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Monthly Archives: September 2007

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Family Business

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There are many ways to acquire wealth in this world. No matter where you are in the world, running a family business remains a lucrative, if painstaking, option.

Both of my grandparents made their money from an entrepreneurial spirit. My maternal grandfather moved out West to California in the early fifties from the car capital of the US, Michigan. He worked a year for Goodyear and then started his own business, determined to put them out of business. While Goodyear is obviously still around and kicking, he did manage to put the local branch in Merced, California out of business for the next forty years.

My paternal grandfather had a number of businesses that he ran over the years. He owned a successful honey business as well as a plant nursery famous for its Rhododendrons. In the end he actually made most of his money off of a patent that he made for inventing a more efficient piece of machinery for processing lumber and from selling the property that his nursery and bees were kept on for fifty years.

Now as it turns out, the family business bug has bitten my twin sister and I. Being a dynamic duo it isn’t altogether surprising that we’d consider teaming up to work together. At the moment we are at the very beginning stages of starting a business in eco-friendly housing development. This combines a number of our talents and interests into an interesting proposition.

Obviously with the housing market as it is we are treading carefully to ensure that we have all of our ducks in a row. We are hoping that it will be an avenue for me to invest money from my assignment in Afghanistan. I figure that it is a good prospect of having some seed money to develop our ideas.

My paternal grandmother in also interested in supporting this business endeavor. She believes in the value of family business and would be delighted to help pass on a business to future generations. She is now 91 and would like to see a legacy left.

We are now at the initial planning stages in this process, but we will certainly keep our readers informed as we move through this process.

Readers: We’d be interested to learn what family businesses you have out there?

Best,

Miel

The Origins of Capitalism and What They Mean for You

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So yesterday, I found that I was thinking about wealth and its origins. Now, most people are concerned about about the basics of building wealth, maintaining a checking account and building up emergency savings. So, they aren’t too concerned with the intellectual or sociological origins of capitalism.

Its too bad, because if you study the origins of something you have a better sense of the conditions that foster it and cause it to grow. Since capitalism has been important for our economy and our pocketbooks, it makes sense to give it some thought. To whit, I wanted introduce two competing theories of the origins of capitalism: Weber’s Protestant Ethic and Diamond’s Competition-Fragmentation Theory.

Max Weber was a big time old school German sociologist. The wrote in the 1880s when Europe was starting to take on its modern political forms. Being a pretty clever guy, he wrote a classic book called The Protestant Ethic and the Spirit of Capitalism. In it he said the rise of banking and merchant classes in Europe coincided with the growth of protestantism. Weber argued that this was because protestant communities emphasized free, open and transparent business and self government as well as a strong work ethic rooted in religious ascetic beliefs. There’s more here if you want to read up on Weber.

The other idea I wanted to discuss is Jared Diamond’s Competition-Fragmentation theory. Jared Diamond, an evolutionary biologist, is best known his books Guns, Germs and Steel and Collapse. In a recent speech he gave aptly titled, How to Get Rich, Diamond looked at a bunch of countries over time to develop a natural history of becoming rich. What Diamond found was that wealth was optimized in areas with a lot of competition and fragmentation – like Europe in the 1880s. He also notes that when companies adjusted their management structures to fit the optimal mix of decentralization and fragmentation, they tended to have greater profits.

Now, Weber’s and Diamond’s theories are fine, but what do they mean for you? In my view this means at least two things for your own personal finance. First, if Weber is correct, you’ll probably have to work hard to attain wealth. Second, provided that Diamond is right, you might consider investing in companies that have the right kind of management structure, one which has the correct mix of centralized management in an industry with a healthy degree of competition.

Of course, a lot of this pretty theoretical so it also pays to stick to tried and true methods like maxing out your IRA and contributing the maximum to your company’s 401k plan!

Best,

James

Relativity of Money

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Numbers are perceived to be tangible and fixed. Yet when it comes to money, I’ve come to learn how relative numbers really are.

After my first couple of days in Kabul I finally had to change some money today. Getting a handle on the exchange rate is easy enough at about 50 AFS to 1 USD. What is harder to get a grasp on is how much that can buy you and what is a good deal.

I’ve pretty much resigned myself to knowing that I won’t get a good deal on anything until I’ve been around the block a bit longer. Looking at the prices in the super market I begin to instinctively compare prices to those in Africa.

Sure it might cost three bucks for a box of tea, but is it really as dear to me now as it was back in my Peace Corps days? One of my memories from those days was spending a good five minutes deciding if I could afford the $3 box of tea. After all, this was equivalent to a day’s wage for me back then. After much deliberation I bought the box of tea, only to have it eaten out from the bottom by termites. After being very frugal in my use of the tea I picked up the box to discover that the tea was just a pile of dust.

Now of course I’m making much more than $3 a day and wonder if I should look at that box of tea any differently than I once did.

Food for thought,

Miel

Sweat the Small Stuff

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We all know that your morning latte is as likely to be your downfall as whatever may be your weakness in life, be it designer shoes or simply eating out.

While it is important to pay attention to the small stuff, this should not be at the expense of larger things in life. They say in Congress that numbers have a funny way of working with the mind. While many might look at Gates’ request for $190B and see the figure as absurd, such large figures are often hard to digest.

It’s only when it comes to every day items that we can really wrap our minds around the expenses that tax payers pony up on a regular basis. We can talk about billions in spending, but when it comes down to $50k for drapes we are suddenly appalled.

While we each play our part in sitting back and taking the spending that happens on our behalf, I’d invite you to take this lesson back home. What are the items in your budget that get wrapped up into the larger budget and are easily ignored? Whether it be the extra gadgets to go along with your new iPod, or another bill in a long line of expenditures, I encourage you to step back and look at the big picture and the small details. They both make a considerable difference to your bottom line.

Best,

Miel

Formative Finances

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Thanks for all the great comments on my last post. While it’s not something that I often dwell on, socio-economic movement has been part of who I am.

I do strongly agree with one of our anonymous comments that working hard for your money can make it more meaningful. My twin sister and I are both very successful in our own right, yet we have come to approach finances differently.

As we were growing up there were some early indications of me being a bit more of a saver than my sis. Going in to college this became even more apparent. I went to an expensive liberal arts school that forced me to work two jobs and save constantly. My sister however opted for a solid education at Oregon’s State Universities (OSU & UofO). This allowed her not only to have half the college expenses as I had, but to also get money back every month from financial aid. She still worked a college job, but she worked more like 8-10 hours a week while I never worked less than 25 and up to 30+ with my two jobs.

The thing that is interesting, is that once we got out of college and moved on to the next stages in our lives, we approached money quite differently. My first job back from Peace Corps I was determined to get a salary worth what I felt I deserved. This happened to be more than any of my friends who had stayed in Portland had ever made. My friends told me not to have such high expectations but I refused to listen to them. Even in the horrible job market of Portland I managed to get a job that paid even more than what I had been hoping for.

My sister however has been seemingly plagued by poor paying jobs. Granted that the environmental non-profit and government sectors don’t pay well, but it’s not like I’m in the corporate world working in non-profit development as I have.

I guess my point in all of this is that life experiences really have great implications on how one approaches finances. In this case we both came from the same set of genes and still manage to look at finances differently. I believe that a lot of this traces back to our formative experiences.

At the end of the day I feel that my sis and her family has been successful financially and I feel that we have both moved up in the social strata. My sister and her husband make very wise financial decisions and manage their house hold like a tight ship. I guess that in the end different choices are perhaps symbolic of how we approach life differently in many ways. Both successful in different terms, parallel yet divergent.

I’d love to hear from any of our readers on how they and their siblings may approach finances differently.

Cheers,

Miel

Inheritance and Real Wealth

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Earlier this week, I wrote about the inheritance theory of wealth. This is the notion that family background strongly determines how wealthy one is. The main idea behind the inheritance theory is that early socialization and access to resources found in rich families improves the life changes of their offspring. The second idea behind the inheritance theory is that in later life, the children of the well off receive larger transfers of wealth, thus ensuring that the next generation remains rich.

I’ve talked about the psychological reasons why you shouldn’t buy into this theory, so I won’t harp on it here. I did however want to point out that many of Americas’ wealthiest families have been built on building exceptional businesses – families like the Mars in candy, the Wrigley family in chewing gum, and the Coors and Busch clans in beer. All of these families made their wealth not from inheritance, rather they got it from building successful businesses over time.

The final point here is: the inheritance theory of wealth should be taken with a grain of salt.

Best,

James

The Great American Dream

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Everyone knows of the great American dream of rags to riches. The idea is that opportunity exists to pull ones self up by the boot straps and climb the social strata.

With poverty and class issues as they exist today, I can see many valid arguments for why this may be much better in theory than reality. The poor in America are for a large part handicapped by the economic and social conditions that surround them. Getting out is not as easy as it may sound.

I however believe that it is possible to climb the ladder of success. I grew up in in rural Oregon right on the poverty line. Growing up I wasn’t really aware of this. Had you asked me in grade school or high school where I fit, I would have said middle to upper-middle class. Of course this was comparing myself to those around me in rural Oregon, those under the poverty line. I think that my inability to recognize that I was not in a good economic condition allowed me to function as if I were in a higher social class than I ever really was.

For instance, when I finished high school I only applied, and go in, to two prestigious liberal arts colleges (Lewis & Clark College & University of Puget Sound). I didn’t really consider the fact that my parents had saved zero money for my education as a barrier to the education that I felt was right for me.

After facing challenges in funding this education I made my way through college by working two jobs and putting all of my savings to pay for the next semester of tuition. It may not have been easy, but it got me through.

I recall being in my intro to econ class when it finally occurred to me that I was perhaps out of my league. He mentioned that the average family income for a student at Lewis & Clark was $70k at that time (keep in mind that Oregon incomes are not the highest in the US). I was struck by this and felt even more fortunate to have made my way into this world.

The interesting thing that I discovered in college was that suddenly I had more money than any of my roommates. All of them received generous allowances from their parents, but then promptly blew it all. I was the only one of them with a chunk of change in the bank, until it was time to pay my next tuition bill that is.

Ten years later I likely have more money and make more money than most of my cohorts at the time. I now make six times what my parents take home. It goes to show that it is possible to make your way in the world.

Looking back I think it had much more to do with gumption and stick to-it-tive–ness than it did economics. Going in to college I did the math at what it would take to make it through and numbers alone would have told me to head to the nearest community college. I believe that the social skills in being able to fake it until you make it also paid off big time.

I don’t think that my story shows that anyone can make it out of poverty, but it does should that there is the opportunity to do so.

Readers: I’d love to hear your stories of making it or not.

Best,

Miel

P.S. Check out Nickel and Dimed – On (Not) Getting By in America, by Barbara Ehrenreich for more on the poverty cycle.

Some Good Advice from Yahoo

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Hi All,

The personal finance section in Yahoo.com is usually a good source of articles and information about stocks and investing. Today, they featured an informative article on some guidelines to help you think about getting rich. If you have some spare time, feel free to cruise over to yahoo and check out the article.

Best,

James

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