It is Not the Drill That You Want, it is the Hole

Hole not Drill

I have to start off by giving credit to Harvard Professor Theodore Levitt as the title of this post is a derivative of something he said.

Did you know that when someone buys a drill in the U.S. the average use of the drill is a total of 12 minutes over the total time of ownership?  12 minutes.  I just did a quick search for Dewalt Drill.  I came up with a cost range of between $99-$439 for a new drill.  At the low end of the range ($99), based on using the drill for 12 minutes, the per second cost for the drill is $.14, the per minute cost is $8.25.  This is a great example of a product that typifies our hyper consumptive behavior.  We feel like we need products to make life more convenient.  But, as mentioned in the title, we don’t really need a drill, we need the hole.  So what if your neighbor down the street has a drill?  Two blocks from my home there is an octogenarian that is retired and works a lot with wood.  He has lots of tools and depending on the project we may run down the street to borrow a tool or seek guidance.  This is convenient for our family.  If it were not convenient, or if our friend did not have the options (tools) that we needed, we may go out and purchase these tools.

If I hang a picture in the home, I need a hammer.  If I replace a battery in a child’s toy, I need a screwdriver.  If my kid puts a hole in the wall, I need a putty knife, sandpaper, and a paintbrush.  If these items are not convenient for me to access it is likely that I will feel the “need” to purchase these items while their use over their lifetime may only be 10-20 minutes.  Does it make sense to own these products?  Dewalt thinks so, as do myriad home improvement product brands.  But when you look at ownership for an average person more analytically, it is hard to justify owning a drill when your per minute cost is $8.25.  Alternatively, could tools be shared amongst neighbors?  What if there was a company that subsidized tool cost for a neighborhood member and shared revenue with them to rent tools to other neighborhood members?  Doing yet another quick search I found “ShareMy Toolbox” an app that looks to facilitate this type of tool sharing.  There is that is a web portal designed to allow communities to organize there own sharing networks.

Somewhere in the last 40 years we were convinced that we needed to personally own lots of stuff.  In the 90s I became a fan of a quote from a movie by @chuckpalahniuk, “You are not your job, you’re not how much money you have in the bank. You are not the car you drive. You’re not the contents of your wallet. You are not your f*&%ing khakis.”  Even though we may like the idea of not feeling a need to consume, to buy wantonly, to accumulate things, we are products of a marketing machine.  We are constantly barraged with marketing messages telling us to buy.  It is hard not to think, “I need a new phone,” simply because of new features when your current phone is very much functional.

The reason I’m talking about hyper consumption on a financial education blog is that many of our financial problems stem from a “need” to consume.  See the below chart from the Bureau of Labor Statistics:


The average income BEFORE taxes in 2014 was $66,877, and the average expenditures were $53,495 in the same year.  What happens when we look at the post tax numbers?  See the chart below from the Peter G Peterson Foundation:

Tax rates

If we take a blended average of all five quintiles (notice the top quintile is divided into five parts) we get 11.448% of income is taxed.  This means that the take home pay of the average American is $59,221 and we are spending $53,495.  We are saving about 10% of our income annually on average.  Some say that this is the rule of thumb for saving.  Let’s look at saving from a different perspective, how much do we need to save, and for how long, in order to reach financial freedom?  This requires goal setting and can be complimented by taking advantage of collaborative consumption behaviors.  We touched on this earlier, but “collaborative consumption is an economic model based on sharing, swapping, trading, or renting products and services, enabling access over ownership.” @rachelbotsman

If we simply saved $5,726 per year and earned a modest return of say 5% annually, with annually compounded interest after 10 years we would have a balance of $84,949.  Two years of retirement would deplete the balance.  After 30 years at that same savings rate, and rate of return, we would have $424,198, this stretches our retirement to 8 years.  Push it all the way to 50 years and the balance would be $1,324,325, now we can comfortably retire (at age 70 with roughly 25 years of retirement).  But what if we employ collaborative consumption?  What if instead of owning a car we can reduce this annual expense through ride sharing platforms?  What if our food expenditures are reduced because we participate in a land sharing platform where communities share in the cultivation of fresh foods? What if we spend less on clothing and accessories because of collaborative consumption? To our earlier point, other expenditures can be reduced if we collaboratively consume household items that get very little use as individual consumers.  Can we push the average savings rate to 20%?  At 20% after 10 years we would save $169,898 (and because our spending rate decreases from $53,495 to $47,769, we stretch the non working time further to 3.5 years).  At 20% after 30 years we would save $848,395 (17.8 years of retirement).  At 20% after 50 years we would save $2,648,650 (55 years of retirement if we lived that long).

The point here is that participating in collaborative consumption can create significant quality of life changes simply by having access to things rather than having to own them. Many of these types of services for collaborative consumption exist today.  Feel free to view this list of the collaborative consumption opportunities near you.

Think creatively about saving money.  If we can’t save more through limiting traditional expenditures, maybe the key is leveraging collaborative consumption models.




Musing About Ideas for Financial Inclusion

Other Half

In 1890 Jacob Riis published “How the Other Half Lives,” an indictment of the horrific tenements of New York that lead to a significant housing reform movement.  I recently concluded the reading of a book titled, “How the Other Half Banks” by @MehrsaBaradaran an indictment of the U.S. banking system excluding a significant portion of the U.S. population from traditional financial services.  Full disclaimer, the author is a friend of my sisters but she was nominated for a Pulitzer Prize so I am not just referencing the book for the aggrandizement of a family friend (frankly, I am not sure I have ever met her).  The book is about financial inclusion.  In the United States almost 28% of the population is unbanked or underbanked. Unbanked meaning that a person doesn’t participate in the financial system at all, operating solely in cash, and underbanked meaning the person participates in non-traditional financial products such as check cashing services, loan sharks, and pawn brokers.  “The answer to the implicit question contained in [Baradaran’s] title, ‘How the Other Half Banks,’ is simple: The ‘other half’ hardly banks at all.” (Nancy Folbre, NYT)

We could dive into significant detail on how we have managed to let this happen in the U.S., but suffice it to say that de-regulation of the banking industry allowed banks to ignore potential banking customers that would not produce profits for the bank.  If you put your businessperson’s hat on, you may think that this makes sense; customers that don’t make money typically aren’t foundational to a sustainable business.  So, why should a bank see customers any differently?  Herein lies the rub.  Baradaran argues that bank and country are inseparable.  This was made particularly evident in the 2008 financial crisis wherein the U.S. Federal Government committed $16.8 trillion to relief in the wake of mass mortgage defaults and financial instruments tied to mortgages going toxic with gargantuan piles of money doled out to the biggest banks to prop them up.  Clearly, the government has an interest in making sure that the banking system doesn’t fail.

In wake of the crisis there has been a significant increase in bank regulation.  The question becomes, is the government support and regulation of the nations largest banks designed to serve the best interests of our nations people?  With this level of support could not policy makers insist on the creation of products that meet the needs of our nations underbanked and unbanked?

Interestingly, for some time there was an alternative banking system (by today’s standards) that assisted this segment of the population; and it functioned quite well. Postal banking existed in the U.S. from 1871 to 1966.  You guessed it, your local post office doubled as a bank.  Postal banking very well could be a solution for the underbanked and unbanked.  “…the post office inspector general’s office, a small regulatory branch of the post office, issued a White Paper report in January 2014 proposing” postal banking for the present.  But “…the postmaster general has not publicly supported the proposal and no congressional committee has seriously considered postal banking.” (Baradaran)  Thinking purely from a business perspective, with a public/private joint venture, the existing post office infrastructure could provide a significant opportunity to offer right market fit products for the underbanked and unbanked.  I mention this because if the right people get thinking about solving this problem, even if this post is just something that sparks further research, a solution means significant improvements to quality of life for almost 90 million Americans.

I’m going to make a serious transition here.  The book got me thinking about payday loans.

Ideas are in the ether and we can pull them down and do something with them or wait until someone else does.  I’m going to claim pulling this one down (although I may not be the first) and put it out there into cyberspace for the thinkers and executioners of the world.

Machine learning is a huge part of the direction of technology based businesses at the present.  Machine learning refers to a subfield of computer science that studies pattern recognition and computational learning in artificial intelligence.  Translation:  your computer learns things about you without anyone specifically instructing it to do so.  An example would be that you are shopping on Amazon and you shop for a pair of running shoes.  Amazon delivers up a list of products that were shopped for by others who shopped for this same pair of running shoes.  See below:


This list is customized by what Amazon’s machine learning algorithm knows about you. These suggestions often get you to buy more.  Amazon leverages data and machine learning to make your shopping experience more efficient and pleasant.

Think about payday loans in the context of machine learning.  Payday loans as they exist today are predatory by almost any sane measure.  Interest rates can be up to 1900% per year.  What if you created a machine learning algorithm that assessed risk of default on payday loans?  You could use a FICO score as a baseline and build on top of this (but I would imagine that poor FICO scores are fairly common among the underbanked and unbanked, this being said, you could add the factors that FICO uses into your algorithm). Factors that could be included in the machine learning algorithm could be:

  • job stability
  • marital/family status
  • level of education
  • browsing history information
  • keystroke efficiency measurement

You could even create an algorithm that measured the potential client’s reason for the loan to help evaluate risk.  This list is by no means exhaustive but hopefully it serves to illustrate the thought process.

For the record, companies are working on the above right now.  This is not new thinking.

Perhaps the business model is new:  Your client registers online and provides all of the above information during the application process.  You as the business owner have contractual relationships with ATM (Automatic Teller Machine) networks for integration of your product.  In other words, if you approve a client for a payday loan (perhaps from their mobile phone) they can then go to the closest network ATM to retrieve their loan using a 16 digit code you text them upon approval.  Eliminating the need for brick and mortar payday loan locations reduces operational overhead significantly.

Now, for the social good element.  Each time a client repays their loan as agreed, any subsequent loan accounts for the previous repayment of a loan.  The risk profile improves and as a business you can make a loan to this same client with greater confidence that it will be repaid.  The typical payday loan starts at almost 400% annually, but by employing an efficient risk management algorithm a business may be able to cut this rate in half on the 2nd loan, maybe to a quarter on the 5th loan, and so on.  This allows a person in a tough situation to dig themselves out rather than perpetually be in debt to ruinous payday lenders.

There you have it in brevity.

What do you think about this business idea?  What do you think about postal banking?Leave a comment below.


Is Blockchain as Big as the Internet?


Most people have heard about bitcoin at this point.  But what is Blockchain?  Blockchain is the underlying technology for bitcoin.  Now, before you glaze over and think that this will be an overly technical blog post, I assure you that it is important that you read further. Blockchain may very well be the “next big thing” in business innovation.

In the late nineties people got excited about the internet but weren’t quite sure what it was going to be.  In fact, there were many skeptics that didn’t think it would be much of anything.  Check out these headlines from the late nineties:

“Computer ‘WEB’ to Change Billions of Lives (Yeah, Right)”  Paul Krugman of the New York Times

“The Internet, Bah!” Clifford Stoll of Newsweek

“From the Ether: Predicting the Internet’s Catastrophic Collapse and Ghost Sites Galore in 1996” Bob Metcalf of InfoWorld

We all know how that turned out.

Think of Blockchain as technology that allows virtually foolproof record keeping.  Our economy requires trust to operate. Trust is required to give our currency its value, trust is required to believe products will do what they say they will do, and trust is required to buy online and have confidence you will receive the paid for product.  Today we have lots of controls to encourage trust:  the Federal Reserve is a central authority and institution of trust for all using the dollar in the U.S., consumer protection agencies protect consumers in the event of false advertising, and the ability to claw back a credit card transaction if a retailer does not deliver a purchased product.  Blockchain can become the new trust model for world economies.    See the following quick video on: Understanding the Blockchain in Two Minutes.

Blockchain has 4 qualities that make it a compelling solution with significant applications across industries:

  1. it is a distributed ledger
  2. it is public
  3. its entries are time-stamped
  4. it is persistent or lasts forever
Vector seamless pattern. Repeating geometric background. Abstrac

A distributed ledger is not vulnerable to the same kind of attacks as a centralized ledger.

Let’s talk about these 4 qualities in the context of a payments system for the sake of narrowing the conversation.  Today the Federal Reserve in the U.S. issues currency, in fact in 2016 the Federal Reserve will print 7.6b notes for a total value of $213b.  This is cash injected into the economy through banks.  Banks are where the average consumers get access to this cash (typically through their employer’s payroll).  We must trust that banks are not vulnerable to cyber attacks, theft, and that their accounting procedures are appropriate.  And what if they are not?  In 2011 Citibank was “hacked” and over 200,000 customer’s data was leaked.  Citibank is what we would call a centralized ledger.  Their database houses all of their customer’s information and transaction histories.  If a hacker breaks in, well, they will steal all they can before the breach is identified and they are stopped.  Blockchain on the other hand has no single point of failure.  Blockchain is as strong as all of the computers (nodes) that are using the network.  As you can see in the picture above each single point or node is connected to many other nodes.  If one node is attacked then the other connected nodes will simply continue on as if nothing happened.  The risk of foul play decreases as more “good” nodes participate in the network.  The only real risk is when a “hacker” or group of “hackers” control over 50% of the computing power of the nodes on the network.  This is a little bit of an apples to oranges comparison but I will address this in the next paragraph.

The Blockchain’s distributed ledger is public.  Wait, so all of my personal information, account numbers, and transaction histories will be public?  No, and yes, blockchain uses a public and private key system to access the network to protect your personal identity, the equivalent of an account remains protected, and yes, your transaction history is public, while your identity associated with this transaction history is private.  Let’s say the Federal Reserve issued a digital currency on a Blockchain network instead of pushing the physical currency out through banks.  A person accessing this cash to redeem it for goods and services would have a private key to access your currency and your public key (a string of numbers) would be displayed along with the corresponding transaction history for all users on the network to see.  Therefor, your identity is private, the equivalent of your account is private, but everyone can see what you, or your public key, has done on the network.  This protects all users against double spending, and speaks to the earlier point of a sound network, unless over 50% of the processing power of the nodes on the network is controlled by “bad” people; because the only way for the public ledger to be corrupted is for over 50% of the computing power on the network to start re-writing the transaction history.  This is improbable because the group controlling this much computing power would have to re-write the history in the plain sight of all the other users.

Continuing with our example of the Federal Reserve issuing digital currency on a Blockchain network, at the time when currency is issued into the system there is a time-stamp showing the entry.  Additionally each time that a user (identified as their public key) transacts on the network there is a time-stamp of their activity.  The first transaction from a user is always the honored transaction.  Comparing this to how banks function today, a bank is the authority over the central transaction history or ledger.  Their technology, or in some cases their employee, identifies attempts at double spends or double charges and reconciles what is correct or incorrect.  Most of the time they get it right, but some of the time they get it wrong.  The Blockchain acts consistently and unequivocally.

Finally, the Blockchain is persistent, or in other words, it lasts forever.  Well, barring a worldwide EMP (Electromagnetic Pulse) knocking out all electricity and digital records, it lasts forever.  The point here being that we are no longer bound by physical instruments of value and record keeping.  Physical cash degrades, is damaged, is lost, digital currency does not.  More importantly the distributed ledger builds on itself and maintains an accurate record of ownership and use into perpetuity.

We have discussed how Blockchain may change our conventional payments system, but what other applications may Blockchain have:

  1. instant stock trade settlements (no longer a need to use traditional bank settlement systems that can take days, sometimes weeks)
  2. privacy preferences (linking only what you want to have shared to your public key)
  3. humanitarian aid (no longer has to pass through currency exchange)
  4. voting (we will no longer need to have a re-count in Florida)
  5. digital media protection (original works become an entry in the blockchain and all other use after that requires a use agreement)
  6. property titles (no more title insurance, no more duplicate title requests)

These are just a few of the myriad applications.  It would be great to hear some of your thoughts around potential applications.

So, is the Blockchain as big as the Internet?  Just like the internet in the 1990s, Blockchain has its fair share of skeptics, but in my humble opinion it has every possibility of being equally transformative.  Blockchain can change almost every industry and the underpinnings of business itself.


The $600b Market You Haven’t Heard Of


Depending on your circle of friends you may or may not be acquainted with this mega industry.  If you have first generation immigrant friends or you are a first generation immigrant you almost assuredly know about remittances.

Remittance:  the sending of money to a recipient at a distance.

So, most typically this doesn’t mean crumpling up a dollar bill and throwing it across the room to your friend.  Remittances typically refer to sending money cross border from one country to another.  Given that the worldwide remittance flows are approaching $600b you may have guessed that such transactions happen a lot.  By recent estimates there are 232mm international migrants; or people living in a country other than there country of birth.  If international migrants were a country their population would be larger than the population of Brazil.

Why does this matter?  Well, particularly for those living in the U.S. today, at one time or another almost all of us were international migrants.  Some of our ancestors came to the U.S. as indentured servants, still more came as slaves, and barring Native Americans who got the rawest deal of all, everyone was an international migrant.  We forget that we are a country of international migrants and sometimes our level of sympathy for first generation international migrants is not nearly where it should be.  Surprisingly, about 3 of 5 people that I talk to don’t know what remittances are.  I have a fairly diverse group of friends, but apparently awareness around remittances is deficient.  Why should all of us know what remittances are?  Because if we don’t, we are not aware of one of the most significant lifelines to developing countries that exists in the world today.

In 2012 people living in the U.S. sent $123b dollars to other countries in the form of remittances.  If the amount of remittances sent from the U.S. was a world economy it would be the 61st largest economy in the world among 195 measured countries according to the CIA World Factbook.  Pew Research Center compiled an interactive map of remittance flows, the U.S. flows are shown below:

Screenshot 2016-05-12 14.24.53 copy

Remittance Table

Now that we are aware of remittances.  Are they a good or a bad thing?  Not surprisingly, it depends on who you ask.  Many small minded people take a simple approach, if it means that money is moving out of the U.S. economy to be used elsewhere, it must be a bad thing.  Refer back to the earlier comment about virtually all of our ancestors coming from other places before arriving in the U.S.  Taking a more holistic approach let’s consider the following pros and cons:

Remittance Pros-Cons
Pros and Cons from IZA World of Labor

The Cons listed above really have more to do with use of funds than they have to do with the funds themselves, with the exception of the curtailment of remittances which really means that it would adversely affect those that had developed dependency.  Apart from perceived risk around ill gotten funds i.e. drug money moving cross border, the argument against remittances isn’t terribly robust.

There is a great TED talk by Dilip Ratha (@DilipRatha) wherein he talks about coming from a small Indian town called Sindhekela and were it not for the financial assistance of his aunt he would not have been able to attend college.  When he came to the U.S. for graduate studies he worked doing research and, with what little money he made, he would send some home to his brother and father.  He is now a visiting fellow at Harvard University.  He describes remittances as:

“dollars wrapped with care. Migrants send money home for food, for buying necessities, for building houses, for funding education, for funding healthcare for the elderly, for business investments for friends and family. Migrants send even more money home for special occasions like a surgery or a wedding. And migrants also send money, perhaps far too many times, for unexpected funerals that they cannot attend.”

Dilip Ratha’s TED talk

Remittances account for 42% of the GDP (Gross Domestic Product) of Tajikistan and 35% of the GDP of Somalia.  From 1995 to 2005 the rate of poverty in Nepal dropped from 42% to 31% believed to be due to remittances when 2005 was a peak time in Nepal for financial challenges.  In other words support from foreign family and loved ones did not decrease in tough times rather they were the difference between poverty and subsistence.  Remittances are the developed world’s person to person contribution to providing financial opportunities for the worlds poor.

Ask yourself, if your loved one was in need, would you not step to their aid?  Being empathetic helps us all to seek solutions to the worlds problems.  Remittances from country to country are fairly expensive taking money from the world’s poor that could be used for all of the above described positive reasons.  The average cost to send $200 is 5.9%.  $11.80 of $200 just to move this money from a loving family member to a recipient in need.  Collectively we can come up with cheaper and more efficient ways to facilitate this process and be contributors to buoying up our fellow citizens of the world.


El Valor de Dinero y bitcoin

Island of Yap

¿Ha pensado por qué el dinero tiene valor?  ¿Es la composición?  Estoy convencido que si fuera al mercado con un papel de algodón blanco no podría conseguir mucho, pero si imprime ingeniosamente la imagen de Benjamín Franklin en el mismo papel de algodón con algunos números, tendría dinero.  Entonces, ¿por qué un billete de $100 tiene valor?  Si está pensando en el estandarte dorado, pare, en E.E.U.U. dejamos de usarlo en los 1930s.  En cuanto a eso, ¿por qué tiene valor el oro?  Es bello, pero no lo puede comer.  El oro no tiene mucha utilidad a menos que lo cambie a un instrumento de uso. La respuesta es que el dinero y el oro tienen valor porque les damos valor.

La foto superior de ciudadanos de Micronesios de la Isla de Yap revestidos con faldas de hierba tiene sentido.  Si la mira bien puede ver un par de piedras grandes al fondo.  Estas piedras son el dinero de ellos.  Hace cientos de años la gente de la Isla de Yap encontraron un gran depósito de piedra caliza en una isla vecina.  Tallaron la piedra caliza en enormes discos de piedra e instantemente tuvieron dinero.  Ahora el dinero de ellos es interesante porque no tiene realmente que cambiar de mano para una transferencia de valor.  De hecho, según la tradición verbal de la Isla, había una vez un barco que estaba regresando a la Isla de Yap llevando una de estas piedras grandes y antes de que llegaran hubo una tormenta que tiró la gigante piedra caliza tallada desde el barco hasta el mar.  Los islandeses decidieron que los dueños de la piedra todavía eran los dueños sin que importara la locación. Es por ello que esta piedra está actualmente en circulación aunque resida en el fondo del mar.  ¿Por qué tienen valor estas piedras calizas?  Porque los Islandeses les dieron valor.

Entender porque el dinero tiene valor es fundamental para entender el valor de bitcoin.  Desafortunadamente llegué tarde a la historia de bitcoin y si hubiera llegado temprano tal vez tendría mucho dinero en bitcoin.  1 bitcoin tiene el valor de $449.02 en el tiempo de escribir este Blog.  Actualmente hay 15,500,000 bitcoin en circulación por un valor total de $6,959,810,000.  Casi 7 billones de dólares.  ¿Y por qué la criptomoneda tiene un valor de 7 billones de dólares?  ¡Porque le dimos este valor!

En 2008 Satoshi Nakamoto (un nombre creído ampliamente como un apodo para el creador anónimo) publicó un papel titulado, “bitcoin: un amigo de otro sistema de dinero electrónico.”  El concepto detrás de la criptomoneda era que este almacén de valor (dinero) no se basaba en la confianza (como en el caso de los Micronesios que confiaban en que una de sus piedras calizas quedaba dejado del mar pero todavía estaba en circulación), más bien en transferir bitcoins que están en circulación verificados por cada bloque en la cadena de bloques.  Vamos hacia atrás.  Los primeros en adoptar los bitcoins usaron los computadores para “minar” bitcoins.  Este proceso de minar consistía en descargar un programa a la computadora y usar la unidad central de procesamiento para resolver problemas de matemática. Al cumplirlas, recibían un bitcoin como galardón.  Desde los primeros días, los fabricantes de hardware han diseñado chips de ordenador específicos para cumplir esta función de minar (resolver problemas de matemática) 100 veces más rápidos que las unidades centrales de procesamiento de las computadoras.  Los mineros minan hasta que cumplen un bloque (una cantidad de bitcoins) y entonces empiezan a minar un bloque nuevo.  Como el tiempo de escribir este Blog, hay 67,168 bloques en la cadena de bloques.  (Puede ver un video en Inglés del proceso de minar aquí).  Las transacciones se comparan con los bloques existentes por los mineros promedio de terminales informáticos distribuidos que realizan una medida descentralizada de protección contra el fraude.

Para los puristas de bitcoin el encanto de la tecnología es que no requiere un banco central (tal como la Reserva Federal en el E.E.U.U.) para gobernar la moneda, más bien, el proceso de autentificar descentralizadamente, del que hablamos arriba, permite que todos los participantes de la moneda tenga una parte en un intercambio seguro de un amigo a otro.

Olvide lo que ha escuchado de bitcoin y de internet oscuro.  Si no ha escuchado sobre esto, olvídelo.  El valor verdadero de bitcoin y el movimiento de monedas digitales, popularizado en gran parte por bitcoin, es que en algunos casos el intercambio de valor no requiere costos de transacción.  Muchos de los que están leyendo, tal vez piensen que cuando pagan con su tarjeta de crédito tampoco tienen costos de transacción.  Sin embargo, pagan costos de transacción como consumidor, realmente está pagando casi 3% cada vez que pasa la tarjeta.  Visa y Mastercard imponen estos costos sobre los mayoristas y minoristas que pasan los costos a los consumidores.  Piense, también, en los pagos cruzando fronteras de país a país. Hay beneficios significativos usando bitcoin, ya que reduce los costos en más del 10%.

Hablar es más costoso que innovar en los sistemas de pago aceptados universalmente.  Mientras escribo, la Reserva Federal está mirando 12 propósitos finales de algunas compañías que serán una solución más rápida para pagos para la Reserva Federal.  El cambio viene.


bitcoin and the Value of Money

Island of Yap

Have you ever thought about why our money has value?  Is it composition?  I am pretty sure that a blank piece of cotton paper would not get you much, if anything, at the grocery store, but artfully print Benjamin Franklin on that same cotton paper with some numbers on there and you have money.  So why does a $100 bill have value?  If you are thinking gold standard, don’t, we stopped using it in the 1930s.  For that matter, why does gold have value?  It is pretty, but you can’t eat it.  Gold has very little utility unless you fashion it into some kind of useful tool (not jewelry).  The answer is that money and gold have value because we give them value.

The above picture of the grass skirt clad Micronesian citizens of the Island of Yap has meaning.  If you look closely you can see a couple of very large stones in the background.  These stones are their money.  Hundreds of years ago the people of the Island of Yap found large limestone deposits at a neighboring island.  They carved these limestones into huge stone discs and viola they had money.  Now their money is particularly interesting because it doesn’t actually have to “change hands” in order for the value of their money to be transferred.  In fact, according to the Island’s verbal tradition there was once a boat that was returning to the Island of Yap carrying one of these giant stones and before arrival they passed through a storm forcing the hulking carved limestone off the boat and into the sea.  Well, the Islanders decided that the owners of the stone still owned it regardless of its location, so, this stone is currently in circulation on the Island even though it resides on the ocean floor.  Why do these giant limestones have value you may ask?  Because the islanders give the stones value.

Understanding why money has value is fundamental to understanding the value of bitcoin.  I was late to the story of bitcoin and unfortunately so because if I were early I might have a nice bitcoin nest egg.  1 bitcoin is worth $449.02 as of the time of this writing.  There are roughly 15,500,000 bitcoins in circulation for a total estimated value of $6,959,810,000.  Almost $7b dollars.  Why is this cryptocurrency worth a whopping $7b?  Because we gave it that value!

In 2008 a paper was published by Satoshi Nakamoto (widely believed as a moniker for the anonymous creator) titled, “bitcoin:  A Peer-to-Peer Electronic Cash System.”  The basic concept behind the cryptocurrency was that this store of value (money) did not rely on trust (like the Micronesians having to trust that one of their limestones was on the bottom of the ocean but still in circulation) rather, bitcoins in circulation could only be transferred with verifications coming from each block in the blockchain.  Let’s back up.  Early adopters of bitcoin used their computers to “mine” bitcoins.  This mining process meant that they downloaded a piece of software and used their computer’s CPU (Central Processing Unit) to solve math problems and were issued bitcoins as a reward for solving these problems.  Since the early days hardware manufacturers have designed specific computer chips that perform this mining function (solving math problems) at roughly 100x the speed of your computer’s CPU.  Miners mine until they complete a block (a number of bitcoins) and then they start to mine a new block.  As of this writing there are 67,168 blocks in the blockchain.  (Check out a high level video on the mining process here).  Transactions are checked against the existing blocks by the miners at distributed computer terminals performing a decentralized fraud protection measure.

For bitcoin purists the allure of the technology is that it does not require a national central bank (like the Federal Reserve in the U.S.) to be the governing body for the currency, rather, its decentralized authentication process, described above, allows the users of the currency to all have a share in a secure peer-to-peer value exchange.

Forget what you have heard about bitcoin and the dark web.  If you haven’t heard about this, disregard the comment.  The true value of bitcoin and the movement of digital currencies, popularized in large part by bitcoin, is that in some cases the exchange of value doesn’t require any transaction costs.  Many readers might be saying to themselves that when they pay with their credit card there aren’t transaction fees either.  Well, while you might not think you are paying transaction fees as a consumer, you are actually paying roughly 3% every time you swipe.  Visa and MasterCard impose these fees for card usage on retailers and retailers pass the charge on to the consumer.  Additionally when you think about making cross-border payments from country to country it would seem that there are significant benefits to employing bitcoin to reduce transaction costs that can be over 10%.

Generally speaking innovating on universally accepted payment systems is long over due.  As I type the Federal Reserve is entertaining 12 final proposals from various companies to be the faster payment solution for the Federal Reserve.  Change is coming.


¿Por qué los Hispanos no Ahorran Dinero?


El propósito del título es llamar la atención, la pregunta real sería: ¿por qué los Hispanos de los Estados Unidos no están ahorrando en ratios similares a otros grupos étnicos?  Tuve hace poco una conversación con un líder empresarial por medio del Hemisferio Oeste y él me preguntó, “¿Sabes porque los Hispanos no están ahorrando dinero?”  Respondí que tenía alguna teorías pero nada fijo.  Era una invitación hacer una investigación y ver lo que podíamos descubrir.  Lo siguiente son los datos conducidos a este enfoque para adivinarlo:

Teoría #1: Los Hispanos no ahorran dinero porque su poder adquisitivo medio es menor al de otros grupos étnicos de los Estados Unidos.

Información de la mediana de ingresos en 2014 por la oficina de censo de EE.UU:

Median Incomes 2014

Mirando los datos, hay una brecha significativa entre la media de ingresos de los Hispanos, Asiáticos, blancos (no hispanos), y la media de todos los grupos.  Esta teoría específica se pone interesante cuando se mira a los Hispanos y Blancos que ganan el mismo nivel de ingresos.  Los Hispanos y Blancos que ganan entre $30,000-$59,999 al año, tienen unos ahorros acumulados promedio de $27,000 en el caso de los Hispanos,  mientras que los Blancos ahorran $42,000 (los Hispanos un 36% menos).  En el extremo superior del espectro de ingresos donde Hispanos y Blancos ganan más de $120,000 al año, los ahorros acumulados promedio de los Hispanos son $206,000, mientras que en los Blancos es de $285,000 (los Hispanos un 28% menos).  Basándonos en lo anterior, podríamos discutir que los Hispanos ahorran menos cuanto menores son sus ingresos, pero ciertamente no es la única razón.

Teoría #2: Los Hispanos no ahorran porque no es parte de su cultura.

Esta teoría es un poco más difícil de concretar pero vamos a mirar los datos y añadir pensamientos.  ING hizo un estudio de los Hispanos que ahorran para la jubilación y recopiló los siguientes datos en la encuesta: el 54% de los Hispanos dijo que no están muy preparados, o no están nada preparados para la jubilación en comparación con el 50% de los Americanos Africanos, el 48% de Blancos, y el 44% de los Asiáticos.  Los balances promedios de jubilación en Hispanos de los EE.UU. es de $54,000, en todos los demás grupos étnicos es de $69,000, y $81,000 en el caso de Asiáticos.  Estos promedios nos muestran que las familias de Hispanos ahorran menos que otros grupos, pero si miramos los ahorros de retiro en líquido en familias de Hispanos en los EE.UU. el número baja a $0 (Estudio del Instituto Urbano).  O en otras palabras, a parte de los ahorros de retiro formal (401k, Roth IRA, IRA, etc…), la familia hispana promedio  no tiene ahorros de retiro.  Llevemos este pensamiento un poco más lejos, más del 50% de las familias hispanas no está ahorrando fuera de programas de ahorros de retiro patrocinados por el empleador.

Miremos otra motivación cultural potencial sobre no ahorrar.  El porcentaje más grande de Hispanos en los EE.UU. es de origen mexicano (63%), según el Centro de Investigación Pew.  En los 1990s, los mexicanos tuvieron una de las caídas económicas más destructivas de su historia llamada Crisis Financiera de Tequila.  Durante el periodo anterior a la crisis hubo una privatización significativa de los bancos en México, en otras palabras, el gobierno dejó la regulación bancaria, dejando de controlar límites a las tasas de interés y límites cuantitativos sobre los préstamos, y eliminando requisitos de reserva para los bancos.  Esto condujo a un aumento significativo en los préstamos, una mayor inversión extranjera, y un boom en el mercado de valores.  (¿Le suena algo a la crisis financiera de los EE.UU. en 2008?)  Los préstamos empezaron fallar en sus pagos, y los bancos empezaron a quebrar.  22 de los 64 bancos en México fallaron (el 33% de todos los bancos).  En una semana el Peso se devaluó el 50%.  Como puede imaginar, pasar por eso o tener familia que pasó por eso pudo reducir la confianza en ahorrar dinero por medio de productos tradicionales del banco.  La confianza que les quitó la Crisis Financiera de Tequila podría conducir a almacenar en vez de ahorrar.

Nuestro punto final detrás de esta teoría es puramente anecdótico.  Leí la cuenta de una madre hispana soltera que trabajó para dos empleadores para que sus hijas pudieran asistir a la universidad.  La madre solo ganaba $30,000 al año y cuando hizo la aplicación para la asistencia financiera para sus hijas, la ayuda concedida no alcanzaba lo que necesitaban.  Sus hijas buscaron becas y ayudas para llegar a pagar la tuición y pudieron completar los estudios universitarios.  La madre se pasó los siguientes 20 años pagando los préstamos que consiguió para sus hijas.  El autor de esta cuenta citó unas palabras del cómico George Lopez:  “¿Sabe porque no hay Latinos sin hogar?  Porque los Latinos nunca salen del hogar.”  Tal vez el chiste es desacertado o tal vez no sea bueno para el contexto, pero el autor quiere decir que los Hispanos están dispuestos a hacer sacrificios grandes afectando su salud financiera para crear oportunidades para los hijos.  En la cuenta de la madre, ella estaba dispuesta trabajar duramente en la deuda por 20 años después de la graduación de sus hijas en vez de dejar a las hijas pagar la deuda de su educación.

Teoría #3:  Los Hispanos no ahorran porque no han tenido educación adecuada sobre lo ahorros.

El 45% de Hispanos encuestados dijeron que nunca habían tenido educación financiera y ¼ de todos Hispanos dijeron que la razón por la que no ahorran es que tienen altos niveles de deuda.  Voy hablar personalmente.  Mientras estaba en la universidad conseguí una tarjeta de crédito.  Estaba trabajando durante mi tiempo en la universidad e hice mis pagos aumentando mis deudas y entonces la compañía de la tarjeta de crédito aumentó el crédito que tenía continuamente.  Antes que terminara la universidad había llegado tener una deuda de tarjeta de crédito bastante elevada.  Era joven e inmaduro y francamente no entendía completamente como andaban las tarjetas de crédito.  Sabía que tenía que pagarlas pero no me di cuenta de que el impacto de más del 20% era interés cuando llevaba un balance.  Mis padres sabían usar el crédito pero no me lo enseñaron.  Fue solo cuando conseguí trabajo con un banco después de graduarme que realmente entendí los escollos del crédito y como navegar por los instrumentos financieros generales.  El tema importante es que no hay educación formal en las escuelas en cuanto al crédito o productos financieros a menos que se éste sea el tema de su especialidad en la universidad.  Si los padres no nos enseñan, ¿entonces quién?

El 57% de los Hispanos quieren más educación financiera de sus empleadores.  El 57% de los Hispanos nunca han calculado lo que necesitan ahorrar para mantener su estándar de vida cuando se retiren, y el 70% nunca han formalizado un plan para el retiro.  Hay muchos recursos en internet para aprender educación financiera pero simplemente no sabes lo que no sabes.  Imaginándome durante mi tiempo en la universidad, acumulando deuda, no estoy seguro de que tuviera en mente buscar información en cuanto al uso adecuado de crédito, en mi inmadurez, sin alguien para enseñarme.

“Casi todos los Hispanos encuestados (92%) dice que sus padres les hablaron “mucho” o “de vez en cuando” acerca del valor e importancia del trabajo duro mientras crecían (similar a 89% de Estados Unieses en general), pero menos que la mitad dicen que su padres les hablaran tanto acerca de problemas financieros…”

¿Es responsabilidad de los padres enseñar educación financiera?

“La respuesta es no, no debe ser la responsabilidad de los padres,” dijo Annamaria Lusardi, profesor de economía de la Universidad de George Washington.  “No pedimos a los padres que enseñen matemática y física e historia.  ¿Por qué les pediríamos que enseñen educación financiera?”

Tal vez después de la crisis financiera de América veamos más educación financiera en las escuelas pero mis hijos no llegan a casa hablando de eso.

Dejen un comentario acerca de sus experiencias con la educación financiera.

Si quiere leer más en cuanto a este tema vea lo siquiente:

Why Latinos Aren’t Saving for Retirement
Minorities Have Built Less Wealth Than Whites
Why do Blacks and Hispanics Accumulate Less Wealth Than Whites
Saving and Investing for Latinos
Hispanic Investors Hungry for More Investment Knowledge and Education
The Tequila Financial Crisis
Financial Education:  A Job for Teachers or Parents?