Abandon the Culture of Poverty: Changing Attitudes on Wealth Creation

I look around and see a lot of poverty in the city where I live. And no, it's not because of the current global economic meltdown. Cape Town has one of the highest differentials between rich and poor of any city in the world. On the Atlantic seaboard, there are properties worth tens of millions of dollars, some of them bought by Hollywood stars and people of influence from around the world. Just a few miles away, there are people living in shacks, many living without plumbing, electricity, or running water. And from my experience, though the people in the First World arguably have it better, the poor can be found in every major city throughout the world, even in London, New York, Paris (remember the riots there in 2007?), and other major cities...

Why am I talking about poverty on The Creating Wealth Blog? Isn't poverty the antithesis of wealth? That's exactly why I'm talking about it. It was Michael Harrington who initially wrote about a culture of poverty that prevailed among America's poor back in the 1960s, and it is this way of thinking about wealth, and the lack of it, that needs to change. In a nutshell, it is the idea that poor living conditions create poor health, creating a cycle that keeps people in poverty for generations.

Creating wealth, however, is really just about making intelligent decisions with the resources you have available, and creating wealth is not just for millionaires and billionaires. It is for anyone who wants to improve their lives, and the lives of their children, and the lives of their descendants. It can happen a dollar, or even pennies, at a time. Creating wealth is altruistic in that the wealth that is created for the next generation, whether it be for a person's own children or given to worthy causes, such as is the case with Bill Gates or Warren Buffett.

In this sense, the American government has been failing its citizens for decades, as it has spent more than it takes in since the 1970s, except for a couple of years around the turn of the millennium. The United States has been spending the wealth of the next generation, and in doing so will create a generation for which life is not better than it was for their parents.

That said, the United States has also been a beacon of hope for many who came to its shores penniless. Horatio Algers, Jr. wrote about such hope in his novels in the nineteenth century, about impoverished children who "made it" through sheer determination, hard work, courage, and a concern for others. These rags to riches stories are the basis for the optimism in American culture and for the idea of the American Dream. That is what America offers. Hope. And if that offer of hope can indeed be turned to a reality by some, it can be turned into a reality for all.

Perhaps someday in cities like London and New York and elsewhere in the First World, people will find a way to end the cycle of poverty that keeps people from achieving all that they can in life. Perhaps after that we can then even solve the problem of poverty where I live... in Africa and elsewhere in the Third World.

A Very Brief History of Consumer Debt & a Bit of Good News

I recently went looking on the Internet for some UK debt news for an article I am writing about how people are dealing with debt around the world. Normally when I research on the Internet, I make parameters so that I do not get any old news. Today was different. I just forgot, and in so doing came across an article from 2005 that sounded eerily familiar. This report from the BBC warned years before the credit crunch struck about consumer debt, and how it could drastically affect consumers in a downturn.

"Debt is a time bomb which could be triggered by any number of shocks to the economy," Lord Griffiths, a former head of the Bank of England, was quoted as saying in the article.

Well, that time bomb has now exploded, and we are living in the aftermath of a financial Big Bang. As an astute student of history, I know that it is imperative that we remember these warning signs, which in some cases occurred years before the current crisis. History will only repeat itself if we do not learn its lessons and follow the same paths to financial ruin.

Now, not unlike the Big Bang that brought the universe into being, this financial crisis is bound to bring about some very positive changes in world economics. Being in the explosion, we just may not see this right now. But already we are seeing a more conservative view of how money should be handled. People are seeing now how money, and wealth, should be respected and used wisely, just like any tool. That means not using a credit card to go grocery shopping or taking out a loan to go on an overseas holiday. Living a simple life is making a comeback.

As I've stated in earlier articles on this blog, companies that offer debt solutions, alternative energy producers, and others who are looking forward to where the world is going will generally do well. Being one step of the rest of the world is a recipe for making money.

And it seems as if I am in a good location to weather this credit crunch. Africa generally has escaped the worst of it. Kenya's banking system is doing well, as is South Africa's, the product of a decent regulatory system. I think the First World could use some lessons about fiscal responsibility from the banking sector here in Africa. Yet on the flip side, many African countries' mining sectors have hit some countries hard. South Africa and other countries on the continent depend far too much on mineral wealth, and mining companies across Africa are finding it difficult to get credit. So yes, it has been easier here, but no place on this planet has been unaffected by the crunch.

Still... there are good points. As I mentioned in an earlier post, more people are taking university and community college courses to improve their skills and to make themselves more attractive to employers. UK landlords are also finding that their business is booming, as younger people who would normally have got home loans are not qualifying, so are increasing the ranks of renters.

I foresaw this possibility in earlier this year, and still believe that buying properties to rent out will be a good thing. A localized trend here in South Africa is taking place before next year's Soccer World Cup. People are being offered over $1600 a day to rent their houses out for the duration of the sporting event that starts in 11 months. My mother in law certainly is not seeing any downturn in her business, and I am just hoping that she may offer me a bonus for plugging her business online...

Kublax: A New Way to Budget Finances

Budgeting your finances is a key step to creating wealth. For those of us who like to keep track of our finances, there is a new tool that has just arrived on the Internet called Kublax. This personalized money management tool allows people to more easily keep track of where their money is going. As a personalized money management system, Kublax does much the same thing as Mint, though its context is more in line with people living in the United Kingdom than the United States. Though Mint is actually more geared towards the United States' financial system, both it and Kublax otherwise mirror each other as to what they do. And perhaps the best news for cash-strapped consumers about these services is that both of them are free to use.

Kublax allows people to keep track of all their spending and income online, and in one place, making it easier to budget and to see where their money is going, thus keeping waste to a minimum. It keeps track of balances of credit cards, in bank accounts, of mortgages, and for a variety of other accounts. This tool can even remind people to make payments on time to avoid late fees, thus saving money.

Like it's counterpart in the United States, Kublax offers visuals like graphs to show how a user's finances compares to others. For example, if you want to see the difference in how much the average Londoner spends on expenses compared to someone in the West Midlands, you would see that though the main expenses for both are rent or mortgage, there is a whopping £320 difference between them. Looking at the fact that housing costs are nearly 50% more, someone from the West Midlands who is looking at increasing their salary by 10% by taking a job in London would definitely have to think hard before accepting a new position there.

Besides the cool graphs and comparisons between the British Isles' different regions, Kublax tracks spending in specific areas and informs users if they are going over their allotted budget in any area. In these recessionary times, everyone is counting their pennies. With budgeting back in style, Kublax's appearance on the scene as a free online budgetary tool comes at just the right time.

Reading the five reasons why a person should use Kublax, utilizing this or another free online service like Mint seems like a no-brainer:

1. A person can manage all his or her accounts in one place.
2. Through its categorization software, Kublax automatically separates expenses into groups, and then will track them by day, week, or month.
3. With all accounts in one place, and seeing income and expenses, it makes it easier to set up a budget and to live within one's means.
4. With e-mail and texting alerts, late payments can become a thing of the past.
5. By comparing a person's expenses to what others are spending, a person can budget so that he or she is able to plan his or her finances more carefully.

Like its counterpart in the United States, Kublax boasts an online security system that makes each user completely anonymous. So there is really no reason why someone living in the U.K. should not at least try it out. It looks to be a simple yet all-encompassing budgetary and money management tool, and since it is free, there is no reason for someone not to try it. It makes me wonder, however, if there will be something like Kublax coming to South Africa soon...

Frugality is Back

My mother in law would be proud. Apparently, seventy percent of the elderly population in the United Kingdom are reverting back to the frugal methods for conserving funds that many of them learned during and immediately after World War II. My mother in law never forgot those lessons. She was a toddler when the London blitz began, and her formative years were spent in a country where what we would consider basic necessities, like soap for example, were considered luxuries.

Since then, she has always believed in cutting costs and finding bargains. As a single mother raising three children in South Africa, this was essential. Sure, she came from an upper middle class family, and her parents could have and would have helped her more than they did, but in so doing, they might have made her dependent on them rather than the independent entrepreneur that she later became. Now, we don't see eye to eye on every issue, but the lessons her own life teaches us about living a frugal life have begun to resonate among younger generations.

Risk takers have been vilified where once they were held up as heroes. We see this in an American culture that venerated those who made easy money and relegated those who worked hard and saved as fools. You would never find something like this article I just read online about an elderly woman who had put all her savings into the stock market. The author talks about her with disdain, and perhaps this is for good reason. It is because of the ever greater risks that people took most recently in the US housing market that the world economy began to fray at the edges.

But attitudes are changing , and the idea of cocooning, spending more time at home than out spending money, has come back into vogue. The home is becoming more of a haven for entertainment with the Internet and electronic gadgets. You don't even have to leave home to shop anymore. Retail clothing outlets in the US have been closing as people stop spending and consumers become tighter with their money. Even people who work in the financial sector are seeing their companies being frugal with their money, questioning small purchases and getting tighter with their funds. To quote an asset manager in London: "All our expenses are being looked at down to the last penny – someone was questioned the other day on a claim of 75p for a newspaper. It’s as bad as being an MP."

While other retailers are cutting back, discount stores like Wal-mart are seeing new customers come into their stores as they abandon other, higher priced retail outlets. These new shoppers spend some forty percent more than the typical Wal-mart shopper. As a California lawyer that has become a regular Wal-mart shopper said, “If I am able to get good stuff at Wal-Mart, and I am able to save money, why would I change?”

I am full of hope for the future. I believe this new/old way of thinking that is now making a comeback will take us towards where we want to be as human beings, building a sustainable lifestyle based not on plundering the world's resources but on finding ways to reduce, reuse, and recycle. There are new ways we can invest in the future, and technology holds the key.

An article by Shel Horowitz advises those who have never lived in poverty on how it can be ended, and in this article he lists a number of things that not only the poor, but all of us, should be encouraging. He pushes for the massive introduction of alternative energy sources such as solar and wind, decriminalization of offenses for illicit drug use that takes otherwise productive citizens out of society and puts into prisons, revitalizing mass transit on which the poor depend for transportation, organic gardening, and a number of other things that would make us wealthier as a society. The days of greed being good are gone, and there is a storm brewing on the horizon. People are angry that the very people they view as causing this economic crisis, the bank executives and speculators in the financial markets, are the same ones that are now getting bailed out. Again, Shel Horwitz quite fittingly lambasts those who took the bailouts and praises the Obama administration for freezing the salaries of executives of companies that have received bail out money.

It is time for us to get back to the basics, and to get back to a world view espoused by mother in law. One of her favorite sayings is "Cut your cloak according to your cloth." This essentially means that we should take what we have and make from it what we can rather than wishing we had more, or borrowing to attain it. Creating wealth does not entail taking on loads of debt. If you can save a buck by making your own food from scratch, rather than going out to eat or eating prepared meals, then that is what you should do. Leftovers should be eaten, clothes should be mended rather than buying new, and growing vegetables in a garden, something my father taught us to do as children, is something we should start doing again. We should all look at what we do and the way we spend our money, because it is through hard work and savings that real wealth is made.

The Credit Crunch Continues...

People are still finding credit difficult to obtain in the UK. Proof of this is the 3.5 million credit card applications and 1.6 million unsecured loans rejected over the course of the past six months. Even people with security are being denied credit, as over one million loans were declined even though the person requesting them had collateral.

Personally I think this is a good thing. Reliance on credit during the boom years allowed people to grow their debt until it got unmanageable, and the pendulum these days is merely tipping in the other direction, and this is so even here in South Africa. Not even two years ago, banks were throwing around money as if it were almost worthless. In the current situation, credit is something that even those with money are finding hard to get. It is almost as precious as gold.

Speaking of gold, even those countries with massive amounts of natural resources, like Ghana, are finding money tight. Ghana last year had been able to raise $750 million to prospect for oil in a newly found field in the west of the country. Today, there is no way the Ghanan government would be able to raise that amount of funds.

In the US, the federal reserve's aggressive actions have kept the credit market relatively strong, with the exception being the housing market. The policies that the US government has taken have allowed banks to lend, and interest rates have remained generally low. Interest by investors in the Asset-Backed Lending Facility has picked up in May and June to levels not seen since last fall. This is good news for the biggest economy in the world, and perhaps a ray of hope for the future of the entire world economy.

Africa generally has not been hit hard, though unlike the South African economic guru Trevor Manuel's opinion about the economy earlier in the year, South Africa has dipped into a recession during the last two economic quarters. People here are talking about the World Cup next year, and the building of infrastructure can be seen everywhere here in Cape Town. People are generally optimistic, and looking forward to the next year, when an influx of tourism in an otherwise weak part of the tourist season is slated to bring in billions of dollars.

South Africans are taking the credit crunch in stride. There has even been a new book called "Beat the Crunch," which gives hints to consumers on how to save and cut costs during this recession. That's one way to make money in the current economy: by explaining frugality to a generation that has never known it.

Now... the credit crunch in Cape Town, South Africa brings on a whole different meaning. Though banks here have begun to keep a tighter reign on their money, it has given one comedian here material for a show called simply "Credit Crunch." So among all this dismal news, there is still a reason to laugh...

Following the Plastic Road

Some people continue to put their heads in the sand when it comes to their debts. Denying debt, however, can lead to bankruptcy or even to a person's home being repossessed. The mountain of debt consumers in Western countries took on is a big part of what led to the current worldwide economic downturn in the first place. Giving credit to those who could not afford it, especially as was the case in many of the sub prime home loans given in the United States, created a knock on effect that caused the sub prime home loan market to collapse. Much of this debt was bought and sold internationally and, like a cancer or other debilitating disease, it spread to banks around the world, erasing trillions of dollars worth of paper wealth and affecting vast swathes of the world's population.

The use of credit cards and other forms of debt taken on by consumers, often to fund lifestyles that were not sustainable, created an unreal world in which valuable products and services could be easily obtained on credit. The party is over now, and it also left us with an economic hangover that will be felt around the world for years to come. This is the ruin we have created. To quote Peter Davidson of Bankrate.com: "The road to financial ruin is paved with plastic."

In fact, a study in the United Kingdom revealed that one out of every six people believe that they are not able to keep up their commitments to paying debt payments, with this figure moving up to one out of every three people in the survey when asked this question in relation to the near future. This means one in three people are seriously concerned with their current or near future financial situation, and this sort of attitude is becoming more endemic.

Darryl R. Schoon of the Market Oracle has this to say about debt:

"Debt, in capitalist systems, is a wondrous device. That is, until it can't be paid back. Under capitalism, credit fuels expansion but it does so at a cost. As capitalism expands, credit becomes debt and the greater the expansion, the greater the debt."

Interest rates around the world have plummeted to their lowest levels in decades, making debt seem as if it could be manageable once again. Lest we forget, repossessions of homes are still happening at an alarming rate, and have increased even here in South Africa, one country that was supposed to be only residually affected by the economic downturn.

To quote a previous article I wrote on the Creating Wealth Blog, we need to rid ourselves of this debt culture. We need to live within our means and not spend beyond what we can afford and, if this means more people go to consultants to help them budget their debt, so be it. Debt counselors will do well in the coming years...

Pessimism about our current economic debacle is not a new thing, and I do not wish to sound too pessimistic. There is hope on the horizon if we choose to see it, but we must get our respective houses in order and deal with the debt that many of us built up over the long party prior the current serious economic downturn.

Retirees & Recession

The lowering of interest rates are generally a good thing for most people, many of whom are attempting to dig their way out of debt. However, when it comes to those who have already retired, there may be a different story.

As pensions are often tied to longer term investments, the amount of money retired people have at their disposal is actually declining. In the UK, the expected yearly income for a retiree has gone down £884 to £17,779. While lower interest rates tend to make life less expensive, certain costs, such as those fuel and food, are actually rising. In addition, the lower cost of home loans and borrowing money does not tend to help retirees, but rather hurts their pensions, which are tied to interest rates and the markets.

In the United States, more people are claiming their social security benefits earlier, as people are let go from their jobs and employment becomes more difficult for everyone to find. Many of these people will find themselves in financial difficulties later, as the ramifications of taking social security benefits early means they will get less on a monthly basis. In the past, older workers were cushioned from lay-offs, but in the current economic downturn, this seems not to be the case. This may also be due to the steady loss of union jobs, which protect experienced workers from job losses. Meanwhile, some US companies such as Yahoo are taking the step of freezing company 401K contributions.

Here in South Africa, where skills are in scarce supply, retirees are actually seen as an asset, and so may weather the recession a bit better. Jan Coetzee, Managing Director at Manpower South Africa sees cutting those close to retirement as naive. "In a recession and consequent downturn, the core business areas need to be tightened and made stronger, and experienced staff are therefore central to this process.”

But then all may not be so bleak for some retirees. A few retirees who are either not ready to quit working or cannot afford to are turning to franchises, at least in the US. A franchise offers a tried and true business plan for experienced workers. Those who put money into starting franchises tend to be older and have savings enough to grow the business, as it takes from $20,000 to as much as $150,000 to buy into a franchise. Perhaps another silver lining in all this mess is that people are saving more for their retirement, so that the next generation of retirees will be better off than those who are retiring now.

Still, the majority of retirees are finding it difficult to survive in the current economic climate. Prices of petroleum and other carbon-based energy are likely to stay high due to increased usage in China and India of automobiles, and if there is an upturn, prices for such fuels, as well as commodities that require transport, are likely to increase even further.

Internet Reputations & Bass Fishing

Carl Sgro fixes reputations. Carl Sgro also likes to fish for bass. Both of these elements of who Carl Sgro is are congruent... and here's why...

The Internet, while becoming a tool that more and more people are using to conduct business, has a dark side most people tend not to contemplate. Anyone with access to a computer and time on their hands can spread negative commentary around the world in an instant, spoiling people's reputations and causing people and businesses to lose money.

"It's sickening to me that anyone with an ax to grind can go online and destroy people's lives," says Carl Sgro of I.R.M. Consultants in Bloomingdale, New Jersey.

I know what Carl Sgro means.

My mother in law, a small business owner in Cape Town, South Africa is in the accommodation industry here, where she has a number of properties she rents out on a short term basis. My wife and I help with her business. Now, although I sometimes have questions about her customer service skills, she is generally very professional in the operation of her business.

Recently, she had several younger Americans stay at her establishment for a couple weeks . They were nice people, but they were also hard work. And they took advantage. They tried to barter down everything, even the $2 a day charge for usage of the Internet, which in South Africa is paid for by how many gigs are used.

Towards the end of two of the guests' stay, they left town and returned four hours late, leaving all their stuff in their rooms. As there was no other accommodation available should someone arrive and request a last minute booking, they were charged a fee of some $30 (at the current exchange rate). Now, they became difficult about paying this late departure fee, but that was to be expected, considering their behavior throughout their stay. Then one of them threatened to plaster negative commentary all over the Internet about the establishment. In spite of this, I (who happened to be around to deal with the situation) stood my ground. Fortunately, I have not found any negative comments about Rondebosch Guest Cottages online, but there very well could have been. I did my best to assuage the guests, even going so far as to call a taxi for one.

So... I guess my mother in law will not need to call on Carl Sgro this time. I will, however, continue to urge my mother in law to provide the best customer service possible to her clientele, as ethical online reputation watchdogs like Sgro say to people who deserve their bad reputations, "I could help you, but I won't."

And so we get back to fishing. Carl Sgro offers a service not unlike that of a fishing guide. He takes companies as well as individuals, and guides them to places where they can catch something good, rather than a pair of old rubber fishing boots or an ancient tin of baked beans. In the same respect, a fishing guide takes someone someplace where they can catch fish, and catch them abundantly. A fishing guide is a bit like a search engine, showing their clients the best places to fish, based on their intimate knowledge of the area. So too do people like Sgro, whose business it is to ensure that reputations are not sullied, except with good cause.

Rising Unemployment Brings Rising Numbers of Students

Yes, things are bad all over, and unemployment in the United Kingdom is adding to the stress of consumers there. But there may be a silver lining to this cloud. Application for enrollment in universities in the UK have increased dramatically, as people of all ages become increasingly pessimistic about employment opportunities and instead turn towards furthering their educations. The Universities & Colleges Admissions Service (UCAS) has indicated that applications increased by over five percent from twelve months previous, and the University of Dundee in Scotland saw applications increase a whopping 16.5%.

A better educated populace will no doubt give the UK an edge in the future, though when an economic recovery will come is still a mystery to most everyone, economists included. The down side is that it will also burden many young people with debt. Such debt hopefully will not be as dangerous to the economy, as the skills learned through universities, colleges, and technical schools will make graduates more employable. Still, the severity of the recession may mean many companies will not be hiring even three years from now, when most of this year's UK graduates will get their degrees.

Similar things are happening on the other side of the Atlantic pond, as the privately operated ITT Technical Institute's stock rose over 46% in a year as demand for their programs remained incredibly strong. People with jobs are educating themselves to be more valuable employees, and those who become redundant (laid off in U.S. terms) are needing to increase their skills in order to make themselves more attractive to companies in the increasingly competitive job market.

As funds for higher education are cut at public institutions, private colleges and universities are picking up the slack. The president of the Career College of Northern Nevada, Nate Clark, noticed not only a rise in applications, but fewer drop outs as well. Students who before could find employment easily without finishing their programs now discover that employers are becoming more picky in the tightened job market, choosing candidates with degrees over those without.

Online education is also seeing an upturn. American Sentinel University saw enrollment increase by 78% last year. Overall online enrollment has increased by more than 12%. A survey conducted by 4collegedegrees.com, from which many online universities and colleges recruit, indicated that two thirds of those who enrolled in online or traditional institutions of higher learning did so because of the economy.

Still, the report on debt in the UK does make one wonder if students will have jobs waiting for them when they graduate. It will be many years before they will know, and it is likely that UK students will share the fate of their counterparts in the US.

Frank Hanna on the Love of Money

We have heard a lot about how people such as Warren Buffett and Bill Gates have given the majority of their fortunes away to charity. While many people with fortunes not so vast as theirs may see this philanthropy as a good thing, what has not really been explained are the reasons behind such philanthropy.

Frank J. Hanna III is a philanthropist in his own right, who belongs to the Philanthropy Roundtable, a group of individuals, corporate representatives, and members of foundations who gather each year to discuss their objectives for charitable donations. He writes in his book "What Your Money Means" about the importance of using your money to make the world a better place. In his book he discusses what it means to have money and the responsibilities inherent in possessing wealth.

Frank J. Hanna has had ample experience in creating wealth, having started Hanna Capital LLC, of which he is CEO, with his brother David Hanna in 1989. The company invests in other businesses and by 2007, it had over $4 billion dollars in assets. Much like Warren Buffet, Frank Hanna and his brother base their decisions on the real worth of a company before investing in it.

In an interview with Deal Hudson for InsideCatholic.com, Hanna rejects greed as the motivator of those who helped bring about the current economic crisis, but rather puts forth the idea that the West's culture of materialism led to the meltdown. He explains how credit, the flip side of debt, can be used to create wealth through investment in business and education, and that credit has been used instead to allow people to live beyond their means.

Hanna believes that the market economy is the best way to create wealth, and the reliance on the government to put things right is perhaps not the best policy. With the wealth created from the market economy comes prosperity, which creates jobs and other business opportunities. He quotes an ancient Jewish philosopher who stated that the best form of charity is to help people help themselves. He believes government cannot solve the problem alone, and that all of us are part of the solution.

"This is a crisis, but embedded within any crisis is opportunity," states Hanna.

Hanna does not see wealth as independent of the community, but sees it as a tool that can be used to better the lives of people in the community. As an entrepreneur and philanthropist he has invested much time, energy, and money into education. Much of his philanthropic giving goes towards improving education. Frank J. Hanna's book offers ample advice to those who have made money and wonder what to do with it.

The book is a moral guide to today's billionaires as well as the wealthy of the future, providing a moral compass that many of those who chase wealth in these times have forgotten.