The American Dilemma and How We Can Fix It

Posts tagged ‘finance’


As this is Mother’s Day I would like to pay a small tribute to my grandmother for a valuable lesson I learned from her.

Grandma was the textbook definition of the “comparative shopper”.  If she needed to purchase an item, such as baking soda, she would examine the small and large versions and determine which would cost her less per ounce.  Normally, the larger quantity was less expensive on this basis.

She always took advantage of “twofers” – a common pricing strategy at grocery stores – where one can cost $.15 but you could buy two for $.29.  It may seem trivial to us today, saving that penny, but five of those purchases was enough to buy a Hershey bar which today costs nearly a dollar – and the candy bar was significantly bigger than the ones that are now for sale.

Of course, grandma had to do the math in her head as this was an era before we all walked around with cell phones that had calculator features.  It was also before the grocery stores were required to have little tags on the shelves which did the math for us.  I may be mistaken but I think that came about as the Federal Government made the announcement in the mid-1970’s that the U. S. was going to go “metric” – something that has never really happened.

Frankly, while metric is a much more logical system, I shuddered when I first heard the announcement.  I had spent way too much time in grammar school learning how to convert pints into quarts into gallons; inches into yards and ounces into pounds.  Well, the full conversion to metric never happened and the only vestiges are that products are still sold using the old avoirdupois system with the metric equivalent showing up next to it in parenthesis.

Having been raised in this tradition of trying to stretch my shopping dollar as far as it could go I followed grandma’s example and added to it by clipping coupons – something which really didn’t exist when she went out for groceries.  But, of course, I also still compare prices between different quantities of the same item.   I don’t rely on the little tags which the stores have on the shelves as I seldom bring my reading glasses which are necessary if I want to be able to see the calculated price.  But since math has never been a challenge for me, it’s a very simple process.

Generally speaking, larger quantities of the same item cost less per unit than smaller packages.  That is something that I have come to expect over many years of grocery shopping.  Occasionally a smaller quantity will be on sale while the larger version will not and it is actually less expensive to buy the product in the smaller version.  But as a rule and without having to resort to doing math, I have found that it is usually less expensive on a per unit basis to buy a larger quantity of an item than a small one.  Until now.

One of the items that I purchase regularly at my local Smith’s store, the name under which the Kroger Corporation does business in Nevada is chicken jerky.  Gracie loves the stuff and it is part of her breakfast most mornings.  I have tried a variety of different brands.  Most of them have ends that are highly pointed and I am always concerned that in her enthusiasm in eating them she might gulp the treat down without fully chewing it causing herself a problem.  By contrast, the version at Smith’s has flat ends – so I began buying them.

The product comes in two different sizes.  I began reaching for the larger package when I did my little price check just to make sure I was getting the best value.  In fact, I wasn’t.  The larger version actually cost more per ounce than the smaller one.  I double-checked my math by putting my face within an inch or so of the two little price tags on the shelf.  My math was impeccable.

I thought that this was strange and brought it to the attention of the very pleasant lady in Customer Service.  Perhaps the store had mispriced this item.  If so, I wanted to bring it to their attention as this was something that I anticipated buying on an ongoing basis. The lady in customer service thanked me and said that she would bring this to the attention of the store manager.  So I left feeling that I had done something positive for all the other shoppers who would purchase this chicken jerky for their companion animals.

Well, a month went by and then another and the prices on the chicken jerky never changed.  As it happened, I needed to purchase some oatmeal as I had begun baking doggie treats at home for Gracie and this was a key ingredient.  So I went to the cereal aisle and took a look at plain old-fashioned Quaker Oats.  I was a little surprised to discover that purchasing this product in the larger version cost more per ounce than buying it in a smaller quantity – just like the chicken jerky.  So that started me thinking – is this a strategy rather than an error?  Well, I didn’t have time that trip to fully investigate but determined that I would do so.  And I did.

After spending about an hour in the store on an investigative trip I discovered more than twenty items, detergent, fabric softener, cereals, plastic wrap, and pet supplies among others, all of which were more expensive on a per unit basis in larger quantities.  Now I will admit that defining this as a strategy based on a handful of items in a store that stocks thousands of different products is hardly conclusive.   But I do think this is more than a coincidence.

The grocery business is a low margin business and I understand why a firm like Kroger or its competitors try to squeeze every penny they can back into those margins.   It’s the same theory that grandma had in trying to squeeze out every penny of her shopping dollar that she could – but in reverse.

If I am correct in my theory, there is certainly nothing wrong, immoral, or illegal in Kroger’s pricing strategy.  And I am not calling for a Congressional investigation into the matter.  The firm very correctly tags the unit prices of its products and the consumer who takes the time to analyze those can make an intelligent, money-saving purchasing decision.

So the moral of this story is let the buyer beware.  I will continue to do my math computations when grocery shopping.  And if my brain is feeling a little tired when I go on my next outing, I’ll just have to remember to bring my reading glasses.



When last we met I spoke about the problem so many people had making decisions.  Well, just to prove that you can’t get enough of a bad thing I’d like to follow up my story about my friend Pete with one about serving on my condo board.

I lived in a building that was filled to the rafters with talented and professional people.  There were doctors, businessmen, educators and even the president of a university among our unit owners.  The building could be described as an intellectual hot-spot – or at least one would think so looking at the backgrounds of my neighbors.

I had lived there for about six years and someone suggested I run for the Board.  I thought that I might be able to contribute something so I did and was elected to one of the three openings that fell vacant each year.  The Board consisted of nine members.

During the first two monthly meetings I realized that any time a new item of business was brought up it was never decided at that meeting.  Rather, it would be put off to the next month’s gathering to allow the board members time to contemplate the various ways we might address it.  Generally nothing arose that was critical so the fact that we deferred making a decision was harmless. Nevertheless it was inefficient.  To me it was like starting to make soup – you filled the pot with the right amount of water – and left it sitting on the stove while you decided what veggies you were going to add.

Well, I had now been on the Board for five years when the subject of re-painting the back hallways came up.  We all agreed that it was needed and now we had merely to decide on a choice of color.  The painter whom we were going to use had painted swatches in one of the back hallways so that the board could evaluate them and select one.

We had decided (after two meetings) on a color – and now we were going to determine the tone with a 10% of color choice (the lightest); 25% of color (medium); 50% of color (the darkest).  Truthfully, of the board members this choice affected me more than the others.  I had to use the back hallways several times a day since people with companion dogs had to take them in and out using the service elevators.  Other people only went in the back hallway to empty their garbage in the large receptacles which were placed there.

As I walked Tristan and Josh I looked at the swatches of paint and decided that the medium shade appeared fine and that would be my choice at the board meeting a few days later.  It seemed simple enough to me and I was looking forward to seeing how the newly refreshed hallways would improve the halls’ appearance.

As usual on the night of the meeting I came home from work, walked and fed the puppies and deferred eating my own dinner until what usually was a three hour meeting had concluded.  I went down to the board room and the rest of the members filed in.  We took care of the usual business and turned our attention to the hallway paint.

The President asked if we had all had an opportunity to take a look at the swatches.  We all said we had.  So he decided to poll us to see if there was a consensus of choice.

He asked the first member to his left what she thought.  (This lady was an esteemed psychiatrist – and no I’m not making this up – any of it ).

“Well,” she said.  “The lightest shade is very lovely.  The back hallways are not all that wide so if we did use the light shade it would really open them up and make them look a lot bigger.”

“So, you’re voting for the lightest shade then?”

She went on, “But the medium shade is also very lovely.  While it wouldn’t open up the hallways as much as the light shade – still it would be a lot more inviting and welcoming that what we have now.”

“So, you’re voting for the medium shade?”

“But the dark shade is also quite attractive.  It would provide a very intimate atmosphere to the hallways.”

I began to think, are we going to be having communal orgies and candlelight dinners in the back hallways?

My turn came and I said, “Medium.”  At that point, as I was the seventh member to be asked, I was holding a large tuft of hair in my right hand that I had pulled from my head while listening to the other Board members dissemble about the color choice. (I am making that up).

The polling of the board concluded and we had recorded 16 different opinions coming out of only nine people.  As usual, we tabled the decision until the next Board meeting over my objection that, “Between now and next month the colors aren’t going to change.  Let’s just decide on one now and be done with it.”

It actually took us two more meetings to decide on the ultimate color choice.  It was the medium option.

A number of years later I became President of the Board.  I realized why this esteemed group had so much trouble making decisions.  They didn’t want to be held accountable should something turn out badly.  They enjoyed the “prestige” of being able to say they were a Board member – but didn’t want to take any flak for serving in the position.  They wanted to be sure that they were voting with the majority – and it had to be a solid majority – before they would commit themselves.

Mostly out of self-serving reasons – specifically, I didn’t enjoy eating dinner at 10:30 on the night of the Board meetings – I took the Board in a different direction.  I would speak with the building manager about any new projects or repair jobs which would come up at the next meeting.

I would make sure that all bids were received prior to the meeting and would review those and decide on a contractor to use.  I would write a brief summary of why we should undertake the project and why I had selected this particular contractor from among the three who had submitted bids.  I would provide each member with a handout with this summary and give them an appropriate few minutes to review this.  Then I would call for a vote on approving the contractor I had selected.  Since the decision had essentially been made for them, they had no problem voting as I suggested – 100% of the time.

I was President of the association for twelve years – and in all that time not one single monthly meeting lasted over an hour and fifteen minutes and most took less than sixty minutes.

Fortunately, I had the best interests of all my neighbors in the building at heart.  That, and being able to eat dinner at a reasonable hour, were my motivations.  But the story does point out that people can easily be directed in their actions if someone is clever enough to figure out what motivates them.

If we have a position in which we believe, it is our absolute responsibility to hold fast to it, despite the objections that may come from the world around us.  We can be a majority of one.  Otherwise, we can seek the “safer path” of holding to the consensus of opinion and be as the lemmings.

But we all know what happens to them.


I have a very dear friend whose name is Pete.  We’ve known each other for twenty-five years.  He is a kind, caring and charming man.  He also drives me crazy.  Pete is perhaps the most indecisive person walking the face of the planet.

Pete has a background in library science.  Given a task, finding references and cross-correlating them, Pete’s the man for your job.  He is thorough and efficient and confident and seeks out all the potential material for the individual making the request of him.  Obviously, he has capability within his chosen field of expertise.  Why is he unable to extend this to other aspects of his life?

Several years ago Pete’s position was being eliminated.  He was understandably concerned about his future and, as he was in his early 60’s, was worried about being able to find a new position.  However, he did find a new spot with a large firm in their library.  This position was only for a six month period – but it had the potential of continuing beyond that time – depending on the economy and how well the firm did.

It was at this point in his life that Pete finally started paying attention to his financial situation.  He had previously entertained a “live for today” philosophy and had done little to provide for his personal financial well-being.  He had relied on the fact that he would one day collect Social Security and his far less than flamboyant life-style could continue un-interrupted.

Faced with the facts of financial-mortality, Pete suddenly felt panicked.  As I was doing financial planning for wealthy individuals at the time, Pete called me for help.  I was happy to provide it.

I reviewed Pete’s financial situation.  (This is always a bit uncomfortable for me when I’m dealing with someone who is a friend.)  But since I cared about Pete, I laid out a plan for him.  I explained that he needed to make some sacrifices – and to start on a dedicated program of saving for his future.  He would have to save a greater percentage of his income  than a person who was younger because he had less time to accumulate a nest egg.

After I laid out a suggested program and explained the mechanics and mathematics of it, he nodded in agreement.  I was quite sure that I had boiled down all the material in a way which he would be able to comprehend.  I always try to reduce all the complex verbiage that so many in the financial service industry like to use down to terms that any person can readily understand.  Pete and I went out to dinner together and I left it up to him to take the steps I had outlined.

Several weeks went by before Pete and I chatted again.  Pete called me at home.  I had just finished dinner and was sitting down to start a new book that I had purchased, but I was happy to hear from him.

Pete began the conversation by saying, “You know – I think you’re right.  I need to do something to insure that I’m going to be able to make it financially.”

I was pleased at that.

He went on, “I ran your plan by some other people I know and they agreed with you.”  Of course, I didn’t know that.

I asked, “With whom did you consult?”

The list amazed me.  Pete had spoken with his barber, his two sisters, the man who worked in the produce section of his favorite store, the newspaper vendor from whom he purchased the Chicago Tribune, a lady who worked in the sock section at Marshall Field’s, two of his co-workers, his dentist and another friend who had just declared bankruptcy.

When he enumerated this list, I was truly floored – but grateful that all of these people who had at best a limited knowledge of financial planning, had agreed with me.

Well, the good news is that Pete did start, and more importantly, continue on a solid financial plan that provided him with far more additional security than if he had done nothing.  But this episode caused me to think about how people process information and reality.

Making a decision is always risky.  If your decision proves to be a poor one there is always the potential for failure and embarrassment.  No one likes either of those.

Perhaps it is for that reason so many of us retreat to what we believe is the safety of inertia – doing nothing.  We adopt the Sartrian philosophy that, “Les jeux sont faits.”  “The die is cast.”  If we are the victims of fate we cannot be held accountable for the outcome that has been pre-destined for us.  Sadly, trusting ourselves to fate, while it might leave us faultless, seldom provides the outcome that most of us would desire.

On the other hand, actively making choices exposes us to the potential of failure.  Failure is embarrassing and no fun at all.  But it is only with the acceptance of the possibility of failure that we can achieve anything of worth.  We expose ourselves to the ridicule of others and our own sense of self-doubt – but can grow in the process if we realize that failure is not an end but a beginning.

I have been fortunate that in my life I have achieved many failures.  Those have been my greatest learning experiences – and ones from which I ultimately greatly profited.  I hope to experience more – though not the same ones I previously encountered.  I try to learn from my mistakes – not repeat them.

For those of us who are hung up by the iron mistress of indecision and are afraid to make a mistake, please remember that in failing to decide you have indeed decided.  Take a chance.  Life’s too short to have it be ruled by fear and the fate that you have no reason to believe will favor you.

Decide to decide.



 Most of us have heard of Albert Einstein’s “Theory of Special Relativity.”  I’ve heard of it.  I can even recite the formula.   But to be honest – I know I don’t have a full understanding of it.

When Einstein was asked one day by a newspaper reporter what he considered to be his greatest discovery, the genius who revolutionized our view of physics did not refer to his Theory of Relativity. Rather, he said that his greatest discovery was “The Rule of 72.”

Unlike his more arcane theories, the Rule of 72 is quite simple. It is easy for anyone with at least a rudimentary background in basic math both to understand and apply.

During his early career, Einstein held employment as a patent clerk. During a lull in his work, the question occurred to him, “How long does it take for money to double at a fixed compound interest rate?” So he began computing the answer to that question.

He discovered that it took 72 years for a monetary unit to double at a compounded one percent rate of annual interest. He then tried it with a two percent rate and found that it produced a result of about 36 years. (These calculations are not exact but provide a convenient way to approximate the power of compound interest).

Obviously, the higher the interest rate, the less accurate the estimate this rule provides as we can see by inspection. If we were getting a 72% rate of interest, at the end of a year we would see a similar increase – not the 100% that the rule would suggest. But since few of us have the opportunity to obtain those high rates of returns – for our purposes – the rule can provide some excellent insight.

Why are consumers buried in staggering amounts of debt? The answer is that we have spent money that we didn’t have and have simply added our purchases to our credit card balances. We rush out to get that wonderful item that’s on sale at 20% off – and then proceed to give that discount right back to the credit card issuer who is charging us a compounded 18% – 24% rate of annualized interest.

According to the “Rule of 72” our credit card balances will double in either four or three years respectively at those interest rates. At least interest – including credit card interest – was a deductible item on your Form 1040 for those who itemized. But that deduction disappeared years ago.

Meanwhile, the pittance that you are getting on your savings accounts is fully-taxable. The good news is that at one-quarter of one percent, there isn’t much to report. By the way, at that rate of interest, your money will double in a mere 288 years.

We have gotten into a very dangerous mind-set. Instead of asking, “How much will this cost?,” we ask, “How much is the payment?” This is nothing short of an invitation to disaster.

With the Obama-recession still in force – Washington has shown neither the insight nor the courage to address the question of the nearly-insurmountable debt which we have amassed through our overspending. Not all the fault should be laid at the President’s feet. Congress shares as much responsibility as he.

While the official national debt figure is that America owes its creditors about $15 trillion dollars – the truth is that number does not include unfunded liabilities, Medicaid and Medicare (and with the temporary payroll tax-holiday, now Social Security). The true figure has been estimated to be at least twice that amount. That’s just short of $100,000 for every man, woman and child in this land of the free and the home of the insolvent.

I don’t know about you – but I would be hard-pressed to come up with the funds if someone unexpectedly handed me a bill in that amount.

But that could happen. All it would take would be for those who have been willing to buy our T-Bills; T-Notes and Bonds to decide they had enough and were concerned about the safety of their loans. This would include our Japanese friends and the Chinese – who are perhaps not so friendly toward us – but tolerate our over-indulgence because we are a significant outlet for their products.

Think about it this way. A good friend comes up to you and needs one thousand dollars. You have known this person for a number of years and believe him to be an honest individual. He has just gotten a little over his head and needs this loan for one month – so you lend it to him.

At the end of the month he rings your doorbell. Of course, you’re expecting to be repaid on your good faith loan. But instead, he says, “I know I promised you the thousand plus the twenty-five dollars in interest today, but something else came up. If you would just lend me one thousand fifty dollars, I’ll pay you back the one thousand twenty-five that I owe you.” How would you react to that request? That’s exactly how America is funding its debt – or should I say – our debt.

One can only hope that our creditors never heard the Will Rogers quote, “I am less concerned about the return on my money than the return of my money.” And, hopefully, they have never heard of Einstein’s “Rule of 72.”


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