Sometimes, an education is the worst thing you can have.

Professors Snider and Cooper were right. Be chrool (sic) to your scuel (sic).

DISCLAIMER: (And we disclaim things so infrequently, you know this is big.) This post references and links to a story that originally appeared in the Las Vegas Review-Journal, a paper that treats even hints of copyright violation the way Genghis Khan treated Central Asia. The R-J and reporter Richard Lake provided much of the raw material for this post, as did the unfortunate MySpace page of the post’s protagonist.

Time for a painfully simple exercise. We’re going to give you a series of words – concepts, really. Then say whether each is good, or bad. Look at each one irrespective of anything else. Here’s an example:

Clean air – good or bad?

Don’t overthink it. It’s not “clean air, but what about all the manufacturing jobs that will be lost if the parts of particulate matter per million rises a tiny fraction?” It’s simply, “clean air”.

Understand? Answered it? Then let’s go.

Puppies – good or bad?
Ending terrorism – good or bad?
Education – good or bad?

Slow down there, Ace.

After years of real-world examples, there’s no getting around it – all levels of government spend far too much taxpayer money to put people in classrooms where they’ll neither do anything productive nor develop the capacity for doing anything productive.

(People are going to misinterpret this post, and they’re going to start by misinterpreting that line. We’re not saying elementary schools shouldn’t teach basic math and grammar. We’re saying college is more often than not a waste of time.)

In the last century, college/university has gone from a place where you learn a profession, to a mandatory rite of passage for kids with good grades who come from white-collar families, to a mandatory rite of passage for everyone, to a necessity no less fundamental than food and water.

That’s wrong on several fronts. Amassing debt before entering the real world isn’t necessarily bad, but the debt has to have a purpose. Seeing as this post is about education, let’s use a SAT analogy:

Borrowing money to buy a house : borrowing money to buy lottery tickets :: borrowing money to study engineering : borrowing money to study sociology.

No matter how hard we hammer the opposite point, some commenters are still going to miss it, and lament that we’re downplaying the importance of education. Again, we’re not. But the unalloyed word “education” isn’t always an absolute good.

Meet J.T. Creedon, student government president at the College of Southern Nevada. Guess how many years he’s been going there.

No, higher.
10. That is not a typo.
He’s 28 years old.

(We can only speculate as to how many of the people who voted for him wouldn’t have voted for John McCain for president because he was “too old.”)

Education, ideally, is a financial investment for the educatee: make little money for 4 years, so you can make a lot more money for 4 decades. Sure, there are purists who don’t concern themselves with such philistine values, and who argue that the trivium and quadrivium are ends in themselves – and that education for its own sake is our very purpose here on Earth. This argument will be valid the moment classrooms build themselves and professors forgo salaries.

The economic argument occasionally carries weight among the purists, if they can use it to serve their own ends. Money becomes suddenly important to some people when the possibility of losing it presents itself.

The legislators and executive officeholders in Nevada, like those in a lot of states, spent far too much taxpayer money during the good years and now face a budget crisis. In Nevada, education makes up 28% of the state budget.

To hear the pro-“education” forces, if you want to deny unlimited funds for students, teachers and administrators; or even get the percentage down to 26 or so, that means you want children to be illiterate and innumerate.

First, tens of millions of kids already are illiterate and innumerate, with no incentive for them to read, write, add, divide and calculate square roots. Read Facebook, Twitter, MySpace (especially MySpace, where we’re pretty sure you need to be convicted of a felony to open an account) or the comments on any site other than Deadspin if you don’t believe us. Most of these kids’ parents aren’t exactly qualifying for Rhodes scholarships themselves.

Creedon is exactly the kind of person that a blanket funding policy attracts, and helps render financially impotent. Creedon had only moved to Nevada when – well, when he was an age at which most community college students are a year from graduating. Now at 28, he’s not close to done. From the Review-Journal:

(H)e’s probably going to leave for an out-of-state university.
“I really want to go to a place where it’s a little more stable for the next two years,” he says.
He’s applied to universities across the country, from New York to Texas to Washington state. He’s received one acceptance letter and waits to hear from the rest. He also applied to UNLV, but that’s just his safety net in case he doesn’t get in anywhere else.

Again, 28. An age at which:

  • Steve Jobs had already sold millions of computers, taken Apple public, and ceded operational control of it to a professional CEO;
  • George Harrison had embarked on a solo career, because the Beatles had already broken up;
  • Steven Spielberg had directed Jaws, then the biggest-grossing movie in history;
  • Theo Epstein was responsible for the day-to-day operations of the Boston Red Sox;
  • Thousands of other people were doing something productive.

But hey, Creedon’s getting an education. Given that there’s a positive correlation between duration of post-secondary study and real-world success, those eventual 12 years in the classroom will certainly make Creedon a bigger star than Jobs, Harrison, Epstein and Spielberg combined.

We don’t mean to use an outlier as indicative of an entire group. Instead we mean to show that Creedon’s no outlier. His eventual diploma, should be ever earn one, will be in history and/or political science. That puts him square in the majority of unproductive, barely employable college graduates, but 95% of students at his college never graduate (necessitating the rare bold/italics/underlining hat trick.) Our educational system doesn’t merely turn these dropouts out by the myriad, it does so for obscene prices – both in terms of taxpayer wealth confiscated and of student loans incurred.

The president of Creedon’s actual college – not merely that of the student government – has that analytical flair that academics are famous for (again, from the Review-Journal):

Already, the college had to turn away 5,300 students in the fall.
“Had we been able to accommodate those students, our enrollment would have been much higher,” (Michael) Richards says.

They should phrase Richards’ statement as a true/false question in one of the community college’s introductory math tests.

What makes J.T. Creedon reprehensible is…well, several things and they’re difficult to rank, but what struck us hardest was his insistence on taking the moral high ground of concerning himself with the nebulous well-being of others, rather than looking at the financial necrotizing fasciitis case in the mirror. He publicly advocates securing ever more funding for students such as himself – oblivious to the reality that his own example is as strong an argument as any for gargantuan financial cuts.

This world would be a far better place if people took care of their own business first. J.T. Creedon is welcome to save the world from a shortage of overlearned, underexperienced waiters and retail clerks. That he feels an obligation to do so while taxpayers continue to wean him, well into adulthood, is his problem, and ultimately society’s.
—————
If your kid says he wants to go to college, or even merely thinks that that’s what you’re supposed to do when you get out of high school, part of being a parent is assessment and counsel. J.T. Creedon could have spent $3000 to enroll in truck driving school a decade ago, graduated with a commercial license a month later, and at the absolute minimum made $600,000 since then.

Heck, J.B. Hunt would have paid for his schooling, requiring only a one-year apprenticeship and allowing Creedon 9 years of freedom. But truck drivers never get on TV, nor do they have the luxury of organizing protests. They’re too busy delivering the food and drink that parasites require to survive.

Creedon could have learned to deal blackjack in even less time than it takes to learn to drive a truck. He could have done so for far less money, but with similar earning potential. (Albeit without ever seeing daylight nor breathing clean air. We live in a world of tradeoffs.)

Society can’t function without physicians and pharmacists. Nor without contractors and carpenters. But it’ll do just fine without directionless leeches.

This was Part I of a two-part series on higher education and how it pertains to the financial life of either you or the 20-something in your life. Part II, which is a lot less depressing than Part II, goes live Monday.

**This article is featured in the Yakezie Carnival on Judgement Day 2011**

and

**The Carnival of Wealth #40-Memorial Day Edition**

Months later, this book is still garbage I

Oh yes, there will be a Months later, this book is still garbage II. And III.

It’s Recycle Friday at Control Your Cash, in which we post a classic that another blog already posted months ago. This week that blog is the eclectic Financial Highway, and the post is a review of one of the worst personal finance books ever written. The guy who runs Financial Highway asked us to review it, and we did. Oh God, did we review it. And probably would have made its author cry, if he weren’t a lawyer and didn’t have tear ducts.

Yes, Trent at The Simple Dollar loved the book. Which tells you as much about its worth as our review did. Does. Will do. Here, read it. Our review, that is. Not the book:

When I consented to review The Skinny on Real Estate Investing, I assumed I’d be reviewing a book, and not a pamphlet illustrated by my 8-year old niece who drools a lot and still has some trouble negotiating bathroom time. This review might run longer than the book itself.

Jim Randel’s series of illustrated The Skinny on titles boasts that it’s “For Really Busy People!” It’s also suitable For Really Fidgety People who can’t get through a book longer than 10,000 words. The lengthiest passage is the introduction, which runs a full page and explains The Skinny on’s M.O. of culling swaths of information into a workable whole. But it doesn’t explain the distracting primary illustrations that adorn every page.

The jacket quotes all attest to Randel’s success as an investor, but none of them speak about the book itself.

Randel is an attorney, with condescension in his blood. He’s in love with his own (lame) sense of humor, and uses an asterisk in one panel with the footnote, “*Did you catch the metaphor?” No, I didn’t. Please explain it to me again, Attorney Boy, using something less complex than kindergarten sentences. Randel also has an amateur’s pedantic insistence on avoiding contractions, the bane of the self-important, self-published, self-righteous author. This makes for a book that is simultaneously juvenile and stilted. Maybe Randel avoids apostrophes because he can’t punctuate – he uses “+/-25%” where “~25%” should go, which makes a huge difference when calculating home values.

It’s barely possible to repeat yourself in a book this short, but he does. Did you know Randel was born in Perkins, Ohio? If you didn’t, don’t worry. He’ll tell you again. Several times.

He even puts a commercial for one of his other books right in the middle of the narrative.

The Skinny on Real Estate Investing is effectively a black-and-white comic book. It concerns a married stick-figure couple, ready to leave their workaday stick-figure lives and invest their way to stick-figure affluence. The husband gets suckered into attending a huckster’s “wealth-building” seminar – you know, because men are impulsive and scatterbrained while women are sensible and rational – when Randel himself jumps into the couple’s lives (literally, out of a plane) to right the ship.

Because he’s a lawyer, or perhaps because he never learned to write for someone other than himself, Randel shifts directly from first gear to lecturing overdrive. He starts this at the book’s quarter-mark (not coincidentally, when I first contemplated throwing The Skinny on Real Estate Investing in the swimming pool.) In the space of one panel, he goes from childish humor to the first edible meat of the book; this uninspired paragraph:

The key to all real estate investing is understanding what is called a cash-flow analysis. The logic of this analysis is the same whether you are buying a single-family house or a huge shopping center. The larger the property, the more numbers you need to review, but the methodology is the same.

The Drake Passage thinks The Skinny on Real Estate Investing is choppy. In another gem, Randel tells us that he’d only invest in a house if it “had an especially high likelihood for substantial appreciation.”

You mean, if its price was almost certain to rise a lot? Speak English. This book is short, but it’s anything but concise.

Randel explains legitimately important concepts like return on investment, leverage, cap rate and cash flow, but buries them in a style that no sane person will wallow through.

Adding value simply means finding ways to increase the value of your property

 

A square foot is a square that measures one foot by one foot

God, make it stop.

Randel moves effortlessly from simplistic to over the reader’s head. For instance, he drops a reference to Class A vs. Class B office space halfway through the book, but never bothers explaining it.* He adds that if you want to buy a property and you’re illiquid, you should ask the current owner to “take back a second mortgage”, again without explanation.

Even the layout is garbage. In some illustrated panels, the publisher uses a font visible only to prairie falcons. Sure enough, the content therein is some of the most valuable in the book.

(Randel uses a metaphor to explain how simple the math involved in real estate investing is: “it’s not ______!”

Guess what goes in the blank? No, not “rocket science”. The other one. But don’t fret: if you miss it on page 109, you can catch it again on page 156.)

I’m not sure which is more galling: Randel announcing that The Skinny on Real Estate Investing is just the first in a series; or him charging $14 for a book that clearly took him an afternoon to write, possibly a drunken one.

I got Randel’s insufferable little vanity project down to 41 words while losing no detail. Here’s every usable piece of knowledge in this book, in handy point form:

  • unlike with stocks and bonds, with real estate you can influence the return on your investment;
  • asking prices often mean nothing;
  • find partners, but keep a management fee for yourself;
  • don’t invest in real estate that doesn’t offer >10% cash-on-cash return.

What’s cash-on-cash return? Sorry, that’s a topic for another book.

_________________________________________

* There are 3 classes: A, B, and you can probably figure out the third. A Class “A” office building is at least 120,000 square feet. The term can even refer to multiple adjacent detached buildings that share an owner. A building this big should have a full-time property manager, maintenance person, and steward. There’s more to the definition than size, though — and almost all of it is subjective. A Class “A” building should be in a “good” neighborhood and have other amenities like covered parking and some sort of concentration on aesthetics. Class “A” means cachet for its tenants. A Class “A” building has at least 3 floors and can cost more than $200/square foot to build.

Class “C” is the bottom end of the market — for example, converted houses in old parts of town. Which means Class “B” is everything else — functional, decent buildings that were built for the express purpose of accommodating businesses, but aren’t places you would stick your chest out and brag about renting at.

Micro Millions

Brandi couldn't find the man of her dreams until she won the lottery

Indulge us for a few minutes before you go out and buy this week’s lottery ticket(s)?

Mega Millions and Powerball are America’s two biggest lotteries, available in 41 and 43 of the contiguous United States, respectively. And every week, tens of millions of idiots feed the beast.

Both games are for mental patients, but let’s deconstruct only Mega Millions for now.

To win the jackpot, you have to pick 5 out of 56 white balls and 1 out of a separate 46 red balls.

Regard each of the two colors separately. For white balls, you can pick any one of the 56 for your 1st ball. That leaves 55 choices for your 2nd ball, 54 for your 3rd, 53 for your 4th and 52 for your 5th.

Which would be

56 x 55 x 54 x 53 x 52

except you need to remember that every combination is counted multiple times. Say you pick balls 8, 13, 25, 33 and 50. Well, that’s the same as 25, 8, 50, 13 and 33, right? Any one of your five chosen balls can be in the 1st position, leaving four balls for the 2nd position, three for the 3rd, etc. There are 120 possible permutations, so the total number of five-ball combinations is:

56 x 55 x 54 x 53 x 52
5 x 4 x 3 x 2

Which equals…well, it doesn’t matter what it equals because we’re not done yet. We still have to multiply by the chance of you getting the red ball right, which you have a 46-to-1 shot of doing. So the chance of the numbers you pick being the numbers that come up is

56 x 55 x 54 x 53 x 52 x 46 = 175,711,536
5 x 4 x 3 x 2

That’s right, 176 million to one.

Lots of people, including most lottery players, don’t bother to distinguish among large numbers. They figure that once you get beyond 10,000 or so they’re all pretty much the same. The chance of winning Mega Millions is about the same as the chance of you choosing a U.S. resident at random, then correctly guessing her street address.

Of course, not every dollar collected goes to prizes. No lottery is or can be a zero-sum game. Each lottery corporation needs to keep some cut to cover expenses and turn a profit.

In California, that cut is about 48%.

ExxonMobil’s 2009 profit margin was 8.6%, and more than a few thousand people regard the oil and gas multinational as exactly the kind of thieving leviathan society needs to dismantle brick by brick.

This week’s estimated jackpot is “$105 million”, which is a gigantic lie. Look at this, direct from MegaMillions.com:

The ESTIMATED JACKPOT number is in 20-point font, and ALL CAPS. The Cash Option number is in 11-point font. In other words, the estimated jackpot isn’t $105 million. It’s $66 million. Wanting to believe it’s the higher number doesn’t make it so.

Do you work on commission? Even if you don’t, if your employer offered you a $40,000 bonus this week, would you be interested?

Okay, what if he then said,
“Well, the commission is really $16,900 after taxes. We could cut you a check for that much now, but if you’re willing to take $128 installments every month until 2037, and also add the taxes back in, then that totals $40,000.”

You’d cry dishonesty, and you’d be right. This is yet another example of government functionaries obfuscating the truth in a way that if you or I attempted, we’d get sued. And lose.

After taxes (which average 7¾% state and local in some jurisdictions, plus 25% federal), that jackpot shrinks to $44,452,250.

But that’s assuming that only one ticket will win. The chance of there being exactly one winner varies with the number of tickets sold, but it can never be more than 37%. In other words, there’s never a scenario in which the most likely outcome is that exactly one person wins. If you win – which as we’ve all but proven, you won’t – there’s a good chance you’re going to have to split that prize.

Say there are two winning tickets, which are thus each worth $22,226,125. For doing the near-impossible – getting all six numbers right – you’d get 6% of what you should get. The remaining 94% goes to the government. The very government that has a monopoly on these games, and also has a de facto monopoly on education – and has taken the responsibility of teaching math to the same populace it sells lottery tickets to.

As the brilliant Durango Bill points out, if you drive 1000 yards out of your way to buy a lottery ticket – 500 yards there and 500 yards back – it’s more likely that you’ll die in a car accident en route to get your ticket than you’ll win.

But hey, you can’t win if you don’t play.

**This article is featured in the Totally Money Carnival Blog Carnival #20**