If you throw all the products we buy and the services we use in one basket, then add up the price tag, that's the Gross Domestic Product, which is the primary metric economists use to assess the economic health of a country or region.

The easy part of calculating GDP is the calculation itself: C+I+G+(X-M)=GDP. Got it? No? Well, add Consumption, Investment by companies, Government purchases, and then take the product of eXports (calling it 'E' would lack sexiness) minus iMports ('I' was taken). Viola! GDP.

Still don't get it? Well, knowing the components helps. Consumption is the biggest component, and it's a tally of the cost of all the goods and services we buy. Investment is what companies spend on the real assets they own, plus the value of the inventory that we haven't gobbled up through consumption. Government purchases are what the Feds pay money for (whether it be highways or fighter jets, though big social programs, like welfare, aren't counted). And then we calculate the difference between the goods and services we¿re sending to other countries and the stuff we're bringing in.

Good. That explains it, except there's a catch. Inflation has a habit of distorting the numbers, so economists talk about either Nominal GDP or Real GDP. In fact, Real GDP isn't necessarily "real" for most folks, since it takes any inflation out. Nominal GDP includes the effects of inflation. (There's something called the implicit price deflator which is a calculation using the two, but we'll spare you the details.)

So, now that we know GDP, why do we want to? Well, it's good to compare different markets. And watching the trend shows whether a given economy is growing (good), stagnating (not so good), or shrinking (very not so good). When GDP goes down two quarters in a row, we're officially in a recession.

For the record, GDP is released at the end of each month, with most reporting ¿preliminary¿ data for the previous month. But you won't get final GDP numbers for the fourth quarter of a year until the very end of the first quarter of the next year. After all, it's not an easy number to calculate.

Home / Personal Finance / Financial Planning / College & Education

Monday, August 25, 2008

Ten Top Money Ideas for College Freshmen -- and Their Parents

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Andrea Coombes

MarketWatch

SAN FRANCISCO--If you're about to start your freshman year in college, you're likely fretting over the homework load and how to avoid embarrassing yourself in front of your classmates. Meanwhile, your parents' fears as you take this major step toward adulthood are running as rampant as their imagination will allow.

But now that the first tuition bill is paid, the one thing likely neither you nor your parents is focusing on is money. You should.

Here's one reason why: Almost one-fourth of undergraduates had credit-card debt in excess of $3,000, according to a study of students' credit histories in 2004 by loan provider Nellie Mae. That's a big chunk of money to owe on an entry-level salary, and worse if you're paying off student loans too.

To start your adult life on the best financial footing possible, consider these 10 rules while you're in school.

Be specific about finances. Talk with your parents about who is paying for what, and how. When he asks students who is paying, for instance, for their semester of study abroad, many college students have no idea, says David Robinson, a senior lecturer who teaches a personal-finance class at the University of California at Berkeley. Not knowing specific details can lead to unrealistic expectations. And, parents, if you're struggling with your own personal finances, discuss your situation with your student. If you're worried about looking bad in your child's eyes, get over it. She already knows you're not perfect.

Create a budget. Come up with categories, estimating a monthly spending amount for each. Note to parents: Help your kids with this, but don't be judgmental. "It's really helpful for [the students] to come up with their categories," says Susan Bruno, a personal-financial specialist in Rowayton, Conn. Your budget may change once you're on campus, so revise as needed. Agree now to send a weekly email update to your parents -- it'll remind you to track your spending. Set up accounts (and pay attention).

Create a checking and savings account. Even if the balances are low, this will help you get the hang of balancing a checkbook. Once a week, before your daily visit to Facebook, visit your accounts online. Check to ensure that transactions are yours -- sad to say, but identity theft does happen and surveys find young adults' "friends" often do the stealing. This is another good time to see whether your spending is within budget.

Learn from mistakes. It's inevitable: You will trip up with your finances -- just ask your parents! -- and those errors may cost you money. Don't beat yourself up. Figure out where you went wrong, and move on. Credit-card late fees are a common problem. Gerad Soman, a senior at Loyola University Chicago, solved it by setting up automatic payments from his bank account.

Practice with plastic. First off, realize that it's possible to live your life without credit cards. Many people do. That said, if you decide credit cards are a good idea in case of emergencies or to create a credit history, then start slowly. Craig Watts, spokesman for Fair Isaac Corp., creator of the FICO credit score, says his three teenage boys started with gas cards (the type that work only for gas). "They had to pay those bills. That teaches kids in a hurry," he says. Or, become an authorized user on a parent's account, with an agreed-upon maximum limit. (Note that the latest FICO model gives fewer "good credit" points than older versions did to such piggyback users, Watts says.) Or, get your own card with a low limit to ensure you don't overspend.

Always pay your full balance monthly. One smart way to keep track is to enter every credit-card charge into your checkbook as though it's a check.

Work part time. It's nice if the job is somehow related to your career goals, but even if it isn't, work anyway. "It gives them a little structure [and] it teaches them some responsibility and gives them some experience handling money," says Gary Buffone, founder of consulting firm The Family Wealth Resource in Jacksonville, Fla. Some universities advise freshmen to delay employment, so check with your adviser first.

Educate yourself. If your school doesn't offer a personal-finance class, then take an accounting class. Soman says doing so "taught me about balancing assets and liabilities."

Just say no. There will be times -- when friends head out for a nice dinner, say -- when you desperately will want something you cannot afford. Practice resisting the urge to spend anyway, says Robinson, the UCB lecturer. In his personal-finance class, he instructs students to imagine their friends are going snowboarding in Lake Tahoe next weekend. "I get 250 kids to stand up and say out loud, 'I'm sorry, that sounds lovely but I just can't afford it,"' he says. With a clear budget, you'll know whether you can afford the trip or not.

Start a Roth. If you work, ask your parents whether you can borrow $4,000 to fund a new Roth IRA. Then pay them back over time, says Linda Lubitz, president of the Lubitz Financial Group in Miami. She says one client's college student is doing just that, and doesn't yet know the parents are putting the money aside to surprise the student upon graduation. Note that you can't put more than your taxable compensation into a Roth, up to an annual maximum of $4,000.

Learn how to cook. Eating out is one of the fastest ways to bleed money, so learn how to cook. Soman's dad taught him over the phone how to barbeque food. "Ever since then I'll buy food early in the week," he says. "I'll do one big BBQ of steak and chicken and it'll last me about a week."