Are Americans Saving Too Much?

Some leading economists released a report challenging the notion that Americans are spendthrifts with a negligible savings rate. In fact, their research says the opposite -- that Americans have been duped by the financial industries to save too much. By surveying various online calculators made available free of charge on financial purveyors' websites, they concluded that the amount the financial firms suggest to save is way too much. Here is my opinion on the subject.

First of all, the notion that Americans are NOT savers is hogwash, perpetuated by some laughably arcane statistics tracked by government bean counters. The statistics do not take into account savings directed to equity investments, 401k investments, real estate investments... just about anything except savings accounts. Our Asian counterparts still use bank accounts as the primary savings method, so we have an appearance of over-saving in Asia, and under-saving over here. Combined with the media's need to breathlessly proclaim impending doom, this statistic is WAY overplayed.

Now, do we save too much? In the aggregate, the economists may be right. But, people do not -- and should not -- plan based on aggregate numbers. Almost by definition, savings occurs when a family has a surplus over their basic needs. Since America has a significant and widening gap between rich and poor (whether this is good, bad, or indifferent is a subject for another post), the upper ends of the income distribution allow for excess savings, even if it is more than is required to ensure a comfortable retirement. You can also bet that the financial purveyors with online calculators are targeting the upper ends, as well.

The economists should approach the question as to the percentage of Americans that are saving to their reduced expectations. Or, they should take a poll and see how many Americans are saving AT ALL. I am afraid this answer would paint a much bleaker picture. Especially since any American under the age of 40 needs to question whether social security will exist anywhere close to its present form, I would rather have people over-save than otherwise.

Of course, using online calculators is a troublesome methodology. Financial math is easy. While every qualified investment adviser on the planet has planning tools that take care of the math part, an adviser's skill at identifying, clarifying, and prioritizing your goals is what separates the good professionals from the low-end service providers. Adding social criteria adds to the complexity. Such non-financial questions your financial adviser should be asking include:

• Do you want to simplify during retirement, or splurge?
• Do you want to stay put in your current residence, move around, or travel?
• Do you want to continue working part-time in a different role, volunteer, or leave the office behind forever?
• Do you care if your children have an inheritance?
  

The answers to these questions give you a clearer picture as to how much money you need when you retire. Once you have that, working backwards into an appropriate savings amount is easy.

Now, in defense of these economists, they gave a good clue as to their altruistic reason for releasing this research. They make a statement about "squandering youth" instead of squandering money. On this point, I could not agree more, but this also requires a detailed and regular self-examination of your values. Aggregate pictures are of no use whatsoever.

Time will be your most important asset, by far. For example, should you hire a housekeeper once a week, have the lawn mowed by someone else, send out the laundry? Or, should you save the money, and either let the chores slide, or take 3-5 hours per week away from the important people in your life, self-improvement, or leisure activities? Even in my own family, we struggle with these questions.

Working through these questions is where a financial planner earns your money.

Business Week Covers Social Responsibility

If you have an interest in the social responsibility of business, not only because it is the right and moral thing to do, but also because it presents one of the greatest business opportunities of the century, you should check out the current issue of Business Week. They do a great job of showing how SRI can be about proactive identification of companies positioning themselves for a sustainable or carbon-constrained world. The reasons to do so are to capitalize on THE 21st century mega-trend, and not for the touchy-feely, feel-good reasons.

Beer Signs That Change the World and A Solar Collector Made Out of Vacuum Tubes and Shot Glasses?

Last week, I was invited by the University of Texas' IC2 Institute to participate in a technology commercialization program between the Institute and Invite (in-vee-tay), an organization established by the governor of the Mexican state of Nuevo Leon to assess technologies coming out of that region. A group of 80 technologies had already been whittled down to 20. The technologists, along with IC2 and Invite staff, were given a lovely reception at the governor's palace in Monterrey. Of the 20 technologies, I was given 5 energy and environmental technologies with which to complete an in-depth assessment, using methods taught in IC2's Science and Technology Commercialization Masters Program. I am a 2005 graduate of this program. Last week was all about interviewing the inventors to understand their technology.

As an economic development project, the Invite program should be emulated by every region that wishes to stimulate technology clusters. I met some earnest, motivated, and passionate inventors with truly world changing technology. With just a little help, these technologies could form the backbone of a progressive economy that is less reliant on low-end manufacturing. Just a sample:

• A 25 year-old engineering student invented a solar thermal collector out of vacuum tubes and shot glasses. One of his professors added some product design expertise (and got real materials instead of shot glasses). This design allows the collector to work more efficiently, while allowing it to do its job past the usual seasonal limitations of the existing technology. It also is less expensive, lasts longer, and requires less maintenance than existing solar collectors. Their University, Instituto Tecnologia de Monterrey, liked it so much, it was patented. More research is needed to determine if the vacuum chamber can be maintained in real world conditions.
• Two professors and an engineering student invented a controller for LED lamps that reduces energy consumption by 80 percent. By sequentially lighting individual LED's at a frequency that is greater than what the human eye can detect (the same principle enables your eyes to perceive a series of photographs as , the quality of the illumination is barely perceptible, but the energy savings not only represents money in the pocket, it also opens up whole new swaths of off-grid applications. The same University created four patents around this one. The project started as a request for a Carta Blanca beer sign that did not cost so dang much to operate. The prototype is pictured at top.
  
• An electrical engineer in the air conditioning space invented a "sub-cooler" device which makes air conditioning units twice as efficient at one tenth the cost of existing sub-cooling technologies. This device could eliminate the need for giant water cooling towers at large facilities. One thousand of these devices are in use already in Mexico, with loads of documentation backing up the claims. The solution is so elegant, and so simple, Carrier and Trane will wonder why they did not think of it. (Even though more specific intellectual property was revealed, I will not go further than this)
  
• A wastewater engineer invented a wastewater treatment plant that reduces the need for sludge removal from several times a month to as low as once a year. Since sludge is a hazardous waste, and therefore, expensive to remove, this innovation has the potential to alter the dynamics of the wastewater treatment market. Again, several of these prototypes already exist in the field to back up the claims of the inventor.

These were just the innovators with whom I worked. My colleagues handling the medical, software, and wireless innovations were just as impressed with their batch. The subject matter expert with whom I conducted these interviews, Richard Amato, formerly of the Austin Clean Energy Incubator and currently with Venti Energy, also came away impressed.

We'll see how these technologies stack up after we get a chance to do some primary market research. Following the assessments, which we hope, will contain a roadmap for commercialization, IC2 will help the technologists meet some benchmarks for business development. Then, assuming the governor of Nuevo Leon is pleased, we can start all over again next year. IC2 has similar projects underway for Hungary, Jordan, and India, while a similar project for Kazakhstan was completed last year. This type of transnational knowledge transfer is valuable, important, and yes, fun work. Our hosts were spectacular. I sampled some local specialties, including cabrito (baby goat), crickets (prepared like one would prepare crawfish), and a banderra (tequila, lime juice, and sangria served separately and drank in sequence... interesting!). I can't wait to be asked again.

2007 Technology To Watch: Solar Thermal

Nice to be back after the holidays.

Before I get to the 2007 Technology to Watch, let's take a minute to review last year's prediction. On January 1, 2006, I predicted that 2006 would be the Year of Thin Film Solar. Well, let me be clear. Despite some nice breakthroughs and interesting developments, I would not call 2006 the Year of Thin Film Solar. Maybe I was a few years too early. The company I mentioned in last year's post, Heliovolt of Austin, won a Time Magazine award for the top 10 innovations of the year. Honda (ADR: HMC), Dupont (NYSE: DD), and General Electric (NYSE: GE) all entered the field. Despite this good news, actual demonstrable products are in short supply and installed capacity is even more scarce. Keep an eye on this one, though.

Solar Thermal is my pick for the 2007 Sustainable Technology to Watch. This is not a new innovation. It has been around for years, but this year, I predict that government policy, along with some nice technological breakthroughs will put this technology on the same level as more mainstream methods of energy generation, especially if oil and gas prices resume an upward swing.

By attaching the word "solar" to the technology, you are probably thinking about giant solar panels nailed onto your local treehugger's roof. Solar Thermal is not that technology. This technology involves calibrating mirrors to concentrate the sun's rays in a spot where water (or some other liquid) is heated. Heated water can then be used to generate steam. Steam is the driver of most turbines at most power plants, except that the heat is usually created from burning coal or natural gas. With solar thermal, there is no carbon byproduct.

For years, solar thermal has found a niche in water heaters and heated swimming pools. The technology is getting to where it can function on a utility scale now. Manufacturing a set of mirrors with the size and integrity to do the job is a surprisingly difficult task, but manufacturing methods are getting better and the number of companies involved keeps increasing.

Regulatory actions will make this alternative attractive to many utilities. Renewable Portfolio Standards are gaining traction nationwide, instigated by wholesale price spikes brought on by the oil shortages. Put simply, these are mandates from state legislatures that a specific percentage of overall electricity generated needs to come from renewable resources. The other renewable alternatives are facing obstacles. For utility scale solar (panel) generation, silicon is still facing supply constraints. As for wind, the size and scale of the new turbines is leading to some NIMBY-ism. The status of some very important wind generation tax credits also remains - ahem - up in the air.

Finally, 2006 saw an awakening of the potential of clean energy among institutional investors. Bill Gross, founder of technology incubator Idealab, founded a company call Energy Innovations, which makes rooftop solar collectors for commercial buildings. New Energy Finance predicts that 2006 venture and private equity investment in clean technologies to be up 167 percent over 2005 when all is said and counted. What is most significant is that this investment continued even after oil prices dipped back toward historical levels. This shows that the clean tech bandwagon has some serious legs.