Compulsive Buying Disorder

“Compulsive buying disorder is characterized by an obsession with shopping and buying behavior that causes adverse consequences.” It is found in approximately 5.8% of American citizens; of that 80% are female[i].

 

While you may not suffer from a compulsive buying disorder to the point that it has adverse consequences in your life, most of us are guilty of spending money we don’t have for things we don’t really need, whether it is that magazine that catches our eye while checking out or that new movie on the flashing display when you walk in the store.

 

I myself am guilty of it, my personal enemy; Bass Pro. It has such an effect on me that I feel guilty leaving the store with nothing. Let’s get one fact straight – products are placed purposely in stores and packaging and displays are meant to catch your eye. Companies spend millions of dollars each year preying on our inability to say no. So how do we counteract these urges of ours? How do we train ourselves not to pick up that shiny item we all know we must have?  There are many ways to combat this but here are a few strategies that I personally use.

 

·         Making a list ….and sticking to it

·         Leaving your credit cards in the car and only taking in the cash you need

·         Setting a time limit to how long you will stay

·         Taking a friend, preferably one who does not share your enthusiasm

·         Only go when you absolutely need something, not just to browse

Making a list and sticking to it! Making a list before going anywhere is easy and practical. Whether it is a list of things to do that day or a list for the grocery store, it will help you stay on track and be productive. Doing it is one thing but sticking to it is a whole new ball game, because if you can’t do that the list was a waste of your time. A good strategy is to know where you’re going and head straight there because you might need milk, but it’s not going to help if you walk through four isles to get there.

 

Leaving your credit cards in the car and only taking in the cash you need. This personally is my biggest helper. Often I find myself spending more money then I should with the justification of putting it on my credit card. So make it easier on yourself and don’t even bring it in, trust me it will make your life a whole lot easier.

 

Setting a time limit on how long you stay. This may seem a bit rudimentary but I really think it does work. By setting a time limit on how long you stay it helps you from browsing and finding that one item you can’t live without. Make it something practical like 20 minutes in the grocery store. It obviously applies to different situations so just use your best judgment.

 

Taking a friend, preferably one who does not share your enthusiasm. I myself find it a lot easier to stay on track when I’m not alone in the store, they too know what you came there to get and for the most part add a second opinion on any purchases. Don’t take in a friend who enjoys the same thing you do. When I go to Bass Pro with my brother I know it won’t end well because we both love to hunt. However, put me in bass pro with my girlfriend and I’ll bet you my bottom dollar she won’t let me leave with something I don’t absolutely need.

 

Only go when you absolutely need something, not just to browse. Going to a store just to “have a look” is a set up for failure. Only go when you absolutely need something. And even then use the other strategies we discussed before, make a list, only bring in the money you need, and bring a friend who will keep you on track.

Like I said before these are by no means the only strategies to prevent compulsive buying, but they are a good start. Try some of these the next time you go out and see how they work.

 

by Robert Self, Personal Financial Planning student
(with edits by Ryan Law)

 

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[i] http://en.wikipedia.org/wiki/Compulsive_buying_disorder

 

 

Ryan H. Law, M.S., AFC

Department of Personal Financial Planning

Office for Financial Success Director

University of Missouri Center on Economic Education Director

 

239E Stanley Hall

University of Missouri

Columbia, MO 65211

 

573.882.9211 (office)

573.884.8389 (fax)

 

A Tax Break on the Table?

There is a lot of talk going on about taxes and budget reductions, as our elected representatives take their stance and lean toward the inevitable compromises.  When you look at Europe and the changing landscape of our world, in the context of our history and our current national debt – to say nothing about our personal debt – there is much to be confused about and no shortage of actions that need to be taken.  The trouble is, of course, the politicians can’t agree with each other on the actions and my personal opinion is that they seem to be more concerned about their personal beliefs and re-election than they are about those of us who sent them to Washington.  Yet, I digress.  I need to write an educational piece for the week….

 

When I was driving back from a meeting in Kansas City, on Wednesday, I heard a report on National Public Radio about the mortgage interest tax deduction.  It is, in some form, on the table to be reduced, if not eliminated, as a means to increase federal revenue.   As the Tip is designed as an educational tool, let’s see if we can use this debate to educate.

 

First, what is a tax deduction?  A tax deduction is an expenditure that is subsidized by the federal government.  A tax deduction reduces the income that is subject to taxation dollar for dollar.  Assuming other tax deductions exceed the standard deduction, $1,000 in additional mortgage interest will cost you the after tax amounts in the following table.  Notice how the cost varies with your marginal tax bracket.  As can be seen, higher income consumers (i.e., higher tax bracket consumers) receive the greatest subsidy from a tax deduction.  From the lowest to the highest, the highest marginal tax bracket households pay $296 less, or a 32.89% lower price, for the same $1,000 of interest paid by both marginal tax bracket households. 

 

Marginal Tax Bracket	Single Income	Married Filing Jointly Income	After-tax cost of additional $1,000 in mortgage interest	Percentage reduction as move to each higher tax bracket
10% Bracket	$0 – $8,425	$0 – $16,850	$900
15% Bracket	$8,426 – $34,200	$16,851 – $68,400	$850	-5.55%
25% Bracket	$34,201 – $82,850	$68,401 – $138,050	$750	-11.76%
28% Bracket	$82,851 – $192,000	$138,051 – $232,950	$720	-4.00%
36% Bracket	$192,001 – $375,700	$232,951 – $375,700	$640	-11.11%
39.6% Bracket	$375,700+	$375,700+	$604	-5.62%

 

Homes are good for the economy and homeownership is generally considered to be a positive for communities.  High income households have higher rates of homeownership, with 89.3% of the top income quintile being homeowners, compared to 32.6% of the lowest income quintile being homeowners.  High income households also purchase larger houses and borrow more money to purchase those homes.  We, as a country, support this by providing the largest subsidy to them to purchase their home.  James Poterba and Todd Sinai report the following (paper available at: http://real.wharton.upenn.edu/~sinai/papers/Poterba-Sinai-2008-ASSA-final.pdf ):

 

Household Income	<$40,000	$40,000-$75,000	$75,000-$125,000	$125,000-$250,000	$250,000+
Average Tax Savings from the mortgage interest deduction	$91	$523	$1,264	$2,703	$5,459

 

Thus, the greatest subsidy is given to the higher income households, both in percentage terms and dollar terms.  So, what is the talk coming out of Washington?  Current law allows homeowners to deduct the interest they pay on homes mortgages of up to $1 million in principal borrowed.  One proposal calls for this to be reduced to $500,000 and for the interest on mortgages to purchase second-homes to be eliminated as a tax deduction.  Professor Wheaton of MIT predicts that what will eventually come out of the Senate Committee is a similar proposal, except the tax deductibility of mortgage interest will be changed to a constant percentage tax credit for all households, regardless of taxable income, perhaps 10%, 12%, or 15% of the interest paid.  (His radio interview is here: http://www.npr.org/2011/07/20/138555793/mit-professor-discusses-mortgage-deduction-reform.)

 

If an indicator of financial success is the house we own, we should consider the question of the effect of the tax deduction.  Does the United States’ tax deductibility of mortgage interest change homeownership rates and average house size, when compared to a country with a different system of taxes?  Fortunately, we have a good example.  We can compare the United States, where mortgage interest is tax deductible, to Canada, where mortgage interest is not directly tax deductible.  I will summarize in a table:

 

Characteristic	Canada	United States
Percentage Homeowners [1]	67%	65%
World rank in house size [2]	#1	#4
%Equity in owned home [3]	70%	45%

Sources:

[1] http://www.nationmaster.com/graph/peo_hom_own-people-home-ownership

[2] http://www.nationmaster.com/graph/peo_siz_of_hou-people-size-of-houses

[3] http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction

 

It appears that homeownership rates are relatively similar between the two countries.  It is a little surprising that the average house size is, in fact, greater in Canada than the United States.  One might conjecture, however, that the lack of mortgage interest deductibility seems to have depressed the percentage loan-to-value ratio in Canada to 30% compared to 55% in the United States.  Stated another way, Americans have more debt in their home than their neighbors to the north.  Perhaps this is due to the upside-down subsidy from the tax deductibility of mortgage interest.

 

There is, of course, much more to this story than what I’ve written.  The main point is that we have choices to make.  This is but one.  Each one of us has deeply held beliefs about policies and some of these beliefs are based on facts, some are based on political philosophy, and some based on emotions.  I am a bit affected by all three, most of the time.   I do encourage you to be informed and make up your own mind.  Let your congressional representatives know how you feel about this topic or others, as is required by a successful democracy. 

 

Other parts of the NPR radio show that spurred my thinking on this topic:

 

National Association for Realtors: http://www.npr.org/2011/07/20/138555795/economist-for-realtors-group-discusses-mortgage-deduction 

From the Associated Press: http://www.npr.org/templates/story/story.php?storyId=137544950

Center for American Progress: http://www.americanprogress.org/issues/2011/01/te_012611.html

Corporation for Enterprise Development: http://scorecard.cfed.org/housing.php?page=homeownership_by_income

 

Financial Recovery and Risk Management

Brenda Procter, M.S., State Specialist & Instructor, Personal Financial Planning, University of Missouri Extension

 

Someone attempting to restore their life and home after a storm will face difficult decisions at a time when stress can cloud their thought process. In many cases, the decisions will involve large investments. Naturally, people want to recover as much as possible through their homeowner’s insurance policy. Where insurance falls short of needs, other types of assistance may be available, especially where the President has declared a disaster area. Claims that aren't covered by insurance or other reimbursements are tax-deductible if they exceed 10 percent of adjusted gross income.  Here are some tips for recovering if it happens to you.

 

Documenting Losses and Claims
 Whether you’re filing for insurance, seeking assistance or claiming a casualty tax deduction, you will need proof of your losses. Before you start cleanup, take pictures. If you can’t take pictures, describe the situation accurately, listing the specific items that have been lost or damaged. Keep damaged materials for proof of loss until your insurance adjuster authorizes their disposal. It’s okay to remove the damaged articles from their original location to prevent further damage to the building, but do not throw them away without insurance company approval.
 

Remember to also document the losses in your landscape and garden. In addition, document the amount of debris you will have to remove, and whether it came from your property or elsewhere. Some homeowner's insurance policies cover debris removal.
 

·         Save all receipts for your temporary lodging and food if your home is not fit to live in. Some policies pay the difference between normal living expenses and the cost of living elsewhere.

·         Save receipts for temporary repairs you made to protect your property from further damage.

·         Save receipts for any materials you bought and for other items you needed to protect your building or its contents from further damage. You may be able to claim these on your homeowner's insurance policy.

·         Keep a copy of all letters and receipts that you send to insurance companies or relief agencies.

·         Keep a record of all phone calls you made to get reimbursements or aid.
 

Filing for Insurance
 These tips are offered to guide you in filing insurance claims for damage to your home and loss of personal property:
 

·         Call your insurance adjuster immediately, and provide a phone number where you can be reached. If phone service is not available, work through disaster assistance workers from the Federal Emergency Management Agency (FEMA) or the Red Cross for assistance in reaching your insurance adjuster.

·         If possible, wait for an adjuster to survey damage. Meanwhile, carefully document losses and begin cleanup and salvage to prevent further damage to your home. Keep damaged materials in an isolated spot as far from the building as possible.

·         Follow up on your insurance call with a letter detailing your problems. Keep a copy of the letter.

·         Leave phone numbers where you can be reached when the adjuster arrives.

·         Ask the adjuster to assess damages. Sign the proof of loss statement. Report additional damage as it is found.

·         Provide any other information the adjuster requests.
 

Be sure to file your insurance claim within the policy's imposed time limits. For homeowner’s policies, it varies. Review the settlement steps outlined in your policy. If you’re dissatisfied with the proposed settlement offer, explain your position in writing.
 

The Missouri Department of Insurance (MDI) can help if you feel you’re being unfairly treated by your insurer. For example, if the company didn't contact you within 48 hours after the claim was reported, or if the company refuses coverage that is specified in your policy.
 

For more information about MDI, call 1-800-726-7390 or review the "Consumers" section on their website at http://www.insurance.mo.gov/. 
 

For information and tips to help you work through the recovery process effectively, as well as information about homeowner’s and flood insurance; credit and other sources of release; contracting for repairs and rebuilding; and federal disaster assistance, read further at: http://missourifamilies.org/features/copingarticles/coping9.htm.

 

Nothing left to lose

Oh, how I love the songs of the sixties! Me and Bobby McGee was written by Kris Kristofferson and Fred Foster and originally recorded by Roger Miller in 1969. The version I remember dancing to and singing with the "windows rolled down" hit the top of the charts in 1971 and was recorded by Janis Joplin, shortly before her death in 1970. It contained the lines:

Freedom's just another word for nothing left to lose
Nothing, I mean nothing honey, if it ain't free

These lines haunt me. I always wonder if the writers were trying to say that we are only free, if we don't have possessions to worry about. Yet, many people want more possessions, money, or whatever. I am not immune to these motivations but I do think about these lines during this time of year, when we celebrate our freedom on Independence Day.

On Independence Day, one of my high school friends posted the following question on Facebook: How do you define freedom?

These were some of the responses:
A fellow classmate, alumnus from Liberty High School: "Liberty"
An older alumnus of LHS, a doctor: "Liberty and Property"
Female:<http://www.facebook.com/lizcarrico2> "The ability/right to jump in the car and travel where one wishes, to speak one's mind and live one's live (sic) without hindrence (sic) from the government. Bearing in mind, of course, the rights of others."
Brother of the questioner: "As (our) forefathers said, "Life, liberty and the pursuit of happiness and I would add a good round of golf!"
Me: "Ability to act to make a difference in one's life or the lives of others."

This got me to thinking about the relationship between money and freedom and the effect they have on our happiness. Fortunately, my Google search led me to an academic article published in May 2011 by two professors from Victoria University of Wellington, published in the Journal of Personality and Social Psychology (Volume 101:1), a publication of the American Psychological Association. Professors Fischer and Boer concluded the following from their study of sixty-three countries spanning nearly forty years of information.
When wealth and individualism are traits used to separately predict anxiety, without controlling for the other trait:

· Greater wealth is, indeed, associated with lower levels of anxiety, until the greatest levels of wealth - where anxiety begins to increase. These increases in anxiety were lesser in the wealthiest societies.

· Greater individualism (i.e., freedom) showed an overall decrease in levels of anxiety, while the highest levels of autonomy were observed to have a slight increase in anxiety.
When wealth and individualism are controlled to see the independent effect of both, while controlling for the other:

· Only greater individualism continued to be significantly associated with reduced anxiety, while the effect of greater wealth seems to be "mediated by individualism".

· Among the poorest countries, there was no "discernible relationship between wealth and trait anxiety". While among the wealthiest countries, increases in average incomes were associated with less anxiety.
So, what is the take-away message? It is clear that freedom is very important to life satisfaction and lowered levels of anxiety - more important than the effect of wealth. It is interesting that they found, for wealthier countries, greater life satisfaction for those with higher incomes. Since greater income is a pretty good proxy for work effort and economic productivity, the result could be taken to mean that those who are working hard to make a difference in their lives are happier, as well as making a larger contribution to the product of the country. Freedom, therefore, is more than just "nothing left to lose". Freedom is the most important ingredient for happiness. Working for financial success just makes it that much better and, if you care, you can even afford a good round of golf!

If you have questions or ideas to share post them on our blog: http://mufinancialtip.blogspot.com/ .

ps: My computer is on the fritz, so I'm writing this from a spare one. I can't seem to find the delay-delivery option. Thus, you will be receiving this shortly, rather than the customary 5:00am! I'd rather my computer not be on the fritz!

Credit Card Usage - a Study of Convenience and Revolving Users

I was recently reading an article about John Gottman, who researches marriage relationships, where he said that he can predict divorce in a couple with 90% accuracy (http://www.gottman.com/49804/Self-Help-and-Tips.html). His research is interesting and valuable for couples getting married and for those seeking to improve their marriage relationships.

 

In addition to the Gottman article I recently pulled out a 2009 copy of the Journal of Financial Counseling and Planning as I was cleaning up my office. I scanned the Table of Contents and the title of one of the articles intrigued me; Utilizing the Theory of Planned Behavior to Understand Convenience Use of Credit Cards (Rutherford & DeVaney, 1999 – accessible online at http://6aa7f5c4a9901a3e1a1682793cd11f5a6b732d29.gripelements.com/pdf/vol20_2rutherford_devaney.pdf). In this article the authors try to predict whether people are convenience users of credit cards (pay off the balance each month) or revolvers (carry a balance and therefore pay interest on the balance). While they don’t give a number, such as being able to predict with 90% accuracy, they do present some interesting statistics to measure your own credit card behavior against.

 

I won’t be touching on all their research in this article, but the entire article is worth reading if you are interested in credit card research.

 

1.      The authors hypothesize that households with a negative attitude toward credit are more likely to be convenience users of credit cards. There are basically three attitudes toward credit: it’s a good thing, it’s a bad thing, and it can be good or bad. For the record, I see credit as a tool that can be used as a good or bad thing, but I also believe strongly that the faster you pay off all your debt the better off you will be. There are many financial planners that would not agree with me on that, arguing that carrying a mortgage on your home is a good thing (tax deduction, low interest, etc.), but I want the total freedom of not owing any money to anyone. But I digress.

The study that the authors conducted confirmed their hypothesis – those that have a negative attitude toward credit are less likely to carry a balance, and therefore are considered convenience users. The data seemed to be inconclusive for those who see debt as good or bad. I imagine it depends in some way on which direction you lean. As you can probably clearly tell from the above paragraph, I lean towards thinking credit is bad (mostly because of the negative effect I have seen credit usage have in people’s lives), and I certainly think that carrying a credit card balance is not a smart financial thing to do, and therefore I don’t carry a balance, so I am a convenience user of credit cards.

2.      Another hypothesis is that households with longer planning horizons (10 years or more) are more likely to be convenience users of credit cards. This makes sense – if you have a long-term outlook you are more likely to see carrying a balance as taking away from future consumption – whether you are looking at college funding for children or grandchildren or retirement. Spending money on interest now means less money to spend on things you need or want in the future.

The authors cite a number of studies that support the hypothesis, and in their own study they found that those with at least a 5-year financial planning time horizon were likely to be convenience users, but that having a time horizon of less than 5-years did not necessarily make someone a revolving user.

3.      Households that borrow for purchases beyond their basic needs are more likely to be revolving users of credit cards. Again, this makes perfect sense – if you are utilizing credit cards to live beyond your means, by definition you are likely to be carrying a balance. If you make $2000 a month, but spend $2200 and finance that other $200 with a credit card, your balance is going to continue to rise since you don’t have the extra money to pay off your balance. This, by the way, is a strategy that leads people down the road to financial destruction, as does Pay Day lending. You can’t continue to increase your balance, because as your balance increases so does your minimum payment. As your minimum payment goes up you now have to put more things on credit each month. In the example of someone spending $2200, imagine that their minimum payment was $50, which is figured into their $2200, but now their payment is $75, making their monthly needs $2225.

If you are making less than you earn you have three options: increase your income, decrease your spending, or do a combination of the two. Living beyond your means, and financing it with a credit card, is a strategy that will get you further and further behind.

The authors study found that even those who are considered convenience users splurge occasionally and will carry a balance for a time, but overall the research shows that those who leave beyond their means are more likely to be revolving users.

4.      And finally, a note on education. The authors hypothesize that household heads with higher levels of education are more likely to be convenience users of credit cards. Their hypothesis is supported – those with a college education are more likely to be convenience users when compared to those who have a high school education, or even to those who have some college (this may be partially because students tend to use credit cards while in school to pay for books, food, etc. – further research in this area would be interesting to see if these students see themselves as convenience users or revolving users, how soon they plan to pay off their balances, etc).

We have asserted, and will continue to assert, that education is one of the best investments you can make. This study supports our theory again.

I have only taken the space to discuss four of the author’s hypothesis. There are ten total and I would encourage you to read the article if you would like to learn more about this topic.

 

Correction from 6/24/11 Financial Tip: I stated that Minot was in South Dakota, but Minot is actually in North Dakota.

 

Ryan H. Law, M.S., AFC

Department of Personal Financial Planning

Office for Financial Success Director

University of Missouri Center on Economic Education Director

 

239E Stanley Hall

University of Missouri

Columbia, MO 65211

 

573.882.9211 (office)

573.884.8389 (fax)

 

"To SPEND or NOT to SPEND..." That is the question!!!

"Ms. Jackson, I work in sales and I just found out that I will be getting a $19,000 bonus for the last sales quarter!  I feel so blessed!  I don't really have that much debt to pay off BUT I have wanted to build a backyard deck.  About a year ago I got estimates for when I was ready and able to have it built.  The lowest bid was around $10,000.  I also wanted a surround sound system since I do a great deal of entertaining at my home.  I know during this economy I should save my money but I feel that I deserve to do something special for myself since I busted my butt last quarter.  What do you suggest?  Should I use my bonus to get what I want or should I bite the bullet and save it?  -  Ready to Spend, Union City, GA"

Dear "Ready to Spend,"

CONGRATULATIONS on your healthy bonus!  You are truly blessed and are obviously great at what you do.  It is also great that your debt is not so overwhelming that you have to use your bonus to pay it down or in full.

I will NOT tell you NOT to spend you money!  If  you are a spender and I tell you that you can't spend, you will feel deprived and may rebel and possibly spend more than you want or spend it all.  For example, I don't do Diets.  When I hear DIET, I hear DIE...deprivation.  When I feel deprived (and can't have a Big Mac), I rebel.  So instead of having a Big Mac once a month, I may have one once a week just so I won't feel deprived.  Same thing with money with Spenders!

I WILL tell you to apply your Spending Plan allocations to your bonus.  At the very least, take 5% of the bonus for your play money and get what you want and put the 95% of the bonus in a high yielding interest bearing savings or CD.

OR, if you are really inclined to build that desired backyard deck, put the bonus in a high yielding interest bearing account and use the money as collateral for a Secured Loan.  This will provide you the following benefits:

• No or Low Risk loan from a financial institution (easy or guaranteed approval & should you default on the loan, the financial institution can just take the money in the savings to pay it off ... you were going to pay cash anyway.  Just kidding.  DON'T DEFAULT!!!)
• You may get a below market interest rate (for example, 3.00% above the savings/cd rate ... 3.00% + 0.50% = 3.50% interest rate.  Shop around.  Credit Unions have competitive Share/Savings Secured Loan Rates)
• You'll have a positive trade reporting on your credit report to assist in improving your credit score
• When the loan is paid in full, you still have your money with interest

Although your funds may be held up during the duration of the loan, at the end of the day, you will still have YOUR MONEY!!!

Which ever option you choose, be wise about your decision and DO NOT spend all of your cash!  Cash is leverage, especially when your credit may be "colorful" and your "credit score" may not be as SEXY as you would like it to be.

My book, Financial Fornication, discusses "Spending Plan Allocation" to help ensure all areas of your expenses have the appropriate allocation of your net income.

Again, congratulations and enjoy your new deck or new sound system and growing savings account!!!

Get my book, Financial Fornication, for more helpful hints or contact me for further assistance at http://www.tarrajackson.com/.

Tarra Jackson
Financial Relationship Specialist
Author of Financial Fornication: Avoid Financial & Credit Dis-Ease
http://www.financialfornication.com/
Tarra@TarraJackson.com

* Do you have Financial Relationship questions? Submit your questions to Tarra Jackson for "Real Life Real Talk" answers to www.TarraJackson.com.

China: Round Two

I just returned from our second trip to China.  Dr. Yao and I timed the trip so we could attend the 2011 Asia- Pacific Conference of the Association for Consumer Research.  Our goals, however, were to finalize a cooperative education agreement with Renmin University in Beijing, speak to students at both Renmin and Nanjing Aeronautics and Astronautics Universities, and interact with the nascent Chinese financial planning industry in Shanghai.  Accompanying us were my three children (aged 19, 22, and 25) and a local entrepreneur.  Here are my impressions

 

Socio-economic:    

·         China continues to impress me with their development.  I could see changes from two years ago and much of it was for the better – except for air quality.  Even the locals complain about the air.  Believe it or not, there are mountains you can sometimes see from Beijing. 

·         The students in China are very interested in coming to the United States to study but it remains relatively expensive.  With an average annual urban household income of $12,000, the price tag for US tuition and fees is quite high and providing another $20,000 for living expenses is daunting.  Yet, the Chinese value education.  As such, accomplishing an overseas education for their children is major goal for families.  We have close to 700 students at MU from the Peoples’ Republic, our largest contingent of international students.  We hope to have more students come to MIZZOU, given the memorandums of understanding we have signed with major Chinese universities.  Likewise, Chinese universities would like for more US students to study in their country and many courses are taught in English.  (By the way, I was so proud of my children, when they spoke about college life in the United States to the students of these Chinese universities.)

·         Speaking of living expenses.  Following economic reform, citizens of the Peoples’ Republic no longer receive a free college education, a secure job for life, medical care, or retirement income from the government.  These are now the citizens’ responsibility.

Cultural:

·         This time, due to my children, I visited some night spots for younger people.  (Yes, I proudly anchored one end of the age spectrum.)  In Beijing and Nanjing we went to loud techno dance clubs or Karaoke clubs, with tables that had a Y 3,000 (about $500) minimum.  In Nanjing, we even sat at one, given that our host paid the tab.  (Yes, I did sing at the Karaoke bar.) We were the only non-Chinese in the club and the club was packed with young Chinese professionals and other young adults.  Note: If you go to Beijing, the subway closes at 11:00 pm!  We took taxis back which are relatively cheap (about $3) but you can ride their subway for about $0.35 anywhere in the city of 19.6 million people!  The subway is beautiful, efficient, and safe.  It reminds me of the Metro in Washington, DC.

·         Quality food exists in a wide range of prices, depending on the atmosphere you seek.  You may find yourself enticed by some quite exotic dishes.  Let’s just say that no part of a sacrificed animal goes to waste and no animal is immune to being sacrificed.  I loved the barbecued duck tongues followed by barbecued snails, on our last night in Nanjing.  My least favorite was turtle skin soup in Beijing.  I ate it, though!

Financial Planning Impressions:

·         There are 10,000 CFPs in China to serve 1.3 billion people, although 2 million financial professional work in China.  We have 60,000 CFPs in the United States to serve 312 million people.  Conclusion, the potential growth in the market for financial planning in China is staggering.

·         There are an estimated 600,000 millionaires in China, while there are 9,000,000 in the United States.  In China, 60% of the millionaires are business owners.

·         When meeting with a large Chinese financial planning firm, we were told that their 18,000 clients have $5 billion in assets with an average age of 40!  This is a much younger profile than in the United States and it points to an important dynamic within the younger generation of Chinese, following economic reforms.  They are eager to work and take business risks to achieve success.  The growth in business for the financial planning firm is about 200 new clients per week, implying they need an additional 2 advisors per week.  Yes, they have need for English speaking planners to work with their international clientele – particularly in Shanghai.

Economic Development Opportunities:

·         The bullet train from Shanghai to Nanjing was quite the ride.  We topped out at 326 kilometers per hour, or slightly more than 200 miles per hour.  A modern transit system exists in all the cities we visited.  In Hong Kong, we were able to check our bags for our flight at the downtown train station – 25 kilometers from the airport.  This was very convenient and the bags made it back to Chicago/St. Louis/Detroit/Philadelphia – wherever they were supposed to end up.  Mass transit development and use in the United States is sadly lagging our Asian friends.

·         Many Chinese want to expand their business with the United States and to have United States’ firms expand business development in China. Barriers to cross-Pacific economic exchange are rapidly changing but I caution investors to develop relationships of trust with those you are working, regardless of which side of the Pacific you reside.  There are many people who desire to get-rich-quick in both countries.  While many have, we seldom hear the bragging of those who fail.  Regardless, we will see an expansion in our economic ties with China.

·         Doing business with the Chinese is different from the United States.  Think of the United States as being very linear from start to finish.  The Chinese are much more deliberative and can take quite a bit of time to work with you in order to discover if you have guanxi – high level of trust.  Thoughtful, meaningful relationships are the key to business relationships and, while eating together is an expectation, it is a time to eat.  It is not a time to conduct business.

There are many more experiences and impressions.  Our group would agree that we see China as an important partner for the future.  China and the United States have much to gain from each other.  We will be working with them.  Certainly, issues exist with regard to labor markets and trade issues – which are outside of my area of expertise.  There are also opportunities for financial success.  Importantly, both counties have the primary goal of realizing financial dreams through the decisions of the family.  That, alone, can provide the seeds for our growing ties.