Who Creates Jobs?
As many countries around the world struggle to recover their economies in the midst of a pandemic, it is a good time to ask the question, “Where do jobs come from?” Or, asked in a different way, “Who creates jobs?” As is often the case, the answer depends on who you ask.
Businesses and Small Businesses
A common answer from politicians is that businesses create jobs, which is the reason to provide tax breaks to corporations, and at times to the wealthy people who own them. The thinking is that if businesses create jobs and we allow the owners to keep more of their income that they will, in turn, create more jobs. Even more jobs would be created if the owners started new businesses with their earnings, but this is not always the case.
Some say more specifically that it is small businesses that create jobs. When a person starts a company they hire someone, and then as the business grows, they hire additional employees. This is the job creation that comes from small businesses.
While it is certainly businesses that hire people, whether or not any jobs are created depends on who they hire to fill their positions. If they hire someone who is currently employed and that person’s old position is not filled, then no jobs are created. If a new company is formed by taking employees from a larger company and creating a new second company, then no new jobs are created that way either.
Despite being a business owner, I don’t agree that jobs are created by businesses. Jobs are created by customers. The only reason that a company should open is if there are customers who have a demand that is not being met, whether it is a new product, a level of quality, or features missing in existing products. The unmet demand may also be that there is simply not enough of the product or service available to meet the demand. When a company is created to fill this previously unmet demand, that new company will create new jobs. Similarly, if a company is faced with greater demand than they can supply, they will need to increase production, which usually requires hiring more people, thus creating new jobs.
Because it is customers who buy products and services, it is customers who create jobs. So, if you own a business and want to grow and hire more people, you first need to start by either convincing your current customers that they need to buy more, or you need to find new customers. By focusing on finding new customers and meeting customer demand rather than jobs, jobs will be created and the economy will grow.
Please leave a comment about how you think jobs are created; I would like to hear your thoughts.
Brian Hock, CMA, CIA
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A week ago, I wrote about how a small regular investment grows over time with compounding interest. A reader recently sent me an illustrative story about compounding that I want to share.
Once upon a time, there was a king who collected almost the entire rice crop harvested by his subjects as tax, promising to give it back during tough times. After many good years, there came a year when there was no crop. However, the King was stingy and unwilling to return the rice as promised. A clever girl did a favor to the king and then asked for a reward.
The reward that she asked for was that she would receive one grain of rice on the first day, and double that on the second day. On the third day, she would receive twice that from the second day. And so on for 30 days. The king thought that it was a modest request and granted it to the little girl.
However, when the King started to pay the reward, he realized what it would become.
On day 6, the little girl received 32 grains of rice.
On day 12, the little girl received 2,048 grains of rice.
On day 18, the little girl received 131,072 grains of rice.
On day 24, the little girl received 8,388,608 grains of rice.
On day 30, the little girl received 536,870,912 grains of rice.
After 30 days, she received a total of 1,073,741,823 grains of rice. (After I read this, I did the math in Excel to make certain that it is correct.)
As you can see, the increase from day to day gets larger the more days that the girl has been “investing.” While no investment offers 100% daily returns, the same concept applies to lower returns and longer periods of time.
I am certain that there are similar stories in many cultures. What version of this story have you heard?
Brian Hock, CMA, CIA
It is only about two weeks into 2021 and I expect that many New Year’s resolutions have already been forgotten and abandoned. Whether it was to lose weight, study more, or quit smoking, many of us have probably already given up on our resolutions. Perhaps we’ve told ourselves that we will stick to them longer in 2022.
Instead of short-term resolutions that do not last very long, wouldn’t it be nice to have a resolution that could change not only your life, but also the life of the generations that follow you? I have made one such resolution this year, which is to leave a legacy that will allow my income to continue forever for generations following me. This is nothing more than a savings plan, but it is a savings plan that is not for me, but for my children, their children, their children, and so on. It is essentially a family endowment fund that will last for generations. The best news about this resolution is that it is not as difficult as you might think.
We are all familiar with the idea of saving for our retirement. Whether it is a government pension plan, a company plan, our own personal plan, or some combination of these, we are all aware that we are saving (or that we should be saving). Unfortunately, statistics show that many people do not have enough set aside for their own retirement, and now I am suggesting that people save for their great-great-grandchildren? Before dismissing this as impossible, let’s look at some numbers.
(A preface to the numbers: I know that people in different countries have different rates of return available to them. The US stock market has had an annualized compound annual growth rate of 7.47% from 1950 through 2013, and because I live in the US, these are the numbers that I have to work with.)
Let us assume for the purposes of this example a more conservative 6% annual return on investment. This means that in order to have your annual salary be the annual return of a retirement fund, you need to have 17 times your annual salary saved when you retire. If your annual salary is $40,000, then you will need $680,000 saved when you retire.
How do you get to $680,000? Any financial calculator will help you do the math, but if you have $0 saved now and you invest $131 a month for 50 years at 7%, you will have $683,798.19 after 50 years. Then, for every year after that, your children and grandchildren will have $40,000 of annual income, forever. The best part is that $131 a month is less than 4% of a $40,000 annual salary.
Now, let’s change the time frame and look at it from the standpoint of a gift that you can give your children starting when they are born. If you start saving $100 a month for a child when the child is born, that $100 a month at 6.2% for 65 years will be worth $1,005,114! With just $100 a month, your child can be a millionaire when they retire. If we are more optimistic (though perhaps somewhat unrealistic) and use a 9% return, then that same $100 a month will be worth $3,921,762 when your child is 65.
You can also use this plan to help teach your child about saving. If you put $100 a month away for 16 years at 7%, it will be $35,808 when your child turns 16. When your child gets their first part-time job, let’s say that they will start helping pay the $100 a month by paying $10 of it. After they finish college and get a job, you can have them contribute $25 a month, and as they get older increase the percent that they pay increases until they are paying all of it. They will have learned from an early age that saving is the best insurance for the future and will continue to make the payment. Then, when they turn 65, they will have $1.4 million, assuming a 7% average annual rate of return.
I understand that not everyone has access to a consistent 7% return, and that $100 per month may not be realistic in some economies. But also consider that in an economy where salaries are smaller, a smaller amount is needed to be able to generate your annual salary. As a percent, if you save 3% of your salary every month and invest it at 7.2%, you will have a principal that will generate your annual salary in 50 years. Or, at a 6.2% annual return of return, if you save 5% of your salary every month you will have a principal that will generate your annual salary in 50 years.
I invite you to use a financial calculator and play with the numbers. When you do the math, you too may decide to make a resolution that will last for generations.
Brian Hock, CMA, CIA
Reading for Experience
To be a leader in a company or any organization, you will most certainly need to have both knowledge and experience. If you have knowledge but no experience, you are not going to be able to apply your knowledge to a specific situation because you will lack the experience that shows you what else is connected to a specific decision, and perhaps even your lack of experience will prevent you from identifying what you do not know but need to find out. If you have experience but not knowledge, you may be able to see a larger picture, but you will not have the technical expertise to know specifically what to do in that situation.
The good thing about knowledge is that you are largely in control of what you learn and keeping your knowledge current. A professional certification is one of the ways that you can learn the skills you need in your profession, demonstrate to others that you have mastered these skills, and also keep your skills current through the CPE requirements.
And while you are able to control your knowledge of level, the experience is something that you can gain only through time. Of course, you can put yourself into situations that will provide you with relevant experience and expose you to good leadership, but you cannot get 10 years of experience until you have worked for 10 years. There is a theory that a person needs to do something for 10,000 hours in order to become a master. If this is the case, then there are no shortcuts to working at something for 10,000 hours. (I will write about the importance of persistence separately.)
How to speed up the process of gaining experience
However, I believe that there is something that you can do to speed up the process of gaining experience. Other people already have experiences that you do not, so, if you can learn to access that experience that others already have gained, you can take some of that as your own. One way to gain experience from others is to listen to them. Listen to others at work who have more experience than you do. Listen to others in your life who have more, or different, experiences from your own. By listening to others, we can learn a bit of their experiences and take some of their wisdom that has come from their experiences and make it our own. My experience shows that most people are more than happy to share their stories and experience with anyone who listens intently. I remember a breakfast that I used to attend that was mostly attended by men in their 70’s and 80’s. The stories they told about their lives in the 40’s and 50’s and 60’s were amazing.
Another way that we can expedite getting our experience is by reading. When we read, we can listen to people from any area, any background, any culture, and any profession. And through reading what these people, places, cultures, and experiences, we can make a little of them into our own. Of course, reading is not the best way to gain experience, but it is better than simply waiting for experience to find you.
Reading is something that I do a lot of, and I wish I could do even more. I try to read fiction, nonfiction, business books, faith-based books, and books about life in general. Almost every night, I read before I go to bed, and ideally at least one other time during the day. And I am always in search of good books to read. Since my post about personal diversification in 2021 resulted in so many comments and emails, I thought that I would share a list of books that I have read in the past year or so that I thought were especially useful and/or enjoyable. I have tried to provide books from different areas to try to provide at least one book that you might find useful or enjoyable. So, with that as the introduction, here are some books that I have recently read that I recommend:
The Infinite Game, by Simon Sinek
The StoryBrand, by Donald Miller
Bad Blood, by John Carreyrou
Life Skills Books
Who Moved My Cheese, by Spenser Johnson
Atomic Habits, by James Clear
The Five Love Languages, by Gary Chapman
Just Mercy, by Bryan Stevenson
The Body, by Bill Bryson
21 Lessons for the 21st Century, by Huval Noah Harari
The Library Book, by Susan Orlean
Doing Justice, by Preet Bharara
Because tastes in fiction are so different, I hesitate to recommend any fiction books. I enjoy reading historical fiction (David McCullough and John Jakes) and political/espionage books (Tom Clancy). My wife, Yulia, just read The Silent Patient by Alex Michaelides, and she gives it her highest recommendation. It will be the next fiction book that I read.
If you are a reader and you are looking for a good book to read, I hope that one of these above gives you an idea. If you are not a reader but would like to start, I think any of these books above would be a good read that would be well worth the time it takes to read. Remember, as you read, you are making part of someone else’s experiences and making them your own. And it is this experience that will help make you an effective leader in any organization you are part of.
Brian Hock, CMA, CIA
You may also like: Personal Diversification
Properly Diversified Investment Portfolio
Any investment adviser will tell you that an investment portfolio needs to be properly diversified. This will help to ensure that your entire portfolio will not go down at the same time. With a diversified portfolio, when one investment is down, other investments will be up, and vice versa. By making certain that all of your investments do not go up and down together, diversification does two things:
- It reduces the chance of having a large decrease in your portfolio value, and
- It reduces the chance of having a large increase in your portfolio value.
Diversification smooths out the highs and lows in the returns of your portfolio.
How To Diversify Our Lives?
Just like an investment portfolio should be diversified, we should also make certain that our own careers and lives are diversified. By this, I mean that we do not want to have the success of our future career to be dependent upon only one factor. Whether it is a key relationship with someone else, or the reliance on a specific skill being needed in the future, or continued employment with a certain company, if your career success is connected to only one factor, you are at great risk. Because if that relationship ends, or that skill is no longer need, then your career will suffer great decline. In your life, if you are dependent on just one thing in order to be happy, you run the risk of great loss in your life. Whether it is your work, a hobby, your spouse, your kids, or anything else that is the only source of your happiness in life, if you have only one area of interest in your life, you are fully dependent on that one thing to be happy. If it is a person (your spouse, for example), your reliance on that person also puts a tremendous amount of stress on them because they are responsible for your happiness.
By having multiple interests and sources of happiness in life, and by having multiple skills and ways that your career can be successful, you can increase your chances that you will have success in your career and happiness in your life. It is unlikely that all of your skills will not be needed in the future or that something will happen to all of your relationships. And with multiple hobbies, relationships, and activities in your life, there will always be some part of your life that will bring you joy and comfort.
Diversification in 2021
As the tumultuous year of 2020 ends and we start 2021, now is a good time to take a look at both our careers and our lives overall and ask ourselves if we are properly diversified. For many of us, 2020 brought us change and challenges that we did not expect when the year started. So, we know that there will be change again in the future – whether it is in 2021 or a bit later. Now is the time to assess whether we have multiple skills and elements in our career that will enable us to survive a change in the company we work for, a change in the industry we work in, or a change in the larger economy. In our personal lives, do we have different activities, relationships, and hobbies so that we do not have to rely on any one thing or person? If we look at this honestly and determine that we are too reliant on one or two skills, people, or relationships in either our career or our personal life, let us make one of our goals for 2021 to be to diversify. This diversification will help us weather whatever it is that 2021 brings to us.
Brian Hock, CMA, CIA
You may also like: Slowly, and then all of a sudden!
Over the years I have been asked several common questions about preparing for exams, and hope that this will be helpful for candidates considering taking a professional exam.
What exam should I pursue?
The best exam for you is the one that will help you the most in your career. So, you should ask yourself what you want to be doing in five years and what you need to do to make that happen. Keep in mind that you may also need to do something other than get a professional certification. As a general rule of thumb, here is how I look at the best market for each of the main US certifications:
- CIA – If you are, or want to become, an internal auditor you take the CIA exams. CIA is also an excellent second certification for CMAs.
- CPA – If it is required for the position that you would like, or you are wanting to work as an auditor for the Big 4, CPA is probably what you need. However, the requirements to be eligible for the CPA Exam are much more difficult than the other exams. Be certain to confirm your eligibility for the CPA Exam before you start the study process.
- CMA – This is the best certification for most candidates who do not want to work as an auditor, but instead want to work for a company as an accounting or finance professional. Anyone who works with a budget, as an accountant, as a manager in a company, in finance, or who would like to start a business would benefit from earning the CMA Certification.
- CFA – This is the certification (actually a Charter) for individuals who want to work in investment banking.
What is the most difficult Exam Part?
Obviously, this depends a lot on your background and experience, but a couple of exam parts that are usually more difficult are CIA Part 3 and CPA Regulation.
CIA Part 3 is difficult just because there is so much content in it. Even though none of the topics are difficult and none of the topics are tested in great depth, the breadth of material that needs to be learned makes the exam difficult.
CPA Regulation is difficult because it covers US Business Law and US Taxation, and for many candidates (even in the US) Regulation covers topics that they will never use. Furthermore, the nature of business law and taxation are such that the material requires memorization because there is not always an underlying logic that makes things easily understandable.
What is the one thing that I can do to most improve my chances of passing an exam?
The most important thing that you can do to improve your chances of passing an exam is knowing why you are taking the exam. Whether it is to improve your knowledge, earn the certification, or to make more money (the most common reason), if you know why you are taking the exam, you will be able to pass the exam. If you do not know why you are taking the exam, it is very probable that you will never pass. The reason is because passing the exam requires dedication over several months and it means that you need to study in the evening after a day of work, on the weekends, and when you would rather be doing something else.
What is the next thing that I can do to improve my chances?
Other than the obvious things like reading the book and doing practice questions, the next thing that you can do to increase your chances of passing is to ask questions. When you come across something that you do not understand, ask your provider. At HOCK we provide unlimited support to candidates who are using our materials, so if there is something that you do not understand, ask us. Chances are that we will be able to answer your question quickly and fairly easily for you, and much more effectively and efficiently than you could answer it if you were to try to learn it on your own. Let us help you prepare – that is why we are here. If you bought materials from another provider, ask them. They should be able to answer all of your questions.
How can I tell when I am ready for the exam?
There are a number of indicators that you can use to assess when you are ready, and like most decisions there are quantitative and qualitative factors to consider. The factors include:
- How you are doing when you take practice questions – you want to be 15% or more higher than the passing score because these are questions you have already answered;
- The result on your mock exam(s) – ideally you will be at least 5% above the passing score for your exam;
- How you feel when answering the questions on the mock exam. While it is nice to know what your score on the mock exam is, only you know how comfortable and confident you were and how many questions you had to guess on, or were uncertain about your answer.
If you know 75% of the material and there were 8 questions that you guessed on, your score would be between 67% if you guessed poorly, and 83% if you guessed perfectly. Those two different scores would give you different feedback about your readiness for the exam.
If you are able to answer the questions on the mock exams easily and comfortably and you feel that you could explain why the correct answers are correct, then you are ready for your exam.
How did you study for the exams when you took them?
I have passed the CPA (even though I do not have a CPA license), CMA, and CIA Exams. For all of them I self-studied. I passed all of my exams the first time except for CPA Regulation, which I passed on my second attempt.
Which exam is the hardest: CMA, CIA, or CPA?
This is a common question, but there is no one correct answer because is too specific to each candidate for there to be one answer. All three exams have about the same pass rate, so using that as an indication does not provide much help. For people who like formulas and numbers, CMA has more of that than CIA does. For people who do not likes taxes, the CPA will be the hardest because of the tax section. The key for making any exam easier is to be certain that you are taking the exam that you need to be taking, which will keep your level of motivation high so that you will put in the time to study.
Can I prepare for an exam by doing only practice questions?
No, you should not try to pass any exam by only answering practice questions. While the practice questions are a critical part of preparing, they are not enough by themselves. The practice questions show you how a topic has been tested in the past, but the questions on your exam will be different than what has been asked in the past. Therefore, you need to know more of the theory than you learn just from practice questions. Additionally, while there is some important learning that takes place when you miss a question and have to learn why you missed it, learning through missed questions is a very inefficient way to learn. It is much better to have a basis in the theory (from textbook or videos) so that there is something to build on when you miss a question.
What is the difference between the textbook and videos? Do I need both?
The obvious difference is in how they teach. Different people learn differently, so you will learn more from the method that works best for you. The videos cover the entire syllabus, but do not include every detail that is in the textbooks. The textbooks cover more details and exceptions to the rules than the videos. If you study primarily with the videos (and the practice questions, of course) you should be able to pass the exams. I say your “primarily” because even if you use the videos as your main study tool, you will still need to refer to the textbook for some topics that you do not fully understand from the videos.
One way that I sometimes describe it is that if you want to win an award for the highest score on the exam, you need to know everything in the textbook. If you want to comfortably pass the exam, focusing on the videos as your primary learning tool is fine.
What makes HOCK materials different than other materials?
I think that there are a few ways the HOCK materials are different than our competitors, confirmed by the reviews and feedback from our students.
- Our materials are not just “Review” materials. We do not assume that you have studied all of these topics in school and therefore only need to review them. Our materials have more explanations, more details, and more examples than the competitors. This does lead to our textbook being longer, but we continue to stay focused on the syllabus in all of our materials.
- Our explanations of correct and incorrect answers in our question bank are better and more helpful. Sometimes knowing why a specific answer choice is incorrect is just as important as knowing why the correct choice is correct. We have complete explanations for not just correct answers, but incorrect answers as well.
- We provide quick and unlimited support, and we answer every question that we receive from students studying with HOCK. We almost always respond the same day that the question is asked and for most candidates any delay in a response is due to time differences. It is worth mentioning as well that the support that you get from HOCK is usually from the authors of the textbook – this ensures that you get accurate answers that address what you need to know on the exam.
- We are the only company to provide a guarantee that pays for you to retake your CMA, CIA, or CPA exam if you fail after studying using our materials. While some companies may offer a partial refund, or give you extended access to the materials, your goal is passing the exam. I believe that materials should be such that if you use them, you will pass. And that is what the HOCK “You Pass or We Pay” Guarantee does – if you watch the videos and do the review quizzes and mock exams (this is how we confirm that you have actually studied), and do not pass the actual exam, HOCK will pay your fees to take the exam again. We are asked if we actually make the payment, and the answer is yes, we do, but not very often because if you do study our materials following our study plan, you will be prepared to pass – comfortably and confidently.
I hope that you have enjoyed this Q&A. If you have any other questions about preparing for the exams please contact us and we will be glad to help.
Brian Hock, CMA, CIA
Brian Hock gives advice about how to overcome some of the stress that candidates feel on the essays and problems on the CMA Exam:
Check out more CMA Exam study tips from Brian Hock.
How to Make a Good Guess Quickly
On the CMA and CIA Exams, it is important to answer every question, even if you have to guess. One of the reasons for this is because there is no penalty for an incorrect answer.
However, rather than just randomly guessing from the 4 choices, sometimes you can quickly narrow your choices down to three or even only two possibly correct answers. Having a 33% or 50% chance of guessing the answer correctly is better than 25%!
Watch the video to learn the words to keep in mind as you make a quick educated guess, and other tips from Brian Hock.
If you are already a CMA, CIA, or CPA Exam candidate, you may be interested in more study tips from the HOCK team. If you haven’t started studying yet, check out today’s deals and get unlimited access to the HOCK materials.
Brian Hock talks about the need to answer every question on the CMA and CIA Exams and the strategy to use for long and difficult questions.
Do you know how is the CMA and CIA Exam scores are determined? Learn everything you need to know!
Brian Hock talks about the idea of “slowly and then all of a sudden.” This expression is used to describe how someone falls asleep, and was used by Mark Twain to describe how he went bankrupt. Brian sees a lot of similarities between this idea and how CMA, CIA, and CPA students learn some of the exam topics.
In this video, Brian also shares his personal experience of sudden understanding with the statement of cash flows almost 25 years ago.