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High Tech Credit Cards and Fraud

Smartcard2 - Channel R The New York Times ran an article over the weekend about how even though “smart” credit cards are more advanced, there is almost no reason to expect them to be adopted here in the USA. That is an interesting story, which I will get to in a moment, but the article revealed an astonishing statistic that is worth the distraction.

Fraud losses for the credit card companies are currently running at just six cents per $100 charged. That is 0.06%. Put that into the context of the average fee paid by the merchant to the card company, around 1.8%. Or the 1% to 2% that we all expect to get back from our cards in the form of rewards.

0.06%, or as we finance types would call it, 6 basis points, is a very small number. In the context of a retail store it is the moral equivalent of zero. For most merchants it is an order of magnitude smaller than “shrinkage” i.e. theft of inventory.

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Why Go to College?

[Today’s Thursday re-run first ran October 6, 2009.]

There’s a good post today at Wise Bread making the argument that going to college just for the learning doesn’t make sense. In a nutshell, the post makes the case that, with only some peculiar exceptions, a person can learn Grads Kit stuff just as well and a lot more cost effectively on their own. I couldn’t agree more.

Of course, a person should probably go to college anyway. It’s just that learning things is not, per se, reason enough to spend four years and a modest fortune in tuition. There are good dollars and cents motivations for college and keeping a clear head about them is important.

(I haven’t researched this, but I write this blog under the assumption that my readership amongst high schoolers is zero. So to a certain extent this discussion is, you will pardon the expression, academic. Perhaps there are parents of high schoolers reading.)

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Pound Wise and Penny Foolish

[Today’s Thursday re-run first appeared September 1, 2009.]

A few days ago there was an encouraging little post on The Wallet about how we’re spending more on life’s smaller luxuries in the face of the Great Recession. I call it encouraging because I think it is the direction most people should go in their spending, more on the small stuff, less on the big things, Mansion - William Helsen and I like reading positive articles about how consumers are doing this. Not that I really think this is going on.

My theory, admittedly not based on much science, is that we’re happier if we spend more on the smaller things we like than on the big things. A great big house may indeed add joy to our lives, but not as much as the equivalent in nights out on the town. (Or rounds of golf, or manicures or whatever floats your boat.)

Happiness is obviously completely subjective and unquantifiable. Which is why it is so hard for us to think analytically about how to spend our money to maximize it. The $750 car payment for that new set of wheels seems like a good idea. We think that we will enjoy driving it. And we are probably right about that. But the question to ask is not whether or not the car will be enjoyable but whether or not it will be as enjoyable as other possible uses for $750 a month. And that’s really a hard question to answer.

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The Money Culture War

[This Thursday re-run first appeared September 30, 2009.]

Yesterday’s New York Times carried a column worth reading by David Brooks. It is a little confused, even by the standards of Times columns, but the British Tankgist of it is a call to arms for a brand new culture war, this one over money.

I’m all for that.

Brooks starts out by recalling a centuries old idea.

The theory was that great nations start out tough-minded and energetic. Toughness and energy lead to wealth and power. Wealth and power lead to affluence and luxury. Affluence and luxury lead to decadence, corruption and decline.

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On Money and Psychology

[Today’s Thursday re-run first appeared June 15, 2009.]

One of several recurring sub-themes here at Bad Money Advice is that some givers of personal finance advice, particularly the mass market gurus, say things that can only be justified assuming an irrational audience incapable of acting in their own best interest.

Freud Note So, for example, when Suze Orman tells her readers that they should absolutely never borrow from their 401k account to pay off a credit card balance, I give her a hard time for giving terrible advice based on the assumption that her audience has no willpower and will merely run up the credit card balance again.

But when I criticize the gurus for giving bad money advice that is, in fact, bad psychotherapy, I do not mean that everybody ought to be able to behave in a perfectly rational manner around money. Quite the opposite. We are all merely human, not uber-logical Vulcans. We act sub-optimally around money (and everything else) for a variety of emotional and behavioral reasons.

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