Economic Advice From A 14 Year Old

A message to my fellow American Citizens:

As the worldwide bubble we have been inflating for the past seven years slowly begins to deflate and history begins to repeat itself, the many who have been living seemingly perfect, credit-fueled lives will have to face harsh realizations. Homeowners whose properties have seen prices increase like never before will soon discover the consequences of near-negative interest rates imposed by the Federal Reserve, and those who purchased cars worth more than suburban neighborhoods with artificial money will have to go back to living with their Honda Civics.
The fact of the matter is that this has happened before. This is not the first time when stock price inflation, low interest rates, and rising house prices created an unsustainable bubble which encouraged nonsensical spending. It’s not that difficult to understand. Bubbles don’t last, they have to pop in the end and bring everyone down to earth.
We can not continue ignoring previous incidents and telling ourselves that such things can’t possibly happen again. For growth to occur, we must learn from our mistakes and change our actions accordingly to benefit ourselves in the future. So, today, I will be supplying you all with some helpful and possibly life-saving advice.
Credit– It’s like financial morphine; Extremely useful when you need it for something important, but when you use it when it’s not imperative, it becomes a substantial problem.
For example, if you have ambitions to create a startup or business of some sort but do not have the funds to do so, taking credit would be considered to be an understandable solution. However, if you want a $350,000 Ferrari or a $2 million house to show off to your friends but you are short on cash and want to take credit, then ask yourself this:
Do you really need that car? Or that house?
Yeah, most likely not.
Another common scenario involves people whose properties see massive price jumps. In bubbles, the mean house price generally goes up, meaning that this happens to almost everybody at some period in time. When this occurs, the proprietor thinks to himself:
“Hey, this is kinda cool. Since my house costs $500,000 and the price keeps rising, I guess that means I can go get a loan for $300,000 and I’ll be able to repay it easily.”
The problem is that these people forget to take into account the possibility of a sudden devaluation, in which case they would still have to repay the principal borrowed plus interest but with a property that is worth less than before.
When the world around you is buying and spending like never before, it becomes tempting to join the crowd, especially when interest rates are practically at 0% (or negative in some countries). And spending can be good, but just remember what happened in 2008. And 2000. And 1987. And 1929.

Everything is perfect, until it isn’t.

A Not-So-Secret Car Bubble–The story of 0-60, or 0-$6,000,000

I recently got back from a trip to France, and while I was there I decided to stop by Monaco, the place known by many as “The Millionaire’s Playground.” Before my visit, I spent a reasonable amount of time checking out pictures and videos of the cars and yachts that are commonly seen around the principality, but no amount of Youtube binge-watching could prepare me for how ridiculous the city-state’s citizens are when it comes to flaunting their wealth. To give you an idea of just how amazingly pompous this place actually is, here are a few of the cars that I saw there in a single day’s time:

car5

car4

car3

car1

car

As I basked in the awesomeness of the outrageous opulence of those around me, a realization came upon me. You see that red Ferrari in the first picture ? It’s an amazing car–it looks great, it has a top speed of 217 MPH, and it’s named after the founder of Ferrari himself. One would wonder what an automobile of these proportions would cost. Could it be $100,000? Or maybe $200,000? Or how about $500,000? Well, you’re close…sort of. At a recent car auction that took place in Pebble Beach, California, the same Ferrari model was sold for $6,050,000. Just take a moment to let that preposterous price sink in. Yes, someone spent over six million USD for a secondhand automobile. Although the Ferrari Enzo possessed the highest valuation, every single car pictured here has a starting price of well over $1,000,000 (with exception to the reasonably priced Porsche 918 which can be yours for only $845,000 without any add-ons).

If you are interested in learning more about vehicles you most likely can’t afford, then you can check out sites like this one or this one.

Moving on to a more important and possibly more relevant matter, which concerns the current automobile price-bubble that continues to inflate with every passing day. Before I begin, I would like to say that I am going to avoid discussing the costs of purchasing so-called Supercars, because we all know that the rich are always going to spend their money on overpriced vehicles. However, I am going to say that these absurdly exorbitant cars have been affected the most by the price spike that has been not-so-gradually inflating over the past ten years. I mean, seriously…$2.2 million! For a car! Throughout the course of history, there have been many overpriced cars, but even after adjusting for inflation using the totally accurate and not fraudulent U.S inflation calculator, no price tag could even come close to matching this figure. 

To further justify my statements, here are some facts taken from an article on jalopnik.com showing just how much car makers have raised costs of purchasing their vehicles:

Porsche 911
Price in 1965: $6,370
Price with inflation in today’s dollars: $46,795
Price new in 2012: $82,100


Jaguar XJ
Price in 1969: $6,465
Price with inflation in today’s dollars: $40,764
Price new in 2012: $73,200


Nissan/Datsun Z

Price in 1970 (240Z): $3,526
Price with inflation in today’s dollars: $21,029
Price new in 2012 (370Z): $33,120


Yeah..

There is undoubtedly a bubble here, and the real question we should be asking ourselves is: How much longer can it last? When will car manufacturers and buyers realize that prices are out of control? It likely won’t happen for a while, and considering the fact that luxury car sales are currently outperforming standard car sales, it’s just going to get more and more expensive. The only thing driving this price craze is the fact that car makers know that some people are willing to pay over $500,000 for a shiny sedan with enough horsepower to move a building.

All we can do for now is wait for the day when consumers realize that just because a car looks like a million bucks doesn’t mean it should cost that much.

Convenient Inconveniences- America’s Homework Dilemma

If you were to ask a student attending a high school in America what their least favorite thing about school was, homework would likely always be second on their list right after cafeteria lunches. Now, I know most adults reading this are tired of hearing teenagers complain about having too much homework while their bosses are yelling at them because their project is running behind schedule, but, as a high school student, I will tell you with total honesty that homework is a problem. To justify my vehement opposition towards homework and those who assign too much of it, I will try my best not to use the generic “I don’t wanna do it” and “It takes too long” complaints that so many of my peers love. To begin my rant, I would like to provide you with a fact taken from usnews.com which states that a survey of over 1000 high school teachers across America has found that teachers assign around 3.5 hours of homework per week. I know that, at first, this doesn’t seem so awful, but when you take into account the fact that most high school students have around 5-7 classes, you realize that some kids can find themselves with 24.5 hours of work to be completed outside of school. To put this absurd number into perspective, that’s more than an entire day of homework for every week. Although this is on the high-end of the spectrum, it is still a reality for many kids in America. This is, unsurprisingly, the origin of quite a few problems in the lives of students. Having to do more than three hours of homework per night leaves teenagers with little or no free time, especially if they have some sort of extracurricular activity to pursue (which in most cases, they do).
Assigning preposterous amounts of often needless homework is harmful because it minimizes the students’ time to learn new things on their own. Since the subject of finance is rarely mentioned in American high schools, a teenager may want to devote some of his/her spare time to learning about economics, investing, and other similar matters. However, it is very unlikely that a student will have enough time or will power to investigate these topics or engage in any other sort of activity after having done nearly four hours of homework. This is one of the main motivators for those who willingly dropped out of college to pursue their entrepreneurial dreams. Just take a moment to think about how flawed the system is if you have to give up on school completely to be able to do any extra work on your own.
One point that I would like to re-address is the lack of finance-related classes available to students in high schools. Sure, kids can go to investing clubs and young entrepreneur camps, but we all know that these never do much. Recently, while I was selecting classes for my upcoming school year, I noticed something strange. On the “course brochure”, there was a section for electives. Of the available electives, over 20 were arts-related (meaning that they had to do with either music, painting, architecture, design, and anything of this sort) while none of them concerned the subject of finance, investing, or business. And this isn’t a problem specific to the school I am attending. Out of all the many high schools I have visited during open houses, shadow visits, and exchange programs, none had a class directly associated with teaching economics. Another striking similarity between all of these high schools is that each and every one of them is infamous for supplying their students with an overabundance of daily homework. Now, what happens when teenagers are taught virtually nothing about finance in school and have no time to learn about finance on their own when they are not in school? We end up with a future generation that is completely uninformed on the subject of economics. A few months ago, we were learning about compound interest and about interest rates (Side Note: This was the only occasion during my three years in middle school where we got somewhat close to learning about economics) and the words “Stock Market” and “Wall Street” came up in our conversation. Almost instantly after these terms appeared, a student asked “What’s a stock market?” I’m not trying to make fun of this person for asking this question. It’s not their fault. The blame is on our defective educational system.
The more time you spend pondering this upsetting subject, the more evident it becomes that most knowledge concerning essentially important matters (such as stock markets and macroeconomics) can only be acquired through self education. What this gives us is a sort of filtration system where only those who are willing to learn on their own and deviate from the traditional educational model can have the opportunity to work with these concealed affairs.
Since there are a lot of things that can be implied and assumed with this topic, I’m just going to leave you with a quote spoken by someone who usually knew what he was talking about:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

-Henry Ford.