Money as Medicine

There are actually people who think that money might not be the ultimate source of human happiness. These fringe thinkers argue that what makes us happy are the mundane trivialities of days at the beach, good food, sex, and so on.

Of course, the counter-argument is that all those things can be purchased with money. Moreover, the more money spent on them, the more people tend to enjoy them. That could be because the nice stuff is more desirable so its price gets bid up. Or maybe the fact that more of that magical money stuff is involved means that it makes us more happy.

Recent scientific evidence supports the theory that it is money itself that brings happiness. Researchers at the University of Minnesota had college students count either $100 bills or slips of paper before dipping their hands in 122 degree water. The money counters felt less pain.

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When to Junk a Car

My basic advice on cars is that you should buy them mildly used, two to four years old, and drive them until they are inert heaps of rust. This is based on the commonplace observation that used cars are generally a better deal for buyers, that is, that relative to new ones they are cheaper than really makes sense.

Whether this disconnect between new and used car prices is because consumers irrationally prefer new ones or irrationally fear used ones is a metaphysical question I am not going to answer. But the gap is there, and many personal finance types will advise you to buy used rather than new because of it. I don’t disagree, but there is an equally important second principle to be drawn from the new/used price anomaly. Besides “never buy new” there is “never sell used.”

We can all probably agree that buying a car new and selling it used two or three years later is just about the most wasteful way you can own wheels. But buying it as a three year-old and selling it at six is not that far behind. You capture the used car discount when you buy, only to give most of it back again when you sell.

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The Phony 401k War

This past weekend the Wall Street Journal managed to concoct a little excitement around something only a nerd like me could find exciting, the rolling over of 401k accounts. The article, variously titled “The Grudge Match Over Your 401(k): Employers and financial firms vie for control of your savings.” or “The 401(k) Wars: Fighting for Investors Cash” uses photos of an NFL player for illustration. (He is quoted at the end.)

The gist of the piece is that after years of acting with relative indifference to ex-employees taking money out of their 401k plans, companies are suddenly trying to discourage this behavior.

A company might want you to keep your assets in the 401k it sponsors because it wanted its plan to be a large as possible, which might lower average costs. This is a fairly modest incentive, however, as evidenced by how long it has taken for most companies to get around to doing anything about it. And for some employers, the cost of keeping an ex-employee in the system might actually be greater than the savings from having a bigger plan.

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Obama’s 2009 Tax Return

As a cap to Complain About Taxes Week, I thought it would be amusing to peruse somebody else’s tax return. There are not very many publicly available ones to choose from, but there is this one from a famous multi-millionaire author.

11 Slightly Interesting Things From the Obamas’ 2009 Tax Return

1. The social security numbers are redacted. The White House provided most of the 1040 and schedules that were filed, but the SSN boxes are blank. I guess there is the potential for political pranks, but seriously, what are the chances of somebody trying to use Barak Obama’s identity to open a new credit card?

2. Both Obamas sent $3 to the presidential election campaign fund. A classy thing to do given that Obama is the only major party candidate in history to turn down money from the fund. Presumably, he won’t use it in 2012 either, so this just helps the other guy.

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The Usefulness of ID Theft Fear

As readers of this blog know, I consider the smoke-to-fire ratio on ID theft to be heavily skewed to smoke. ID theft does occasionally cost consumers real money and cause real headaches, but those occasions are orders of  magnitude rarer than popular wisdom would lead you to believe.

The basic truth about ID theft is that it is a form of fraud in which the consumer almost always plays the role innocent bystander rather than victim. Sure, sometimes innocent bystanders get hurt, but the basic idea of ID theft is to trick a financial institution into handing over some cash. Why steal from a consumer when you can steal from a bank? As a great philosopher once said “that’s where the money is.”

One of the reasons that this basic truth is routinely obscured is that perpetuating the Great ID Theft Scare is just so convenient for so many people. The snake oil salesmen at LifeLock and it’s competitors are leading examples, but there are others. Journalists in search of an easy story to write are another.

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