Last semester in my Economics class, we talked about a fairly simple, yet fundamental concept: Opportunity Costs.
It goes something like this:
The more a nation or industry invests in a product, such as guns, the more of that product will be produced, at the cost of the opportunity of producing another good, say butter, as we see in point A. The idea is that there needs to be equilibrium to maximize efficiency, close to or on point B. This ensures that you’ll have an equal amount of defense and goods. While this may be an economic concept, it can easily be applied to just about anything in life.
Say you have two choices: a nice two week long vay-cay to the sunny, sandy beaches of Hawaii or earning a couple thousand freshly minted green fresh off the press by working those two weeks. Your opportunity cost of going on vacation would be a paycheck. However, the opportunity cost of working is a much needed vacation. If you split your time evenly, you’re achieving the most benefit of your time. By taking a one week vacation instead of two weeks, you could make at least half the money you would have lost, spend less on the vacation, and still enjoy some time off.
It’s like the old saying goes, “Time is Money”.
Luis Dominguez Student Social Media Intern 1st Nor Cal Credit Union
Married members came into our office recently to consolidate their debts into a second mortgage loan. They wanted to amortize the loan over fifteen years, but we felt a second mortgage loan based on old debts should not have a term more than five years. We explained to the couple that in order to get rid of their debt as soon as possible at the smallest possible cost to them, they would have to accept the lower term. We showed them how much less interest they would pay with a five-year term versus a fifteen-year term, and they could afford the monthly payment on a five-year loan.
Our members hemmed and hawed but eventually accepted the loan. Before the ink on the documents had a chance to dry, however, they took out a cash advance on their Credit Union credit card for $6,000.00. To quote Captain Jack Ross (played brilliantly by Kevin Bacon) after giving his opening statement during the murder trial in the 1992 classic “A Few Good Men,” “These are the facts in the case, and they are undisputed.”
Why did our married members advance on their credit card? Was it to buy a new refrigerator? Could it have been a down payment on their child’s college tuition? Or, as I suspect, was it to show the Credit Union that they thought they knew best when it came to their finances?
This scenario happens much too often. I’ve thought about why some people are frugal with their money, while others can’t wait to spend it? I watched my parents manage money growing up and came to the conclusion they did it the right way. I certainly did not get everything I thought I wanted. Mom and Dad took a lot of nice vacations, both with and without my brother and me. I did not attend a private college but was fortunate an excellent university was close by. When Dad passed away, I helped Mom with her finances and was pleasantly surprised at how much Dad squirreled away. Mom is living a stress-free life because she doesn’t have to worry about money. According to her financial advisor, she can live well into the ripe old age of her early three figures.
However, many people struggle in their later years because they did not prepare earlier in life. They saw their parents struggle with money but did not make any adjustments to their own finances. I understand what parents say can influence one’s life. Mom once told me that croutons were bad because they were just fried bread. Croutons are actually sautéed or baked, but the fact that Mom said they were fried stuck in my head.
Croutons haven’t changed much over the years, but personal finances have changed substantially. I receive an annual “checkup” from the same financial advisors. Second opinions are always encouraged with medical issues and would seem to be fitting with finances as well. Mom and Dad may be great resources but may not always be right, especially about croutons.
In the old days of the mid to late 20th century, financial institutions would take up to a week to evaluate a loan application. Today’s technology with online applications and smartphones has shortened the wait time to mere seconds. Rocket Mortgage promotes, “Goodbye, Paperwork” and “Get Approved Fast.” Tap n Loan brags, “A Better Day is a Tap Away.” Speedy Cash says it all in their name.
But is faster always better? While it’s much more convenient to complete the loan application online, there are shortcomings in dealing with online-only institutions. First of all, there’s no place to go if the borrower has questions. There are no “brick and mortar” branches, and phone support is spotty at best. Secondly, these sites claim to do a comparison of other large banks’ and credit unions’ rates but routinely omit smaller local institutions. The net effect is the borrower not necessarily receiving the best possible interest rate on the loan. Thirdly, the online-only outfits do not typically offer a full array of products. Finally, according to NerdWallet, a personal finance website, notes that Quicken Loans, the parent company of Rocket Mortgage, only looks at credit scores and debt-to-income ratios instead of alternative credit data such as employment history, payment track record, and monthly cash flow.
The president of Quicken Loans said recently, “I think the branch loan officer is a dying profession.” Technology is very effective for application processing and integration with other data sources to provide a full picture of the borrower but for now cannot reason and evaluate the way a human loan officer can. The borrower does have the choice today of an automated decision based on a predetermined set of criteria or a human decision based on reasoning and creativity.
It’s no secret that I’ve been against investing in streaming services for a while (like Spotify or Netflix) since they add up to be more expensive than buying the media that you stream from these services. Not to mention that once you cancel your subscription, you lose access to all the media you streamed, making your investment worthless. I was pretty strong on my position, that is, before I finally caved into my phone’s persistent plea to sign up for a trial of one of these streaming services, which I will refer to as Orange. It was without a doubt an addicting and joyful experience. But like all great things, it had to come to an end. The Orange trial ended exactly three months later, as did all my access to the songs I streamed.
I had three options after I lost access to Orange. I could have officially signed up for the service, paid for the individual songs themselves, found another way of legally streaming them (i.e. YouTube or Vevo), or found a way to download the songs without paying for them.
Some people might assume that illegally downloading music (or videos) may be no harm no foul, but it is a pretty big foul. The content creator, whether it be Taylor Swift or Medina, go unpaid for their work, discouraging the artist from creating more music. While it seems that one person might not hurt their wealth, you might not be the only one thinking that and eventually it adds up. Illegal downloads is essentially the same as shoplifting, and like shopping, your activity is being monitored. Stores will check to see why their inventory is disappearing and law enforcement also keeps an eye out for torrent sites, like Pirate Bay, and shuts them down. Furthermore, your IP address is permanently logged onto the torrent site, so if you did download something, the log will show it which could be used against you in court.
Streaming services and purchasing your own music might be expensive, and I’m not arguing that. However, the price is justified when you think about the right you are doing society by paying up to stream Shake it Off for hours on end.
Luis Dominguez Student Social Media Intern 1st Nor Cal Credit Union
“You have to spend money to make money.” We’ve all heard that well-worn phrase. To a business owner, that means investing funds for supplies, product, advertising, staff salaries, and other operating expenses. For entrepreneurs trying to get a business idea off the ground, spending money with no revenue is difficult without borrowing from friends, family, their financial institution, or if really lucky, a venture capitalist willing to take a risk.
Imagine the difficulty Elon Musk has trying to create an automobile company with new technology. Mr. Musk started off slowly by building a few cars at a time and selling them at a very high price which built up some cash reserves. Later on, the company went public, and more cash from stock issuances came in.
Then came the hard part. Stockholders are patient with new companies for a short time but then expect a reasonable return on their investment, either by a higher stock price or high dividend rate. Mr. Musk’s response was to transform Tesla from a niche product to a mass-market vehicle in less than two years. That requires a whole lot of new capital.
There are several ways for Tesla to bring in new money. They can offer more stock, float bonds, ask Mr. Musk to chip in some of his own funds, raise the price of their cars, or a combination of all of them. Each scenario carries its own level of financial risk. While the stock price continues to climb, it makes additional issuance more expensive and dilutes Mr. Musk’s stake in the company. Former Federal Reserve head Alan Greenspan feels we’re in a bond bubble ready to burst. Mr. Musk reducing his personal net worth is something the average consumer deals with daily. Finally, raising the price of the cars can put a damper on sales.
Tesla’s biggest problem at the moment may be Mr. Musk himself. Entrepreneurs by nature are always looking toward the next big thing. He still has an interest in creating commercially-viable space vehicles and colonizing Mars. Company founders are typically not good at managing people and systems. It may be time for Mr. Musk to clear the way for a professional manager to lead the transition of Tesla to a full-scale auto manufacturer.
The latest count is that approximately 450,000 individuals have paid a $1,000 deposit to purchase the mass-market Model 3. The company expects to reach a production rate of 5,000 cars per week by the end of this year and 10,000 per week by the end of 2018. Will consumers at the end of the line wait that long for their car? Given many consumers’ needs of wanting things immediately, this will no doubt be an interesting experiment in 21st century economics.
By the way, Plautus, the Roman playwright during the third century BC, was credited with the quote, “You have to spend money to make money.” He’s also known for creating the joke pattern used for “knock knock” jokes. From personal experience, anyone managing a business, especially one that markets to the public, needs a sense of humor.
During the months of May and June, we hosted a drive in our lobbies to collect donations for the Contra Costa County Animal Shelter. We collected blankets, beds, towels, food and much more, and ended up being able to do two drop-offs to the shelter!
On behalf of all the doggies and kitties currently in the shelter, we thank you for your support!
“Would you tell me, please, which way I ought to go from here?” said Alice. “That depends a good deal on where you want to get to,” said the Cat. “I don’t much care where-” said Alice. “Then it doesn’t matter which way you go,” said the Cat. “-so long as I get somewhere,” Alice added as an explanation. “Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”
– Lewis Carroll, Alice in Wonderland
A big congratulations to all of you who graduated this past June! I hope everyone had a safe and joyous graduation and grad nite – I know I did! Looking back, it really doesn’t feel as if 13 years of schooling have gone by, but they have. We’re the last class born in the 1900’s; the last class to watch Kim Possible, The Sweet Life of Zack and Cody, Hanna Montana, That’s So Raven, Teen Titans, Dexter, and SpongeBob; the last class to know what spending Friday afternoons at Blockbuster Video felt like, or how to print out a Google Map and directions. We’re the last class to know that blowing into a Gameboy, NES, or N64 cartridge does the trick, and what it’s like to use a Moto Razor (or any flip/slide phone for that matter). But on a more serious note, you’ve got your whole life ahead of you. How exiting! Think of all the weekends you’ll spend at the beach, all the road trips you still need to take, the late nights you’ll enjoy with your friends, all the bonfires yet to be lit, and all the times you’ll have to explain to the fire fighters that “it was an accident”. Oh, the Places You’ll Go (Dr. Seuss) and the things you’ll see!
I recently went down to Disneyland and on the way there I remembered that when I was a kid, when adults asked me what I wanted to be when I grew up, I’d answer, “I’m going to be a Cast Member at Disneyland!” Unfortunately, life forces us to grow up and realize that working at a park can only get you so far. However, despite this, the dream was rekindled. It was on my way to Disneyland that I realized that we are the captains of our destination. We have the right to live out our dreams, however strange or illogical they may seem. We should only have to listen to ourselves, and take the advice of others as just that, advice, and not a direction in which to head towards. Life shouldn’t be about finding what job will make you the biggest bucks, life should be fun and fulfilling.
If you are still being asked where you’re going next or what career/major you are going into, it’s completely okay not to know. A lot of people go through life not really knowing what they’re going to be or how to move on, yet in the end, they still make it through fine because they put their best foot forward and gave it their all. They started nowhere and ended up in the best possible somewhere. With this in mind, go out there! Live out your crazy dreams! Put your best foot forward! Give it your all! You’ll eventually end up somewhere.
Luis Dominguez Student Social Media Intern 1st Nor Cal Credit Union
Last month, I talked about the changes we are making in order to remain independent and competitive. Not only do we have to compete against the “Big Five” largest banks, regional banks, community banks, other credit unions, and nonbanks such as Walmart and Quicken Loans, but now our federal regulators are currently reviewing an application from a clean energy company to charter a new credit union to fund clean energy loans for its customers.
“Clean Energy” has become an umbrella term for all the different types of energy that do not pollute the atmosphere when used. In other words, clean energy is any type of energy not originating from coal or oil. Renewable energy includes wind, solar, hydro, geothermal, and to some, nuclear. While this is not a debate on climate change, I think we can all agree less air pollution is good.
The problem is the NCUA, the federal regulator overseeing all federally-insured credit unions in the nation, is considering a charter to an entity for the sole purpose of funding clean energy loans that most credit unions can do today. Many California taxpayers who have financed solar panels on their residences are already experiencing a form of this on their property tax statements. These solar companies hoodwinked the California Legislature into believing they were the only one capable of making these loans. We have seen examples of 90-year olds financing solar panels with 20-year terms that have to be paid off when the borrower/taxpayer dies or their first mortgage loan pays off or is refinanced. Is this responsible financing? I think not.
The solar companies have convinced our state representatives that credit unions are against clean energy. This is a fallacy. Credit unions are very much in favor of clean energy and can do a much better job of financing loans for solar panels, air conditioning systems, wall and attic insulation, LED lighting, and window and door sealing. After all, our business is to lend money to regular people with the personal service they cannot get at larger banks.
There are some other significant areas of disagreement with the NCUA should they approve this charter application. First of all, the proposed credit union will be located in Colorado but will serve a nationwide audience. While virtually every other credit union serves a well-defined community or membership group, the applicants want all 320 million of us as potential members. This smacks right in the face of local operation and ownership and keeping dollars in the community which is the bedrock of the credit union industry. Secondly, there is no defined membership. Being a customer of a clean energy company is not a valid common bond by any measure.
We’ll see what happens. If NCUA approves the clean energy company’s application, the entire credit union landscape will change. Who will apply next to operate a credit union? Walmart? Amazon? Google? If that happens, there will be some changes that none of us want.
The internet has become a modern day genie. Searching for cat videos? Boom! 146,000,000 results in 0.73 seconds! What year was the White House built? You’ll have the answer in 1.24 seconds. Shoe shopping? You only have 622,703 pairs to choose from on Amazon. While this access to basically everything is pretty cool, at the same time it can create a problem for impulse shoppers. The web makes it incredibly easy to quickly convince yourself that you need that teapot because it’s on sale and dares you compare prices from different stores. As an added bonus, it throws in free two-day shipping on orders over $25 dollars, which is what finally convinced you to buy that extra phone case. At the end of the day, you have spent $25 or more on stuff that you really didn’t need, but you were made to think you did. How do you avoid this?
Unless it’s a necessity, like food, petrol, or school related stuff, it can wait. Even if you’re convinced that you have to have it, don’t buy it just yet. Do some price comparison and see which seller gives you the best deal.
If it’s something more expensive, like in the $100+ range, wait a week or two before making your purchase. Waiting will make you certain that it’s something that you really want and not being made to think that you want it.
Say two weeks have gone by since you first saw that new $16 fidget spinner. You have waited this long and even did some price comparison to see if you’re getting the best deal. However, you’re still unsure if you should get it. My advice: Don’t. If you’re still unsure, it probably means that you’re going to keep it in your desk drawer and never use it again. Why not instead use those $16 for something else?
Summer is a great time to go out with your friends and shop, but remember to save your hard earned money whenever possible.
Luis Dominguez Student Social Media Intern 1st Nor Cal Credit Union
As a lifelong UCLA fan and later alumnus, I studied their long-time basketball coach John Wooden. Basketball coaches generally don’t see beyond the 94 by 50 chunk of wood in front of them. But Coach Wooden was different. He saw basketball as an analogy for life. One of my favorite quotes from Coach was, “Failure is not fatal, but failure to change might be.”
I hear conflicting wants and needs from members. Some members want us to expand our branch network and add or expand services they want. Other members want us to do nothing and stay the same. Unless I’m missing something, both cannot happen.
A marketing technology firm survey revealed that one in five credit union members feel their credit union is failing to provide needed services and adequate information to help them reach their personal financial goals. The survey suggested there is still a wide gap between what people want and what credit unions and banks actually deliver.
In order to provide those services that our members want, we need to change and not because of our name change, as some members have suggested. We recently upgraded our credit cards so that they now show on a consolidated account statement, which makes it easier to make payments. By the end of the year, we will have introduced digital wallets such as Apple Pay, Android Pay, and Samsung Pay; moved our data center to a more secure location which has state of the art security; and painted and carpeted two of our branches.
After hearing member input on our East Contra Costa branches, we are planning on consolidating the Pittsburg and Antioch branches next year. Then, we will be looking for a branch location in Brentwood. While these changes may sound overwhelming, be assured we analyze all changes with the best interest of all of our members in mind.
Changes can be painful. You may have been unable to activate your credit card or were inadvertently charged a fee at one of our surcharge-free ATMs. We are getting those items corrected as quickly as possible. Our entire staff has been working hard to ensure a minimum of disruption while these changes are being implemented.
Apple founder Steve Jobs said years ago, “For the past 33 years, I have looked in the mirror every morning and asked myself: ‘If today were the last day of my life, would I want to do what I am about to do today?’ And whenever the answer has been ‘No’ for too many days in a row, I know I need to change something.” Agreed.
David M. Green President/CEO (925) 335-3802
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