The Cost of Raising a Kid

Nancy Gibbs has a pretty bad essay in the back of the August 24 2009 issue of Time. She starts with the claim that kids cost over $220,000 to raise, which she bases off of a commercial website's (selling baby products) reference to an annual USDA report that she didn't understand. She seems to confuse in a couple places what parents decided to spend with what kids have to cost. Perhaps a better estimator of a child's cost is what the lower-income group spent instead of the middle-income group, since they are likely to spend less on non-necessities. She also uses the 2008 dollars total without explaination. Assuming an average inflation rate of 3.05%, the cost will be about $60,000 more, which is useful information to people who do not automatically think about inflation.

What the report really shows is that rich people spend more money on their kids than poor people, but smaller percentages of their pre-tax incomes. Also, it costs more to get a bigger home when you live in an area in which homes are expensive. Parents with more money buy more unnecessary stuff for their kids. Big kids eat more than little kids, and are more able to get themselves to where they need to go.

There are a lot of problems with the assumptions made, but the researchers did what they could with what they had. It's really hard to collect so much information from thousands of families over time. The report does not take into account money spent by non-custodial parents, which applies to a large portion of families these days. The housing assumptions are shakey, but probably better than alternatives. These numbers are definitely not hard and fast, and there is variance.

Nancy also says that parents with more kids "get a bulk discount". Sure, there are economies of scale for things like food and transportation, but this does not tell the whole story, based on the USDA's methods. What we are also seeing is that parents like spending some discretionary amount of money on their kids beyond necessities, and it gets split up among the children they have. A single child gets all the unnecessary money, but siblings have to share. When that second kids comes along, maybe you'll switch to store-brand products instead of name-brand, Target instead of the Gap. We don't know what people are buying, just what they're spending.

Nancy also says that children are recession-resistant, even though the April 13th issue of Time reported that unit sales of "Baby needs" were down 10.7% compared to the same 8-week period in 2008. Contraception unit sales are only up 1.5%, so I'd be surprised if the drop in baby products was largely due to a drop in the birth rate.

Probably what is most annoying to me is upper-class Gibbs's materialism. From her Ivy League, award-winning tower, she preaches for the unnecessary consumption typical of the high-income bracket, widening that divide between the mandatory cost of having children (useful information) and what people with money decide to spend (not as useful). Her Barbie-like comments that "SpongeBob is so last season", $60 per month is not enough for clothes, "the bureaucrats have not been to a mall lately", and the report should include the cost of sedatives are grating. The bureaucrats in this case are a couple of people with Ph.D.s who wrote a very transparent research report.

Nancy spends half the essay trying to convey the benefits of having children in one's life, even though studies show that having kids is stressful, and reduces quality of life on average. People should really think and plan more before having kids, and maybe the information in the USDA report will be helpful. Children can be a great addition to one's life, if there is relational, emotional, and financial stability, and a foundation of realistic expectations.

GoldLine.com

I just caught a commercial for GoldLine.com. I am not knowledgeable enough to comment on the wisdom of investing in gold in general, but I do know shady marketing techniques when I see them. GoldLine.com is using just a lot of slimy tricks to get people's money. Here's a rough rundown of what I remember:

1) Testimonials
The commercial had a former Fed commissioner, I think. The website has more testimonials, including Glenn Beck, who I plan to write about in the future for his consistently manipulative behavior. Never pay heed to testimonials. Ever. Even when they're not paid (and I bet these are paid), they're not a representative sample. They are useless for making good decisions. It's a trick.

2) Fear-mongering
The commercial started out with the heavy implication that the US economy is in a death spiral that will destroy old people's savings, leaving them penniless. This gets the fear up, so the old folks watching CNN in the middle of the day will pay attention to the rest of the commercial, eager to learn how to protect themselves.

3) Impressive-sounding irrelevant information
3A) "Gold is worth three times as much now than it did in 2000!" When it comes to investments, past performance does not predict future performance. If that were true, everyone would be rich because we would all invest in things that had increased in value in the past. This just does not happen. In fact, there are risks that investments are overvalued (tech stock 10 years ago, houses 18 months ago), which leads to a "correction", in which their value drops. GoldLine.com may be trying to dump its gold right before a correction. It is interesting that they compared the current value of gold to that of 2000, when the economy had tanked because of the DotCom bubble.

3B) "GoldLine.com has over a half-billion dollars in sales!" This is a shady tactic used by some online auction and investment sites in which they report a number based on the sales of things through the site, without the site ever owning the stuff, making the site look like it has a lot of capital when it really has nothing and just collects trading fees. I don't know to what extent that applies to GoldLine.com, but I've seen it before.

3C) "Gold has never had a zero value!" Neither has pretty much anything else, except some stocks and defaulted bonds. So, that is marginally relevant when you're investing. Of course, at $900/oz, you're probably not so worried about a zero value as you are a value of anything less than $900/oz.

Poorly Presented Stats in Men's Health

A client no-showed, so I grabbed the May 2009 issue of Men's Health from the waiting room to occupy myself. I generally enjoy Men's Health. It does have good nutrition and exercise tips sometimes. It also suffers from poorly presented statistics syndrome, especially in its "Facts of Life" segments.

"Facts of Life - 1: Percentage by which your stroke risk rises for each fast-food joint in your neighborhood."

What this could imply as written:
You are more likely to have a stroke the more fast-food joints are in your neighborhood, no matter what.

What this really means:
The average rate of strokes among residents of a neighborhood is 1% higher per additional fast-food joint in that neighborhood compared to other neighborhoods.

What this really implies:
People tend to eat fast-food more if it is more available to them, and fast-food increases risk of strokes, probably via increasing blood pressure and clots.

How to use this information:
Pay attention to your eating behavior. Choose to not eat fast-food, even if it is very convenient. In fact, fast-food is more likely to cause you other health problems than strokes. So, if you're not scared by the relative stroke risk (notice that no base rates are given), think about obesity, heart disease, and diabetes when you drive past a McDonald's.


"Facts of Life - 96: Percentage spike in the number of doctor visits for diabetes since 1996."

What this could imply as written:
Twice as many people have diabetes now? Diabetes exists at the same prevalence, but is being diagnosed better due to improvements in processes or technology? People with diabetes go to the doctor twice as often now? Probably some combination of those, but we can't determine it.

What this really means:
Just that there are about twice as many doctor visits for diabetes (I am assuming they combine both types) now as there were in 1996.

What this really implies:
Nothing useful at all. Someone pulled this stat out of its context, and we are not able to logically derive anything from it with confidence.

How to use this information:
Let it inspire you to find more information. We do already know that type II diabetes rates are skyrocketing due to obesity. We also know that many health care providers, insurance providers, and the city of New York have been trying ways of getting diabetics to be more compliant with managing the disease. There has been a lot of new encouragement over the last few years to get diabetics in for regular checkups, since it reduces the frequency of vastly more expensive emergency care and amputations, etc... If you have or think you have diabetes, see your doctor regularly and comply with your treatment regimen. It is a manageable illness.


"Facts of Life - 80: Percentage increase in a man's heart disease risk if he has erectile dysfunction."

What this could imply as written:
Erectile dysfunction increases a man's risk of heart disease by 80%. That is the worst way to read it, anyway.

What this really means:
Men who have erectile dysfunction are 80% more likely to have heart disease than men who do not have erectile dysfunction.

What this really implies:
Again, it's hard to tell. The stat has been removed from its context. There is possibly some phenomenon that causes erectile dysfunction that also increases heart disease risk. Based on my understanding of the disorders, stress and anxiety are likely culprits.

How to use this information:
If you have ED, talk with your doctor about it and your other heart disease risks at your regular check-up. Use the ED more as a warning sign that something else is wrong. You should also just generally be aware of your stress levels, and take care of yourself emotionally. Practice mindfulness and get some exercise. Connect and ally with your partner; iron out any problems in your relationship.

Fearmongering by Fox News

I'm sure this happens nearly every day, but I don't usually get to see it because I do not have television. It is only through the Daily Show's "Moment of Zen" on May 13th that I caught a Fox News ad.

(dramatic music) "These pictures look identical, but one contains a secret message. What's hidden inside, and how terrorists could use it against us, tomorrow at 10."

What this really means to you:
NOTHING! Seriously, this is blatant fearmongering to get ratings.

Explain:
What the news program probably talked about is called steganography. It's been around for at least 600 years in some form or another. In the form described in the ad, it's been around for at least 20 years. The computer program Stego was written by a former Playboy model to encode information in subtle changes in digital images. This method of encryption was even featured in an episode of the television show Millennium back in 1997. This is nothing new. Everyone can use steganographic encryption, so it should be no surprise that terrorists, a subset of everyone, use it.

Terrorists' use of this encryption has no real effect on you. The Fox News ad may leave you wondering how you can protect yourself from this threat, so you would want to watch their show to find out. It is a trick. There is really nothing you can do, unless you're some kind of expert in this technology and you are able to scour the internet for information encrypted in images. But if you're one of those experts, you sure as heck don't need any of the information Fox News is giving out. In fact, when you realize that you can't do anything about it, you may become even more afraid, which would keep you tuned in to Fox News to learn more about threats in case there is something that you can do.

Our friends in the CIA and FBI are on it. Accept that you can't do anything, and enjoy the good things in your life. Turn off Fox News and spend some quality time with the people you love.

Discount Prices - Really a Bargain?

Summary: Decide in advance how much something is worth to you based on only the features and utility of the product. Never pay more than that, and you should be alright. Don't think you're getting a good deal just because a price is marked down.

Three Examples:
Amazon.com discounts practically everything. I don't know that I've ever seen something on Amazon selling at their "list price". Amazon gives different people different prices for things, and prices change over time, so I can't cite anything stable, but here's what I'm looking at right now: Valkyrie (Single-Disc Edition) (2008), List Price: $29.98, Price: $15.99 (47% off!). Since when do DVDs cost $29.98? I've only seen prices like that at Suncoast, and promptly left the store. The List Price is made up. It is a fabricated number that bears almost no relationship to the product's production cost, distribution costs, licensing fees, etc.... Licensing is the lion's share of the costs, which is why you can get Betty Boop DVDs for $1, but Akira Kurasawa films cost twice as much as most new American movies. Walmart does the same thing on their website (same list price for Valkyrie, but the price is $15.86), but walking in the store shows shelves of DVDs for $13 or so with no "list price". The MPAA, MGM, TriStar, and whoever else are not losing money on those sales. The worth of a DVD is a totally subjective thing, and any prices you see for a DVD are over its costs to get to you. Don't let a website convince you that a DVD is worth $30, so you should be happy to buy it for $16. Decide for yourself if a particular DVD is worth $16 to you while ignoring the extra, unhelpful information.

Steam's video game experiment is interesting. Here's a highlight:

"When Valve held its recent holiday sale, titles discounted by 10 percent (the minimum) they saw revenue (not unit) increases of 35 percent. At a 25 percent discount, revenue was up 245 percent. At 50 percent off, revenue was up 320 percent, and at a 75 percent discount, revenue was up an astonishing 1470 percent."

Also important to note is that "retail sales did not change at all". So, what happened here? It is hard to tease apart how many of the consumers just buy hyped-up new games no matter what, how many had a set price in mind for the value of a particular game (or the value of entertainment per hour), and how many were just attracted to "this game is on sale for $Y, even though it's worth $X!" Base game prices are largely fictional values, heavily related to what the industry believes will make them the most money, but they hardly ever experiment like this. There is a belief that selling games at a lower base price will make customers believe that the games are not as good. That belief is somewhat accurate. Most people do believe that price reflects quality, and there is at least one great experiment with blind taste-tests of wine that shows what a really horrible way that is of predicting quality. So, the best way to sell a game may unfortunately be to fabricate a really high base price that some people will pay, then put the games on "sale". This is how millions of other products are routinely sold. News flash: video games do not become less fun when their prices change, or when they're used, or when they're a few years old. To know how good something is, get reviews from a trusted source, and ignore everything else.

San Lorenzo Market is a great example of what most of the world is like when it comes to listed prices and sales prices. Haggling is relatively foreign to America. I found myself in San Lorenzo in need of a new belt. The proprietor of the first stall I saw offered me a belt I liked for 40,000 lira. I said that I wanted to shop around before making a decision. Within twenty seconds, with me only repeating that I was going to shop around, the price dropped in stages down to 15,000 lira. My friend decided to buy a leather trenchcoat. The coats had prices printed on them that, again, everyone knows are complete fabrications. No one pays those prices. We stopped in to haggle once or twice per day for three days before he finally bought the coat he liked for less than half the listed price. Each salesman's job is to make the customers think they are getting an expensive (and therefore high-quality) product for cheap, when really each item has a real price the salesman won't go below, and every time an item sells for more, it's gravy for the salesman.

Exceptions - When a Bargain Really is a Bargain:
Sometimes businesses accidentally order too much inventory and need to get rid of it to make room for other products. Sometimes products are discontinued and have to get dumped. Sometimes companies go out of business and their assets have to be liquidated quickly for creditors. Sometimes no one will buy a totally safe baby's carseat at regular price just because an earlier model was recalled. This is how we end up with Woot and Overstock.com.

Movie Advertisements

This is nothing new, but it's on my mind. How often to find yourself watching or listening to an advertisement for a movie that just came out, and the ad boasts "Number 1 at the box office!" or "America's favorite comedy!" or some other similar claim? It happens often. Advertisers are trying to take advantage of our natural herd instincts or the bandwagon effect. What they're often neglecting to say, or saying in fine print so as not to get busted for false advertising, is that the movie was #1 at the box office for just a day or a weekend. A movie may have a huge opening weekend, then bomb as everyone who saw it lets their friends know how bad it was (Jurassic Park 2, seriously), but the ads focus on that opening weekend stat. That "favorite comedy" might be the only one out at the time among dramas and action flicks. They don't give you the parameters of their comparisons. There is a Superocity comic strip that comments on the phenomenon.

So, advertisements like that are not relevant to your decision-making process. They are inherently misleading. How, then, do you decide what movies are worth seeing? Find people with similar tastes to yours, and ask them what they enjoyed. There will always be people who go see a movie the opening weekend without any valid ability to predict the quality of the movie. Let them take the risks while you benefit from their reviews.

Look at these two lists: Gross for 3-day Opening Weekend and All-time Gross (not adjusted for inflation, or else Gone With the Wind would be up at the top). Notice that 16 of the top 20 opening weekend movies are sequels, since quality could be predicted to some degree by the preceding movies, and 10 of the top 20 all-time are sequels. Jurassic Park 2 was the highest opening weekend movie of all time for four years, but 60th overall, because Jurassic Park was so good. We got faked out on that one. So, there may be a correlation between quality of a movie and quality of its sequel, but it's not a sure bet. Total gross minus opening weekend gross would be a better measure of quality that total gross itself. DVD sales would also be telling. Titanic, Star Wars ANH, and ET did so well because people told their friends to see them, and many people went more than once.

There are only a few reasons why anyone would rationally go to an opening movie instead of waiting for reviews from people with similar tastes:
To avoid spoilers. No one can ruin the twist ending for you if you see it first.
Opening night is a cultural event. Star Wars, Harry Potter, Serenity; dress up and party with the other fanatics.
You write movie reviews.

Spam Flu

Every day for the last week my Google Reader has been bombarded with posts and articles about Swine Flu. The patterns of media attention are interesting, but unsurprising. The word "news" itself tells us that the content will primarily be things that are new to us. Novelty gets reported, and commonplace events are ignored. Man Bites Dog, right? Let's break down the progression:

1) Swine Flu outbreak in Mexico contributes to some deaths. Had you heard of Swine Flue before this? Probably not. It's new! And it kills people! News sources clamored to hype it up, to breed fear among people, to draw in consumers and sell advertising. They teased us with information that there was a mysterious danger out there, and we would have to keep consuming their news to find out how much danger there was to us, and how we could protect ourselves. Our brains hone in on this using automatic heuristics that generally helped keep our species alive for millennia.

2) Knowledgeable people step forward to dispense facts. Wash your hands. Stay at home if you're sick. We're probably all going to be fine. The risk is exaggerated. This information is new compared to the information in wave 1, even though it's old overall, so it still draws our attention and ratings.

3) Confusion is maintained in the face of wave 2 by constant updates on any fear-invoking event. Calming and frightening information is presented piecemeal to keep us interested, to keep us from figuring out how to feel and getting complacent with that feeling. First death in America! But it was a toddler from Mexico! Schools are closing to protect our children! Even though there was no evidence of Swine Flu! Swine Flu confirmed death toll is somewhere between 7 and 160 pending more tests! The regular flu kills 35,000 Americans each year, mostly the elderly, infants, and people with compromised immune systems! Another person just died! Swine Flu is no worse than the regular flu! We are drawn to seek more information until we can confidently declare that we are safe.

4) Eventually the situation is handled, and confusion is resolved. The "epidemic" is controlled by response measures. Evidence builds up until there is a consensus. We are saturated with information about the topic, and get bored with it. Each person has decided how they are going to respond, be it continuing life normally with confidence or locking oneself in a basement with a shotgun and canned beans. The novelty dissipates. The media looks for some other shocking new item to sell.

Now, I am selective with my news sources, so I probably missed most of the junk news out there. I have been impressed with the consistent quality of the information I got from ScienceBlogs.com. Sources with integrity stay in wave 2, and only try to educate instead of fear-monger. We should demand higher standards in our media. The freedom of the press should not include the freedom to incite damaging panic among people who just lack the education to counter their natural brain processes.