@Randem

I remember cringing every time I heard President Bush utter that phrase — “the American dream of homeownership.” It always rubbed me the wrong way. (Sorry, Mr. Bush, The American Dream stands for something much bigger than owning a home.)

So how has that all worked out for us? An op-ed in the New York Times seems to think not:

Owning a home lies at the heart of the American dream.” So declared President Bush in 2002, introducing his “Homeownership Challenge” — a set of policy initiatives that were supposed to sharply increase homeownership, especially for minority groups.

Oops. While homeownership rose as the housing bubble inflated, temporarily giving Mr. Bush something to boast about, it plunged — especially for African-Americans — when the bubble popped. Today, the percentage of American families owning their own homes is no higher than it was six years ago, and it’s a good bet that by the time Mr. Bush leaves the White House homeownership will be lower than it was when he moved in.

Now, as the real-estate market still hasn’t found its bottom, and foreclosures keep coming in, homeownership will be the domain of investors, and I argue that greater percentage of American families will rent, rather than own, when compared to the numbers before Bush decided to take credit for housing.

Big kudos to the creators of Budget Hero, the awesome federal budget simulator. One quick round of Budget Hero has a tendency to demystify all that federal budget deficit blather we hear all the time.

But here’s the thing: my biggest success came on taxes. Specifically, it came by repealing the Bush tax cuts, by capping and limiting greenhouse emissions, and by adding $0.50 to the federal gas tax. The first two are no-brainers, but that last item might bother some people.

Raising the gas tax, however, is something I strongly believe in. It would be better for the economy, better for national security, better for the budget, even better for business.

First, by making it more painful for consumers to burn gasoline, we discourage it, which reduces our dependency on foreign oil. Hummers and Escalades and other enormous SUVs will be traded, sold, converted, or sit and rust.

The second effect of increasing the pain at the pump is increased motivation for investment in alternative energy sources. Look, it’s not a search — solar power, electric power, ethanol, and natural gas are already here, but far too few people are switching. It’s still easier for people to come up with the money for gasoline than it is for them to change to a new fuel system.

A third result of increased gas tax is increased competition. This doesn’t really matter much to me, but there are a lot of people who hate the idea of Exxon-Mobil making a profit when they sell you gasoline. A $0.50 hike in prices across the board would put pressure on gas stations to keep prices lower, lest they lose business.

Fourth, it adds incentives for cities to develop or improve mass transit systems. There are too many cities where people would love to commute, but there are no options for doing so.

Oh, and let’s not forget the environmental impact of burning less gasoline.

The real issue for me, however, is competitive advantage. The economic position of the US has been slipping. We’re sinking from our position as the global leader. Raising gas tax changes that. Increased federal revenue means less borrowing. Increased innovation means industrial leadership. Oh, and a big one for me: new jobs working in these alternative energies — jobs right here in our country, rather than in India or China or Mexico.

But enough of my argument for increased gas tax. Go play the game. See what you can learn about our economy. Get a real feel for the tragic impact George Bush has had on our country, and get an idea of some of the easy and innovative things that can be done to fix it.

We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.’ — Warren Buffet

I’ve often thought about how much work I’ve had to put into learning about finance. I’ve read numerous books, spend endless hours researching online, and irritated numerous business school graduates with my questions. And there have been many occasions when I thought to myself that this is such an important part of life, and wondered why we don’t learn it in school.

I had a basic economics course in high school, and I remember thinking that I didn’t learn anything from it. It was dumbed down, as if we wouldn’t understand. Kids aren’t bored by economics because they don’t understand it, they’re bored because the curriculum is too easy.

When I see that a sixth-grade teacher wants to teach his student about finance, I find it encouraging. But at the same time, I find it equally scary that even this well-intentioned teacher doesn’t really know what they need to learn about. So this prompted me to ask myself, what do I wish I had learned about finance when I was in school?

Balance sheets
The first, most important thing to understand about finance is the balance sheet: assets and liabilities, income and expenses. It seems to me that too many Americans don’t understand the simple concept of the importance of spending less than you earn. Everyone seems to think this is obvious, common knowledge, but so few people actually follow it, and I believe that’s because too many consider their credit cards or their homes as assets.

I know that a lot of people have a lot of opinions about the book, but Rich Dad, Poor Dad seems like the perfect introduction to assets and liabilities at a sixth grade level. There is nothing complicated in that book, and it really drives home the simple concept of putting your money to work for you, and paying yourself first. I see no reason why a sixth-grader couldn’t learn a great deal from exposure to that book.

Rules of thumb
Rules of thumb are easy to remember, and they tend to serve us well. I can think of a few rules of thumb that used to be common knowledge, but seem mystical in today’s world.

For instance, the sub-prime crisis would never have happened if everyone knew the rule of thumb that your house payment should be no more than 25% of your monthly income. How many unemployment claims could be avoided if everyone kept an emergency fund equal to six months expenses? And nobody would be talking about a Social Security crisis if everyone remembered to put 10% of every paycheck into savings.

The magic of compound interest
Any sixth-grader can understand multiplication. There’s no reason they couldn’t grasp the concept of compound interest, if it was explained to them.

There are two sides to compound interest. On the positive side you have investment, where you make your money work for you, each year better than the last. On the negative side, you have inflation, where each year your money is worth even less than it was the previous year.

In both cases, earlier is better. If teachers could get students excited about compound interest as early as sixth grade, maybe those kids would be more diligent about saving and investing as early as possible, and we would no longer need things like Social Security in this country.

What else?
The last thing that really stands out to me is the intimidation factor. It is human nature to be afraid to try things you haven’t done before. If a teacher could show the kids how easy it is to open a savings account or a money market account, or how to invest in an index fund, it would take the intimidation out of the process. And maybe you’d have a bunch of sixth-graders running home and asking their parents to set them up now!

Lazy Man stole the words right out of my mouth this morning:

Articles like these remind me how it is the possessions that own you. While a home is one of the better possessions you can buy, it’s odd that it can turn into a jail. It’s another reason why having money isn’t always about the money, but about the freedom of choice is allows.

“The things you own end up owning you,” and “money doesn’t buy happiness, it buys freedom”… two mantras I’m fond of reciting, and he used them both in one paragraph!

I was just playing with this neat little data-mapping tool that displays housing costs and transportation costs mapped across regions. When looking at the Chicago area, I made a few interesting observations.

My first observation was, of course, the one they’re trying to get you to make: when you factor in transportation costs, living in the city is more affordable than living in the suburbs. I don’t doubt this to be the case, considering the astronomical cost of owning a vehicle, insuring the vehicle, and fueling the vehicle, in comparison to the very affordable cost of public transportation in a city like Chicago. Getting rid of my car has worked out to be one of my best financial decisions.

On a strictly monetary scale, living within the city of Chicago and using only public transportation appears to be the most affordable choice. It would be naive to accept that data alone, however, since other considerations will apply, for instance, if you have children. I’m sure we all have our theories about schools, parks, and crime in cities vs. suburbs, but all I’m going to say about that is that those data are quite absent from the mapping tool.

My next observation, however, was that the map colors didn’t invert as I expected them to when I switched to only mapping housing cost without transportation. In other words, based on their data, housing costs are higher in the suburbs regardless of transportation costs. (Granted, the data is mapped as a percentage of median income, rather than by dollar amount, but it seems that median income should be a reasonable number to use, since it factors out the extremely high and extremely low numbers on either side.)

I was rather surprised to see that. I’ve always been under the impression that the suburban home was less expensive than the urban home. That may still be true by the square foot of living space, but it’s not true on overall cost of ownership — with or without the cost of transportation.

And the final observation I made was that suburban life appears far less sustainable, financially speaking. The graph separates areas into two groups: those where housing costs 0-30% of median income, and those where housing costs more than 30% of income.

The rule of thumb, for what seems like forever, has been that your mortgage payment should cost no more than 25% of your income. Before the sub-prime mess started, that was the rule banks used to decide whether or not to approve a loan.

So even if we round that number off to 30%, we’re still looking at a scary proposition: most of those families in the suburbs are in over their heads just on housing cost. Then, if you factor in transportation costs (which the map allows for up to 48% combined) and the rising cost of gasoline, it’s hard to imagine how suburban families make ends meet each month.

Depending on how this whole sub-prime mess turns out, this could easily foretell the coming of lots of suburban slums, even while the inner city (long considered a euphemism for a slum) becomes the high-end place to live. What I’m really curious about now is what roles crime and education will play in all of this.

The Freakonomics Blog takes a look at the early warnings of Itzhak Ben-David, who seems to have seen this whole mess coming a mile away. I wonder why nobody else did.

Woops. April Fools.

Recent headlines have trumpeted the 2.9% increase in housing sales for February as an indication (aimed at people like me) that the housing market is back. But this is cherry-picking data at its finest. This is month-over-month data, which The Street knows is not the whole picture:

Year-over-year February sales were down nearly 24%, which hardly seems to paint a picture of a market that is luring back buying. But since the Journal used the word “lure” and is talking about a near-term development, let’s look at those January to February numbers in the proper perspective. Remember: we need to see whether there is a typical seasonality to them. And guess what! There is. Over the past four year, February sales have been more than 7 times greater than January sales. That means this year was less than half as good.

Wait a second… so if I’m understanding this correctly, that 2.9% increase is really a phenomenal decrease, when compared to last year’s month-over-month data. If this was a stock, that would be a flashing red light to “sell! sell! sell!”

What were people thinking?

And when that picture happens to be a graph of the declining personal savings in the US, I’ll bet the majority of those 1000 words are spelled with four letters.