flow)?The regular savings you start now will accumulate quickly over time. The regular debt you incur now will do the same. Choose wisely.


Interest is interesting! If you don't understand interest rates and how they can work for and against you, you should not apply for any type of credit. Excessive interest charges are what keep most people in debt long after they paid off the original amount they borrowed! Why does this happen? For most, the answer is simple: read the small print. But, in the likely event that you won't, here's The Delasol Group's quick and dirty Primer on Interest Rates, at no additional cost!


Interest rates as they relate to saving money are good: the more you save, the more interest gets paid to you. But why do banks pay us interest? The answer is because people are essentially loaning their money to the bank when they open accounts. Your savings don't sit untouched until you make a withdrawal. Your bank uses your money to lend to other people, and when you need a loan, the bank uses someone else's money to lend to you. Confidence (there's that word again) is what allows people to trust that their bank will have their money when they need it. Paying interest is how your bank rewards your trust. If you are looking for somewhere to save money, you should always compare the interest rates on different accounts and consider the bank that has the highest rate of return.

Interest rates as they relate to credit hurt, rather than help you. You are charged interest for taking out a loan or mortgage or opening a line of credit (like a credit card or a charge/store card). It's required that a lender tell you how much interest you are responsible for. Often, you will see your interest obligation rise if you are late on or miss a payment. And, lenders determine the interest you pay based on your credit history. If you have struggled with making debt payments in the past, you will likely receive a higher interest rate. Think of it like this: your interest payments are how you reward the lender for giving you money to buy things you don't have the cash for, such as a home, an education or a spending spree (not advised until your cash flows are well -insulated from random economic shocks) Interest payments in this sense are the cost of borrowing money.



Prioritize Wants versus Needs. This one is simple in theory and difficult in practice. Hold on to your receipts for a week or two and then go back and see what you spend your money on and where you can cut back. Small purchases can be subsidized by ECONtrepreneurship in Action. Eating out too much? Make a better grocery list! Ballin' at Starbucks? Brew your own blend at home! Shop-a-holic? Mix, match and re-accessorize existing clothing to create new ensembles and buy clothing out of season! Take control of your lifestyle instead of allowing your lifestyle to control you.

What ways have you started saving in 2009? Tell us!