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how do you become a social entrepreneur | you can become a social entrepreneur by considering who you want to help and what problem you want to solve once you have a targeted idea it s often best to gather resources understand where your limitations are and decide what external parties you want to help craft the enterprise | |
how do social entrepreneurs make money | social entrepreneurs raise capital for their enterprises by connecting with other members of the community community does not necessarily need to mean physical location as some enterprises may collaborate around the world for a common social cause a social entrepreneur may collect grants upfront donations from major donors in exchange for public recognition or use personal capital | |
do social entrepreneurs pay taxes | it depends social entrepreneurs are usually not personally exempt from paying taxes this means that almost all individuals are taxed on the income they make regardless of whether or not the enterprise they work for is a social enterprise on the other hand most social entrepreneurs incorporate their enterprises as non profit entities so their enterprises can operate tax free the bottom linesome people craft a business to make a lot of money other times people start an enterprise for social good the latter type of individual is called a social entrepreneur and they often start by identifying the people and problems they want to help though there are many similarities between a social venture and a full for profit enterprise the core difference is that a social entrepreneur prioritizes the good it creates for its community or recipient base | |
what is social justice | social justice refers to a fair and equitable division of resources opportunities and privileges in society originally a religious concept it has come to be conceptualized more loosely as the just organization of social institutions that deliver access to economic benefits it is sometimes referred to as distributive justice 12social justice is a broad term and there are many variations in how advocates apply the perspective however social determinants like the racial wealth gap or inequitable access to health care feature heavily in social justice analysis some applications related to social justice such as critical race theory have become a battleground for american politics understanding social justicethe phrase social justice draws its roots from christian theology with the first noted use occurring in the early 1840s in theoretical treatise on natural law by luigi taparelli taparelli was an italian jesuit priest writing during the rise of risorgimento a 19th century italian nationalist movement and debates around the unification of italy taparelli s version of social justice was simply an application of justice to social affairs and held that people should do what s right based on a conceptualization of morality based on natural theology and religion and for much of its history social justice has been a religious concept 3not all notions of social justice emphasized religion though with the social impact of the industrial revolution the term grew later theorists would focus on social justice as a moral obligation for people within a society to work for the common good the most famous example is discussed below the term which has been historically contentious has become more popular since the end of the 20th century some scholars point toward the neoliberal policies of the margaret thatcher and ronald reagan administrations as a possible reason for this change though the phrase is attributed to luigi taparelli social justice builds on older concepts taparelli relied heavily on the work of catholic theologian thomas aquinas who was relying on the work of the macedonian philosopher aristotle 34one of the most influential explorations of social justice comes from the 20th century american philosopher john rawls in a theory of justice 1971 which he labeled as a theory of social justice rawls outlined his vision of justice as fairness for rawls this meant that people ought to consider the rules for a fair allotment of social goods within a society as well as the levels of inequality that can be allowed within a society rawls famously used the concept of a veil of ignorance a pretense of ignorance about where one will end up in any given society that rawls thought ought to be used to arrange society as well as the principle of difference which holds that social and economic inequalities can be acceptable if they benefit the whole of society the basic element of fairness is crucial especially in the access to social resources sometimes called social goods while it may sound abstract how social goods are distributed is immensely impactful importantly the social determinants of outcomes are considered central to whether or not a system is just 5in public health for example the place of birth can alter what health care options a person has and therefore also how long that person lives to account for this social justice advocates in healthcare might focus on extending the probability that people will be healthy despite resource inadequacies they may face for historical or economic reasons main principles of social justicewhile there is no single definition of social justice most approaches share the broad goals of inclusion and fairness in order to achieve those goals they establish a set of ethical principles for a just society these principles may include equal access to social goods is one of the most fundamental principles of social justice this holds that society s resources should be equally available to all for example many social justice theorists believe that people should have equal access to education health care and employment opportunities public servants can uphold this principle by ensuring that everyone has access to these resources 6equity is the principle that people should have the same opportunities to succeed despite any past injustices or systemic discrimination this may mean that resources are distributed in a way that addresses the specific needs of underprivileged communities or people 6diversity is the principle that government and business leaders should be broadly representative of the communities they serve this means that not only should there be women and people of color in positions of power but also that minority communities should be equally represented in public institutions on a policy level this principle may entail prohibitions on discrimination or providing resources in multiple languages 6participation is the principle that everyone in a community should have a voice in making important decisions in many societies public policies are set by a small group of powerful people without consulting the communities they represent this may have the unintended effect of excluding a large part of the community public policymakers can address this shortcoming by consulting the advocates of minority communities and considering their needs 6the final principle of social justice and arguably the most fundamental is human rights in addition to political rights such as freedom of conscience it also requires freedom from police abuse and respect for one s reproductive rights and bodily autonomy 6careers in social justicethe most common jobs relating to social justice are related to public administration and social work since these occupations deal directly with providing access to social and government resources people who work in these professions should be conscious of the explicit and implicit biases that may reduce access to these resources for some members of society but it is also possible to advocate for social justice in other fields for example lawyers can help ensure equitable access to the justice system by representing clients who are traditionally underserved by existing institutions and lobbyists can push for legislation that addresses community injustices other social justice oriented occupations include mental health workers victim advocates and community developers 7areas of focuswhile social justice seeks to ensure equality and fairness for all it may focus on those groups that have been the victims of historical oppression the following are some areas of focus for social justice workers racial equality is one of the most common issues in social justice and many countries have a history of discrimination or oppression of minority ethnic or racial groups members of these groups may be at an economic disadvantage or suffer from unequal access to education health services or other essential institutions 8almost every country suffers from some sort of gender inequality whether in the form of wage gaps glass ceilings or other forms of gender based discrimination in addition women are also more likely to suffer from violence or sexual assault or face threats to reproductive rights gender equality also affects other rights such as racial equality many social justice advocates consider this a key aspect of social reform 8starting in the 20th century lgbtq rights emerged as another issue for social justice advocates members of the lgbtq community face high levels of violence and discrimination and may be denied access to healthcare or employment 8equity vs equalityalthough they are both related to the distribution of social goods and privileges within a society equality and equity have taken on slightly different meanings in conversations around social justice equality in this context means that people are given the same access to opportunities regardless of historical or other forms of injustice that may alter how much someone can access those opportunities equity in contrast tries to account for an imbalanced social system by providing the resources to create an equal outcome 9it is social justice s adoption of equity that most of its critics focus on but those in favor of the concept suggest that equity is a vital part of ensuring a just society paula braveman a researcher at the university of california san francisco for instance has commented that health equity and social justice in health are interchangeable the goal of social justice in health care she implies is that no one is denied the possibility to be healthy for belonging to a group that has historically been economically socially disadvantaged 10social justice in lawin law social justice perspectives have become a touchpoint for the american culture wars critical race theory crt an approach to law that actively seeks to account for how racial prejudices affect legal outcomes has drawn particular outcry the term was developed by american legal theorists such as kimberl crenshaw to analyze how racism is advanced by american legal structures even in some cases in the absence of racist individuals central to crt is the notion that race is not validated by science and that the law has maintained an unjust order 11detractors of critical race theory have claimed that it is merely a way of permitting discrimination according to the brookings institute a public policy think tank opponents of critical race theory tend to view the claim that american institutions are racist as a way of accusing white people of being individually racist rather than as an attempt at broad analysis about the effect of institutions on social outcomes 12campaigns against crt have become increasingly vocal in state legislatures across the u s with many banning its teaching in primary and secondary schools to date 36 states have moved to install legislation to ban teaching about racial bias in the u s and 17 have moved to expand that teaching according to a state legislative tracker created by chalkbeat a nonprofit newsroom focused on the american education system 13in 2020 president donald trump had also forbidden diversity and equity training from federal contracts which has been described as an equity gag order that executive order conflated diversity training and crt calling both divisive the ban was reversed in 2021 14 | |
what does social justice mean | social justice is the belief that the social benefits and privileges of a society ought to be divided fairly | |
why is social justice important | advocates say that social justice is worth pursuing because it defends people from suffering deprivations due to unfair prejudices and because it tries to provide everyone with the essentials for a good life 15 | |
how is social justice related to equity | the concept of equity focuses on outcomes it s related to the belief that social determinants massively affect how people s lives turn out and that therefore a truly fair arrangement of society will account for the tangible ways that this harms socially and economically disadvantaged groups the bottom linesocial justice is a political and philosophical movement aiming for a more division of resources and opportunities by addressing historical injustices and directing resources to underserved communities social justice advocates hope to establish a more fair and equal society | |
what is social media | social media refers to a variety of technologies that facilitate the sharing of ideas and information among their users from facebook and instagram to x formerly twitter and youtube more than 5 billion people use social media equal to roughly 62 of the world s population 1 in early 2024 94 7 of users accessed chat and messaging apps and websites followed closely by social platforms with 94 3 of users 12 | |
how social media originated and evolved | social media started out as a way for people to interact with friends and family but soon expanded to serve many different purposes in 2004 myspace was the first network to reach 1 million monthly active users 3social media participation exploded in the years that followed with the entry of facebook and twitter now x businesses gravitated toward these platforms in order to reach an audience instantly on a global scale according to global web index 46 of internet users worldwide get their news through social media that compares to 40 of users who view news on news websites gen z and millennials were most likely to view news on social sites vs other generations 2social media plays a key role in many businesses marketing strategies not surprising given the sheer number of hours people spend each day on social websites and apps at the same time social media is an ever changing field with relatively recent apps such as tiktok signal and clubhouse joining the ranks of established social networks like facebook youtube x and instagram in june 2024 surgeon general dr vivek murthy urged congress to put labels on social media apps as it does with cigarettes and alcohol citing the threat that social media poses to children 4 | |
what social media is used for today | social media platforms are often divided into six categories social networking social bookmarking social news media sharing microblogging and online forums these diverse platforms serve a vast range of purposes and user interests some appeal to hobbyists others to people in their work lives people use them to find others around the globe who share their political or other views entertainers use social media to engage with fans politicians with voters and charities with donors governments often turn to social media to convey vital information during emergencies for businesses social media has become a key marketing tool companies use it to find and engage with customers drive sales through advertising and promotion identify fast moving consumer trends provide customer service or support and collect data on users sometimes surreptitiously percentage of internet users ages 16 to 64 who visited a social networking site in the past month 1pros and cons of social mediasocial media platforms allow people to access information in real time to connect with others and to find niche communities at its best it makes the world more interconnected on the other hand social media is also very good at spreading disinformation creating polarization and even causing harmful psychological effects still according to a 2019 survey by the pew research center people s use of social media is correlated with having more friends and more diverse personal networks especially within emerging economies 5 some 80 of teenagers say social media allows them to feel more connected to their peers according to a 2022 pew research center survey of u s teens ages 13 to 17 overall one in three said that social media has had a mostly positive effect on them while 59 said it had neither a positive nor a negative effect 6at the same time many teens use and overuse of social media has raised questions about its effect on their physical and mental health by distracting them disrupting their sleep and exposing them to bullying rumor spreading unrealistic views of other people s lives and peer pressure as the mayo clinic notes 7businesses meanwhile have found social media to be an often effective and relatively inexpensive way to reach consumers and build an image for their brands according to facebook more than 200 million small businesses use its service for various purposes 8 separately close to 90 of marketers say they use facebook for promotion 9in 2022 social media and search advertising spending made up roughly 55 of overall ad spending globally it is also the fastest growing category across advertising channels 10the top 10 social media platforms worldwidethese were the most widely used social media providers as of january 2023 according to datareportal interestingly two that are especially well known in the united states x and pinterest didn t make the top 10 list globally x was 14th with 556 million users worldwide while pinterest was 15th with 445 million 11 | |
what is the most popular social media | globally the most popular social media site is facebook with close to 3 billion users according to one recent estimate 11 | |
how much time do people spend on social media | internet users ages 16 to 64 worldwide spent a daily average of two hours and 31 minutes on social media as of late 2022 according to datareportal which adds that social media now accounts for its greatest ever share of total online time with almost four in every 10 minutes spent online now attributable to social media activities 11 | |
what is social media marketing | social media marketing is the use of social networks as a sales and marketing tool companies with products or services to promote can go beyond traditional advertising to build an online presence and engage directly with their customers in particular social media marketing has opened up opportunities for local businesses to reach out to potential customers without spending a fortune on ad placement the bottom linefor better or worse social media has reshaped our lives capturing more than 5 billion users worldwide and counting from a business perspective it has also revolutionized commerce and seems likely to continue to do so | |
what is social networking | social networking refers to using internet based social media sites to stay connected with friends family colleagues or customers social networking can have a social purpose a business purpose or both through sites like facebook x formerly twitter instagram and pinterest social networking is also a significant opportunity for marketers seeking to engage customers facebook remains the largest and most popular social network with 2 billion people using the platform daily as of feb 1 2023 1 other popular platforms in the u s are instagram x whatsapp tiktok and pinterest | |
how social networking works | social networking involves the development and maintenance of personal and business relationships using technology this is done through the use of social networking sites such as facebook instagram and x these sites allow people and corporations to connect with one another so they can develop relationships and share information ideas and messages family members and friends can reconnect and remain connected through personal social networking sites like facebook they can share photos and status updates on everyday or important life events people can also connect with unknown individuals who share the same interests goals or experiences individuals can find each other through groups lists and hashtags an indexing function that groups topics marketers commonly use social networking to increase brand recognition and encourage brand loyalty social media marketing helps promote a brand s voice and content it can help make a company more accessible and prominent to new and existing customers for example a frequent x user may learn about a company for the first time through a news feed and decide to buy a product or service the more exposed people are to a company s brand the greater the company s chances of finding and retaining new customers marketers use social networking to improve conversion rates building a following provides access to and interaction with new recent and longtime customers sharing blog posts images videos or comments on social media allows followers to react and engage visit a company s website and become customers major social networking platformsfacebook is a social network that allows users to connect with people businesses and organizations they can post updates and respond to the posts of others they can share photographs and links to online content users can chat live and upload and share videos users can also communicate directly with each other via facebook messenger they can join groups with similar interests and be notified of friends activities and pages they elect to follow facebook was designed to be open and social however while the platform encourages publicly available content it also has privacy controls that can restrict access to for instance friends facebook was created in 2004 by mark zuckerberg while he went to harvard university today it is owned by meta platforms of which zuckerberg is ceo facebook is the world s largest social network with about 2 billion daily active users 1instagram is a social network that focuses on sharing visual media like photos and videos it s similar to facebook in that users create a profile and have a news feed it allows them to upload media that can be edited with filters and organized by hashtags and geographical tagging posts can be shared publicly or with followers users can browse other users content view trending content and follow others additionally they can add the content others upload to their personal feed over time instagram has added new features such as instagram stories instagram reels and access to shopping like facebook instagram encourages users to keep their content publicly accessible and lets them set access to approved followers only instagram has its own direct messaging feature in addition facebook messenger has been incorporated by instagram so users can direct message facebook contacts while on instagram instagram was founded in 2010 by kevin systrom and mike krieger in 2012 it was acquired by meta formerly facebook instagram boasts 6 18 billion visits per month 2x is a social network that allows people to communicate with short messages called tweets the social platform limits tweets to 280 characters users publish posts formely tweets that may be useful interesting or even inflammatory for readers | |
what is social networking | social networking refers to using internet based social media sites to stay connected with friends family colleagues or customers social networking can have a social purpose a business purpose or both through sites like facebook x formerly twitter instagram and pinterest social networking is also a significant opportunity for marketers seeking to engage customers facebook remains the largest and most popular social network with 2 billion people using the platform daily as of feb 1 2023 1 other popular platforms in the u s are instagram x whatsapp tiktok and pinterest | |
how social networking works | social networking involves the development and maintenance of personal and business relationships using technology this is done through the use of social networking sites such as facebook instagram and x these sites allow people and corporations to connect with one another so they can develop relationships and share information ideas and messages family members and friends can reconnect and remain connected through personal social networking sites like facebook they can share photos and status updates on everyday or important life events people can also connect with unknown individuals who share the same interests goals or experiences individuals can find each other through groups lists and hashtags an indexing function that groups topics marketers commonly use social networking to increase brand recognition and encourage brand loyalty social media marketing helps promote a brand s voice and content it can help make a company more accessible and prominent to new and existing customers for example a frequent x user may learn about a company for the first time through a news feed and decide to buy a product or service the more exposed people are to a company s brand the greater the company s chances of finding and retaining new customers marketers use social networking to improve conversion rates building a following provides access to and interaction with new recent and longtime customers sharing blog posts images videos or comments on social media allows followers to react and engage visit a company s website and become customers major social networking platformsfacebook is a social network that allows users to connect with people businesses and organizations they can post updates and respond to the posts of others they can share photographs and links to online content users can chat live and upload and share videos users can also communicate directly with each other via facebook messenger they can join groups with similar interests and be notified of friends activities and pages they elect to follow facebook was designed to be open and social however while the platform encourages publicly available content it also has privacy controls that can restrict access to for instance friends facebook was created in 2004 by mark zuckerberg while he went to harvard university today it is owned by meta platforms of which zuckerberg is ceo facebook is the world s largest social network with about 2 billion daily active users 1instagram is a social network that focuses on sharing visual media like photos and videos it s similar to facebook in that users create a profile and have a news feed it allows them to upload media that can be edited with filters and organized by hashtags and geographical tagging posts can be shared publicly or with followers users can browse other users content view trending content and follow others additionally they can add the content others upload to their personal feed over time instagram has added new features such as instagram stories instagram reels and access to shopping like facebook instagram encourages users to keep their content publicly accessible and lets them set access to approved followers only instagram has its own direct messaging feature in addition facebook messenger has been incorporated by instagram so users can direct message facebook contacts while on instagram instagram was founded in 2010 by kevin systrom and mike krieger in 2012 it was acquired by meta formerly facebook instagram boasts 6 18 billion visits per month 2x is a social network that allows people to communicate with short messages called tweets the social platform limits tweets to 280 characters users publish posts formely tweets that may be useful interesting or even inflammatory for readers | |
what is social science | social science is the study of how people interact with one another the branches of social science include anthropology economics political science psychology and sociology social scientists study how societies work exploring everything from the triggers of economic growth and the causes of unemployment to what makes people happy their findings inform public policies education programs urban design marketing strategies and many other endeavors understanding social sciencesocial science as a field of study is separate from the natural sciences which covers topics such as physics biology and chemistry social science examines the relationships between individuals and societies as well as the development and operation of societies rather than focusing on the physical world the academic disciplines involved in the social sciences rely more heavily on interpretation and qualitative research methodologies than do the natural sciences there are many fields within social science the five main ones are anthropology economics political science psychology and sociology although some people also include history criminology and geography branches of social scienceopinions vary on which branches of study are included under social science however most observers agree that the following five fields fall into the category history is also sometimes regarded as a branch of social science although many historians often consider the subject to share closer links to the humanities both humanities and social science study human beings what separates them is the technique applied humanities are viewed as more philosophical and less scientific law too has some ties to social science as does geography anthropology the study of the origin and development of human societies and cultures has been a focal point for centuries the field gained importance in europe s age of enlightenment which flourished in the 17th and 18th centuries during that period there was a pronounced focus on advancing society and knowledge and understanding human behavior was seen as a key to achieving that goal the history of economic thought goes back all the way to ancient greek philosophers such as plato aristotle and xenophon their works laid the foundation of nearly all social science economics included as travel became easier in the 15th to 18th centuries and more nations were able to partake in international trade the economic system of mercantilism grew the economic actions of many nations were suddenly motivated by the belief that a country should maximize exports and minimize imports this predominating school of thought was challenged by writers such as adam smith commonly known as the father of modern economics smith s ideas along with those of rousseau and john locke promoted the idea of a self regulating economy and introduced the concept of what is known as classical economics smith s book the wealth of nations is still studied today and admired by many politicians two other important economists who have shaped the way we think of economics are karl marx and john maynard keynes marx famously challenged capitalism as an appropriate economic model by placing an emphasis on the labor theory of value while marx s ideas are by no means widely endorsed by most of today s politicians his critique of capitalism has had a huge impact on many thinkers the keynesian school of economics meanwhile is very popular among today s economists keynesian economics is considered a demand side macroeconomic theory that focuses on changes in the economy over the short run it was the first to separate the study of economic behavior and markets based on individual incentives from the study of broad national economic aggregate variables and constructs the origins of political science can be traced back to ancient greece back then the philosopher plato wrote various dialogues about politics justice and what constitutes good government plato s early contributions would gradually take on a more scientific approach led by thinkers including aristotle thomas hobbes marx and max weber centuries of research into politics helped to boost democracy and assist politicians in making popular policy choices and get voted into power psychology is one of the fastest growing fields of social science it began as a medical field of study in the late 1800s and grew popular in the western world throughout the 20th century thanks in part to the work of sigmund freud according to the u s centers for disease control and prevention cdc 20 3 of adults had received some form of mental health treatment in 2020 although many still use psychiatric medicine to treat their mental health issues more people in recent years are seeking alternative treatments such as mindfulness training and yoga in addition to traditional talk therapy neuroscience drug treatments and a growing variety of approaches to psychotherapy are adding to the options for psychological treatment research on animal learning social psychology and economic psychology are other branches of the field sociology as a science developed in europe in the mid 1800s a period of rapid social change political revolutions and the industrial revolution drastically altered how many people lived which wasn t always for the better this prompted early sociologists to wonder how to maintain stability when so much in life was shifting so fast the first sociology course in the u s was taught at yale university by 1875 in the years that followed other colleges added sociology to the curriculum and the subject arrived in high schools in 1911 social science in schoolsin the united states education in the social sciences begins in elementary school and progresses throughout middle and high school there is an emphasis on aspects of core social sciences such as economics and political science at the collegiate level more specialized disciplines are offered nowadays colleges and universities offer numerous social science programs for example the university of california berkeley has 15 academic departments categorized as social sciences they are master s degree and ph d programs at colleges and universities offer opportunities for deeper specialization economists and social workers are among the most sought after employees in the u s according to the u s bureau of labor statistics bls social science careerstypical careers in social science include working as an advertiser psychologist teacher lawyer manager social worker and economist the subject matter of social science human behavior relationships attitudes and how these things have changed over time is useful information for any successful business to possess the concepts of social science such as demography political science and sociology are frequently applied in many different business contexts for example advertising and marketing professionals often use theories of human behavior from these fields to more efficiently market their products to consumers naturally the field of economics is key to the business sector many industries use economic analysis and quantitative methods to study and forecast business sales and other market trends in fact economists are some of the most sought after workers in the u s especially behavioral economists who use psychology to analyze and predict the economic decision making processes of individuals and institutions according to the u s bureau of labor statistics bls the projected change in employment for economists from 2022 to 2032 is 6 about the same as the average 3 projection for all occupations social workers too are expected to see a similar level of demand with the bls predicting employment in this particular field to grow by 7 from 2022 to 2032 the bls also reports that those with a social science degree generally command higher salaries than their peers with other types of degrees but it can depend heavily on the field of employment they enter into according to bls research the median wage for a social worker was 58 380 in may 2023 while the median pay for an economist was 115 730 at that time history of social sciencethe origins of social science can be traced back to the ancient greeks the lives they led as well as their early studies of human nature the state and mortality helped to shape western civilization social science as an academic field of study developed out of the aforementioned age of enlightenment or age of reason smith voltaire jean jacques rousseau denis diderot immanuel kant and david hume were among the major intellectuals at the time who laid the foundation for the study of social science in the western world individuals began to take a more disciplined approach to quantifying their observations of society over time similar aspects of society such as linguistics and psychology were separated into unique fields of study | |
why is social science important | the social sciences are important because they help people understand how to analyze not only their own behavior but also the behavior and motivations of their peers the social sciences also give us a better understanding of how to create more inclusive and effective societal institutions | |
how do you become a social scientist | typically the path to obtaining a career in the social sciences begins by getting a four year university degree in one of the social science subjects if you re interested in pursuing a career in social work or psychology these careers often require additional schooling certificates and licenses | |
which jobs can you get with a social science degree | a degree in the social sciences can help land you a job as an economist psychologist or survey researcher as well as open up opportunities in sectors such as law government politics and academia the bottom linesocial science helps us to gain knowledge of ourselves our peers and the society in which we live human behavior is important and having a decent grasp of it should in theory lead to greater efficiencies and quality of life for everyone | |
what is social security | social security is the old age survivors and disability insurance oasdi program in the united states it s run by the social security administration ssa a federal agency it s best known for retirement benefits but it also provides survivor benefits and income for workers who become disabled over 72 million americans will collect benefits from social security in 2024 1 | |
how social security works | social security is an insurance program workers pay into the program typically through payroll withholding from their paychecks self employed workers pay social security taxes when they file their federal tax returns 23workers can earn up to four credits each year one credit is granted up to 6 920 for every 1 730 earned in 2024 or up to four credits achieved 45the money goes into two social security trust funds the old age and survivors insurance trust fund oasi for retirees and the disability insurance trust fund di for disability beneficiaries these two funds are used to pay benefits to people who are currently eligible for them the money that s not spent remains in the trust funds 6a board of trustees oversees the financial operations of the two social security trust funds four of the six members are the secretaries of the departments of treasury labor and health and human services and the commissioner of social security the remaining two members are public representatives appointed by the president and confirmed by the senate 7medicare is the federal health insurance program for americans who are age 65 and older and some people who are receiving medicare benefits due to disability it s also supported through payroll withholding this money goes into a third trust fund that s managed by the centers for medicare medicaid services cms 89social security provides benefits to retirees their survivors and workers who become disabled 10spouses and ex spouses may be eligible for benefits based on the earnings records of their partners or former partners 11who can get retirement benefits workers who have paid into the social security system for at least 10 years become eligible for early retirement benefits at age 62 5 waiting until your full retirement age fra between ages 66 and 67 depending on the year you were born results in higher monthly benefits 12 you ll receive even more if you delay collecting retirement benefits until age 70 but benefits don t continue to increase if you wait any longer than that 13spouses can also claim benefits based on either their own earnings records or their spouses records a divorced spouse who isn t currently married can receive benefits based on an ex spouse s earnings record if the marriage lasted at least 10 years children of retirees can also receive benefits until they turn 18 or longer if the child is disabled or a student the cutoff is age 16 if you re caring for a child who isn t your own 11the amount of your social security retirement benefit depends on your average indexed monthly earnings aime during your 35 highest earning years amounts will differ significantly among retirees 14 the average monthly benefit was 1 866 or 22 392 annually as of april 2024 1your annual amount increases by 8 for each year that you delay collecting benefits if your retirement age is 66 to 67 this starts with the year after you reach your full retirement age and it stops at age 70 those who begin taking social security when they reach the fra of 66 would receive 100 of their primary insurance amount pia they d receive 108 of their pia if they delayed taking benefits until the following year they would receive 132 by delaying until age 70 15the benefit varies depending upon when you begin taking it the maximum monthly benefit for people aged 62 is 2 710 32 350 annually in 2024 it s 4 873 58 476 annually for those who have reached age 70 16a cost of living adjustment is made to social security benefits annually to keep pace with inflation it was 8 7 for 2023 and it s 3 2 for 2024 17workers can get a projection of their benefits at different retirement ages by using a calculator that s provided on the social security administration website social security provides a special minimum benefit for long term low earners that was first enacted in 1972 you must have income for at least 11 years to qualify the special monthly minimum benefit was 50 90 610 80 annually for december 2023 it increases for each additional year of low income work topping out at 1 066 50 or 12 798 annually for people who have worked for 30 years 1819who can get disability benefits people who can t work due to a physical or mental disability that s expected to last for a year or more or result in death may be eligible for social security disability benefits ssdi you generally have to meet certain earnings tests to qualify 20 family members of disabled workers can also be eligible 21a little over 8 39 million americans were collecting ssdi benefits as of april 2024 the average monthly benefit was 1 395 17 16 742 04 annually the monthly average for disabled workers was 1 537 57 18 450 84 annually spouses of disabled workers received an average of 418 84 monthly 5 026 08 annually and children of disabled workers received 494 47 monthly 5 933 64 annually 1who can get survivor benefits the spouse and children of a deceased worker may be eligible for survivor benefits based on the worker s earnings record this includes surviving spouses who are age 60 or older or age 50 or older and disabled a surviving spouse who is caring for a child who is younger than 16 or disabled may be eligible for these benefits as well children must generally be younger than 18 or disabled to receive benefits a stepchild a grandchild a step grandchild or an adopted child may also qualify for benefits under certain circumstances parents who are age 62 or older and who were dependent upon a deceased worker for at least half their income may also be eligible to collect benefits surviving spouses and minor children are also entitled to a one time payment of 255 after an eligible worker s death under some circumstances 22approximately 5 85 million people were collecting survivor benefits as of april 2024 the average monthly benefit was 1 503 89 or 18 046 68 annually survivor benefits are broken down into five categories average payments in april 2024 were the history of social securitythe social security system came into existence in the u s on aug 14 1935 when president franklin d roosevelt signed the social security act into law the first monthly benefits checks became payable on jan 1 1940 ida m fuller a retired legal secretary in vermont was the first person to collect one her check was for 22 54 23the system and its rules have evolved since 1935 social security was one of the largest government programs in the world as of 2023 paying out hundreds of billions of dollars each year 24the number of people who paid social security taxes in 2023 24the future of social securityconcerns have been raised about the aging of the u s population and the viability of a system in which fewer active workers will support a greater number of retirees and increases in the cost of living the social security board of trustees forecast in its 2024 report that reserves in the retirement fund oasi trust fund will become depleted in 2033 this was unchanged from the previous year s projection ongoing tax revenue will be enough to pay only 79 of scheduled benefits after that time the trustees also projected that reserves of the hospital insurance hi trust fund that finances medicare part a will be depleted in 2036 this is five years later than projected in 2023 the program income will be able to cover 89 of scheduled benefits after 2036 25congress will have to find ways to fill the gap if these predictions hold this might mean higher taxes on workers lower benefits higher age requirements for retirees or some combination of these elements | |
what benefits does social security provide | social security provides monthly benefit payments for qualified retirees disabled individuals and for their spouses children and survivors the benefit amount is based on several factors including your earnings history 26 | |
what is the difference between social security and supplemental security income ssi | supplemental security income ssi is a separate program from social security it provides monthly cash distributions to elderly or disabled people with little to no income to help them meet their basic needs you can be eligible for both social security benefits and ssi 27 | |
what is full retirement age fra | full retirement age fra is the age you must reach to be eligible to receive full retirement benefits from social security your fra varies depending on when you were born it s 66 years and two months for those born in 1955 and it gradually increases to age 67 for those born in 1960 and later 12the bottom linethe enactment of social security in 1935 was one of the signature achievements of president franklin delano roosevelt s administration the program remains a cornerstone of most americans retirement serving more than 72 million people benefit amounts vary depending on income and years of employment surviving spouses children parents and disabled workers and their family members may also be eligible to collect benefits in addition to retired workers the average retired worker s benefit amounts to about 20 000 annually so the program shouldn t be relied on as your sole source of retirement income it s important to supplement it with other sources of retirement funding such as individual retirement accounts iras employer sponsored plans such as a 401 k or 403 b and other savings and investments correction may 17 2023 a previous version of this article misstated the starting age at which delaying the collection of social security benefits increases them | |
what is the social security administration ssa | the social security administration ssa is a u s government agency that administers social programs covering disability retirement and survivors benefits among other services it s also responsible for issuing social security numbers and managing the program s finances and trust fund unlike most u s government agencies the ssa is headquartered in baltimore maryland rather than washington d c 1 the ssa has 10 regional offices six processing centers and approximately 1 230 field offices it employs almost 60 000 workers 2ssa programsthe ssa administers the social security program social security is vital to americans retirement income planning particularly as savings rates for retirement remain low 3 2 as of march 2024 3almost 68 million americans including retired workers disabled workers and survivors will receive social security monthly benefits in 2024 according to the ssa social security is one of the largest government programs in the world 4the benefits are funded with payroll taxes paid by employers employees and the self employed the tax revenue goes into two social security trust funds the old age and survivors insurance oasi trust fund for retirees and the disability insurance trust fund di for disability beneficiaries 5the ssa provides a wide range of services in addition to overseeing retirement and disability benefits programs and administering ssi including enrollment in parts a and b of the medicare program 6 it also issues the social security numbers ssns required to access numerous government and private sector services from credit financing and insurance coverage to hunting licenses 7supplemental security income ssi is distinct from social security and is not funded by payroll taxes it aids the disabled blind and elderly with limited income and resources 8 | |
what is a social security number ssn | the term social security number ssn refers to a numerical identifier assigned to u s citizens and other residents to track income and determine benefits the ssn was created in 1936 as part of the new deal to provide for retirement and disability benefits the original intention of the ssn was to track earnings and provide benefits now it is used for additional purposes such as identifying individuals for tax purposes and tracking credit reports 12individuals in the u s are asked to provide their ssns to obtain credit open bank accounts obtain government benefits make major purchases and more | |
how social security numbers work | with very few exceptions all u s citizens permanent residents and temporary or working residents have a social security number even non working residents citizens and non citizens alike can obtain an ssn due to its use by businesses and government entities the legal framework for assigning a social security number is provided under section 205 c 2 of the social security act 42 u s code chapter 7 subsection 405 social security numbers and cards are issued by the social security administration ssa 34social security numbers are now random streams of digits however before 2011 the numbers had specific purposes in those years the first three digits represented the state in which the number was issued the next two digits referenced group numbers of issuing offices and the last four represented the order within each group 5due to concern that this could be falsified the social security administration instead voted to have it represent a group number thus far no social security numbers have been reused though there have been some cases in which two people were issued the same number 67scammers are everywhere so it s important that you keep your information safe and secure you can avoid scams and report them directly to authorities through the federal trade commission s website the history of ssnsas noted above the social security number was established as part of a program developed by president franklin d roosevelt to help citizens of the united states following the great depression 1roosevelt signed the social security act in 1935 to help provide americans with economic stability especially to people over the age of 65 this included financial benefits that would be based on the amount of income they received before they entered retirement 5the social security board was established to maintain the social security act and to keep on top of recordkeeping this led to the creation in 1936 of a unique nine digit number assigned to each individual 56components of the ssnthe first group of three digits is the area number it represented the issuing state states could have more than one number depending on how many people needed ssns examples of area numbers include 001 to 003 for new hampshire and 575 to 576 for hawaii 5generally people on the east coast have the lowest ssns area numbers ascended as assignment moved westward so people on the west coast tend to have the highest ssns 2beginning in 1972 the area number was assigned based on the zip code associated with the mailing address which isn t necessarily the place of residence on the application 2there have been exceptions to the original area number assignment process 2the following group of two digits is the group number group numbers range from 01 to 99 they weren t necessarily assigned consecutively they originally represented the groups of 10 000 numbers issued to a state s post offices which were to help assign ssns they came to represent the issuing office 2the last four digits in the third group are the actual serial number they ascended from 0001 to 9999 within each group the serial number 0000 isn t used 2in 2011 ssns began to be issued randomly 5the usage of ssns has changed over its lifetime as well for instance in 1943 federal government agencies were required to use them in order to identify individuals other key moments in the ssn s timeline include 5although the issuing pattern for ssns called for numbers to be assigned starting with the most eastern state the lowest number 001 01 0001 was assigned in 1936 not to a maine citizen but to a woman residing in concord new hampshire 8 | |
why you need an ssn | a social security number is very important to have due to its direct connection to the future benefits you may be entitled to receive from the u s government an ssn is used to track an individual s yearly earnings and the number of years they ve worked these figures are required to compute potential financial benefits whether they relate to retirement income disability income or health insurance | |
how to get an ssn | a social security number and its corresponding card may be obtained by filling out form ss 5 application for a social security card from the ssa the form explains how to obtain an original card replace a card and change or correct ssn records 9a full list of requirements such as documentation that proves age identity and u s citizenship or immigration status is included on the form there is no cost to obtain a number or card in some circumstances an individual may change their social security number 9the number of social security numbers available for assignment 6ssns and identity theftsocial security numbers are frequently used as a personal identifier and to obtain credit they contain no biometrics and rely on documentation to prove validity they are susceptible to use for identity theft and fraud a notable example of this is when the chief executive officer ceo of identity theft prevention service lifelock used his ssn in advertisements as a testament to his company s effectiveness his identity was later stolen multiple times there has been some movement among legislators to separate some activities from ssn use such as renting an apartment or obtaining a hunting or fishing license if you discover that your social security number is being used by someone else or if you lose your card there are steps you should consider taking immediately | |
how can i find out if someone is using my social security number | there s no easy way to check and see whether your social security number has been compromised many people don t find out until it s too late however there are a few ways you can keep up to date with any unusual activity that may be related to someone else using it you can monitor your credit reports and bank accounts verify your income with the social security administration and request tax transcripts with the irs | |
what can someone do with your social security number | your ssn is one of the most important pieces of personal information if not the most important that you ll ever have that s why it s so important that you keep it confidential someone who has your ssn can use it to impersonate you obtain credit and open bank accounts apply for jobs steal your tax refunds get medical treatment and steal your government benefits | |
what should you do if your social security number is stolen | identity thieves are everywhere contact the social security administration if you suspect that your number is stolen the agency can help fix problems related to income if you have problems with your credit you must contact your financial institution and the credit reporting agencies equifax experian and transunion you can also file complaints with identitytheft gov the internal revenue service and the internet crime center to report any suspicious activity | |
how do you get a new social security number | to get an ssn you must fill out form form ss 5 and provide the ssa with two documents that prove your age and identity and citizenship or immigration status 9 | |
how long does it take to get a social security number | the social security administration mails individuals their social security cards as soon as it receives all the necessary information and documentation this can take as long as two to four weeks especially when the administration is facing delays the bottom linea social security number or ssn is a unique identifying number associated with u s citizens and other residents in the country it s been around since 1936 about the time that the social security administration was established 1935 to provide us with retirement and disability benefits today the need for an ssn goes beyond calculating what we re entitled to receive as a result of the contributions we ve made throughout our working lives to social security and medicare it s required to open financial accounts apply for loans apply for unemployment assistance and get a driver s license your social security number is your key to important future benefits so it s crucial to protect it and the card that it s on be sure to use it only when officially required and not simply when someone asks you for it | |
what is a social welfare system | a social welfare system provides assistance to individuals and families in need the types and amount of welfare available to individuals and families vary depending on the country state or region in the u s the federal government provides grants to each state through the temporary assistance for needy families tanf program 1 the benefits that an individual or family receives as part of a social welfare system will vary by state as will the eligibility requirements | |
how a social welfare system works | social welfare systems provide assistance to individuals and families through programs such as health care food stamps unemployment compensation housing assistance and child care assistance in the u s a caseworker is assigned to each individual or family applying for benefits to determine and confirm the applicant s needs the benefits available to an individual vary by state eligibility is determined based on factors surrounding the person s financial status and how it relates to the minimum acceptable levels within a particular state the factors involved can include the size of the family unit current income levels or an assessed disability within each state social welfare systems may go by different names but they often serve similar functions this can cause confusion when attempting to compare one state s program to another additionally the requirements to qualify also vary depending on the poverty line in a particular state this allows for adjustments based on items such as cost of living that are not standardized across the country benefits of social welfare systemsavailable benefits generally cover assistance for food housing child care and medical care in the case of tanf federal funds are provided to the states for distribution these funds may be used for cash assistance allowing a household to spend the funds as it deems necessary to meet its needs and obligations 1some available housing benefits go beyond locating suitable and affordable properties and providing housing cost assistance a household may qualify for assistance to complete certain energy efficiency upgrades 2 it may also receive funds to help pay utility bills 3benefits around health and nutrition can include access to affordable medical care food and nutrition programs may supply funds often referred to as food stamps or the supplemental nutrition assistance program snap to provide easier access to food in general 4 additional nutritional assistance through the women infants and children wic program provides food specific benefits to ensure pregnant women and young children have access to healthy food options to promote growth and development 5other programs that are parts of the social welfare system include disaster relief assistance educational assistance agricultural loans and services specifically for veterans | |
what is socialism | socialism is a populist economic and political system based on collective common or public ownership of the means of production those means of production include the machinery tools and factories used to produce goods that aim to directly satisfy human needs in contrast to capitalism whereby business owners control the means of production and pay wages to workers to use those means socialism envisions shared ownership and control among the laboring class in a purely socialist system all production and distribution decisions are made by the collective directed by a central planner or government body worker cooperatives however are also a form of socialized production socialist systems tend to have robust welfare systems and social safety nets so that individuals rely on the state for everything from food to healthcare the government determines the output and pricing levels of these goods and services socialists contend that shared ownership of resources and central planning provide a more equal distribution of goods and services and a more equitable society nono flores investopediaunderstanding socialismcommon ownership under socialism may take shape through technocratic oligarchic totalitarian democratic or even voluntary rule a prominent historical example of a socialist country albeit one run by communists is the former union of soviet socialist republics ussr also known as the soviet union due to its practical challenges and poor track record socialism is sometimes referred to as a utopian or post scarcity system although modern adherents believe it could work if only properly implemented they argue that socialism creates equality and provides security a worker s value comes from the amount of time they work not in the value of what they produce while capitalism exploits workers for the benefit of the wealthy socialist ideals include as an old socialist slogan describes it from each according to ability to each according to need 1while socialism calls for collective or shared ownership of the means of production it does not imply that there is no private ownership of personal property thus corporations and factories would be shared among the members of society but individuals and households would still own their own personal effects history of socialismhilary allison investopediasocialism as a system of shared resources and collective production dates back to the earliest human civilizations tribal or clan based societies would often work for the common good and work together to produce enough food and supplies for the entire population collective agriculture persisted for thousands of years this was replaced in many places by a sort of feudal system whereby landed nobility lords ruled over peasants serfs who worked the land without owning it socialism s intellectual roots date back to plato s republic in which he described a collective society centuries later thomas more s utopia echoed platonic ideals in its depiction of an imaginary island where people live and work communally socialism was a direct response to the industrial revolution which brought enormous economic and social change to great britain and the rest of the world as industrialists grew wealthy on the labor of workers who increasingly lived in poverty socialism emerged as an alternative to capitalism one that could improve life for the working class 2modern socialism developed in opposition to the excesses and abuses of liberal individualism and capitalism under early capitalist economies during the late 18th and 19th centuries western european countries experienced industrial production and compound economic growth at a rapid pace some individuals and families rose to riches quickly while others sank into poverty capitalism created income inequality and spurred other social concerns the most famous early socialist thinkers were robert owen and henri de saint simon and later karl marx and then vladimir lenin it was primarily lenin who expounded on the ideas of earlier socialists and helped bring socialist planning to the national level after the 1917 bolshevik revolution in russia following the failure of socialist central planning in the former soviet union and maoist china during the 20th century many modern socialists adjusted to a high regulatory and redistributive system sometimes referred to as market socialism or democratic socialism critics of socialism contend that it is based on faulty principles and ignores human nature socialism vs capitalismcapitalist economies which today are often synonymous with the free market or market economies and socialist economies differ by their logical underpinnings of the structures of ownership and production socialists and free market economists tend to agree on fundamental economics the supply and demand framework for instance while disagreeing about its proper adaptation and how commodities should be produced functionally socialism and free market capitalism are often divided on two core issues property rights and control of production in a capitalist economy private individuals and enterprises own the means of production and have the right to profit from them private property rights are taken very seriously and apply to nearly everything in a purely socialist economy the collective owns and controls the means of production personal property is allowed but in the form of consumer goods essential services like healthcare education and public transportation are administered for free by the government and funded through taxation in a socialist economy public officials known as central planners may control the behavior of producers consumers savers borrowers and investors by taking over and regulating trade the flow of capital and other resources in a free market economy trade is conducted on a voluntary or nonregulated basis however there are many other ways to coordinate production in a collectivist fashion without such dominating control and loss of personal autonomy market economies rely on the separate actions of self determining individuals to determine production distribution and consumption decisions about what when and how to produce are made privately and coordinated through a spontaneously developed price system and prices are determined by the laws of supply and demand proponents say that freely floating market prices direct resources toward their most efficient ends profits are encouraged and drive future production socialist economies rely on either the government or worker cooperatives to drive production and distribution consumption is regulated but it is still partially left up to individuals the state determines how main resources are used and taxes wealth for redistributive efforts socialist economic thinkers consider many private economic activities to be irrational such as arbitrage or leverage because they do not create immediate consumption or use still marx saw that capitalism was rife with contradictions class conflict and self destructive competition as a result he saw socialism as the logical next phase of human political economy several philosophical questions also lie at the heart of the debate between socialism and capitalism what is the role of government what constitutes a human right what roles should equality and justice play in society socialism vs communismcommunism and socialism are umbrella terms referring to two left wing schools of economic thought both oppose capitalism but socialism predates the communist manifesto an 1848 pamphlet by marx and friedrich engels by a few decades they are both economic philosophies that advocate for public ownership particularly over the means of production and the distribution and exchange of goods in a society and both philosophies run contrary to free market capitalism which they contend exploits workers and creates a widening gap between rich and poor there are differences between socialism and communism however in fact communism can be thought of as a strict and all encompassing version of socialism under communism all property is communally owned private property doesn t exist under socialism individuals can still own private property marx predicted that a violent worker uprising against the middle and upper classes would bring about the communist state whereas socialists tend to seek change and reform without overthrowing the prevailing social and political structure and according to communist theory workers should be given what they need while under socialist theory they are to be compensated for their level of contribution to the economy 3contention between socialists and capitaliststhere are many points of contention between socialists and capitalists socialists consider capitalism and the free market to be unfair and possibly unsustainable most socialists contend that market capitalism is incapable of providing enough subsistence to the lower classes they contend that greedy owners suppress wages and seek to retain profits for themselves proponents of market capitalism counter that it is impossible for socialist economies to allocate scarce resources efficiently without real market prices they claim that the resultant shortages surpluses and political corruption will lead to more poverty not less overall they say socialism is impractical and inefficient suffering in particular from two major challenges the first challenge for socialism widely called the incentive problem is that no one wants to be a sanitation worker or to wash skyscraper windows that is socialist planners cannot incentivize laborers to accept dangerous or uncomfortable jobs without violating the equality of outcomes far more serious is the calculation problem a concept originating from economist ludwig von mises 1920 article economic calculation in the socialist commonwealth socialists wrote mises are unable to perform any real economic calculation without a pricing mechanism without accurate factor costs no true accounting may take place without futures markets capital can never reorganize efficiently over time 4can a country be both socialist and capitalist while socialism and capitalism seem diametrically opposed most capitalist economies today have some socialist aspects elements of a market economy and a socialist economy can be combined into a mixed economy in fact most modern countries operate with a mixed economic system government and private individuals both influence production and distribution economist and social theorist hans hermann hoppe wrote that there are only two archetypes in economic affairs socialism and capitalism and that every real system is a combination of these archetypes but because of the archetypes differences there is an inherent challenge in the philosophy of a mixed economy and it becomes a never ending balancing act between predictable obedience to the state and the unpredictable consequences of individual behavior 5the great recession and the covid 19 pandemic have increased interest in the government creating more opportunities and increasing the social safety net for all americans these are hallmarks of socialist policy and not everyone agrees with such ideas | |
how mixed economies develop | mixed economies are still relatively young and theories around them have only recently been codified the wealth of nations adam smith s pioneering economic treatise argued that markets were spontaneous and that the state could not direct them or the economy 6later economists including jean baptiste say f a hayek milton friedman and joseph schumpeter would expand on this idea however in 1985 political economy theorists wolfgang streeck and philippe c schmitter introduced the term economic governance to describe markets that are not spontaneous but have to be created and maintained by institutions 7 to pursue its objectives the state needs to create a market that follows its rules historically mixed economies have followed two trajectories the first trajectory assumes that private individuals have the right to own property produce and trade state intervention has developed gradually usually in the name of protecting consumers supporting industries crucial to the public good in fields like energy or communications providing welfare or other aspects of the social safety net most western democracies such as the united states follow this model the second trajectory relates to states that evolved from pure collectivist or totalitarian regimes individuals interests are considered a distant second in importance to state interests but elements of capitalism are adopted to promote economic growth china and russia are examples of the second model private businesses now produce more than half of china s gross domestic product gdp and most of its exports 8socialist countriestoday very few countries are close to pure socialism perhaps china is the most prominent example with a communist government that effectively nationalizes many of the nation s key industries state owned enterprises are a key feature of the chinese economy although several steps toward capitalism and liberalization have created certain economic zones e g in shanghai where private corporations can co exist and profit 8cuba remained closer to a marxist leninist socialist economy following its communist revolution in 1959 and the installation of fidel castro as its leader after castro s death however cuba too saw some liberalization in 2019 cubans voted for a new constitution that granted private property rights and greater access to free markets while preserving the socialist political system 9the last remaining marxist leninist socialist economy that has not seen any reforms is that of north korea the country remains ruled by a communist dictatorship and a closed command economy governed by strict central planning laos another country in asia is also a socialist state but is more open than north korea transitioning from socialisma nation needs to transfer the means of production to transition from socialism to free markets the process of transferring functions and assets from central authorities to private individuals is known as privatization privatization occurs whenever ownership rights transfer from a coercive public authority to a private actor whether it is a company or an individual different forms of privatization include contracting out to private firms awarding franchises and the outright sale of government assets or divestiture in some cases privatization is not really privatization case in point private prisons rather than completely ceding a service to competitive markets and the influence of supply and demand private prisons in the united states are actually just a contracted out government monopoly the scope of functions that form the prison is largely controlled by government laws and executed by government policy it is important to remember that not all transfers of government control result in a free market cuba has moved toward privatizing many aspects of its economy incorporating more capitalism into its society in early 2021 it began allowing people to work in jobs in over 2 000 private sectors up from 127 10privatizing a socialist economysome nationwide privatization efforts have been relatively mild while others have been dramatic the most striking examples include the former satellite nations of the soviet bloc after the collapse of the ussr and the modernization of the post mao chinese government the privatization process involves several different kinds of reforms not all of them completely economic the logistical problems associated with these actions have not been fully resolved and several different theories and practices have been offered throughout history | |
should these transfers be gradual or immediate what are the impacts of shocking an economy built around central control can firms be effectively depoliticized | as the struggles in eastern europe in the 1990s show it can be very difficult for a population to adjust from complete state control to suddenly having political and economic freedoms in romania for example the national agency for privatization was charged with the goal of privatizing commercial activity in a controlled manner private ownership funds or pofs were created in 1991 the state ownership fund or sof was given the responsibility of selling 10 of the state s shares each year to the pofs allowing prices and markets to adjust to a new economic process but initial efforts failed as progress was slow and politicization compromised many transitions further control was given to more government agencies and over the course of the next decade a bureaucracy took over what should have been a private market 11these failures are indicative of the primary problem with gradual transitions when political actors control the process economic decisions continue to be based on noneconomic justifications a quick transition may result in the greatest initial shock and the most initial displacement but it results in the fastest reallocation of resources toward the most valued market based ends | |
is there socialism in the u s today | yes social welfare programs such as food stamps unemployment compensation and housing assistance can be described as socialist it can also be argued that government programs like medicare and social security are too there are also socialist organizations in the u s such as the democratic socialists of america which counts among its members reps alexandria ocasio cortez d n y rashida tlaib d mich cori bush d mo and jamaal bowman d n y of the house of representatives and sen bernie sanders i vt is a self described democratic socialist other examples of socialism in the u s include organizations like worker co ops credit unions public libraries and public schools | |
what s the difference between social democracy and democratic socialism | social democracy is based on maintaining a capitalist economic system but blunting its excesses via regulation and addressing inequality with government run social programs in a sense humanizing capitalism social democracies exist today in denmark finland norway and sweden 12democratic socialism has a vision of a society and economy that is democratic not authoritarian in which individuals have more of a say than large corporations in how the economy is run it is committed to finding ways to transform an economy from capitalism to socialism as the website of the democratic socialists of america notes our vision pushes further than historic social democracy and leaves behind authoritarian visions of socialism in the dustbin of history we want to collectively own the key economic drivers that dominate our lives such as energy production and transportation 13 | |
is socialism better than capitalism | this question is a matter of debate and political ideology capitalism has seen the greatest rise in wealth and standards of living in human history accompanied by innovation and invention however capitalism driven by fierce competition for profits and market share has also been blamed for rising wealth disparities social inequalities alienation exploitation and the misery of the working class socialism on the other hand promises egalitarianism by returning the means of production to the laboring class in doing so wealth disparities are greatly minimized and society as a whole may flourish however collective ownership and less competition might put a damper on innovation and technological progress furthermore people are often wary of giving up personal freedom although it may benefit the greater good as governments direct production and consumption choices | |
which countries are socialist | today most countries in the world feature some aspects of socialism even in the united states but especially in countries found in europe and asia only a few are full blown pure socialist marxist leninist communist economies the people s republic of china cuba laos vietnam and north korea the ussr also was but the soviet union collapsed in the 1990s the bottom linethe economic and political system of socialism has been a part of human existence in theory or practice for many centuries it espouses the collective ownership of the means of production and places the importance of state control above that of the individual proponents believe that it creates equality and provides workers with security critics claim that it neglects essential human behavior socialism contrasts with capitalism a system based on a free market economy and private ownership | |
what is a socially responsible investment sri | socially responsible investing sri also known as social investment is an investment that is considered socially responsible due to the nature of the business the company conducts a common theme for socially responsible investments is socially conscious investing socially responsible investments can be made into individual companies with good social value or through a socially conscious mutual fund or exchange traded fund etf understanding socially responsible investment sri socially responsible investments known as conscious capitalism include eschewing investments in companies that produce or sell addictive substances or activities like alcohol gambling and tobacco in favor of seeking out companies that are engaged in social justice environmental sustainability and alternative energy clean technology efforts in recent history socially conscious investing has been growing into a widely followed practice as there are dozens of new funds and pooled investment vehicles available for retail investors mutual funds and etfs provide an added advantage in that investors can gain exposure to multiple companies across many sectors with a single investment however investors should read carefully through fund prospectuses to determine the exact philosophies being employed by fund managers along with the potential profitability of these investments there are two inherent goals of socially responsible investing social impact and financial gain the two do not necessarily have to go hand in hand just because an investment touts itself as socially responsible doesn t mean that it will provide investors with a good return and the promise of a good return is far from an assurance that the nature of the company involved is socially conscious an investor must still assess the financial outlook of the investment while trying to gauge its social value demand for esg investments soared in 2020 nearly 60 of respondents to an investopedia and treehugger survey indicated an increase in interest in esg investments and 19 reported incorporating esg standards into their portfolios special considerationssocially responsible investments tend to mimic the political and social climate of the time that is an important risk for investors to understand because if an investment is based on a social value then the investment may suffer if that social value falls out of favor among investors for this reason socially responsible investing is often considered by investment professionals through the lens of environmental social and governance esg factors for investing this approach focuses on the company s management practices and whether they tend toward sustainability and community improvement the ftse4good index tracks these companies and helps to identify companies with these core values there is evidence that a focus on this approach can improve returns whereas there is no evidence for investing success from investing purely on social values alone for example in the 1960s investors were mainly concerned with contributing to causes such as women s rights civil rights and the anti war movement martin luther king jr played a large role in raising awareness for the civil rights movement by targeting companies that opposed the cause as socially irresponsible as awareness has grown in recent years over global warming and climate change socially responsible investing has trended toward companies that positively impact the environment by reducing emissions or investing in sustainable or clean energy sources consequently these investments avoid industries such as coal mining due to the negative environmental impact of their business practices one form of socially responsible investing involves promoting racial justice equality and inclusion known as racial justice investing the purpose is to leverage both institutional and retail dollars to invest in ways that advance this and other anti racist causes example of socially responsible investingone example of socially responsible investing is community investing which goes directly toward organizations that both have a track record of social responsibility through helping the community and have been unable to garner funds from other sources such as banks and financial institutions the funds allow these organizations to provide services to their communities such as affordable housing and loans the goal is to improve the quality of the community by reducing its dependency on government assistance such as welfare which in turn has a positive impact on the community s economy | |
where can socially responsible investments be made | they can be made into individual companies that have good social value or through a socially conscious mutual fund or exchange traded fund etf | |
what does esg represent | esg stands for environmental social and governance which are important factors for some investors to adhere to those investors look for solid management of a company and seek out those that gear toward sustainability and community improvement in 2020 the popularity of esg investments took off | |
which are among the top socially responsible bond etfs | they are vaneck investment grade floating rate etf fltr issued by vaneck spdr bloomberg investment grade floating rate etf flrn issued by state street and ishares floating rate bond etf flot issued by blackrock financial management | |
what is a soci t anonyme s a | soci t anonyme s a is a french term for a public limited company plc and has many equivalents all over the world an s a is the equivalent of a corporation in the united states a public limited company in the united kingdom or an aktiengesellschaft ag in germany an s a is a type of business structure that establishes a company as a legal person that can own and transfer property enter contracts and be held liable for crimes some of its key benefits are that it limits the owners personal liability for the company s actions and ensures the continuity of the moral entity without any dependence on the founders owners or shareholders lives understanding the soci t anonymethe soci t anonyme is a popular business structure with equivalents in many other languages and countries in all cases a company designated s a protects its owners personal assets against claims by creditors which makes many individuals more willing to start companies as it limits their risk the s a structure also makes it easier to meet a growing business capital funding needs as numerous investors can contribute large or small amounts of money as shareholders if the company opts for public ownership the s a is thus a key component of a robust capitalist economy one of the soci t anonyme s key benefits is that it establishes the company as a legal person and thus limits the owners personal liability for the company s actions history of soci t anonyme s a on jan 1 1808 the french government put into effect the provisions regarding the formation and structure of a soci t anonyme as part of the country s new code regulating commerce one purpose of these new regulations was to prevent the rampant speculation that had rocked the french markets prior to and during the french revolution the code recognized three forms of business organization the soci t en nom collectif the soci t en commandite and the soci t anonyme a soci t en nom collectif is a standard partnership in which all partners have unlimited liability any partner could act for the others and all partners are actively engaged in the enterprise by comparison the soci t en commandite is comprised of limited partners also known as sleeping or silent partners and active partners the limited partners provide assets or capital to the enterprise and have limited liability while the active partners are responsible for all management activities and have unlimited liability requirements of a soci t anonyme s a an s a is subject to different tax regulations than a sole proprietorship or partnership and in the case of a public s a different accounting and auditing requirements in addition to be valid a soci t anonyme must meet certain requirements while these requirements vary depending on the country most s a s must file articles of incorporation have a board of directors a managing director or a management board a supervisory board a statutory auditor and deputy a unique name and some minimum amount of capital it is generally constituted for 99 years maximum in luxembourg for example an s a must be funded with at least 30 000 25 of which must be deposited during the incorporation process and have at least two partners an s a in luxembourg must also pay various costs such as notary fees the cost of registration with other regulatory agencies as well as statutory auditor fees 1 well known companies that are established as s a s include nestl 2 anheuser busch inbev 3 and l or al 4examples of a soci t anonyme s a many other countries and languages employ the soci t anonyme structure some examples | |
what are soft skills | soft skills are character traits and interpersonal skills that characterize a person s ability to interact effectively with others in the workplace soft skills are considered to be a complement to hard skills which refer to a person s knowledge and occupational skills 1 psychologists may use the term soft skills to describe someone s emotional intelligence quotient eq as opposed to intelligence quotient iq in a competitive labor market individuals who demonstrate that they have a good combination of hard and soft skills often enjoy a greater demand for their services understanding soft skillsmany employers look for a balance of hard skills and soft skills when making hiring decisions for example employers value skilled workers with a track record of getting jobs done on time employers also value workers with strong communication skills and a good understanding of company products and services when communicating with prospective clients workers with soft skills can put together compelling presentations even if their specific job is not in sales or marketing another valued soft skill is the ability to coach co workers on new tasks company leaders often are most effective when they have strong soft skills for example leaders are expected to have good speaking abilities but great leaders are also good at listening to workers and to other leaders in their fields as a recent article in the harvard business review put it employers who fail to listen and thoughtfully respond to their people s concerns will see greater turnover and given that the highest rates of turnover are among top performers who can take clients and projects with them and the frontline employees responsible for the customer experience the risk is clear 2negotiation is also a big part of the job for many company leaders when negotiating with employees clients or associates leaders need to be skilled in staying considerate of what others want while remaining focused on achieving what they want good leaders also need to know how to effectively assign tasks to other team members companies often like to hire employees who possess soft skills that mesh well with those of the rest of the staff considering them to be a good cultural fit for the company hard skills vs soft skillsworkers acquire hard skills through formal education training programs and concentrated effort hard skills are the quantifiable skills that workers need to successfully perform a specific job employers often test or evaluate a candidate s hard skills before hiring examples of hard skills include computer programming writing web development and graphic design some hard skills are more in demand than others and employers may need to hire recruiting agencies or headhunters to fill jobs that require specialized high level hard skills hard skills can be learned and perfected over time but soft skills are more difficult to acquire and change for example the soft skills a doctor might need are empathy understanding active listening and a good bedside manner alternatively the hard skills a doctor requires include a vast comprehension of illnesses the ability to interpret test results and symptoms and a thorough understanding of anatomy and physiology coaching is one of the most effective methods for improving soft skills 3valuable soft skills for employeessoft skills benefit businesses when they are practiced on a company wide basis for example a collaborative spirit among workers is important team members who are able to work well with people of different generations and backgrounds are generally more productive and better able to focus on common priorities efficiency and output improve when workers collaborate by sharing knowledge and tools to get jobs done the ability to learn new methods and technologies is also a desired soft skill for all workers companies that value learning as a soft skill recognize various learning styles and encourage workers to pursue the methods that work best for them good troubleshooting is another soft skill that companies value for example companies can operate more efficiently and increase productivity when all workers know how to troubleshoot software problems instead of relying on the information technology it department for every fix soft skills can also be thought of as people skills these can include good communication and interpersonal skills leadership problem solving work ethic time management and teamwork these are characteristics that can be carried over to any position | |
what is the difference between a soft skill and a hard skill | hard skills are the measurable skills acquired through training education and practice they are the abilities needed to perform a specific task or job soft skills are behavioral and interpersonal skills that relate to how effectively people interact with others and handle situations | |
how do you improve soft skills | although not customarily acquired through formal training soft skills can be learned to improve soft skills an individual must be open to feedback and willing to change behaviors training can provide tips and strategies for developing better practices such as active listening and empathizing with others and practicing can strengthen areas where deficiencies exist | |
what is soft skills training | soft skills training is training to help develop or improve interpersonal skills it consists of lessons to improve communication increase active listening resolve conflicts and more the bottom linewhile hard skills are highly valued in today s economy many employers recognize the importance of soft skills as well for that reason workers with both hard and soft skills may find it easier to get hired and rise through the ranks | |
what is software as a service saas | saas is a licensing model in which access to software is provided on a subscription basis the software is located on external servers rather than on servers located in house software as a service is commonly accessed through a web browser with users logging into the system with a username and password the user can access the program via the internet rather than each user having to install the software on their computer understanding software as a service saas the rise of saas coincided with the rise of cloud based computing cloud computing offers technology services through the internet this often includes access to data storage networking and servers companies looking to update the software on their computers had to purchase compact discs before saas the discs contained the updates and they then had to download them onto their systems updating software was a time consuming endeavor for large organizations users can log in through the internet or a web browser and connect to the service provider s network to access the particular service with saas technology companies financial services companies entertainment and utilities have led the business world in adopting saas technology saas history and characteristicssaas can trace its origins to a concept called time sharing developed in the late 1950s and early 1960s to make more use of expensive processor time more cost effective organizations made the shift to individual ownership of personal computers using on premise software as hardware and computing became less costly they were impeded by ongoing software and hardware maintenance of the individual computers however the growth of the internet saw the inception of the online cloud in the mid 1990s the online cloud allows organizations to access software from anywhere salesforce became the forerunner in the saas space by 1999 and both startups and industry giants were eager to move toward it including microsoft oracle and sap 1the saas provider hosts the customer s software and delivers it to approved end users over the internet it gives customers network based access to a single copy of an application that the provider created specifically for saas distribution new features or updates are rolled out to all customers when they re released saas has become ubiquitous with pure play companies like adobe salesforce shopify and intuit leading the way the saas market is expected to exceed 675 billion in 2024 2advantages and disadvantages of saassaas offers a variety of advantages over traditional software licensing models but it has some drawbacks as well there s less demand for the company to invest in new hardware because the software doesn t live on the licensing company s servers it s easy to implement easy to update and debug and it can be less expensive than purchasing multiple software licenses for multiple computers saas has numerous applications including email services auditing functions automating sign up for products and services managing documents and customer relationship management crm systems a database of client and prospect information saas based crms can be used to hold company contact information business activity product purchase history and sales leads the saas model works well for enterprise level services such as human resources these types of tasks are often collaborative requiring employees from various departments to share edit and publish material when they re not in the same office drawbacks to the adoption of saas center around data security and speed of delivery data is stored on external servers so companies must ensure that it s safe and can t be accessed by unauthorized parties security is especially important to saas business users in the aerospace and defense sector slow internet connections can reduce performance especially if the cloud servers are accessed from far distances internal networks tend to be faster than internet connections saas solutions also suffer from a loss of control and a lack of customization due to their remote nature accessible from anywherecost effectiveeasy to implement update and debugeasy to scaleincreased security risksslower speedloss of controllack of customizationexamples of saasgoogle docs is google s free online word processor launched in 2006 individuals can simply log in through a web browser for instant access google docs allows you to write edit and even collaborate with others from any location 3dropbox was founded in 2007 it s a cloud storage service that lets businesses store share and collaborate on files and data users can back up and sync photos videos and other files to the cloud and access them from any device no matter their location 4saas has expanded since its inception and supports home offices and entertainment daily as users log on to netflix zoom docusign adobe shopify and slack saas securityconcerns arise regarding security and privacy as companies adopt cloud based models for software products management was once responsible for the updates on in house software but corporations must now rely on third party management of their encryption identity and access management iam data privacy and downtime or incident response they must also depend on an adequate level of communication with technical assistance saas pricingsaas products are commonly more cost effective for a company than traditional software licenses because setup and installation aren t necessary saas providers rely on subscription based pricing models for customers such as tier level pricing per person or group or a flat rate annual fee users can also choose an ad based model where the saas earns revenue through advertising within the cloud space saas vs iaas vs paas as a service products fit into one of three main categories saas iaas and paas saas uses the internet to deliver subscription software services that are managed by third party vendors well known saas examples include dropbox google workspace and salesforce infrastructure as a service iaas offers access to resources such as servers storage and memory it allows organizations to purchase resources as necessary some common iaas examples include amazon web services aws microsoft azure and rackspace platform as a service paas provides a software development platform over the web it allows developers to concentrate on software creation without concerning themselves with storage and infrastructure | |
what is saas marketing | saas marketing uses standard marketing practices to promote and acquire leads for cloud based software applications and information services | |
what is b2b saas | b2b saas simply refers to companies that sell software services to other businesses these products help organizations optimize a wide variety of functions including marketing sales and customer service | |
how is mrr calculated for saas businesses | monthly recurring revenue mrr is an important metric for saas businesses it uses a monthly subscription pricing model the calculation of mrr is simple multiply the average monthly revenue per customer by the number of customers for that month 5the bottom linesaas or software as a service uses cloud computing to provide users with access to programs via the internet saas allows each user to access programs typically through a subscription service without having to install software in house saas has many business applications including file sharing customer retention management supply chain management and human resources it s used by applications such as netflix slack dropbox and google workspace | |
what is a sole proprietorship | a sole proprietorship is an unincorporated business with one owner there is no legal separation between the company and the owner who receives all profits but is liable for all debts and losses a sole proprietorship is the easiest type to establish and a popular choice for small businesses individual contractors and consultants most small businesses start as sole proprietorships and either stay that way or expand and transition to a limited liability entity or corporation establishing a sole proprietorshipthe easiest way to start a one owner business is through a sole proprietorship the debts of the sole proprietorship are also the debts of the owner however all profits flow directly to the business owner there are certain steps individuals should take to get started including the number of small businesses in the united states in 2023 together these businesses employed 61 6 million people across the country sole proprietorship vs llc vs partnershipa sole proprietorship is very different from a corporation a limited liability company llc or a limited liability partnership llp in that no separate legal entity is created as a result the business owner of a sole proprietorship is not exempt from liabilities incurred by the entity | |
when a sole proprietor seeks to incorporate a business the owner usually restructures it into an llc for this to work the owner must first determine that the company name is available if the desired name is free articles of organization must be filed with the state office where the business will be based the business owner must create an llc operating agreement defining the business structure finally the new company must obtain an ein from the irs | sabrina jiang investopedia 2020advantages and disadvantagesa sole proprietorship requires a limited amount of paperwork to get started the tax process is simpler because an employer identification number ein from the internal revenue service irs is not required and owners can use their social security number ssn to pay taxes income generated from a pass through business is only subject to a single layer of income tax and in some cases may be eligible for a 20 tax deduction until 2026 an important downside of a sole proprietorship is that it provides no liability protection to the owner by contrast an llc separates business and personal assets and the owner is protected against creditors seizing their assets such as their home this unlimited liability goes beyond the business entity to the owners themselves sole proprietorships must rely on standard funding like bank loans or lines of credit banks may view a new business with a small balance sheet as a high risk borrower no need to obtain an ein from the irsquick and easy setup compared with other business structurespass through tax advantagepersonal assets are not separated from business assetsdifficulty in raising capitalowners assume all debt and tax liabilitythe tax cuts and jobs act tcja of 2017 added a tax break for pass through entities that essentially allows them to deduct up to 20 of qualified business income that deduction can result in huge savings and runs until jan 1 2026 unless extended by congress taxationthe owner of a sole proprietorship pays personal income tax on profits earned from the business sole proprietors report their income and expenses on their tax returns and pay income and self employment taxes on profits tax forms include | |
what is an example of a sole proprietorship | independent photographers small landscaping companies freelance writers or personal trainers are examples of sole proprietorship businesses | |
is a sole proprietorship the same as being self employed | a sole proprietor owns and operates an unincorporated business independent of partners and is solely responsible for the liabilities and tax implications of the business the sole proprietor is also considered self employed however self employed is a broader term that can be applied to those who work as independent contractors writers tradespeople lawyers salespeople and insurance agents self employed individuals generally file an annual income tax return and pay estimated taxes quarterly | |
what is solvency | solvency is the ability of a company to meet its long term debts and financial obligations solvency can be an important measure of financial health since it s one way of demonstrating a company s ability to manage its operations into the foreseeable future the quickest way to assess a company s solvency is by checking its shareholders equity on the balance sheet which is the sum of a company s assets minus liabilities | |
how solvency works | solvency portrays the ability of a business or individual to pay off its financial obligations for this reason the quickest assessment of a company s solvency is its assets minus liabilities which equal its shareholders equity there are also solvency ratios which can spotlight certain areas of solvency for deeper analysis many companies have negative shareholders equity which is a sign of insolvency negative shareholders equity insinuates that a company has no book value and this could even lead to personal losses for small business owners if not protected by limited liability terms if a company must close in essence if a company was required to immediately close down it would need to liquidate all of its assets and pay off all of its liabilities leaving only the shareholders equity as a remaining value the shareholders equity on a company s balance sheet can be a quick way to check a company s solvency and financial health carrying negative shareholders equity on the balance sheet is usually only common for newly developing private companies startups or recently offered public companies as a company matures its solvency position typically improves however certain events may create an increased risk to solvency even for well established companies in the case of business the pending expiration of a patent can pose risks to solvency as it will allow competitors to produce the product in question and it results in a loss of associated royalty payments further changes in certain regulations that directly impact a company s ability to continue business operations can pose an additional risk both businesses and individuals may also experience solvency issues should a large judgment be ordered against them after a lawsuit | |
when studying solvency it is also important to be aware of certain measures used for managing liquidity solvency and liquidity are two different things but it is often wise to analyze them together particularly when a company is insolvent a company can be insolvent and still produce regular cash flow as well as steady levels of working capital | special considerations solvency ratiosassets minus liabilities is the quickest way to assess a company s solvency the solvency ratio calculates net income depreciation and amortization total liabilities this ratio is commonly used first when building out a solvency analysis there are also other ratios that can help to more deeply analyze a company s solvency the interest coverage ratio divides operating income by interest expense to show a company s ability to pay the interest on its debt a higher interest coverage ratio indicates greater solvency the debt to assets ratio divides a company s debt by the value of its assets to provide indications of capital structure and solvency health other ratios that may be analyzed when considering solvency include solvency ratio levels vary by industry so it is important to understand what constitutes a good ratio for the company before drawing conclusions from the ratio calculations ratios that suggest lower solvency than the industry average could raise a flag or suggest financial problems on the horizon investopedia dennis madambasolvency vs liquiditywhile solvency represents a company s ability to meet all of its financial obligations generally the sum of its liabilities liquidity represents a company s ability to meet its short term obligations this is why it can be especially important to check a company s liquidity levels if it has a negative book value one of the easiest and quickest ways to check on liquidity is by subtracting short term liabilities from short term assets this is also the calculation for working capital which shows how much money a company has readily available to pay its upcoming bills short term assets and short term liabilities are those that have a one year time frame for example cash and equivalents is a common short term asset short term accounts payable is a common short term liability a company can survive with insolvency for a reasonable time period but a company cannot survive without liquidity some interesting ratios that can be helpful in more deeply assessing liquidity can include | |
how is solvency determined | there are several ways to figure a company s solvency ratio but one of the most basic formulas is to subtract their liabilities from their assets if there is still value after the liabilities have been subtracted the company is considered solvent | |
are solvency ratios the same for every company | no solvency ratios vary from industry to industry while companies should always strive to have more assets than liabilities the margin for their surplus can change depending on their business can a company survive if they are insolvent some companies can survive for a time while being insolvent since their assets and liabilities tend to be long term metrics they may be able to operate the same as if they were solvent as long as they have liquidity liquidity is the capital that a company has to operate their business | |
what is a solvency ratio | a solvency ratio is a key metric used to measure an enterprise s ability to meet its long term debt obligations and is used often by prospective business lenders a solvency ratio indicates whether a company s cash flow is sufficient to meet its long term liabilities and thus is a measure of its financial health an unfavorable ratio can indicate some likelihood that a company will default on its debt obligations investopedia laura porterunderstanding solvency ratiosa solvency ratio is one of many metrics used to determine whether a company can stay solvent in the long term a solvency ratio is a comprehensive measure of solvency as it measures a firm s actual cash flow rather than net income by adding back depreciation and other non cash expenses to assess a company s capacity to stay afloat it measures this cash flow capacity versus all liabilities rather than only short term debt this way a solvency ratio assesses a company s long term health by evaluating its repayment ability for its long term debt and the interest on that debt solvency ratios vary from industry to industry a company s solvency ratio should therefore be compared with its competitors in the same industry rather than viewed in isolation a solvency ratio terminology is also used when evaluating insurance companies comparing the size of their capital relative to the premiums written and measures the risk an insurer faces on claims it cannot cover the main solvency ratios are the debt to assets ratio the interest coverage ratio the equity ratio and the debt to equity d e ratio these measures may be compared with liquidity ratios which consider a firm s ability to meet short term obligations rather than medium to long term ones types of solvency ratiosthe interest coverage ratio is calculated as follows interest coverage ratio ebit interest expenses text interest coverage ratio frac text ebit text interest expenses interest coverage ratio interest expensesebit | |
where | the interest coverage ratio measures how many times a company can cover its current interest payments with its available earnings in other words it measures the margin of safety a company has for paying interest on its debt during a given period the higher the ratio the better if the ratio falls to 1 5 or below it may indicate that a company will have difficulty meeting the interest on its debts the debt to assets ratio is calculated as follows debt to assets ratio debt assets text debt to assets ratio frac text debt text assets debt to assets ratio assetsdebt the debt to assets ratio measures a company s total debt to its total assets it measures a company s leverage and indicates how much of the company is funded by debt versus assets and therefore its ability to pay off its debt with its available assets a higher ratio especially above 1 0 indicates that a company is significantly funded by debt and may have difficulty meetings its obligations the shareholder equity ratio is calculated as follows ser tse total assets where ser shareholder equity ratio tse total shareholder equity begin aligned text ser frac text tse text total assets textbf where text ser text shareholder equity ratio text tse text total shareholder equity end aligned where ser total assetstse ser shareholder equity ratiotse total shareholder equity the equity ratio or equity to assets shows how much of a company is funded by equity as opposed to debt the higher the number the healthier a company is the lower the number the more debt a company has on its books relative to equity the debt to equity d e ratio is calculated as follows debt to equity ratio debt outstanding equity text debt to equity ratio frac text debt outstanding text equity debt to equity ratio equitydebt outstanding the d e ratio is similar to the debt to assets ratio in that it indicates how a company is funded in this case by debt the higher the ratio the more debt a company has on its books meaning the likelihood of default is higher the ratio looks at how much of the debt can be covered by equity if the company needed to liquidate | |
don t just look at one ratio from one period most financial ratios are able to tell more of a story when you look at the same ratio over time or look at the same ratio across similar companies | solvency ratios vs liquidity ratiossolvency ratios and liquidity ratios are similar but have some important differences both of these categories of financial ratios will indicate the health of a company the main difference is that solvency ratios offer a longer term outlook on a company whereas liquidity ratios focus on the shorter term solvency ratios look at all assets of a company including long term debts such as bonds with maturities longer than a year liquidity ratios on the other hand look at just the most liquid assets such as cash and marketable securities and how those can be used to cover upcoming obligations in the near term if an investor wants to know whether a company will be able to pay its bills next year they are often most interested in looking at the liquidity of the company if a company is illiquid they won t be able to pay their short term bills as they come due on the other hand investors more interested in a long term health assessment of a company would want to analyze solvency ratios limitations of solvency ratiosa company may have a low debt amount but if its cash management practices are poor and accounts payable are surging as a result its solvency position may not be as solid as would be indicated by measures that include only debt it s important to look at a variety of ratios to comprehend the true financial health of a company as well as understand the reason that a ratio is what it is furthermore a number itself won t give much of an indication a company needs to be compared to its peers particularly the strong companies in its industry to determine if the ratio is an acceptable one or not for example an airline company will have more debt than a technology firm just by the nature of its business an airline company has to buy planes pay for hangar space and buy jet fuel costs that are significantly more than a technology company will ever have to face example of solvency ratiosbelow is a screenshot of amazon s financial position at the end of 2023 at the end of dec 31 2023 amazon had over 527 9 billion of total company assets 1amazon com balance sheet for fy 2023 although total debt is not explicitly shown on the financial statement it can easily be calculated as the difference between total assets and total stockholders equity both of which are shown using subtraction amazon s debt was 316 632 million at the end of 2022 and 325 979 million at the end of 2023 one can get a sense of amazon s solvency by comparing last year s debt to equity ratio to this year s ratio the ratios for each year are from these two calculations one can assess that amazon s long term solvency increased and the company s financial positioning became less risky over the course of the year this is because the company now has proportionally less debt on its books compared to equity in another example amazon s debt to assets ratio also increased this should come as no surprise as the company was shown to have taken on more debt in comparison to equity so all else being equal the relationship between debt and total assets should have also changed this means that the company used to have 0 68 of debt for every 1 of assets in other words 68 of all company assets were financed through debt now the company has taken on a little bit more debt but also increased its assets so only 62 of its assets are financed through debt slight variations like this are often not a big deal but more consistent long term trends or radical changes from one period to the next can indicate how effectively a company is managing its assets | |
what are solvency ratios | a solvency ratio measures how well a company s cash flow can cover its long term debt solvency ratios are a key metric for assessing the financial health of a company and can be used to determine the likelihood that a company will default on its debt solvency ratios differ from liquidity ratios which analyze a company s ability to meet its short term obligations | |
how is a solvency ratio calculated | solvency ratios measure a company s cash flow which includes non cash expenses and depreciation against all debt obligations for instance consider the debt to assets ratio a popular metric that measures the degree that a company s assets are financed by debt where debt to assets equals total debt divided by total assets another common solvency ratio the debt to equity d e ratio shows how financially leveraged a company is where debt to equity equals total debt divided by total equity | |
what is the difference between a solvency ratio and a liquidity ratio | solvency ratios also referred to as leverage ratios analyze the impact on long term obligations and a company s ability to continue operating over a longer horizon by contrast liquidity ratios look at two main objectives a company s ability to pay for short term liabilities due under a year and the ability to quickly sell assets to raise cash | |
is a high solvency ratio good | a high solvency ratio is usually good as it means the company is usually in better long term health compared to companies with lower solvency ratios on the other hand a solvency ratio that is too high may show that the company is not utilizing potentially low cost debt as much as it should while solvency is mostly used as a barometer of financial health and higher is good it is also used to evaluate some of the operational efficiencies where higher is not always better | |
is solvency the same as debt | solvency is related to debt as solvency is the measurement of how well a company will be able to pay off its debts in a lot of cases it makes sense for a company to borrow money in other cases it may be cheaper to take on debt rather than issue stock in the long run however it is important that a company keeps track of its future obligations and whether it will be able to pay long term debt as it comes due although solvency and debt are not the same thing they are very closely related the bottom linesolvency ratios are financial measurements that usually look at a company s total assets total debt or total equity to better understand the company s financing structure this financial structure plays a critical part in knowing whether the company will be able to pay its long term debts as they come due and have enough money in the long run the most common solvency ratios are the debt to equity ratio the debt to assets ratio and and the interest coverage ratio | |
what is the sortino ratio | the sortino ratio is a variation of the sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset s standard deviation of negative portfolio returns downside deviation instead of the total standard deviation of portfolio returns the sortino ratio takes an asset or portfolio s return and subtracts the risk free rate and then divides that amount by the asset s downside deviation the ratio was named after frank a sortino 1formula and calculation of sortino ratio sortino ratio r p r f d where r p actual or expected portfolio return r f risk free rate d standard deviation of the downside begin aligned text sortino ratio frac r p r f sigma d textbf where r p text actual or expected portfolio return r f text risk free rate sigma d text standard deviation of the downside end aligned sortino ratio d rp rf where rp actual or expected portfolio returnrf risk free rate d standard deviation of the downside | |
what the sortino ratio can tell you | the sortino ratio is a useful way for investors analysts and portfolio managers to evaluate an investment s return for a given level of bad risk since this ratio uses only the downside deviation as its risk measure it addresses the problem of using total risk or standard deviation which is important because upside volatility is beneficial to investors and isn t a factor most investors worry about example of how to use the sortino ratiojust like the sharpe ratio a higher sortino ratio result is better when looking at two similar investments a rational investor would prefer the one with the higher sortino ratio because it means that the investment is earning more return per unit of the bad risk that it takes on for example assume mutual fund x has an annualized return of 12 and a downside deviation of 10 mutual fund z has an annualized return of 10 and a downside deviation of 7 the risk free rate is 2 5 the sortino ratios for both funds would be calculated as mutual fund x sortino 1 2 2 5 1 0 0 9 5 begin aligned text mutual fund x sortino frac 12 2 5 10 0 95 end aligned mutual fund x sortino 10 12 2 5 0 95 mutual fund z sortino 1 0 2 5 7 1 0 7 begin aligned text mutual fund z sortino frac 10 2 5 7 1 07 end aligned mutual fund z sortino 7 10 2 5 1 07 even though mutual fund x is returning 2 more on an annualized basis it is not earning that return as efficiently as mutual fund z given their downside deviations based on this metric mutual fund z is the better investment choice while using the risk free rate of return is common investors can also use expected return in calculations to keep the formulas accurate the investor should be consistent in terms of the type of return the difference between the sortino ratio and the sharpe ratiothe sortino ratio improves upon the sharpe ratio by isolating downside or negative volatility from total volatility by dividing excess return by the downside deviation instead of the total standard deviation of a portfolio or asset the sharpe ratio punishes the investment for good risk which provides positive returns for investors however determining which ratio to use depends on whether the investor wants to focus on total or standard deviation or just downside deviation | |
what is a sovereign wealth fund swf | a sovereign wealth fund is a state owned investment fund comprised of money generated by the government often derived from a country s surplus reserves swfs provide a benefit for a country s economy and its citizens understanding sovereign wealth funds swfs the funding for a sovereign wealth fund can come from a variety of sources popular sources are surplus reserves from state owned natural resource revenues trade surpluses bank reserves that may accumulate from budgeting excesses foreign currency operations money from privatizations and governmental transfer payments in general sovereign wealth funds usually have a targeted purpose some countries have sovereign wealth funds that can be similar to venture capital for the private sector similar to any type of investment fund swfs have their own objectives terms risk tolerances liability matches and liquidity concerns some funds may prefer returns over liquidity and vice versa depending on the assets and objectives sovereign wealth funds risk management can range from very conservative to a high tolerance for risk types of swfstraditional classifications of sovereign wealth funds include investment termsthe amount of money in a swf is usually substantial the acceptable investments included in each swf vary from fund to fund and country to country countries can create or dissolve swfs to match the needs of their population funds with liquidity concerns may limit investments to only very liquid public debt instruments in some cases sovereign wealth funds will invest directly in domestic industries liquidity debt and allocation balances can be some of the key factors in investment terms there can be a concern that swfs have a political influence some of the most significant sovereign wealth funds are not entirely transparent about their investments and corporate governance practices examples of swfsthe top five largest swfs by assets as of june 2024 included the total assets of the top 100 sovereign wealth funds as of 2024 1norway s government pension fund global is the largest in the world it was established in 1990 as the government petroleum fund with the initial purpose of creating a fund to hold surplus revenues from the country s oil trade in 2006 it changed its name to the norway government pension fund global 2the norway fund invests in equities fixed income and real estate in 2024 it reported a return of 16 1 over the previous year in 2023 70 9 of the fund was in equity 1 9 in real estate 27 in fixed income and 0 1 in unlisted renewable energy infrastructure 3the china investment corporation is a 1 35 trillion swf this fund is used for managing a portion of the country s foreign currency reserves 4 the chinese ministry of finance established the china investment corporation in 2007 by issuing special bonds 5the u s social security trust funds and the government pension investment fund japan are the two largest government public pension funds in the world the swf institute doesn t include these in the pure swf rankings the u s social security trust funds has 2 8 trillion in total assets the government pension investment fund for japan has 1 6 trillion in assets 6 these funds focus on helping a growing elderly population from funding through the current labor force the u s social security trust funds invest in special issue securities 7 the japan gpif is more diversified with allocations to domestic bonds foreign bonds domestic equities and foreign equities 8 | |
does the united states have a sovereign wealth fund | although the federal government does not have a specific sovereign wealth fund several of its states do the largest is the alaska permanent fund corporation a 67 billion dollar state owned investment fund that pays an annual dividend to eligible residents of alaska | |
which country has the largest sovereign wealth fund | the largest sovereign wealth fund is the norway government pension fund global which invests surplus oil revenues in international assets to ensure that the country will remain prosperous after the oil runs out it holds 1 6 trillion in total assets and is invested in about 1 5 of all listed shares earnings from the fund provide about 20 of the norwegian government s annual revenues 9 | |
what does a sovereign wealth fund invest in | sovereign wealth funds invest in the same types of assets as other funds including equities debt securities real estate resource extraction and other assets although the primary goal is to provide investment returns swfs may also seek investments that benefit the economy of the host country such as in infrastructure or domestic companies the bottom linea sovereign wealth fund is a pool of assets that is run by a country s government invested in assets to generate economic benefits for the citizens for oil rich countries like norway kuwait and saudi arabia sovereign wealth funds represent an important source of government revenues and a tool for economic policy | |
what are special drawing rights sdrs | special drawing rights sdr refer to an international type of monetary reserve currency created by the international monetary fund imf in 1969 it operates as a supplement to the existing money reserves of member countries created in response to concerns about the limitations of gold and dollars as the sole means of settling international accounts sdrs augment international liquidity by supplementing the standard reserve currencies understanding special drawing rights sdrs an sdr is essentially an artificial currency instrument used by the imf and it s built from a basket of important national currencies the imf uses sdrs for internal accounting purposes sdrs are allocated by the imf to its member countries and are backed by the full faith and credit of the member countries governments the makeup of the sdr is re evaluated every five years 2 the current makeup of the sdr is represented by the following table and began in august 2022 2the sdr was formed with a vision of becoming a major element of international reserves with gold and reserve currencies forming a minor incremental component of such reserves this consisted of central bank or government reserves of gold and globally accepted foreign currencies that could be used to buy the local currency in foreign exchange markets to maintain a stable exchange rate however the international supply of the u s dollar and gold the two main reserve assets wasn t sufficient to support growth in global trade and the related financial transactions that were taking place this prompted member countries to form an international reserve asset under the guidance of the imf the bretton woods system imploded in 1973 a few years after the sdr was created moving major currencies to the floating exchange rate system 3 international capital markets expanded considerably in time enabling creditworthy governments to borrow funds this saw many governments register exponential growth in their international reserves these developments diminished the stature of the sdr as a global reserve currency 2besides acting as an auxiliary reserve asset and though its stature has diminished the sdr is the unit of account for the imf its value is summed up in u s dollars and is calculated from a weighted basket of major currencies the japanese yen the u s dollar the chinese renminbi the pound sterling and the euro 2allocation of special drawing rights sdrs the allocation of sdrs to each member country is based on the member s imf quota shares the stronger a country s economy the higher quota shares it has for example the united states has 82 994 shares while afghanistan has 323 shares 4the more quota shares that a country has the more it pays into the imf which comes with greater voting power the sdr share of emerging markets and developing economies is approximately 42 2 of this amount 3 2 is for low income countries 5under the articles of agreement of the international monetary fund the imf may allocate sdrs to members under certain conditions the allocation must meet the imf s goal of meeting the long term global need to supplement existing reserve assets for a general allocation of sdrs to occur the allocation must also receive an 85 majority approval of the total voting power of members in the sdr department 2sdr 660 7 billion had been allocated as of 2022 which is equal to approximately 943 billion 2the imf allocated 650 billion of sdrs on aug 2 2021 the largest in its history the reason was to boost global liquidity during the coronavirus pandemic 2after sdrs have been allocated to each country they have a few options on how they can manage them they can hold the allocated sdrs as part of their foreign exchange reserves sell their reserves or use their reserves for example a member country can exchange an sdr for a freely usable currency 6members can also use sdrs for other reasons such as the repayment of loans payments of obligations pledges the payment of interest on loans or paying for increases in quota amounts 6requirements of special drawing rights sdrs the current requirements to be included in the sdr were established in 2000 7the board states that the sdr basket is to comprise the currencies of members or monetary unions whose exports had the largest value over a five year period and have been determined by the imf to be freely usable 8according to the imf freely usable is a currency that i is in fact widely used to make payments for international transactions and ii is widely traded in the principal exchange markets 8determining what is freely usable is gauged on metrics such as the number of shares of the currency in reserve holdings the currency denomination of international debt securities the volume of transactions in foreign exchange markets cross border payments and trade finance settling claims with special drawing rights sdrs the sdr isn t regarded as a currency or a claim against the imf assets instead it is a prospective claim against the freely usable currencies that belong to the imf member states the articles of agreement of the imf define a freely usable currency as one that is widely used in international transactions and is frequently traded in foreign exchange markets 9the imf member states that hold sdrs can exchange them for freely usable currencies by either agreeing among themselves to voluntary swaps or by the imf instructing countries with stronger economies or larger foreign currency reserves to buy sdrs from the less endowed members 10 imf member countries can borrow sdrs from reserves at favorable interest rates mostly to adjust their balance of payments to favorable positions interest rates on special drawing rights sdrs the interest rate on sdrs or the sdri provides the basis for calculating the interest rate that is charged to member countries when they borrow from the imf and is paid to members for their remunerated creditor positions in the imf it is also the interest paid to member countries on their own sdr holdings and charged on their sdr allocation 2the sdri is determined weekly based on a weighted average of representative interest rates on short term government debt instruments in the money markets of the sdr basket currencies with a floor of five basis points it is posted on the imf website 1112 | |
how many currencies make up an sdr | the value of an sdr is made up of five currencies which are the u s dollar euro chinese renminbi japanese yen and pound sterling 2 | |
how much is a special drawing right worth | the value or worth of an sdr is calculated daily and is based on the weights of the currencies that make up the sdr basket u s dollar 43 38 euro 29 31 chinese renminbi 12 28 japanese yen 7 59 and pound sterling 7 44 the value of the sdr is arrived at by summing up in u s dollars the value of these currencies 212can sdrs replace the dollar sdrs are considered to be an international reserve currency and could technically replace the dollar in terms of global transactions given the strength and wide use of the dollar internationally however this is not likely to happen any time soon | |
why is an sdr called paper gold | an sdr is called paper gold because at the time of its creation it was viewed as an asset that could act as a reserve asset that would supplement gold reserves and other currencies thus the name paper gold | |
what is a special economic zone sez | a special economic zone sez is an area in a country that is designed to generate positive economic growth an sez is normally subject to different and more favorable economic regulations compared to other regions in the same country including tax incentives and the opportunity to pay lower tariffs sez economic regulations tend to be conducive to and attract foreign direct investment fdi fdi refers to any investment made by a firm or individual in one country into business interests located in another country understanding how special economic zones sezs special economic zones are special areas designated within a country that have different business and trade regulations they are normally established to facilitate rapid economic growth and development in certain geographic regions economic growth may come locally regionally and or internationally the growth that results from special economic zones is accomplished by leveraging tax incentives as a way of attracting foreign dollars through fdi and technological advancement sezs may increase export levels for the implementing country and other countries that supply it with intermediate products however there is a risk that countries may abuse the system and use it to retain protectionist barriers in the form of taxes and fees sezs can also create a high level of bureaucracy due to their regulatory requirements this can have the effect of funneling money away from the system making it less efficient types of sezs include free trade zones industrial parks and specialized zones we go into more detail about these and other types of sezs below while there are benefits for businesses individuals or entities operating within an sez the macroeconomic and socioeconomic benefits for a country using an sez strategy are subject to debate history of special economic zones sezs the first sezs appeared in the late 1950s in industrialized countries they were designed to attract foreign investment from multinational corporations the first was at shannon airport in clare ireland 1 in the 1970s sezs were also established in latin american and east asian countries the most successful sezs to date have been in china there were more than 7 000 sezs as of 2022 according to the united nations conference on trade and development 2 they are found in every part of the world notably in developing and transitional economies that use them as a tool for industrialization 3types of special economic zones sezs as noted above there are a number of different types of special economic zones the following are some of the most common categories example of special economic zones sezs while many countries have set up sezs china has been the most successful in using sezs to attract foreign capital the first four sezs in china were created in 1979 in the southeastern coastal region shenzhen zhuhai and shantou in guangdong province and xiamen in fujian province 4china added hainan island to its list of sezs in 1983 5 the success of the original sezs prompted the government to create 14 open coastal cities in 1984 these cities enjoy similar benefits as sezs such as the power to approve investment projects offer incentives to foreign investors and import equipment and technology tax free 6within china the sezs essentially act as liberal economic environments that promote innovation and advancement the chinese government continues to allow these areas to offer tax incentives to foreign investors as a way of further developing the infrastructure of these regions mainstream economists agree that the country s sezs helped to liberalize the formerly traditional state without the sezs china may not have been able to successfully implement the same level of national reform | |
what are some of the characteristics of special economic zones | special economic zones are designed to create and boost economic growth one of their main goals is to capitalize on foreign direct investment sezs are specially designated areas that are clearly defined with physical barriers and management is done by a single authority users and investors within sezs can take advantage of certain benefits including favorable regulations and taxation | |
what are some common types of special economic zones | some of the most common types of special economic zones are free trade zones export processing zones industrial parks and specialized zones many of these offer users tax incentives such as exemption on duties and other fees and access to foreign direct investment | |
why did china create special economic zones | special economic zones are found all around the world but some of the most successful ones are found in china the country started to develop sezs in the 1980s as a way to boost economic growth in order to take advantage of global capital as foreign firms and investors showed interest in the country s economic potential the federal government revitalized existing sezs and established new ones in the 1990s to continue fueling this growth 7the bottom linespecial economic zones are widely used around the world as a way to boost economic growth these areas are specially designed zones that promote investment primarily through foreign dollars sezs provide incentives such as favorable tax and tariff regulations some of the most common types of sezs include free trade zones and industrial parks which you ve probably come across in many major cities across the country | |
what is a special power of attorney | a special power of attorney is a legal document that authorizes one person called an agent or an attorney in fact to act on behalf of another person known as the principal under specific clearly laid out circumstances also known as a limited power of attorney lpoa a special power of attorney allows an individual to give another person the ability to make certain legal or financial decisions on their behalf understanding special power of attorneya power of attorney refers to an agreement between two individuals that allows one individual to act on the other s behalf for example you might want a power of attorney if you are out of the country and unable to carry out a business transaction yourself or if your abilities are limited by a medical condition the person who initiates a power of attorney whether in oral or written form is referred to as the grantor or principal the authorized individual named in the agreement is referred to as the attorney in fact or agent in the case of a special power of attorney the actions that the agent can take are limited to very specific circumstances because this type of power of attorney is limited to what has been laid out in the signed document it is particularly important that the principal is very clear about the powers that they want the agent to have additionally the principal may create more than one special power of attorney naming a different individual in each one general power of attorney vs special power of attorneywhile a special power of attorney gives the agent authority for a limited set of actions under a restricted set of circumstances such as buying or selling a home withdrawing money from an account or running a business a general power of attorney is more broad a general power of attorney grants the agent the legal right to make all financial and legal decisions on behalf of the principal an individual who will be out of the country for a year may give an agent extensive powers to carry out transactions such as personal and business financial transactions bill payments life insurance purchases charitable donations real estate management and the filing of tax returns a special power of attorney may need to be notarized to have legal authority special considerationsa power of attorney becomes ineffective if its principal dies or becomes incapacitated meaning the principal is unable to grant such power due to an injury or mental illness however a special power of attorney can be made durable a durable power of attorney is one that authorizes the agent to continue acting on behalf of the principal even after the principal becomes incapacitated for instance due to a head injury or alzheimer s disease under a durable power of attorney the authority of the agent to act and make decisions on behalf of the principal continues until the principal s death for an individual who does not already have a durable power of attorney in place and does not have the capacity to execute a special power of attorney the court will impose a conservatorship or a guardianship to act on their behalf | |
what is a special purpose acquisition company spac | a special purpose acquisition company spac is a company without commercial operations and is formed strictly to raise capital through an initial public offering ipo for the purpose of acquiring or merging with an existing company also known as blank check companies spacs have existed for decades but their popularity has soared in recent years in 2020 247 spacs were created with 80 billion invested and in 2021 there were a record 613 spac ipos by comparison only 59 spacs came to market in 2019 12lara antal investopedia | |
how does a special purpose acquisition company spac work | spacs are commonly formed by investors or sponsors with expertise in a particular industry or business sector and they pursue deals in that area spac founders may have an acquisition target in mind but they don t identify that target to avoid disclosures during the ipo process called blank check companies spacs provide ipo investors with little information prior to investing spacs seek underwriters and institutional investors before offering shares to the public during a 2020 2021 boom period for spacs they attracted prominent names such as goldman sachs credit suisse and deutsche bank in addition to retired or semiretired senior executives the funds that spacs raise in an ipo are placed in an interest bearing trust account that cannot be disbursed except to complete an acquisition in the event it is unable to complete an acquisition funds will be returned and the spac will ultimately be liquidated a spac has two years to complete a deal or face liquidation in some cases some of the interest earned from the trust can serve as the spac s working capital after an acquisition a spac is usually listed on one of the major stock exchanges in 2019 spac ipos raised 13 6 billion this was more than four times the 3 5 billion they raised in 2016 interest in spacs increased in 2020 and 2021 with as much as 83 4 billion raised in 2020 and 162 5 billion in 2021 as of march 13 2022 spacs have raised 9 6 billion 3 | |
what are the advantages of a spac | spacs offer advantages for companies planning to go public the route to public offering using a spac may take a few months while a conventional ipo process can take anywhere from six months to more than a year additionally the owners of the target company may be able to negotiate a premium price when selling to a spac due to the limited time window to commence a deal being acquired by or merging with a spac that is sponsored by prominent financiers and business executives provides the target company with experienced management and enhanced market visibility the popularity of spacs in 2020 may have been triggered by the global covid 19 pandemic as many companies chose to forego conventional ipos because of market volatility and uncertainty 4 | |
what are the risks of a spac | an investor in a spac ipo trusts that promoters are successful in acquiring or merging with a suitable target company in the future however there exists a reduced degree of oversight from regulators and a lack of disclosure from the spac burdening retail investors with the risk that the investment may be overhyped or even fraudulent returns from spacs may not meet expectations offered during the promotion stage strategists at goldman sachs noted in september 2021 that of the 172 spacs that had closed a deal since the start of 2020 the median spac had outperformed the russell 3000 index from its ipo to deal announcement however six months after deal closure the median spac had underperformed the russell 3000 index by 42 percentage points 4as many as 70 of spacs that had their ipo in 2021 were trading below their 10 offer price by the end of that year according to a renaissance capital strategist this downward trend could signal that the spac bubble that some market experts had predicted may be bursting 4former president donald trump s conservative truth social app was brought public via a spac known as digital world acquisition corp dwac after initially rising to around 100 per share after the deal was announced in the spring of 2022 dwac shares were trading sharply lower at just around 18 toward the end of 2022 5one risk to investing in a spac is that even if they identify a company to acquire the deal may not end up going through according to industry reports more than 55 supposed spac deals worth tens of billions of dollars ended up being terminated in 2022 with an additional 65 spac sponsors shutting down entirely 6there are any number of reasons why a spac deal might fail because of how spacs are structured investors typically get back the par value of the shares usually 10 per share but may lose out if they buy shares at higher prices in anticipation of closing a deal indeed investors are only entitled to the pro rata share of the trust account and not the price at which spac shares are bought on the market 7though popular in recent years spacs face new accounting regulations issued by the u s securities and exchange commission sec as of april 2021 causing new spac filings to plummet in the second quarter from the record levels of 2021 s first quarter 8many celebrities including entertainers and professional athletes became so heavily invested in spacs that the sec issued an investor alert in march 2021 cautioning investors not to make investment decisions based solely on celebrity involvement 9by early 2022 spacs decreased in popularity due to increased regulatory oversight and less than expected performance 10real world examples of spacsrichard branson s virgin galactic was a high profile deal involving special purpose acquisition companies venture capitalist chamath palihapitiya s spac social capital hedosophia holdings bought a 49 stake in virgin galactic for 800 million before listing the company in 2019 11in 2020 bill ackman founder of pershing square capital management sponsored his own and the largest ever spac pershing square tontine holdings which raised 4 billion in its offering on july 22 2020 in august 2021 ackman planned to liquidate the spac but as of 2022 the spac has not been liquidated with efforts still under way to find a deal 1213 | |
how can an individual invest in a special purpose acquisition company spac | most retail investors cannot invest in promising privately held companies however spacs are a way for public investors to now partner with investment professionals and venture capital firms exchange traded funds etfs that invest in spacs have emerged and these funds typically include some mix of companies that recently went public by merging with a spac and spacs that are still searching for a target to take public as with all investments depending on the specific details of a spac investment there will be different levels of risk 14 | |
what are some prominent companies that have gone public through a spac | some of the best known companies to have become publicly listed by merging with a spac are digital sports entertainment and gaming company draftkings dkng aerospace and space travel company virgin galactic spce energy storage innovator quantumscape qs and real estate platform opendoor technologies open | |
what happens if a spac does not merge | spacs have a specific time frame in which they need to merge with another company and close a deal this time frame is usually 18 to 24 months if a spac cannot merge during the allotted time then it liquidates and all funds are returned to investors the bottom linea special purpose acquisition company spac is a type of investment vehicle that is created with the purpose of raising capital through an initial public offering ipo to acquire a private company spacs are sometimes called blank check companies because they are formed without a specific acquisition target in mind once the spac has raised sufficient capital through the ipo it uses the funds to search for and acquire a private company which is then taken public through a reverse merger this allows the private company to access the public markets and raise additional capital without going through the traditional ipo process while a popular alternative to traditional ipos the spac market has seemed to sour in recent years investopedia does not provide investment advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is a special purpose vehicle spv | a special purpose vehicle is a subsidiary created by a parent company to isolate financial risk it s also called a special purpose entity spe its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt a special purpose vehicle is sometimes referred to as a bankruptcy remote entity for this reason these vehicles can become a financially devastating way to hide company debt if accounting loopholes are exploited as seen in the 2001 enron scandal theresa chiechi investopediaunderstanding special purpose vehicles spvs a parent company creates an spv to isolate or securitize assets in a separate company that s often kept off the balance sheet it may be created to undertake a risky project while protecting the parent company from the most severe risks of its failure or solely to securitize debt in some cases so investors can be assured of repayment 1the operations of the spv are limited to the acquisition and financing of specific assets in any case the separate company structure serves as a method of isolating the risks of these activities an spv may serve as a counterparty for swaps and other credit sensitive derivative instruments a company can form the spv as a limited partnership a trust a corporation or a limited liability company llc among other options it may be designed for independent ownership management and funding spvs help companies securitize assets create joint ventures isolate corporate assets or perform other financial transactions spvs are used in venture capitalism by a group of investors to pool their assets to launch a new business or invest in a startup spvs typically make just one investment into a business whereas an investment fund would make multiple investments over some time financials of an spvthe financials of an spv may not appear on the parent company s balance sheet as equity or debt its assets liabilities and equity will be recorded only on its own balance sheet instead an investor should always check the financials of any spv before investing in a company remember enron the spv can therefore mask crucial information from investors who aren t getting a full view of a company s financial situation investors must analyze the balance sheet of the parent company and the spv before deciding whether to invest in a business | |
how enron used spvs | the massive financial collapse of enron corp in 2001 is a prime example of the misuse of an spv enron was a supposedly booming energy company based in houston texas enron s stock was rising rapidly and the company transferred much of the stock to a special purpose vehicle taking cash or a note in return the special purpose vehicle then used the stock for hedging assets that were held on the company s balance sheet 23enron guaranteed the special purpose vehicle s value to reduce risk the value of the special purpose vehicle followed and plunged when enron s stock price dropped and the guarantee was forced into play 32enron s misuse of spvs was by no means the only accounting trick perpetrated by the corporation but it may have been the greatest contributor to its abrupt fall enron couldn t pay the huge sums it owed creditors and investors and financial collapse followed quickly the company disclosed its financial information on balance sheets for the company and the special purpose vehicles before the end its conflicts of interest were there for all to see but few investors delved deep enough into the financials to grasp the gravity of the situation | |
what are special purpose vehicles used for | a special purpose vehicle spv is a subsidiary company that s formed to undertake a specific business purpose or activity spvs are commonly used in certain structured finance applications such as asset securitization joint ventures or property deals or to isolate parent company assets operations or risks spvs have many legitimate uses but have also played a role in several financial and accounting scandals |
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