The Financial Value of Volunteers

25% of Americans Volunteer – How to increase?

Last night I was sitting in a PTA meeting with at least 25 other adults. We all gave 90 minutes of our life to sit in a meeting to talk about and think about how to improve the school. Even at just $15/hour (and I am sure several of the adults were worth more than that), $562.50 of people time was spent on that meeting.

I have been described as a serial volunteer. My mom worked closely with our school and church so I don’t remember a time when I wasn’t part of volunteer projects. I can remember being 6 and sorting food at Christmas time for food baskets. I remember organizing, painting and doing all kinds of odd jobs as a kid.

My first self-chosen volunteer job was to work at the LandTrust. I have also always been an introvert so I spent many hours walking the local trails so it made sense to volunteer to help clean them up. Which I did, but I spent more time helping in the office with fundraising mailers and calls.

So thinking about last night and then thinking about my experience, I wondered how many people volunteer. I found this article Stats reveal how many Americans volunteer @CNN. Bonus! 25% of survey respondents volunteer which correlates to some serious volunteer hours. Another 2016 article from Huffpost America Does Not Have Enough Volunteers, gives some great statistics on just what this means: 62 million volunteers and $184 billion in service hours.

Sadly, 75% choose not to volunteer. I get it. I have had periods where I volunteered to my heart’s content and others where I could barely give an hour a week. Life happens.

So what do we need to do to attract more volunteers? I believe a key for young professionals is making the tasks relevant to their career path. A key for mid-career is providing opportunities that let them use experience and providing it in bite size portions that can fit into a busy schedule.

Maximizing Stakeholder Welfare

Question from Fundamentals of Corporate Finance book page 29:  It is sometimes suggested that instead of seeking to maximize shareholder value and, in the process, pursuing profit, the firm should seek to maximize the welfare of all its stakeholders, such as its employees, its customers, and the community in which it operates.  How far would this objective conflict with one of maximizing shareholder value?  Do you think such an objective is feasible or desirable?

I am almost finished with my MBA and I am still not sure how to answer this question. The concept of shareholders providing investment capital is tied directly to the creation of wealth for both parties.  At first glance, the answer is simple – companies need to focus on creating wealth which is tied to maximizing shareholder value.  My caveat to this is that it needs to be longterm shareholder value.  The company is not responsible for fast wealth creation that ultimately destroys the company.  The company is responsible for making smart investments that will ultimately payback the investor with interest.

My Financial Management class has taught me that there are lots of ways to try to forecast the future longterm payback and sometimes something that looks good on paper isn’t good for anyone.  My Corporate Governance class taught me that taking care of other shareholders can sometimes lead to greater profit for investors – although this seemed to be an even trickier thing to forecast.

One of my professors argued that a company is a collection of people.  As we would expect each individual to live by a certain moral guide we should also expect the collection of people to live by a moral guide.  Case in point: I would expect my office mate to pick up their trash, why would I not expect the company to clean up a site it damaged?

This is where I get stuck.  Every scenario is complicated and sometimes it feels like there are only bad options.  I want to think that honesty and straight forwardness could help any leader find another option.  I am not naive enough to think that the moral option or even the least worst option is not going to cost lots of money and could take the company down.  In that case, is it moral to lose the investors’ money?

It is so easy to go in circles on this one. I believe that each human has to act in the interest of the greater good. Unfortunately, there is not a common understanding of the greater good.

I just talked myself into a circle.  I shall think about this more because I do feel that companies should be focused on more than shareholders but I have grown up expecting so little of companies that I am having a hard time imagining a real world where companies did focus on more than the bottom line.

Tracking: 1st Step of Budgeting

My friend: the overspender

I have a friend that consistently has issues with money.  She complains that she can never pay her bills on time.  However, when we go out, I have not noticed that she has problems buying dinner or paying for drinks.  I admit that her speed at pulling out a credit card makes me slightly suspicious of her money management. So, this time when she complained, I asked her if I could help.

“Where do you spend most of your money?”

She answered “I don’t know” which was discouraging but not shocking.  We have all heard that paying electronically or with credit cards makes it harder for us to feel our spending.  Apparently she uses one credit card for “almost all” transactions.  She had not looked online to see if it breaks down her spending so we did that and she was SHOCKED to discover how much she spends monthly in restaurants.

I admit to feeling relief that my friend only had one credit card going. I have known people with multiple maxed out credit cards, using one card to pay the minimum on another card. So, this is definitely not a worst case.

“Where are you willing to spend less money?”

This is key.  It’s great to know how much you spend in places but if you don’t care or aren’t willing to change, the knowledge doesn’t help you.

She thought about it and decided she was okay spending less at restaurants if she did not have to cut back on bar spending.  Then came the recommendation she disliked – I told her that if she really wanted to do reduce, she needed to actively track with pen and paper or electronic entry.  This is all about making the spending real and being accountable to yourself. It isn’t worth fibbing to yourself because the credit card is going to tell you the reality.  You just need to be active in the tracking and reduction.

She says she can reduce without having to track. I told her she’s trying to make a habit change without doing the work.  We will see who wins in this argument.

Was I “sub-prime”?

One of my goals is to practice writing on themes that I think I might be interested in writing professionally.  Obviously my blog is very much personal exploration.

Article one is Mortgage Market Securitization.  While completing my MBA, we spent considerable time discussing the Global Economic Crisis – the causes and the effects.  Mortgage Market Securitization is considered to be part of the cause and is definitely one of the reasons the crisis spread throughout the market so thoroughly.

As we studied, I realized my first home purchase was tied to the cause of the crisis.

In 2001, I moved to a new job, a new city.  I had always been told that a house was a cornerstone of wealth.  This was 2001, so my new employer provided a great moving package that included a real estate agent to help me choose an apartment or a house.  The agent gave me the number of a mortgage broker and told me to call them and ask how much house I could afford.  I called, gave them a small amount of data and they told me I could buy a house worth 4 times my annual income with no down payment.  It seemed like a deal to me.  My parents were surprised that a young twenty something could get such terms but it seemed like a deal to them too.  They were proud that my credit was so great.

Of course, little did we know that I was just part of a larger developing phenomenon.  The mortgage broker I called was in the business of securing as many mortgages as he could.  Regardless of the risk, the mortgage broker knew they could sell my mortgage for some cash value to a securitizing firm.  The mortgage broker’s pay was tied to getting my signature on the mortgage paperwork.  There was little to no penalty to that broker if I later defaulted on the loan.  The broker made his cash as soon as the mortgage was sold to the securitizing firm.

My worry started immediately after I signed the papers. The broker looked at me and said: “This is fantastic for you. You know we could never have agreed to this if you had a car loan. You are at your limit.” Uh-oh. Youthful mistake: I had assumed the experienced professionals were looking out for me and wouldn’t let me get in over my head. Thank goodness for roommates to help cover bills and for part time work!

For those that do not know, “sub prime” is a term used for mortgages qualified for securitization during late 90s, early 00s after the federal government loosened mortgage standards in an attempt to increase home ownership.  The loosened standards involved the percent of income to house purchase and amount of down payment. So, based on the statement from the broker – yep, I was “sub-prime”.

No worries felt at the mortgage broker who quickly sold my mortgage to the securitizing firm.  No worries felt at the securitizing firm either.  They looked at the numbers on my mortgage and categorized my mortgage and bundled it with other similar mortgages into tranches.  Tranch is French for slice so my little mortgage was a small part of a big slice of mortgage debt that the securitizing firm then sold to investors looking for a percentage return (the percent increased as risk increased).  Investors received a portion of my payment based on whatever security package they purchased.

My story ended well, I moved again and sold that house by the end of 2003. Of course, I spent 2 years on a tight budget with revolving roommates and working odd extra jobs to make ends meet but I was able to get out of the loan before everything crashed.  For many people, both home owners and investors, the story did not end well.  Defaulted loans caused loss of homes and for some investors loss of retirement savings. Even now, culturally, we collectively still feel the anger at the banks, the brokers and securitizing firms, that made money while the individuals on both sides of the mortgage meltdown suffered.

Personally, I learned two valuable lessons: “question and double check the professionals” and “yes, something too good to be true is often not true”.