Financial Retard of the Month, Assuming She Exists

October 26, 2011

History’s 2nd-greatest monster (Michael Vick is still #1.)

If you’ve got $10 to donate, and had to give it to an individual rather than a formal charity with a fundraising department and a celebrity spokesperson, whom would you choose?

  1. A 7-year-old pediatric AIDS victim?
  2. The disfigured victim of a hit-and-run accident?
  3. Kelli Space, an able-bodied, perfectly healthy, 20-something college educated woman who rang up $200,000 in student loan debts?

If you answered anything other than A or B, you’re part of the problem. Believe it or not, Kelli Space[1] borrowed this obscene amount of money to educate herself at Northeastern University. Even more incredibly, she begged for money and found enough idiots to contribute $12,000. Including at least one person who donated $1000.

Ms. Space buries it in on her website, but guess what her degree is in?

Civil engineering. She’s the only engineer on the planet who can’t find work. Can you believe that?

Of course you can’t. We lied. Her degree is in sociology, a word derived from the Greek for “unemployable leech who refuses to be productive.” And which embarrasses those who major in it to the point where they go out of their way to hide it.

Ms. Space is secretive about where she works, where she lives, how much money she makes, and what she looks like. (The only photos we can find of her appear to be straight out of a Corbis gallery.) Also, we can’t find her on LinkedIn, which is odd for a college-educated 23-year old who needs to make connections and is savvy enough to have been featured on major websites.

Nor could we find her on Facebook. And of the four Kelli Spaces who show up on US Search, the youngest is 35 years old. In at least one interview she claims to have been asked to write about education for The Washington Post, but the next article we see from her there will be the first.

Alright, the more we research this the more we’re convinced she isn’t real. But “Kelli” entered the public arena over a year ago, being featured on Gawker as an example of someone whom the education-industrial complex has abused by lending her money she couldn’t afford to pay back. If you go to her website (which WhoIs.net shows is owned by EduLender, a company that streamlines college aid forms and which “Ms. Space” has partnered with), there’s a donation form that takes you to PayPal. It wasn’t worth the minimum $5 donation for us to see if PayPal will indeed process the transaction.

If the purpose of the Kelli Space story is to rile people up on both sides of an issue, fomenting antagonism between the “she made an innocent mistake” crowd vs. the “she needs to be an adult” contingent, it worked. And if the purpose is to get the inflammatory curmudgeons at Control Your Cash to devote a blog post to questioning the value of post-secondary education, it worked in spades.

We’ve already demonstrated how incurring student loans is a path to anything but riches. Even a huge percentage of lawyers are still paying off their student loans well into their 30s. Not that the practice of law contributes to overall human happiness any more than whatever a liberal arts degree qualifies its recipient for, but at least lawyers (unfortunately) make decent salaries.

Is a college degree really worth it?
That’s like asking “Should I invest my money in a stock?” “It depends” is the only satisfactory answer.

The aggregation of human knowledge throughout history has two major components – discovery, and debunking. Don’t underestimate the latter. In centuries past, at different times, the smartest people on the planet were convinced that

  • the Sun is stationary;
  • light travels through something called ether;
  • you can turn lead into gold with enough heat;
  • your body has 4 major fluids that need to be kept in balance – blood, phlegm, black bile and yellow bile. (By the way, this belief predominated for 2000 years.)

Or more recently,

  • an economy is too complex to be entrusted to anyone but the intellectual elite, and;
  • an education is the most important thing in the world, to be achieved at all costs.

It isn’t. For plenty of hardworking, earnest, ambitious high school graduates, the worst thing they can do is pile on more years of book-larnin’ that come with a crippling price tag. There are trade schools whose tuition is barely 1% of the cost of a 4-year degree at Northeastern, and that’s not even factoring in the inevitable interest payments that come with financing a university education. At some point, an economically independent person blessed with even the least common sense learns to strike a balance between potential (that college degree that we’ve decided is more important than health or well-being), and actual (getting out in the marketplace and doing something that earns money.) If it takes The Legend of Kelli Space to bring that truth to light, then maybe “she” has found her purpose after all.


[1] Anagrams include “peace kills” and “please lick”. Are we sure her name isn’t a pseudonym? Heck, maybe her entire story is false. There’s no video evidence of her, merely audio evidence on some radio show that no one listens to. She’s the Osama bin Laden of upside-down college graduates. In the event that it turns out this entire thing was a hoax, consider us de-pantsed. Until then we’ll assume her story is true, especially since we’ve already documented similar ones.

**This article was featured as a Top Personal Finance Post of the Week-November 4, 2011 Edition**

Filed Under: Bad Examples, Consumer Debt, Finance, Financial Retard of the Month, Newsflash Tagged With: , , , , ,

The Limits to Frugality

October 21, 2011

What, are they saying white women are cheap?

 

Note: This post appeared in a vastly different form on Adaptu, where Greg contributes. Really, the only similarities are the message and the title. Go there and read it, after this.

In the 1930s, people made ends meet during the Great Depression by moving out of the Dust Bowl and eating possum stew. Today, people ravaged by the worst financial crisis since then are valiantly fighting economic stasis with…scissors and paper clips.

With the rarest of exceptions, coupon clipping is penny wisdom and pound folly. For all the effort the average coupon clipper puts into saving a few quarters on toaster pastries and bottled water, there are better and more financially rewarding ways to spend one’s time.

(Oh, and by the way? “Coupon” is a noun, not a verb. Now excuse me as I resume paragraphing.)

The jar of pickles that your coupon reduced from $2.99 to $2.59 is not a 40¢ saving. It’s still a $2.59 outlay. Food producers aren’t in the habit of leaving money on the table, any more than anyone else is. Rather, they’re just testing multiple prices on the same public and seeing which guinea pigs bite, as it were. If a manufacturer issues a coupon and thus reduces its profit on each jar by a few pennies, but the result is that significantly more people each buy a jar than otherwise would, then the manufacturer’s learned some valuable information about its clientele.

Of course, we’re more interested in coupons from the consumer’s perspective, not the producer’s. From the consumer’s perspective, the time involved in achieving that miniscule saving is almost never worth the effort rendered. Especially when there are so many easier ways to save money, and especially when people insist on confusing spending with saving.

Take the recent multitudes lining up to buy the TouchPad, Hewlett-Packard’s dead-on-arrival competitor to Apple’s ubiquitous iPad. The rush on TouchPads didn’t start until HP announced they weren’t going to make any more of them. Ever. No improved model down the road, no software updates. Just the opposite, in fact.

TouchPads went for $500 the day before HP announced they’d stop making them, $100 the day after. To the common gullible consumer, that means an extra $400 in his pocket. But here’s a truth that’s so obvious that it’s easy to miss:

Buying a consumer product – any consumer product – doesn’t make you money. It’s not as if each customer is skipping out of Best Buy, triumphantly waving four $100 bills that he wouldn’t have if he’d never entered the store.

Retailers dropped TouchPad prices 80% out of necessity – unsold inventory is no fun – and the masses did what masses do. Given how quickly smartphones and tablets lose resale value (my own HP Pre went from $550 to a $30 eBay cut-and-run sale in under 2 years, an inevitable byproduct of technological progress), even $100 for an end-of-line product can be a lot.

Why do people spend beautiful Sunday afternoons indoors, sorting through flyers when they could be out enjoying life? Or waiting in line for a durable good that will almost certainly be a paperweight in a couple years’ time?

They fall victim to the oldest psychological trick in the retailer’s playbook, anchoring. Instead of offering a product at price x, offer it at price x+y with a y discount. It sounds so simplistic that you’d think it couldn’t possibly work, but it does. In the early 2000s a sewing supply shop in CYC’s hometown took out the same tiny ad in the local paper, every day. The ad stated that you could bring it in to buy a particular sewing machine for $168, or pay $899 without the ad. This example is more blatant than most, but it’s an important reminder that a coupon has no intrinsic value. It’s not worth 40¢, $1, or in the case of the sewing supply store, the price of a flight to London. If you’re altering your behavior to spend money because of a perceived saving, think about the 100% saving you’d enjoy if you didn’t spend the money in the first place.

Speaking of psychological tricks, say you can buy a certain shirt at a store across the street for $40. But the exact same shirt is available on the other side of town for $10. Would you drive across town to buy it? (Or to phrase it differently, Would you still buy it across the street for 4 times the price?) Most people who like the shirt, and even some who don’t, would make the trip for a colossal 75% saving. Sounds reasonable, right?

Okay then, would you buy a new car for $29,658 across the street, when a dealer on the other side of town is selling it for $29,628? Most people (who haven’t been exposed to the previous question) would prefer to stay close to home, rather than waste time and fight traffic to take advantage of a measly .1% saving.

Hopefully I don’t need to point out that the two scenarios are equivalent. To be consistent, you should say yes either to both or to neither. A $30 saving is a $30 saving, regardless of how expensive the underlying item is.

Why are coupons so popular? Because taken at face value, they appear to be one-sided marketplace victories gained without effort. I got one over on the grocery store. But more often than not, using a coupon means buying something that you’d otherwise have been ambivalent about at best.

Instead of spending valuable hours saving microscopic amounts, go for the big fish. Every year, buyers leave billions on the table because they’d rather spend their time dealing in impersonal printed discounts than learning the fundamentals of negotiating. The same people who devote one day a week to clipping coupons are by and large the ones who are terrified to try to talk a house seller or mortgage lender down a few thousand dollars.

If you’re buying necessities, and don’t have to change your behavior to acquire them, coupons could make sense in theory. (You’ll notice that your power company and water utility aren’t in the habit of issuing coupons.) If you’re buying frivolities, things that only caught your eye because of the reduced price, then you’re not saving money no matter how hard you justify doing so. And if you’re buying expensive necessities – a house, a vehicle – the amount you’ll save by learning how to stand your ground and walk away if necessary will dwarf anything you’ll save by making the supermarket clerk scan Universal Product Codes.

This popular article is featured in  the following carnivals:

**The Carnival of Financial Planning: Edition #209**

**The Totally Money Blog Carnival #42**

**The Carnival of Financial Planning Edition #211**

Filed Under: Bad Examples, Consumer Debt, Estate Planning, Healthy Living, Making Smart Choices Tagged With: , , , , , ,

A Big Hand For The Idiots

October 19, 2011

Instead of 22.9%, he’s now paying 19.9%. Who’s winning? <This guy>

In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act, the latest in a series of clever acronyms to become law. (Which, at 4 letters, is brief as these acronyms go. It’s all but inconceivable that anything will ever beat the 10-letter Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.)

Congress passed the Credit CARD Act because, in short, consumers who vote (or more to the point, voters who consume) are moronic and would rather complain than rein in their spending. The Credit CARD Act required issuers to:

  • mail statements out 3 weeks in advance instead of 2, because with so many good things on TV it’s impossible to devote one day out of a mere 14 to scratching a check that you know you’re going to have to scratch anyway (“Mail”, if you’re wondering, is this laughably archaic method by which people used to send documents);
  • reduce rates for anyone whose rates they’d raised and who’d then paid on time for 6 consecutive months. Yes, a government-sanctioned rewards program;
  • offer cardholders fixed limits;
  • cap the fees they charge to cardholders who exceed their credit limits, i.e. cardholders who couldn’t be bothered to remember their credit limits in the first place;
  • provide a toll-free number on their statements that people who shouldn’t hold cards in the first place can call to get free credit counseling;
  • perform several other requirements, which we won’t get into because we try to keep these posts around 1000 words.

The bill also ordered the Federal Trade Commission to spend your money determining whether it’d be feasible to create a technology that lets an ATM user who’s “under duress” enter a PIN that would call the cops. Seriously. Section 508(a).

No one disputes that as a result of these requirements, banks’ credit card revenues would fall. Banks, like every other business in the history of the universe, seek to maximize profits. When our elected representatives reduced the banks’ ability to profit off their core customers, those same representatives forced the banks to find other customers to gouge. Which they did. You and me, the responsible ones.

Bank of America recently announced that it’s going to start charging its debit card holders $5 a month. You may remember that 2 short years ago, consecutive Secretaries of the Treasury took $135 from each of us (or if you prefer, 27 months’ worth of future debit card fees) and awarded it to Bank of America for its inability to assess risk before lending money.

Bank of America might be effectually a Soviet state-controlled enterprise whose losses the citizens cover – a modern-day GUM department store or Aeroflot – but it’s still going to seek revenue within whatever legal bounds it’s been afforded. Among all the Credit CARD Act’s byzantine stipulations, there isn’t a word in there about how much banks can charge customers for using debit cards. Therefore, banks chose to, because they can.

The good news is that you won’t pay the $5 fee if you manage to go the entire month without using your debit card. Instead, you can either go Montana Freeman and print your own money, or you can make as many (free) ATM visits as you want and pay cash; the same outdated activity that debit cards were supposed to make obsolete.

There’s a secondary reason for banks charging debit card fees. People respond to incentives. A debit card fee gives a consumer a compelling reason to use a different method of payment. You know, like a credit card. If banks can’t profit by charging high-revenue customers as much as possible, they’ll make do (and abide by a federal mandate) by charging less, but to more customers. At least a few of the people who wouldn’t otherwise have used credit cards will start incurring balances. As for those of us who’d never consider carrying credit card balances, well, we’re welcome to pay that $5 fee.

To recap: the government gives banks incentive not to mine their profligate customers for profit, so those banks are forced to hit up the responsible customers. Which gives those same responsible customers incentive not to spend. Because economic activity is the last thing you want to encourage during a recession.

What recourse do we have as responsible consumers? Well, there remain other banks to do business with. Petitioning Congress to rescind the law would be a colossal waste of time and effort. Resorting to the ridiculous practice of writing checks is a possibility, too. As is carrying big fat wads of cash. In the meantime, find yourself a debt-laden consumer who thought the Credit CARD Act was a necessary protection against a banking industry run amok, and kick that person in the shins. The cosmos will thus regain balance.

Filed Under: Bad Examples, Consumer Debt, Credit Cards, Making Smart Choices Tagged With: , , , ,
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