Financial Literacy presentation at MASFAA

Posted by Christopher S Penn on Nov 13, 2009 in Economy, Money, Video | 3 comments

Here’s a recording of a financial literacy presentation I did for the Massachusetts Association of Student FInancial Aid Administrators. Please watch this with a friend or colleague present and do the exercises together for maximum benefit!

Video

Slides

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What Farmville should teach us about profitability

Posted by Christopher S Penn on Oct 1, 2009 in Economy, Education, Metrics, Money | 11 comments

Profits! Profitability! The holy grail of business. Yet surprisingly, one of the most difficult things to calculate. Companies spend thousands of dollars a year in consulting, technology, software, systems, and accounting firms just to get a vague idea of their profitability. Why?

Here’s an example of how difficult profitability can be even in a very closed, contained, predictable system. Let’s take Farmville, the popular Facebook game. Of all the crops available to early players of the game, which is the most profitable?

A casual look says it should be cotton. That giant 207 coin payout for planting cotton is definitely the biggest number on the page. Of course, that’s only gross profit. Each crop also costs money to plant. Do some quick math to subtract the cost of seeds and suddenly artichokes become more profitable – that’s net profit per crop, profit after costs.

So, should you go plant artichokes willy-nilly? Not necessarily! You forgot tilling costs, which is a fixed, flat 15 coin fee for every plot of land. While this may not change the choices between artichokes and cotton, it drastically alters the profitability of cheaper items like soybeans, which at first glance look like a terrific investment – plant for 15 coins to reap 63 – but becomes plant for 30 coins to reap 63 after the tilling cost.

Finally, take the amount of time you’re willing to invest in Farmville. For me, it’s virtually none. I’ve got better games to play in my free time, like Warcraft, so Farmville is at best a curiosity. If you’ve got a lot of time to invest in the game, then you have to do one final calculation for profitability – how much income per hour each crop reaps. Divide each crop’s net profit after costs and tilling by the number of hours to maturity to get net profit per hour, and suddenly, inexpensive but time intensive raspberries yield the highest overall profit per hour – if you’re willing to babysit them every two hours.

What’s the lesson in all of this? Calculating return on investment and profitability can be very tricky. In the incredibly simple Farmville case, the tilling cost is one people leave out of their calculations more often than not. The example of raspberries also demonstrates that what looks like the biggest number at first (artichokes) isn’t – you might be better served cranking out a smaller margin with high frequency than a big margin very infrequently, particularly if you’re in a business where market conditions shift rapidly.

Now imagine how difficult this is to apply to real businesses, where prices, markets, and conditions change, where costs and profits are not fixed, and where time is not free, and you get a sense of how truly amorphous profitability can be.

This is also why it’s super important to get kids and adults playing games like Farmville and Warcraft, to teach them the powerful economics lessons in their games so that they can dig into understanding business without putting real money on the line.

Have fun farming!

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The only green shoots are the ones you're smoking

Posted by Christopher S Penn on Jul 9, 2009 in Economy, Money | 13 comments

I present two charts.

First, via Blytic, a look at food stamp usage and unemployment.

You don’t have to be a rocket scientist or an economist to figure out that this recession still has legs and a long way to run before we even begin to approach “normalcy”. Anyone talking about recovery is being a little on the premature side, don’t you think?

Second, via Barry Ritholtz:

Again, you don’t need a Ph.D. in economics to figure out that the housing bubble still has a long way to come down. A 4 year old with a ruler and a crayon could diagram out the long term mean and see that when it comes to reversion to mean on a multi-decade basis, we are still far, far away from the mean, which indicates that housing prices still have a long way to drop.

When you strip away the spin of government press flacks and media outlets desperate to gin up advertising revenue by getting consumers to spend unwisely, when you reveal the data as opposed to the opinion, the news is less than good, and the calling of a bottom, recovery, and green shoots is premature at best.

So what does this mean for you?

If you’ve been getting by, keep doing what you’ve been doing, only moreso. Thrift is the new black. Keep watching the fridge and the toilet paper.

If you’ve not been getting by, I’m sorry. There’s not much advice or counsel I can offer that hasn’t already been thrown at you a dozen times over. Consider putting a few hours into setting up some affiliate stuff, knowing that a payout if successful is probably 30-60 days away, but it might be a little supplementary help. If you’re job hunting, take what you can get.

Above all else, if there’s a single concept you must get sooner rather than later, it’s that positive cash flow means everything in this environment, whether it’s your business or personal life. Positive cash flow is pretty much all that matters for the short term. Get more money coming in than going out.

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I was on a boat called PAB09

Posted by Christopher S Penn on Jun 22, 2009 in Conferences, Economy, Marketing, Money, New media, Podcasting, Rant, Video | 23 comments

Podcasters Across Borders 2009 has wrapped up and the team of Mark Blevis and Bob Goyetche threw yet another impressive event. This year’s PAB theme was ostensibly bringing outside knowledge into the podcasting world, but the general subject of many of the presentations was on story more than anything – ways to more effectively communicate your story from Six String Nation to a Hollywood career. There were some spectacular new tools and techniques debuted which I look forward to integrating into my shows, the Financial Aid Podcast and Marketing Over Coffee, ideas that I think will, if they work well, bring things up a notch. Also picked up some great new photography techniques I’ll be trying out soon.

Along the way, I presented an 18 minute talk on monetization and why it’s vital to new media. Longtime readers of this blog will find many of the themes to be as familiar as old friends.

I also did my usual Sunday morning semi-improv presentation, My Top 20 Social Media Tools. Unlike the other presentation, I’m not publishing this presentation in any context, and here’s why: you had to be there and ready.

The Sunday morning presentation is always a tough one for people to make. It’s at 8 AM, which, after a night of partying, only the hardcore attendees can usually make. Delivering a super-tight, all-meat presentation that many have expressed a desire to see is my way of thanking them for making that extra effort to show up.

It’s also part of a martial arts lesson my teacher, Mark Davis of the Boston Martial Arts Center, is constantly reinforcing with us. Very often in the black belt class, he’ll show a technique only once as a way of helping us train our minds to capture and catch as much information as possible, to be vigilant about paying attention.

Social media in some ways makes us reliant on the crowd, reliant on the tools, reliant on waiting for someone to retweet or blog or podcast an important event. That laziness – and it is mental laziness – softens our ability to capture vitally important things that happen which may never happen again. Think about your own life. Have you ever had the experience of missing a child’s first important event, missing a news story break on the street right in front of you, missing a key piece of information at a conference? I know I’ve missed information, especially in the dojo, because of a lack of focus. I know I’ve missed some terrific photos due to inattentiveness.

Thus, that presentation will never happen again, at least not like that. The slides won’t be posted, the video won’t be uploaded, the information never shown again. If you were there – fully and wholly there, meaning you were paying attention and not twittering, blogging, chatting, etc. – then you got some information I hope you find useful. If you weren’t there, then please make the effort to actually show up at events like Podcasters Across Borders or PodCamp rather than hoping someone will live stream/live tweet/live be there for you. You’ll find that there are many more gems from the weekend which will probably not be published from other presenters and attendees as well.

Also, big shout outs to all of the longtime friends and fabulous conversations from the weekend, from Marko Kulik’s photo advice to intense debates about the future of media with Whitney Hoffman, Tod Maffin, and Julien Smith, to the many other great conversations over the weekend.

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How do you reconcile openness and secrecy?

Posted by Christopher S Penn on Jun 17, 2009 in Economy, Money, Social networks | 11 comments

Here’s another serious topic for discussion: how do you, in social media, reconcile openness and secrecy?

Let me give you an example from World of Warcraft. One of the side parts of the game (a very big side part for me) is the in-game economy. You make gold by creating stuff, by killing stuff, or by trading with other players for their stuff. In the game, there are “secrets” – great spots for earning gold through killing things or great tactics to use in the Auction House (an in-game eBay of sorts).

These secrets are powerful, capable of generating hundreds or thousands of gold a day, compared to the average player who earns perhaps a few dozen gold a day. The catch is this: their value decreases in direct proportion to the number of people who know and use the secrets, because the server’s economy is a zero sum game – if I know the secret and you learn it, at best our earning potential is halved, unless you’re truly incompetent.

There are lots of similar examples in real life – in the world of search engine optimization, Google Juice is more or less a fixed sum game. If I learn a powerful SEO tactic, the more people who know it, the less value it has.

Contrast this with the social media world of sharing everything (from the mundane to the powerful), openness, and transparency. If you share something of value, your social currency increases among those you share it with.

Here’s the questions I have for you: how do you value a secret vs. the social currency earned for sharing the secret? Which is more valuable to you, and in what context?

Please leave your thoughts in the comments. Yesterday’s discussion was especially good to read, so I look forward to hearing less from me and more from you.

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Local recession indicators

Posted by Christopher S Penn on Jun 2, 2009 in Economy | 10 comments

Want to know how the recession is affecting your small part of the world, if at all? Check your workplace refrigerator. In boom times, folks tend to eat out more, especially for lunch. In leaner times, folks bring lunch, especially leftovers from the previous night’s dinner. This, plus a slew of other local economic indicators, tells you more about how the recession is impacting your world, your industry, your company, and your community than all the market metrics combined, because this is the sort of thing you see every day.

Some other indicators? If you work in an office, see how often the cleaning service does things like empty trash or clean the restrooms. Check the quality of consumables like toilet paper – changes, especially significant, fast jumps in quality – indicate that the first stages of cost cutting are occurring, possibly silently. In a tough economy, it’s the prudent thing to do for companies. If your company has a cafeteria, see if food selection and quality change significantly in a short time. Know your admin team really well? Ask them how frequently they’re reordering supplies (supplies tend to go missing at a faster rate in tougher times) and if they’ve been given additional, more stringent purchasing restrictions.

All of these little economic indicators, in and of themselves, mean little, but aggregated may give you a more complete picture of how things are going in your neck of the woods, and can help you plan accordingly. If you see a series of sudden, abrupt changes in your company, it might be time to start looking for another job before it’s too late.