Communicating Quantitative Information

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Communicating Quantitative Information

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Note: China (Chinese companies, people, government) also ... NOTE: this data represented is life expectancy at birth: infant mortality is significant factor. ... – PowerPoint PPT presentation

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Title: Communicating Quantitative Information


1
Communicating Quantitative Information
  • Excel Homework
  • Social Security, Pensions
  • Stocks and Bonds
  • Life expectancy
  • Homework Postings. Homework due after
    Thanksgiving. Find on-line retirement planner.
    Compute prediction for yourself (or for a parent)
    or John/Jane doe or someone made up. Make posting
    on experience (do not show results)

2
Retirement problem
  • What will I have in the future starting with pv
    and with the system of payments described by the
    rest of the parameters.
  • FV is future value
  • fv(rate, nper, pmt, pv, type)
  • Rate is 4,
  • pv is -4000,
  • pmt -2000
  • nper 20
  • For type, try both 0 and 1. This indicates paying
    at the end of the period versus paying at the
    beginning

3
Retirement
  • Take it one year at a time

4
Retirement
Compare after 4 years 13,172.36 vs 12000
5
Retirement answers
  • Adding the 2000 to savings
  • at the end of the year
  • fv(.04,20,-2000,-4000,0) ? 68,320.65
  • at the start of the yearfv(.04,20,-2000,-4000,1
    ) ? 70,702.90
  • Putting the money away, no interest 4000
    200020 ?44,000

6
Purchase TV problem
  • What is the better thing to do, comparing what
    you are paying in terms of the value of money
    today. This assumes a cost of money
  • You are comparing
  • the cost paying 2500 now
  • with
  • the cost of making annual payments over the next
    4 years
  • Assumption you have or will have the money. You
    can invest money today to have in the future (put
    away less now to produce/grow to something
    later).
  • Use pv for present value
  • pv(rate,nper,pmt,fv,type)
  • For rate, use 10 for what you need for capital
  • nper is 4. pmt is -750.
  • Set fv as 0. Try both values of type. The answer
    is different!

7
TV problem answers
  • You don't pay anything for a whole
    yearpv(.10,4,-750,0,0) ?2,377.40
  • Note the first 0 indicates no extra last
    paymentIf you can get this deal AND you can
    invest money to ear 10 interest, take it!
  • You pay 750 at the start of each of the 4
    yearspv(.10,4,-750,0,1) ?2,615.14You are
    better off paying the whole thing up front!
  • Go to Excel Help and read more examples.

8
PV and FV (and PMT)
  • Need to be careful on time unit, e.g., month vs.
    year. I avoided this in the 2 problems.
  • Why is present value of something in the future
    less now?
  • Think about what you need to put away to reach
    that value, assuming earnings and compounding
  • Need to be careful with signs
  • Solution use HELP in Excel!!!
  • Need to be careful with default values

9
Alternate tools
  • Get google mail (gmail) account and use Google
    Documents
  • Word processing and Spreadsheet
  • Has advantage that you can access your projects
    anywhere
  • Has advantage that you can share access to work
  • Disadvantage requires fast web connection.

10
Social Security
  • Not intended as investment/retirement plan
  • Transfer plan
  • Tax current workers to pay entitled workers
    (retirees, disabled, families) a guaranteed
    percentage of prior wages
  • Full amount at 65 going to 67. You can start at
    62 for reduced benefits (reduction stays in
    place). You can wait up to 70 for increased
    benefits (8/year).
  • If you don't fully retire, some reduction in
    benefits up until 70.
  • Benefits can be taxed as income if total income
    large enough.
  • Original goals
  • Encouraged retirements, helping new workers get
    jobs
  • Put money into circulation help economy
  • Keep elderly out of poverty
  • Minimal administration costs
  • Success

11
Social Security taxes
  • Part of what is called 'payroll taxes'
  • along with Medicare (1.45), withholding taxes US
    and State (taxes taken away for income tax exact
    amount owed determined when your file returns)
  • 6.2 from employee, matched by 6.2 from employer
  • Responsibility of employer to collect
  • Up to a cap, which has moved up over the years
    currently set at 102,000
  • Self-employed pay 12.4, also up to cap.

12
Social Security Situation
  • System currently takes in more than it pays out.
  • No 'lock box', but treasury bonds
  • Estimates are that system will start paying out
    more than it takes in in 2017
  • Based on population ("baby boomers" retiring) and
    economy
  • Estimates are that in 2041, the funds will be
    depleted and the money coming in will only cover
    70
  • Estimates are considered conservative situation
    could be better, for example, if economy is good
    with more people earning money and paying taxes.

These estimates are from 2 years ago. Extra
Credit to find current estimate.
13
Is this a crisis?
  • Government generally runs a deficit
  • Surplus in latter part of Clinton administration
  • Deficits in Bush administration due to
  • fall in taxes because of economy
  • wars in Afghanistan and Iraq
  • substantial tax cuts (mostly benefiting people in
    upper upper-range of income)
  • Changes now (earlier rather than later) will make
    a significant difference.

14
Alternative view
  • Real crisis is growth in Medicare entitlements
  • Entitlement class of people entitled by law to
    benefits
  • Recent addition of drug benefits
  • Criticized from the right for being yet another
    entitlement
  • Criticized from the left for forbidding
    negotiations with drug companies to lower costs
    AND for not covering more expenses (the doughnut)
  • This is independent of issues of the uninsured,
    underinsured, benefits tied to employment, etc.
  • This is related to general issue of costs of
    medical care going up.

15
Personal Retirement Accounts
  • Divert portion of individual Social Security
    taxes to personal account. Details not complete,
    but may be
  • 2 to 4 (2 of salary to PRA, 4.2 to Social
    Security)
  • Go into managed account of index funds and bonds
    (see later)
  • Claim (hope) that this will grow faster than
    government securities
  • Upon retirement, use money to buy annuity
  • Anything left over available to individual and
    family
  • This is what is called privatization of Social
    Security
  • With financial crisis, fall in stocks, election
    of Obama, this will not be pushed.

16
Suggested fixes for Social Security
  • Pop the cap raise from 102,000 (106,000 in
    2009)
  • Raise retirement age (for full benefits)
  • Raise tax rate on everyone. Raise tax rate on
    some.
  • Lower benefits (other than by age)
  • make raises based on wages not prices
  • decrease standard to cover less than 40 of prior
    income
  • Personal Retirement accounts would take money out
    of the system.
  • Significant transition problem money taken out
    of system when it is needed
  • Advocates claim (hope) that investments make up
    for decreases in benefits. Give people sense of
    ownership.
  • Many (most?) economists are skeptical. Note also
    that the system would require fees to investment
    companies as well as increased administrative
    costs.

17
Pensions, etc.
  • Employers may offer
  • defined benefit plans employee received a set
    amount (based on salary and years of service)
    upon retirement. This is the traditional way,
    being replaced in many places by
  • defined contribution plans Employee contributes
    and employer matches/over-matches. Amount is
    invested.
  • Example SUNY 3 with 8 match
  • May be choices. Enron and other examples led to
    rules to widen investments choices, but
  • Too many choices tends to decrease participation
  • Recent legal change made enrollment the default.
    New employee needs to opt out.
  • Why would anyone opt out?

18
Independent of employer
  • Tax encouraged plans. Person saves into special
    account
  • IRA tax deferred
  • Roth IRA tax sheltered
  • NOTE under-utilized
  • Limits to how much
  • Limits to who can do it

19
Investment options
  • Individual company stocks
  • Mutual funds buy shares. Manager buys sells
    various things according to a strategy.
    Management fees.
  • Index funds stocks of each of some set of
    companies, say SP 500 industrials. Fees are
    less.
  • NOTE all of the above often called equities.
  • Municipal Bonds individual bonds of government
    agencies. Get stated interest usually twice a
    year plus principle back when 'bond matures'
  • NOTE many of these did fall in value in
    financial crisis, due to supply of hedge funds
    selling. Face value still good.
  • Company bonds same from companies
  • Money market, CDs, savings offered by banks
    defined interest, maturity date.
  • Treasury bonds most secure, lower interest

20
Investment options
  • Global (outside of USA or mixture) funds, bonds,
    stock
  • Gold, other commodities
  • Real Estate Investment Trusts
  • Futures puts and calls
  • Other???

21
Treasury Bills
  • are bonds sold by U.S. government.
  • Purchased by U.S. residents AND others
  • Many are purchased by people, organizations,
    banks in China
  • The comment that 'we are borrowing money from
    China to pay for the war' comes from this.
  • Note China (Chinese companies, people,
    government) also sell U.S. residents goods.

22
Zero-coupon bond
  • Buy at specific discount from 'face' value.
  • Do not get periodic interest.
  • At end of agreed upon time, get full value.
  • Graduation gift???

23
Jargon
  • Market place to buy and sale
  • Liquidity how easy it is to sell something, that
    is, convert item to cash
  • Credit market places to get money (that is, take
    out loans) or sell loans (like selling an IOU)
  • Credit market is said to be frozen now.
  • Recession officially is two months of declines
    in Gross Domestic Product (total of goods and
    services)
  • Extra credit get different definitions of GDP
    and compare

24
Check current market
  • www.nytimes.com
  • www2.standardandpoors.com
  • www.djindexes.com
  • wwws.publicdebt.treas.gov/AI/OFBills
  • www.bloomberg.com/markets/rates/
  • Dow Jones Industrial Average combination of 30
    specific company stocks
  • Standard and Poor 500 500 largest US companies
  • NASDAQ companies traded on this exchange
  • T-bills and bonds individual rates, lengths,
    terms

25
Trends
  • Overall, in long long term, stocks (mutual
    funds, even with fees) have done better than
    T-Bills though
  • Periods when that has not been true
  • Some evidence that stocks are over-valued now.
  • The phrase Stock market up or "Stock market is
    down' generally refers to the DOW 30 specific
    large companies
  • Extra credit opportunity first person who posts
    the list of companies
  • There also is SP 500, NASDAQ, others???

26
Life Expectancy
  • www.cdc.gov/nchs/fastats/lifexpec.htm
  • Life expectancy at birth is different than at a
    later age
  • If you make it to an advanced age, the
    expectation is that you will live even longer
  • If you live until your 60s, how many more years
    of life?
  • 65 in Wh. male Wh. female B. male B.
    female
  • 2002 16.6 19.5 14.6 18

27
Life expectancy
  • World
  • http//www.worldpolicy.org/globalrights/econrights
    /maps-life.html
  • NOTE this data represented is life expectancy at
    birth infant mortality is significant factor.

28
Life expectancy
  • http//www.ac.wwu.edu/stephan/Animation/expectanc
    y.html\
  • (unofficial source, but appealing presentation)
  • What is the significance of what parts change and
    what parts don't?

29
gapminder
  • UN statistics
  • www.gapminder.org
  • Gapminder World 2006 (first application) Go To
    Graph
  • Dimensions shown
  • Country / Region / Size
  • Income (log scale, 'International Dollars' vs
  • Life Expectancy
  • Time (dynamic)

30
Extra credit / Project II
  • Use Gapminder to pick 2 or 3 countries with
    different trajectories
  • Consult 2 or 3 other sources
  • Offer explanations (theories) for differences

31
Project II Tentative
  • If you didn't present before, you need to
    present.
  • You may work in teams (from more, more is
    expected)
  • Propose topic. I will suggest some.
  • Including maps, charts, diagrams
  • Analysis of feature(s) of election okay
  • Local relevance always a plus
  • Focus on definitions, denominator, difference
    (contexts), dimension, distribution, critical
    features of quantitative topic in the news

32
Do you have enough for retirement
  • How much do you need
  • often stated as percentage of current income
  • how many years do you expect to live
  • Sources (some/all of which may grow)
  • Social Security
  • Defined benefit plan(s)
  • Defined contribution plan(s)
  • IRA, Roth IRA, 401K, other
  • Savings not in retirement accounts
  • What is expected growth of investments (in
    retirement plans and other)?
  • What is expected inflation?
  • Some plans ask about spouse
  • Some retirement estimators ask if you want to
    leave an estate

33
Homework over Thanksgiving
  • Find a retirement calculator and do the
    calculation for yourself and/or a parent.
  • http//www.asec.org/ballpark/
  • http//www.raymondjames.com/retire_calc.htm
  • http//cgi.money.cnn.com/tools/retirementplanner/r
    etirementplanner.jsp
  • http//sites.stockpoint.com/aarp_rc/wm/Retirement/
    Retirement.asp?actLOGIN
  • other (maybe ones associated with parent's work
    or investments)
  • Find sources and make comments, backed by data,
    on Social Security, pensions, savings, etc.
  • NO PERSONAL DATA

34
John/Jane Doe
  • If you do this option, write about your choices.
  • Decide on age and do research to find life
    expectancy
  • Decide on age for retirement
  • Has estimated Social Security 1100/month if
    retiring at 67
  • Current salary 45,000. You decide on estimated
    raises (bet. 1 to 3 )
  • Company retirement do both or only 1 (3 ways)
  • Has guaranteed defined benefit retirement of 25
    of average of highest 5 years
  • Has 401k of 30,000. Contributing 3, matched by
    company.
  • Can add something from previous job
  • Savings 27,000 ?? (median in
    http//www.forbes.com/2005/05/04/cx_da_0504topnews
    .html OR see http//www.bls.gov/opub/cwc/cm200501
    14ar01p1.htm
  • Has house with outstanding mortgage??
  • Has credit card debt???
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