When student loan doesn't make sense

I was lucky enough to graduate from a college without taking out any student loan. Well, I may have paid for it by working too many hours, which may have caused me to neglect on my studies. However, I know many Americans come out with more than they can handle. So, here is a simple look at how much your net income will change when you take out a student loan and try to pay for it in 10 years, or on IBR (Income based Repayment). IBR is obviously the most preferable choice if you don't mind paying for your student loan for 25 years. Keep in mind that I don't know the details on the qualifications, other than it's income based.

I spent enough time as is on numbers, and I kept it as simple as possible. For instance, I didn't include tax breaks. Which could make a big difference at the end. I just wanted to compare the yearly difference and the net compared to other hourly rate in lower income brackets. I also put 20% net tax payout, but that obviously can be higher or lower depending on an individual's income. Also, Taxes and IBR will differ based on whether you are married, and filed a joint tax return or not.

The chart on top shows hourly wages, 40 hours worked yearly salary, after tax at 20% net tax paid, and "Single Tax 20%" column minus 5% interest rate at 10 year repayment plan.

This chart shows minimum wage to below 30K a year as 2% wage increment.

Above is Single filed IBR at 5%.

As you can see IBR will make you confused and dazed. When you have 30K in student loan and make 30K a year there is no difference of Net pay. However, as you make more money, you don't benefit at all as you have less student loan debt. When you make 35K a year and have 30K student loan debt, your net income drops to 15,240 a year in comparison to 21,960 a year with 30K a year income. However, you actually don't lose any net  at all when you have 45K in debt with 35K a year. So, in this case it pays to have more debt!

Now going back to the 1st chart above. 10 year repayment plan just doesn't make any sense if you can qualify for IBR. Even at the end value, not accounting inflation (well, if we account inflation then IBR will be much more ahead), if you are steadily making 40K then it will look like this:

40K income, 30K student loan:

10 year repayment: 38,400 total payoff at 5% rate

IBR at 25 years at 5%: 34,800

Difference: 3,600. But mainly, you pay in 15 years extra. If you account inflation then difference may be much higher.

40K income, 45K student loan:

10 year repayment: 57,274.80

IBR at 25 years at 5%: 34,800

Difference: 22,474.80. That's 18,874.80 saving by borrowing more. Basically you have now collected free money. I won't even go to 60K student loan debt since IBR will keep you at the same rate. Therefore saving is much more.

There are many unclear parts in IBR. It states in guidelines that in first three years government will cover the excess interest if your monthly IBR payment is lower than interest accumulated each month. If so, what happens when that 3 year is over? I would imagine you will have to cover it. So, website that I put in numbers to get IBR does not look too convincing. I am not too sure if you can actually qualify with 40K a year income. Overall, try to get IBR, because it make sense. However, another issue is that if you have more income down the road, you no longer qualify.

Below is a link to more detail information about IBR:

http://studentaid.ed.gov/students/attachments/siteresources/IBRQ&A_template_123109_FINAL.pdf

Also, you go to college thinking that you'll make good money. So, IBR kind of play against that. If you make more money then obviously 10 year plan is only option or other repayment options.

Ok, so that being said. When you look at 10 year repayment plan, you could potentially lose 3 to 5 dollars per hour for next 10 years! Of course, this is based on belief that an individual without college degree can make 30K by the time they turn 22 or 23.

At the end, of course, you are not able to obtain jobs that you would like without higher education in modern days.

How much do large multinationals spend on advertising?

Okay, so I was watching a TV show called 'Bones.' I'm sure you heard of it before. You know the show that kinda doesn't make much sense, but enough to entertain you for close to an hour. Hopefully this blog doesn't play out the same way.

From watching this one particular episode, I could see Toyota Motors spending quite bit of money to advertise their newly designed Camry by implementing into the show.

Let me give you a little bit of background.

The FBI guy was like, "Hey, you missed the exit!." And the psychologist guy was like, "Oh, my GPS navigation shows me the shortest route." Well, it was something like that. Two of them manage to play with GPS for like a minute or two.

I wonder how much Toyota Motors spent to get it aired. That was longer than what you would normally see on commercial intermission. Then again, it should be more effective since there is much less rate of probability that audiences will tune out while in commercial and mainly you have these favorite TV characters selling you products while on their way to investigate a crime.

I've seem this happen quite often before as well. It seems like it is a new trend. I know Hyundai Motors was going hard on 'Burn Notice', airs on USA network. I've seen it on 'Leverage' as well, which is on TBS network.

I couldn't find out how much Toyota paid for that advertisement, but I found some numbers from their SEC financial reporting. Which shows that they do spend quite a bit of money in advertisement.



http://www.toyota-global.com/investors/ir_library/sec/pdf/20-F_201103_final.pdf

Above link is Toyota Motors Financial reporting to SEC for 2011.

They have been spending close to 4 billion dollars in advertising each year. Their revenue in 2011 was over 200 billion dollars. So, roughly they are spending about 2% in advertising each year or less. They actually had much higher revenue before 2009 but they still managed to spend about the same. Obviously there is a limitation as to how much you can spend on advertising. There is probably a peak point where there is no substantial increase in sales with marginal increase in advertisement spending. Toyota could also advertise in same level every year due to the fact that they need to maintain their brand image. However, with inflation as high as they are, they are in a way spending less every year.

Either way, they can afford to spend money on TV shows and even put in some lines to advertise their products.

With sluggish sales, should Toyota spend more on advertisement? In recent years Toyota's market shares have gone down. American cars, not trucks, are thriving in many of their new models. Taking back what they had lost. Asian contenders such as Hyundai and Kia (even though they are basically the same) are taking over without out playing the haggled prices. Overall, qualities are improving and in some cases Americans and Koreans have surpassed in envisioning new market. While Ford and Hyudai/Kia has come up with their newly developed turbo charged system and direct injection system to increase power and MPG, Toyota is still sticking with multi-port injection and V6 engines. Honda has not shown any new development in engines,  but they have always been in business of keeping small displacement engines. On the flip side Mazda came out recently with skyactiv technology, which is the same route as Ford and Hyunda/Kia. Direct injection, which used to be a golden gate to luxury cars, is now available in entry level to family sedan. This changes the came. Could Toyota be developing new engines to catch up? Or, even take over? Could it be the reason why they are holding off on higher investment?

Gas Price

Okay, so I got bored today and I figured I look at some data. Why not, a typical Wednesday.

Obviously, I'll have to continue to update once I research more about this topic, but showing above are just some graphs I pulled from basic oil data.

So the first graph from top. I only used Unleaded Regular Gas Prices (Please forgive my typo on the graph) since I don't believe there were many cases at all where variance between grades is big enough.

Right below I have put Chinese's average total oil consumption per day, then for entire world, and then the US.

I don't know why I pulled these data. Obviously consumption will continue to go up in China for awhile. However, as developed countries change their ways with new technologies, it should provide incentives and benefits to developing countries to diverge from using oil. Then again, oil prices are controlled tightly by OPEC that it could still hurt our pockets as we move on. And even though it makes sense for us to change to alternative energy in the future, for developing countries, they will likely stick with oil as in short run higher supply may benefit them to stick with oil. Then again, oil prices are unpredictable at best so there is no sure way that it would be a good idea for developing countries to stay with oil.

If you look at the last graph, you can see that our consumption level started a downward trend going into late 2000s. My graph only goes to 2008 but in 2010 our consumption level was average around 19mil/bbl/day. So, we are still not at the peak from 1980 to 2010.

Having said that, what if we actually increase the domestic crude oil production? Would it lower the gas prices? I'm saying this because people actually believe that domestically generated supply could lower the gas prices. From what I know, gas prices are heavily depended on market. They are not fixed and they are not just traded in the states.

Things that I will be looking into tomorrow (hopefully) are commodity futures in oil, domestic oil production level, alternative energy prices, alternative energy supply level/production, and more.

Automobile sales vs Dow Jones

Recently I saw news about how the market jumped a bit with automobile sales data. I was wondering why that would be the case. I briefly researched and found some relative data to look through and automobile market trend does reflect quite closely to our economy.

Dow Jones from 1990 - 2010

I added two charts for passenger cars and light trucks sales.

On the top is the percentage change from year to year based on changes from base year to next year. This is there to show the volatility in as far as much it fluctuates.

When you click the link below the picture 'Dow Jones from 1990 - 2010', you can see that trend has same pattern. This tells me two things right away. There is no big relativity here as far as the data itself. The components of Dow Jones are listed as:

Components for ^DJI

Symbol Name Last Trade Change Volume AA Alcoa Inc. Common Stock 9.63 4:00PM EDT  0.18 (1.83%) 24,542,819 AXP American Express Company Common 58.10 4:00PM EDT  0.73 (1.27%) 4,411,802 BA Boeing Company (The) Common Sto 73.59 4:01PM EDT  0.08 (0.11%) 2,640,176 BAC Bank of America Corporation Com 9.23 4:01PM EDT  0.03 (0.33%) 180,836,846 CAT Caterpillar, Inc. Common Stock 105.87 4:01PM EDT  0.39 (0.37%) 4,578,208 CSCO Cisco Systems, Inc. 20.22 4:00PM EDT  0.14 (0.69%) 30,613,426 CVX Chevron Corporation Common Stoc 104.75 4:00PM EDT  0.85 (0.80%) 5,983,858 DD E.I. du Pont de Nemours and Com 52.70 4:00PM EDT  0.07 (0.13%) 4,741,722 DIS Walt Disney Company (The) Commo 43.08 4:00PM EDT  0.15 (0.35%) 6,341,122 GE General Electric Company Common 19.49 4:02PM EDT  0.25 (1.27%) 39,962,153 HD Home Depot, Inc. (The) Common S 50.62 4:00PM EDT  0.77 (1.54%) 9,558,676 HPQ Hewlett-Packard Company Common 23.11 4:00PM EDT  0.16 (0.69%) 14,733,179 IBM International Business Machines 205.47 4:00PM EDT  0.58 (0.28%) 3,809,119 INTC Intel Corporation 28.07 4:00PM EDT  0.14 (0.50%) 22,039,042 JNJ Johnson & Johnson Common Stock 65.34 4:01PM EDT  0.05 (0.08%) 7,922,631 JPM JP Morgan Chase & Co. Common St 44.34 4:00PM EDT  0.07 (0.16%) 28,833,399 KFT Kraft Foods Inc. Common Stock 38.04 4:01PM EDT  0.18 (0.47%) 7,630,642 KO Coca-Cola Company (The) Common 73.47 4:00PM EDT  0.01 (0.01%) 5,765,769 MCD McDonald's Corporation Common S 98.62 4:00PM EDT  1.14 (1.17%) 5,469,330 MMM 3M Company Common Stock 87.27 4:01PM EDT  0.57 (0.65%) 2,048,367 MRK Merck & Company, Inc. Common St 38.88 4:00PM EDT  0.02 (0.06%) 13,880,879 MSFT Microsoft Corporation 31.52 4:00PM EDT  0.31 (0.99%) 50,424,364 PFE Pfizer, Inc. Common Stock 22.34 4:00PM EDT  0.05 (0.20%) 22,058,612 PG Procter & Gamble Company (The) 67.31 4:00PM EDT  0.05 (0.07%) 7,696,273 T AT&T Inc. 30.94 4:00PM EDT  0.19 (0.61%) 21,473,770 TRV The Travelers Companies, Inc. C 58.88 4:00PM EDT  0.34 (0.57%) 2,930,858 UTX United Technologies Corporation 81.60 4:02PM EDT  0.32 (0.39%) 2,483,011 VZ Verizon Communications Inc. Com 37.66 4:03PM EDT  0.23 (0.61%) 11,685,388 WMT Wal-Mart Stores, Inc. Common St 60.67 4:00PM EDT  0.41 (0.68%) 6,528,712 XOM Exxon Mobil Corporation Common 84.82 4:00PM EDT  0.16 (0.19%) 11,957,408

Other than Exxon Mobil, I do not see direct correlation in as far as within naked eyes. However, there seems to be some sort of correlation showing here. Since I wasn't able to get any statistical analysis, but based on trend alone it seems like automobile market could be relative enough to the market performance in comparison to Dow Jones Index.