I just read Priceless: The Myth of Fair Value by William Poundstone.
This book is mostly useful as a lesson in how to be aware of sneaky marketing and advertising, or as I like to call it, Defense Against the Dark Arts. Like a Malcolm Gladwell book, you get the point in the first few chapters but keep reading because it's entertaining and a week after finishing it you can't remember anything about it.
The basic idea is that people are terrible at absolute value pricing and much more sensitive to relative pricing. Not shocking. For example, if I showed you a pristine-looking windshield and asked you what it was worth, you might throw out a guess like $500. If I showed you a windshield full of dents and scratches and told you it was worth $500 and asked you to re-price the nice windshield, you might say $1000, judging it to be worth twice as much as the nasty windshield.
Poundstone looks at examples of this phenomenon in jury awards, theater seats, phone bills, real estate, car sales, sitcom star salaries, restaurant menus, super bowl tickets, etc etc. And of course he surveys dozens of studies performed with hapless undergrads. One recurring scenario is called the ultimatum game. "You are given $10 to split with a stranger, and you get to propose how the money is divided-for example, $6 for me and $4 for the other guy. The twist is that the other person gets to decide whether to accept your split or reject it. Provided she accepts, the money is split exactly as you specified. Should she reject the split, neither of you gets a penny." Many studies performed versions of this game, and nearly every time the responders felt the offer to be unfair (ie $8 for proposer and $2 for responder), they rejected it because of the perceived unfairness, forgoing a free $2 for the sake of punishing the proposer.
The point is, money-related decisions and ideas of value are often based more on emotions and context than righteous objectivity, no matter how savvy you think you are. If you nerd out on game theory, you'll like this book. Poundstone spends a bit too much time chronicling and adoring the founders of behavioral economics, but I enjoyed it otherwise and would say that it's worth reading and/or skimming.
Poke through the book with this sweet google books embed:
Thursday, September 30, 2010
Monday, September 27, 2010
Your College and Your Credit Card
I was delighted that the CARD act allows people 18-21 to get a credit card only with a cosigner over 21 because this will severely limit the amount of on-campus recruiting credit card companies can do. However, this is not the only type of shenanigans going down. In his recent article "Colorado Colleges Cash in Big on Credit Deals," David Migoya investigates several colleges and their arrangements with financial institutions. Here is his little chart:
The benefits for the college can be immense - in this chart alone I see a $75 payout for each new account, 0.7% of all transactions made on the card, up to $550,000 paid in yearly "salary," and lots of vague additional marketing fees. I get it. People see it as some kind of win-win: I make purchases on my credit card and my alma mater gets 0.5% at no cost to me!
Here is the cost to you: choice. As a student, you might tend to trust your college. It's a nonprofit, it wants to educate you, it has your best interest at heart. False. Your college's first priority is your college. Your college is hungry for money, but you already knew that because you're paying tuition. Maybe your college can negotiate with the company to get you a card with a great APR, low fees, and no sneaky tricks. But maybe Visa just offers your college $4.1 million dollars over 7 years and your college accepts a compromise on your behalf. This is simple selling out: lending credit card companies the reputation of a college to hook its students into starting their cycle of debt with Visa, not Mastercard.
I recognize that it's hard for a university to forgo a "free" $550,000 a year. That's a new soccer field! Full ride scholarships for 2 and a half orphans! An endowment for a cotton candy machine to live in the library in perpetuity! I get it. But consider: if the deal looks lucrative for the university, imagine how much money the credit card company makes on the debts of thousands of students for years to come. Maybe Sally Sophomore would have gotten a card with a lower APR if she'd shopped around. But she just got the card in the mail with university logo on it, and she just called to activate it. So easy!
There is an interesting example out of the Colorado list: The University of Colorado, which offers a student ID card tie-in to ATM cards from Elevated Credit Union (formerly U of Colorado Credit Union). The university relations comment: ""For us it's not some bank out of Wilmington, Del., that's saying, 'Hey, get a credit card,' " Ken McConnellogue said." This is obviously a special partnership, since the credit union was originally formed by people affiliated with the university. It's a more closed system, and the money stays local. This is not a credit card at all - only ATM/debit. Anyway, interesting counter example, but overall I'm pretty uncomfortable with schools making product recommendations.
click to enlarge
The benefits for the college can be immense - in this chart alone I see a $75 payout for each new account, 0.7% of all transactions made on the card, up to $550,000 paid in yearly "salary," and lots of vague additional marketing fees. I get it. People see it as some kind of win-win: I make purchases on my credit card and my alma mater gets 0.5% at no cost to me!
Here is the cost to you: choice. As a student, you might tend to trust your college. It's a nonprofit, it wants to educate you, it has your best interest at heart. False. Your college's first priority is your college. Your college is hungry for money, but you already knew that because you're paying tuition. Maybe your college can negotiate with the company to get you a card with a great APR, low fees, and no sneaky tricks. But maybe Visa just offers your college $4.1 million dollars over 7 years and your college accepts a compromise on your behalf. This is simple selling out: lending credit card companies the reputation of a college to hook its students into starting their cycle of debt with Visa, not Mastercard.
I recognize that it's hard for a university to forgo a "free" $550,000 a year. That's a new soccer field! Full ride scholarships for 2 and a half orphans! An endowment for a cotton candy machine to live in the library in perpetuity! I get it. But consider: if the deal looks lucrative for the university, imagine how much money the credit card company makes on the debts of thousands of students for years to come. Maybe Sally Sophomore would have gotten a card with a lower APR if she'd shopped around. But she just got the card in the mail with university logo on it, and she just called to activate it. So easy!
There is an interesting example out of the Colorado list: The University of Colorado, which offers a student ID card tie-in to ATM cards from Elevated Credit Union (formerly U of Colorado Credit Union). The university relations comment: ""For us it's not some bank out of Wilmington, Del., that's saying, 'Hey, get a credit card,' " Ken McConnellogue said." This is obviously a special partnership, since the credit union was originally formed by people affiliated with the university. It's a more closed system, and the money stays local. This is not a credit card at all - only ATM/debit. Anyway, interesting counter example, but overall I'm pretty uncomfortable with schools making product recommendations.
Thursday, September 23, 2010
Financial Advice! from American Express...
That's right, American Express and your friendly conglomerate Federated Media are offering a "fun, fresh" personal finance website for young adults called Currency. 25 real personal finance writers will post articles. There are 6 online mini course modules offered "in conjunction with Wharton." You get "currency stars" for reading articles and taking courses, and once you get 100, you'll get a gold star! For serious.
This is akin to tobacco companies being forced to tell kids that smoking is baaad. A wonderful PR opportunity - see everybody, we're doin' our part! We samaritans at Amex just want to teach, lead, and inform. And gather data. Precious, precious data. Oh, and there's a tiny link at the bottom left of the site that says "Not a cardmember? Find out how you can become one."
There's also an iphone app for foursquare users: "Social Currency is the app that lets you shop with all your friends, whether they're down the street or across the country. Tell them what you're buying, where you're finding it, how much you're spending, and what you want. Even better-find out what your friends are buying, too."
And by friends they mean American Express and Federated Media. Hm. How about this FAQ:
Q: What’s a Want?
A: That's like a Purchase you haven’t bought: tell your friends what you're looking for and where.
Redefining a "want" as something you just haven't bought yet. And here I thought that Financial Education 101 is to figure out the difference between needs and wants so you stop buying lots of wants.
Ok enough. Obviously "Currency" enrages me. Getting your financial advice from a credit card company is like getting your high school health curriculum from Burger King. Even with a whole slew of financial writers signed on and this partnership with Wharton, this is still sponsored by American Express and you better believe they're slurping up all the data about your "wants" on foursquare. I am always angry when corporations pretend to lend you a kindly hand.
What are your favorite non-corporate personal finance websites and blogs? Leave em in the comments. There's gotta be something between Currency and the FDIC's fuddy-duddy Money Smart for Young Adults in which a woman called "Penny Cash" reads aloud how to use the menu buttons for 10 minutes. Look, we know how to use the internet, FDIC.
This is akin to tobacco companies being forced to tell kids that smoking is baaad. A wonderful PR opportunity - see everybody, we're doin' our part! We samaritans at Amex just want to teach, lead, and inform. And gather data. Precious, precious data. Oh, and there's a tiny link at the bottom left of the site that says "Not a cardmember? Find out how you can become one."
There's also an iphone app for foursquare users: "Social Currency is the app that lets you shop with all your friends, whether they're down the street or across the country. Tell them what you're buying, where you're finding it, how much you're spending, and what you want. Even better-find out what your friends are buying, too."
And by friends they mean American Express and Federated Media. Hm. How about this FAQ:
Q: What’s a Want?
A: That's like a Purchase you haven’t bought: tell your friends what you're looking for and where.
Redefining a "want" as something you just haven't bought yet. And here I thought that Financial Education 101 is to figure out the difference between needs and wants so you stop buying lots of wants.
Also, many of the articles are very short (to account for Generation Y's frenetic attention span) and also inane. I uncovered important tips such as: "If you do own an espresso machine, dust it off and locate the manual." How very wise and thrifty. In a mini-article called "Secrets of Extreme Savers," it is revealed that you can automate your bill payments. (!gahjustblewmymind) "You don't have to be the queen of coupons (or the king of ramen noodles) to save." Thanks for that hilarious tidbit, Jeremy Vohwinkle (*I didn't make up that name). However I am beginning to envision that the king of ramen noodles would be a good, cheap Halloween costume, something like the flying spaghetti monster.
Ok enough. Obviously "Currency" enrages me. Getting your financial advice from a credit card company is like getting your high school health curriculum from Burger King. Even with a whole slew of financial writers signed on and this partnership with Wharton, this is still sponsored by American Express and you better believe they're slurping up all the data about your "wants" on foursquare. I am always angry when corporations pretend to lend you a kindly hand.
What are your favorite non-corporate personal finance websites and blogs? Leave em in the comments. There's gotta be something between Currency and the FDIC's fuddy-duddy Money Smart for Young Adults in which a woman called "Penny Cash" reads aloud how to use the menu buttons for 10 minutes. Look, we know how to use the internet, FDIC.
Tuesday, September 21, 2010
Student Loan Forgiveness Extravaganza
While some college grads enjoy a time of whimsical life exploration after graduation, others realize that they owe $100,000 in student loans. Like everybody else, you want to spend a year in the Amazon basin studying pink river dolphins, but you can't just pause payment on the loans because Sallie Mae will hunt you down and slay all of your dolphin friends.
So you are stuck trying to strike a balance between what is financially responsible (making a large income to pay off loans quickly) and what you actually want to spend your time doing (riding dolphins). Or maybe you just want to take a low-paying public service job.
You've probably heard about the Public Service Loan Forgiveness deal where after 10 years of public service the balance of your federal loans are forgiven. A standard loan repayment plan usually is on a 10-year schedule, so this loan forgiveness is only really pertinent if you are on a different repayment plan. You have to make 120 payments, but they don't have to be consecutive. There are exceptions for PeaceCorps and Americorps. If you are planning to request this loan forgiveness, make sure you are keeping documentation of your employment and loan payments. Check out these PDFs for more specific info: (Q&As) and fact sheet. Honestly this program is a lot less useful than I thought, considering most people are on track to pay off their loans in 10 years.
There are loan forgiveness programs for:
You've probably heard about the Public Service Loan Forgiveness deal where after 10 years of public service the balance of your federal loans are forgiven. A standard loan repayment plan usually is on a 10-year schedule, so this loan forgiveness is only really pertinent if you are on a different repayment plan. You have to make 120 payments, but they don't have to be consecutive. There are exceptions for PeaceCorps and Americorps. If you are planning to request this loan forgiveness, make sure you are keeping documentation of your employment and loan payments. Check out these PDFs for more specific info: (Q&As) and fact sheet. Honestly this program is a lot less useful than I thought, considering most people are on track to pay off their loans in 10 years.
There are loan forgiveness programs for:
- teachers in low income schools
- nurses in non-profits
- healthcare practitioners who serve min. 2 years at underserved sites with the National Health Service Corps (aka be a dentist in Arkansas)
- people who serve in AmeriCorps ($4,725 after completing 1700 hours)
- PeaceCorps volunteers (repay 15% of a volunteer’s qualified student loans for each year of service until 70% of the starting balance is repaid)
- health/science researchers
- lawyers in public service: ABA (see menu at left) and Equal Justice Works
- veterinarians who work in shortage areas
- law enforcement officers, armed services
Monday, September 20, 2010
That nearby university + you = ??
I’ve been dropping the ball on Cheapion posting, but in an effort to procrastinate, it’s time for me to start back up. While I had originally intended to do a few early posts on moving to a new city, cost/benefit analysis on joining coops, etc., I will start with “Ways to get free things from your university,” in case any of you are also trying to mooch as much as you can from a school. This is an acceptable alternative even if you’re not a college/grad student, as you should be taking advantage of these free things if you live near one. I’m talking to you, Boston and Philly people—Philly apparently has 70 institutes of higher education in the greater area, and Boston has more. That’s crazy. That’s a lot of free lunch.
Now, here are some tips:
1) Get onto every list serve there is. These list serves are like cash money—they advertise free lunches. For example, I am on the Annenberg one, the Political Science one, the Center for East Asian Studies, the Graduate Student Events, and I generally check the blogs related to the University. (Perhaps a future Cheapions post will be about finding the best city-related blogs...)
a. Make sure you quickly figure out which ones simply serve pizza and which ones have tasty salad bars, brownie cups, etc. Just like in the last post—you have to be selective, kids.
b. Like Heesa and Caitlin, I also don’t take responsibility if you get Type 2 Diabetes
2) Investigate your free transportation options. For example, we can ride a free little shuttle bus, call Penn Transit (they’ll pick you up), or even have someone walk us home. I guess the last one isn’t that enticing until it’s really late at night, but hey, safety matters too, especially if that safety is free.
3) Scope out where the free things are left
a. Our grad student center, for example, offers free coffee and tea at all times. They don’t have milk, which is a problem, but a solvable one—there are cafes nearby that have free milk out near the coffee. Now that’s problem solving.
i. There is a sign that basically says, “don’t be that d-bag who takes all of the tea”—so I’ve actually resisted my hoarding tendencies because I respect the foresight to put up the sign.
b. Free condoms in the student health centers and the grad student center
4) Get Amazon Student—it’s free two-day shipping for a year. That’s delightful, Amazon, thank you. For those of you thinking, “that’s almost enough to motivate me to go back to school!”—don’t fret, you still don’t have to. All you have to do is have a .edu email address. Thanks, Wes, for letting us keep those forever. I registered w/ that one long before I got the Penn email address.
5) MOVE-OUT DAY. While Caitlin and Owen can speak even better to the bounty they got from Brown’s move out day in the spring, it’s important to begin your thought process about move-out days. For example, I’m not buying a bike yet since it’s 1) not a pressing need and 2) I’m thinking that May will be the time that people unload big purchases for little money, and I want to get in on that. So, while it’s a ways away, this is perhaps the best thing the universities in your town are offering to you, Cheapion follower.
You Don't Win Friends With Salad
Yesterday we went to an all-you-can-eat Chinese-Japanese weekend special seafood buffet. I saw some chump putting a big scoop of white rice on his plate. Are you kidding me, dude? After tax and tip you are paying upwards of $13 for this meal. Please. Get out of the way so I can access the crab legs with both arms. You disgust me.
I was going to write a post about "getting your money's worth" and "stretching a buck" but I realized all I wanted to talk about was all-you-can-eat buffets. Primarily, I need to share this:
The article mentions that "many establishments will raise their level of air conditioning to make diners uncomfortable, making them want to leave earlier." The buffet yesterday employed this technique, but luckily I was equipped with many warming layers. Heesa Phadie echoes my own sentiment with gusto: "There is never a need to eat steamed rice (shrimp fried rice in small amounts is acceptable), dinner rolls or the like, this is completely unacceptable."
What I like about this reputable guide is that it's not just about money. It's about conniving. Just because you are paying money, doesn't mean you're the one getting huckstered.
I was going to write a post about "getting your money's worth" and "stretching a buck" but I realized all I wanted to talk about was all-you-can-eat buffets. Primarily, I need to share this:
The 2010 All-Inclusive All-You-Can-Eat Buffet Guide
This person, "Heesa Phadie," embodies the Cheapion ethos. Heesa Phadie recognizes the importance of strategy. Heesa Phadie is not responsible if you develop type 2 diabetes.The article mentions that "many establishments will raise their level of air conditioning to make diners uncomfortable, making them want to leave earlier." The buffet yesterday employed this technique, but luckily I was equipped with many warming layers. Heesa Phadie echoes my own sentiment with gusto: "There is never a need to eat steamed rice (shrimp fried rice in small amounts is acceptable), dinner rolls or the like, this is completely unacceptable."
What I like about this reputable guide is that it's not just about money. It's about conniving. Just because you are paying money, doesn't mean you're the one getting huckstered.
Tuesday, September 14, 2010
Credit or Debit?
Another decision you make often is how to pay for things. Even when you use debit, you can choose to use a PIN or signature. "Retailers generally prefer that you use PIN transactions, while banks encourage you to sign for purchases by offering mileage points or other incentives for signature-based debit payments." ("The dark secrets of debt" from consumerreports.org). When you use a PIN, the amount is immediately withdrawn from your account. When you use a signature, the transaction takes a few days because it goes through the credit card network.
Consumer Reports adds: "Signature transactions are more profitable for banks. The interchange fees that banks get from merchants for processing signature payments is much higher than for PIN-based transactions. On a $100 purchase, for example, the bank that issued the card typically collects only about 20 cents in interchange fees when payment is made using a PIN. But it gets at least seven times more than that if the customer signs to authorize the purchase, says Avivah Litan, a senior analyst at Gartner, an information technology research company in Stamford, Conn."
So when I buy a sandwich for $7.00 with my visa debit card using a PIN, visa gets 43 cents from the merchant. Check out this FUN website, The true cost of credit, which calculates how much it costs the merchant to process your transaction based on what kind of credit card you have. You don't have to actually enter any numbers, just scroll down a bit and click on whatever brand you have. Of course, you eventually pay for the convenience of using a credit/debt card because the merchant raises prices to cover those fees. In a year, that sandwich shop may pay $10,000 to visa in transaction fees. If you're really trying to support a merchant, give em cash dollars, not plastic.
Consumer Reports adds: "Signature transactions are more profitable for banks. The interchange fees that banks get from merchants for processing signature payments is much higher than for PIN-based transactions. On a $100 purchase, for example, the bank that issued the card typically collects only about 20 cents in interchange fees when payment is made using a PIN. But it gets at least seven times more than that if the customer signs to authorize the purchase, says Avivah Litan, a senior analyst at Gartner, an information technology research company in Stamford, Conn."
So when I buy a sandwich for $7.00 with my visa debit card using a PIN, visa gets 43 cents from the merchant. Check out this FUN website, The true cost of credit, which calculates how much it costs the merchant to process your transaction based on what kind of credit card you have. You don't have to actually enter any numbers, just scroll down a bit and click on whatever brand you have. Of course, you eventually pay for the convenience of using a credit/debt card because the merchant raises prices to cover those fees. In a year, that sandwich shop may pay $10,000 to visa in transaction fees. If you're really trying to support a merchant, give em cash dollars, not plastic.
Subscribe to:
Posts (Atom)