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Local Currencies to Replace the Dollar in Communities

This article was written by Flexo in Economics, Economy. 10 comments.

It may be illegal for states to print money for commerce, but local communities have no such restriction from the federal government. And in some communities, local currencies have been successful, at least in gaining the support of some retailers and consumers.

There’s no law of nature that says that an economy functions best when the broadest number of people use one currency exclusively. Currency is just a placeholder that creates efficiency. Without it, we’d have to barter for products and services. Without currency, a tailor would need to trade his services whenever he wanted to buy food for his family. In a free market, theoretically, anything could be used as a currency. The government or quasi-government organizations help by establishing a currency as a standard, so there is faith in its consistency.

Dollar currency Not everyone is satisfied with this solution, however.

A community may start its own currency for a few reasons:

Local currencies can help keep more funds invested in the community instead of helping national or global companies profit. When you buy a light bulb at Home Depot, part of that profit goes to the headquarters, and eventually shareholders, including global investors. When you buy a light bulb at a local hardware store whose owners live within the community, more of that profit stays in town — but not all unless the light bulb supplier and manufacturer is also in town.
When companies pay a part of their employees’ salaries in local currency, or when a consumer participates in a community marketplace by selling their items or services while taking payment in the local currency, the profit stays in the community.
A town or city bonded together by a unique currency builds the sense of community and encourages businesses to work together, not just for the greater economic benefit of the town, but to ensure that all consumers and retailers engaging in economic activity using the currency remain good citizens and fair businesses.
Local currencies present an alternative choice for people who believe the federal government cannot be trusted with the responsibility of ensuring economic stability through monetary policy. A community-based financial system can help people in the community feel better about threats of inflation or devaluation.
With local currency in hand, a customer will peruse the directory of merchants accepting the currency and make purchasing decisions based on this list, effectively ignoring companies whose profits benefit those outside the community.

In Philadelphia, the “equal dollar” is a local currency that has flourished for over a decade. Philadelphians can earn equal dollars by volunteering in the community or by selling items. There is a $10 (USD) membership fee and a =$50 (equal dollars) sign-up bonus for individuals; merchants can join for a $25 (USD) fee and receive a =$125 (equal dollars) bonus. It’s unclear how many merchants accept equal dollars, but those who do often require the bulk of the transaction to be in U.S. dollars.

This system isn’t too far removed from certain gift cards. Replace the idea of the community with a mall, and you’ll recognize the paradigm. One of my local indoor malls is owned by a national mall company. They offer gift cards that can be used in any store within any of this company’s branded malls. This is a currency as reliable as the U.S. dollar (as the value is denominated in dollars, not a separate currency of its own), but just like a local currency that ties its spending to the community, the gift cards tie spending to stores that pay rent for space in the mall properties.

Philadelphia is not the only community that has created its own currency to increase local solidarity. You can find local currencies in the Berkshire region of Massachusetts, Seattle, Portland, and Traverse City, Michigan.

I’d be concerned about counterfeit currency. Official government currency like the U.S. dollar is though to counterfeit effectively due to a large number of security measures, but it seems to me that this technology is not readily available to whatever printing services are used by communities that offer their own currency. Of course, since the U.S. dollar is incredibly popular, more counterfeiters aim at overcoming the security measures. Thus, popular currencies may be subject to fraud more than a community currency, but the concern still exists.

Would you use a local currency to replace some or all of your U.S. dollar use in your community?

Images_of_Money

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Could You Survive at the Poverty Line?

This article was written by Your Finances Simplified in Featured, Frugality. 78 comments.

This guest article is written by YFS, owner and author of Your Finances Simplified. YFS was born and raised in west Philadelphia and is now a financial adviser, IT contractor, landlord, and treasurer of a non-profit.

If you and your family of four received an annual income of $22,350, could you survive? You would be living at the 2011 poverty line for the 48 contiguous states. If you were to make less than this, you and your family would live in poverty. If you were to earn more than this, you and your family would be above the poverty line, though it might not feel like that. Here is a breakdown of the typical costs that everyone encounters on a day-to-day basis; you can see how quickly $22,350 can be spent for a family of four.

I’ll assume you’re in Charlottesville, Virginia, where the Cost of Living Index is 100, the national average.

The things we need

Thrift store Rent/Mortgage. We all have to pay something in order to keep a roof over our heads. This could be a mortgage payment for a house that we have bought or it could be rent for a house or an apartment. In Charlottesville, the average rent is just over $900, and the average house payment is nearly $1500. For the sake of this article, the calculation for rent or mortgage is the average of these numbers, $1,200. The yearly housing expenses are about $14,400. Subtracting this from the income leaves $7,950 to pay for everything else.

Many people at this level of income can qualify to live in subsidized housing, and many have to live in substandard conditions so that they can afford it. Those conditions could be a dilapidated apartment for low rent or sharing a house with another family. For purposes of this example, we are using average costs, which will often be much higher than what a family at this level would pay.

Bills. Even if you rent your home, you still probably have to pay some of the bills, like electricity or gas. Water, trash (sanitation), phone, cable, and internet are all some common bills to pay. Average energy costs in Charlottesville are $165 per month ($1,980 per year), which brings the total remaining down to $5,970.

At this level of income, could afford a phone or cable or internet?

If your cable and internet service costs $50 a month, that will be another $600 a year. Because it is hard to function without a telephone, for this example, we will include one cell phone for the family that costs $25 a month, which would be $300 a year, bringing the total down to $5,670.

Transportation. You can argue that a car is not necessary, and in some cases that is true. However, in some parts of the United States, you will not be able to hold a job unless you have your own transportation. This is due to the lack of extensive public transportation, especially true in suburban and rural areas of the country. Even if you have access to public transportation, how much will that cost for a year? Car payments vary depending on income, credit, and car choice. This example assumes a relatively inexpensive car payment of $300 per month ($3,600 per year), bringing the total down to $2,070.

Many people at this income level do not buy new cars or certified used ones. They find very inexpensive cars that are sold by the owner or they go without.

Insurance. If you own a car, you must have insurance. The average annual car insurance premium in Virginia is about $1,000, which we can also take off of our total. This leaves $1,070.

What about health insurance?

Do you think that you could afford health insurance at this income level? It’s unlikely that you could; however, people at this income level probably qualify for Medicaid. In most cases, at least the children in the family will qualify.

Food. The bare necessities for food are what it costs to keep a family of four fed. A family at this income level likely qualifies for food stamps, and many public schools have programs offering reduced-rate or free lunches to children who qualify. Food stamp benefits vary from state to state and situation to situation. For the purposes of this example, the family of four spends $50 a month of their own money on food (with the remaining $200 or so being provided by food stamps). Food stamps can only be used on consumable products, excluding alcohol, in most cases. As a result, the family still has to buy sundries like soap, toothpaste, toilet paper, and so on out of their own money. This results in about $600 a year in food costs, which brings our total remaining to $470.

Could you provide for a family of four with $200 to $250 a month on groceries?

Clothing. Consider not what the family wants, but items that the family needs to stay decently clothed and warm. In Charlottesville, the average men’s shirt in a department store costs about $25, while a pair of boy’s jeans costs about $20. We’ll say that the family spends about $10 a month on average for clothing. This would be a new item for one member of the family every two months or so. This would average out to about two new items per person per year, and it would bring the annual clothing budget to $120. Such a small clothing budget could be expanded by shopping at thrift stores and other organizations where needy families can receive free used clothing. The total is now down to $350.

When was the last time you bought an item of clothing? How much did it cost?

Debt. What about student loans or credit card payments? You might think that the adults in a family at this level didn’t earn a college degree, but that’s not always the case. Many college students, especially graduate students, are married, and many of them cannot or do not hold jobs while in school. This means that they might be unemployed or a part time employee. As a result, the family could be trying to survive off of one income or two small incomes. Fortunately, most student loan payments can be deferred if you are unemployed or earning below a certain level.

Credit card debt, however, continues to grow. Assume the minimum payment is $15 a month, an annual payment of $180. A payment this low would likely be for a card with a low limit, around $500 or so. This brings our total down to $170.

How much do you rely on your credit card on a day to day basis? How much do you think you would use it if you were in this situation?

The things we want

Extraneous purchases. With some skimping, federal and state assistance, and swallowing of pride, the family at the poverty level has $170 left to spend on things that they want throughout the year. This might mean a new jacket or a new pair of shoes.

How much do you think you spend on Christmas gifts?

If the couple spends $100 on each other and their two children, the total is now down to $70. If the family goes to the movies just once during the whole year, they’ll pay about $50 just for the tickets, with the average movie ticket price in Charlottesville at $10. This brings the total down to $20, and it will be even lower if they buy popcorn.

Travel. The family might travel to see relatives at some point during the year. They could not afford a hotel room or plane tickets. If they do not have their own car, they might be able to afford bus tickets. For example, four bus tickets, two adults and two children under 11, from Charlottesville to Memphis would cost over $500 one way. This brings our total into the negative numbers. If they have a car that gets 30 miles to the gallon then it would cost about $75 one way to get to Memphis with the average cost of gas being $3 or so per gallon. This means about $150 to get just there and back, bringing the total down into negative numbers again. As a result, any type of travel for this family is unlikely.

Savings. If the family manages to stick to this budget, they can save about $20 a year. However, this budget did not include any unexpected expenses, such as an unplanned doctor’s visit or family emergency. As a result, it is unlikely that a family living at this income level would be able to save anything at all. In reality, it is nearly impossible for a family of four to live at this level without going into debt.

Minimum wage

The federal minimum wage is $7.25 an hour. Some states have a higher minimum wage, but Virginia, used in this example, uses the federal minimum wage. Assuming a full-time job, which isn’t often the case for minimum wage jobs, an individual would earn about $14,500 a year before taxes. In this situation, two people with full time jobs at minimum wage (with two weeks’ vacation or sick days) would have $29,000 before taxes. This level of income is quite a bit higher than the poverty level income. However, to put things in perspective a household of four could be a single parent with three kids on $14,500 a year, which is well below the poverty line. If one or both spouses cannot find work, full-time or part-time, a family can easily fall into poverty.

Federal and state taxes vary so much that they were not included in this example. In many cases someone who makes so little money and who has children will not have to pay much in taxes at the end of the year and, in some cases, particularly due to the Earned Income Tax Credit, will receive a refund.

Do you think that you would be thrifty enough to make this work? Have you ever lived at this level of income? How would you adjust the budget to survive on $22,350?

Photo: Orin Zebest

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The Best Holiday Gift: A Shared Experience

This article was written by Flexo in Consumer. 15 comments.

You’ll never reach the top level in Abraham Maslow’s hierarchy of needs, self-actualization, if you concern yourself with your possessions. If you focus on acquiring gadgets, showering your children with toys, or achieving other materialistic pursuits, if you do so while neglecting the pursuit of including satisfying experiences in your life, you can never reach your full potential.

Even thinking about experiences beyond base needs is a luxury when abiding by Maslow’s theory, because pursuing fulfilling experiences requires discretionary income or available cash. Anyone who hasn’t been able to meet the lower-level requirements in the hierarchy may need to devote all resources to health and safety. For those of us in the developed world who have benefited from a society that allows successful people to do as they choose with their financial surplus, we often face questions about how to spend that money with an eye towards increasing happiness.

Wrapped Gift As I’ve found myself in a more comfortable financial situation over the last decade — and that comfort comes from an increased income and an ability to save for the future without sacrificing too much of my present — I’ve begun trying to find more ways to use surplus income (after meeting savings goals) to enjoy my life today. Financial writers often get caught up with the idea that people need to save as much money as possible for the future, but once there is some comfort with planning, there has to be an opportunity to enjoy life today.

Once my finances were on a solid path, I decided I was comfortable increasing today’s expenses. The gateway for me was most likely moving into a new apartment. If my only income came from my day job, I might not have been able to comfortably move from a small apartment to a nicer, larger apartment without making sacrifices somewhere else. By moving into the newer apartment, I recognized that my income stream outside of my day job would be fairly steady, and that I had an emergency fund for back-up in the event of a disaster. I also accumulated things. With my day job, I was able to afford cable again, but with extra income, I was able to justify high-definition service and a new, high-definition television.

I was able to afford to buy cameras, lenses, and other photography equipment (several of which I still purchased used to save money), and to explore this hobby further. This gets into the topic at hand: experiences vs. things. While photography equipment consists of things, they are items that allow me to explore a hobby — or possibly a future business — and create experiences for myself. I attended classes at the local arts council to further develop my skills.

A study from 2003 building on prior research about materialism explains that using money to acquire experiences increases long-term happiness than using money to acquire objects. Here are some of the results:

As anticipated, respondents asked to evaluate an experiential purchase indicated that it made them happier than did those asked to evaluate a material purchase. Respondents also indicated that experiential purchases were better financial investments than material purchases. Participants indicated that, compared with material purchases, experiential purchases made them happier, contributed more to their happiness in life, and represented money better spent. Respondents were also less inclined to say that the money spent on experiences could have been better spent elsewhere than the money spent on material possessions.

Abraham Maslow's Hierarchy of Needs The authors of the 2003 study also offer suggestions for the causes of these results. Why do experiential purchases result in happiness more than material purchases?

Experiences are more open to positive reinterpretation. As time passes, view of history becomes rosier.
Experiences are more central to one’s identity. We are the sum of our experiences; people rarely identify with the items they’ve collected around their house as much as they identify with experiences like travel, operating their own business, and spending time with family.
Experiences have greater social value. People like sharing and talking about their experiences, and this type of discussion fosters better relationships than talking about possessions.

A follow-up study in 2010 goes further to explain why experiences are more satisfying. This study found that it was easy to compare a purchased item, such as a high-definition television, with other similar items at the time of purchase and looking back. When comparing experiences, such as a family trip to Disney World, it’s much more difficult to make effective comparisons. Also, consumers are more likely to try to get the best deal when shopping for items with a strong field of comparable items but are more likely to satisfice when deciding to purchase an experience. Among other reasons, the researchers also determined that consumers are more likely to compare their material purchases with others’ purchases while have a difficult time doing the same for experiential purchases.

You may be looking forward to the holidays, wondering what type of gifts would make your family and friends happiest. You can always play to the utilitarian point of view by purchasing gifts that the recipient might need, but to have the greatest impact, consider finding a way to offer an experience that everyone would enjoy. The benefits might not be immediate, but an experience could create memories that outshine this year’s hot Christmas toy or latest Apple product for years to come.

Some experiential holiday gifts come to mind.

A weekend getaway. Spend the weekend in a nearby city to save on transportation costs, and explore the town. This is something I did this past weekend in Philadelphia. It wasn’t a gift, but I am sure my girlfriend and I are going to remember our scary experience at the Eastern State Penitentiary for the rest of our lives.
Dinner and a Broadway show. Good food and entertainment combine to make lasting memories that enhance happiness. For those who attend Broadway shows more than once a year, find a way to make it more memorable, perhaps with a backstage tour, VIP seating, or meeting the cast.
Long-distance travel. It’s often less expensive to travel outside of the country than to travel across. Within the United States, there are almost endless opportunities for unique travel experiences as well. I will always remember the time I spent exploring Death Valley with my family.
An exciting activity. My girlfriend seems interested in skydiving and hot-air-ballooning. I’m not a big fan of either of these activities because I would like to live for a long time, but I know these are activities that would make her happy if she were to live to tell me about them.

Consider leaving behind the material this holiday season and increasing someone’s long-term happiness by engaging in an activity or experience the memory of which will last a lifetime and become more favorable as time passes.

Photo: comedynose
Journal of Personality and Social Psychology 2003 [pdf] and 2010 [pdf]

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Wells Fargo Sent Statements to Wrong Customers

This article was written by Flexo in Banking, Privacy and Security. 8 comments.

The fourth largest bank in the United States by assets, Wells Fargo, admitted last week that many of its customers received statements with other customers’ banking information included. In this security breach, those affected might have received a statement with a stranger’s account number, transaction detail, and in some cases, Social Security number. Other affected customers might have had their information compromised, with their details included on other customers’ statements, without their knowledge.

Wells Fargo through its spokesman Josh Dunn blamed the error on a “malfunctioning printer.”

Wells Fargo The biggest threat is that with an account name and number, and a bank’s routing number which is public information, anyone can easily print a check. When presented, if the signature isn’t checked, could result in a withdrawal from the compromised customer’s account. For those whose Social Security numbers have been shared, the potential fraud could be worse.

My first reaction is to encourage customers to turn off paper statements opting instead for online statements only, but that won’t prevent every potential bank error. Online statements are much more secure than mailed statements.

If you’ve been affected, I would suggest changing your account number at Wells Fargo. This may be a significant process, particularly if you have direct deposit enabled or automated debits scheduled with outside vendors. It will be worth the effort, however, to ensure the compromised account number is no longer linked to you. If you Social Security number has been shared with a stranger, you should contact one of the credit reporting bureaus to freeze your credit. Your Social Security number can be used to open accounts in your name, using your credit history, so by working with the credit agencies you can opt to be notified if anyone tries to open a new line of credit.

Considering Wells Fargo’s error, the bank should offer to pay for credit monitoring services for affected customers.

Is this extra motivation for moving your money out of a big bank? There are many reasons to switch to a credit union, but this may not be a reason on its own. Mistakes like this one can happen at any institution, regardless of the company’s size.

I’ve used Wells Fargo for my primary banking services, ever since Wells Fargo acquired Wachovia, since Wachovia acquired First Union, since First Union acquired CoreStates, since Philadelphia National Bank merged with New Jersey National Bank forming CoreStates Financial Corporation.

If you’re a Wells Fargo customer, do you plan to close your account after this incident?

Photo: MoneyBlogNewz
BusinessWeek (AP)

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Top 5 Movie Actor Salaries

by Flexo

Most theatrical performers become professional actors because they have a talent or a love for what they do. They have a drive to entertain, and they can’t imagine spending their limited time on this planet doing something other than what they love. By the time they’re adults, unless they have seen outstanding success as a ... Continue reading this article…

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The Cost of Summer Camp

by Flexo

While growing up, my brother and I both benefited from experiences at summer camp, both day camps and sleep-away camps, at various points in our childhood. My memories from summer camp have stayed with me, and the experiences have shaped who I am. I first heard Pink Floyd at summer camp, from a counselor playing ... Continue reading this article…

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Podcast 102: Tax Preparation, Tom Dziubek

by Flexo

Consumerism Commentary Podcast host and producer Tom Dziubek returns this week, in the role of a guest. Tom has spent the past few months working for a financial services firm focusing on preparing and filing tax returns for clients. Today, Tom is joining me to speak about common and uncommon issues households experience with their ... Continue reading this article…

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Getting What You Want: Using Sex as Money

by Flexo

College students, professionals, and married couples are familiar with one of the oldest systems of bartering known to humans: bartering using sex. According to a survey of University of Michigan undergraduate students, 27 percent of unattached men and 14 percent of unattached women offered a service or gift, like laundry or football tickets, in return ... Continue reading this article…

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