Title: Communicating Quantitative Information
1Communicating 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)
2Retirement 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
3Retirement
- Take it one year at a time
4Retirement
Compare after 4 years 13,172.36 vs 12000
5Retirement 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
6Purchase 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!
7TV 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.
8PV 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
9Alternate 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.
10Social 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
11Social 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.
12Social 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.
13Is 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.
14Alternative 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.
15Personal 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.
16Suggested 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.
17Pensions, 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?
18Independent 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
19Investment 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
20Investment options
- Global (outside of USA or mixture) funds, bonds,
stock - Gold, other commodities
- Real Estate Investment Trusts
- Futures puts and calls
- Other???
21Treasury 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.
22Zero-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???
23Jargon
- 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
24Check 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
25Trends
- 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???
26Life 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
27Life 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.
28Life 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?
29gapminder
- 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)
30Extra 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
31Project 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
32Do 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
33Homework 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
34John/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???