Everyone is Looking for More Money

I just read today that the minimum wage is being raised in the UK by nearly four percent for all age groups. On July 24th, the US will follow suit, with 29 states affected by the increase in the federal minimum wage to $7.25 per hour. Other countries like Morocco are also raising their minimum wage, which went up last year and is set to rise again for a total rise of 10%. Other countries too are talking about raising their minimum wages to keep people out of poverty.

While this may all sound like good news, for the world's economy as a whole it may not be. Although it is good news for those who are already employed and who are working for minimum wage already, it will not encourage job growth in a stagnant job market. Employers are inevitably going to hire less as their costs for labor increase. That means fewer jobs will be created overall.

Now, the argument is that minimum wage jobs are essentially entry level positions, and should therefore not be seen as positions that are meant to support a family. There are plenty of families in the US and other countries that do have families dependent upon the minimum wage. Besides which, what about the teenagers and college students who need jobs to gain experience so that they can get ahead? Current US unemployment figures for teens are at 24%, the highest in a quarter of a century. The rise in the minimum wage will only exacerbate this problem.

Peter Schiff explains in detail how employers will tend to use higher skilled workers who are able to produce more in less time than workers with lower skills, and how some workers will even be replaced by machines. The last time I was in the US I saw an increase in automated cashiers, which means jobs are being lost among these types of low wage jobs. Sure, the people who manufacture and repair these machines are getting more work, but I have a feeling that they were getting more than minimum wage anyway. It is for this same reason that fast food establishments use throwaway cutlery, plates, and cups. In so doing, they have no need to hire a dishwasher. This is the same for other unskilled positions, such as movie ushers or baggers at grocery stores. Those jobs have been essentially lost due to the minimum wage laws.

There is another cynical effect of the raise in the minimum wage, at least in the US. It will keep people off of welfare programs. As it stands, a worker on the bottom of the pay scale will benefit from various government programs, which help to feed, house, and provide medical coverage for the poorest in our country. By raising the minimum wage, some workers will no longer get these benefits and will actually be worse off. Now, while this is good for government coffers, which are in the red after massive bailouts to large corporations, it may in fact cause more suffering as families are cut off from needed food and medical aid. Obama's plan to ensure medical coverage for all Americans may end part of that argument, but people must still eat and have a place to live.

Now, I am not advocating that there should be no minimum wage, but in the current economic climate in which we find ourselves, is it not better for a person to have a job than not? Raising the minimum wage, whether it be in the UK, the US, or South Africa, will not solve anyone's problems, least of all the unemployed.

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...