Some of the more outspoken posters got tweets back from Orman’s Twitter account.  20 and Engaged has a history of the interactions here.

Am I a Suze hater?

People don’t reach prominence by trying to please everyone.  Suze Orman has been in the financial realm for a long time — certainly longer than any personal finance blogger I’ve met — has nine consecutive bestselling books under her belt, as well as successful radio and TV gigs.  She has a wide following mainly because she gets in people’s faces about the soft spots in their financial lives.  This doesn’t resonate with everyone, and that’s to be expected.

But for the record, no, I’m not a Suze hater.  She’s helped many, many people get on the right track with their finances through direct advice and education.  It’s clear that she engages with people, listens to them, and genuinely wants to help them.  This can’t be taken from her: She’s done well for herself on this earth by helping a lot of people.

Now, back to the prepaid debit card.  Piece of junk?

Suze Orman’s message is clear, but what’s also clear is that she is a sharp businesswoman and a tireless self-promoter.  (She’s the latter because she’s the former.)  She’s in a position to use the leverage of her large audience to spread her message, help even more people … and sell more products.  The Approved Card is the newest product.  Is it better than cash?  Maybe.  Is it a good long-term solution for managing personal finance?  Possibly.  For people who need a shorter leash for a season, a prepaid debit card with a healthy dose of Suze could be part of the solution.  Is it without risk?  No, but nothing is.

Regardless, I certainly don’t fault her for offering this product.  She should be free to do so, just as people should be free to sign up or not.  Time will tell whether it was a good product or not, and the market will decide whether the $3+/month is worth the value that Suze Orman adds.

Postscript: Are my blogging colleagues idiots?

Absolutely not.  I’ve met many of them personally, thanks largely to Phil’s work.  (Phil was the closest recipient of this barb from @SuzeOrmanShow.)  But since we all just live in Clay Shirky’s internet. and since now consumers of the media have not only the ability to talk back easily but also to talk with each other easily, repercussions from bad PR can be swift and long-lasting.  Ticking off bloggers in one’s niche is rarely a good idea.

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Let’s throw good financial sense to the breeze

Let’s say that for whatever reason, you still buy lottery tickets.  It could be ignorance of the above, or because you feel deep down in your heart that this is the week for the big payout.  Or, more reasonably, you could buy lottery tickets as an entertainment budget item, because you enjoy it.  Whatever the reason, those lottery tickets are in your hands.

Now let’s say that lightning strikes and you beat the odds.  You win.  A lot of money.  As in a life-changing lot of money.  You turn the ticket in, and get a picture with the state lotto commissioner holding a giant check as a capstone to your fifteen minutes of fame.  Congratulations.

Let’s say now that you’re concerned about having that giant lump sum beckoning you and all of your new-found “friends,” so you instead opt for periodic payments for 10 or 20 years.

Would you expect your lottery payment to bounce?

That would really suck, wouldn’t it?  Well, that’s exactly what happened to dozens of people who won prizes in Illinois over the tail end of the 2011 holiday season.  The checks bounced for a brief period of time due to a computer file being sent late.  The oversight has since been fixed, and the affected people even got free scratch-off tickets as part of the apology.

This situation taken by itself is probably nothing more than “oops, sorry” and was easily fixed.  But let’s not forget that this is Illinois – a state that is developing a reputation for not paying its bills.  Organizations are going bankrupt due to missed payments from the state, legislators are being evicted by their landlords, and the state Department of Corrections is needing to pay up front for the bullets that help to protect their officers.

When will the deadbeat philosophy creep over to the lottery?  Lotteries are sponsored by most state governments, after all.  The fact that this mishap occurred in Illinois is merely convenient, though: Illinois is certainly not alone with its fiscal problems.  The risk of having promised payments go away presents itself in any state where there is a lottery.

The way around this is to take a lump sum payout if it’s offered, but that introduces a whole new set of risks — the biggest one being that the people managing the lump sum are usually ill-equipped to do so.  But it’s hard to argue that this is better than being stiffed.

I guess if you get enjoyment out of scratching the lottery tickets, so be it.  But the promise of “$1,000 a week for life” is little more than that: a promise.  A promise that rests on the solvency of the state government that runs the lottery, and its willingness to honor that promise.

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It’s clear that the representative could use some education in the making friends and influencing people department, but what is also revealed is a shocking dose of candid insight:

… The rep said it wasn’t the bank’s fault, and blamed the government. She said the federal government capped overdraft fees, and so they just “had” to raise these fees to “cover their losses” ….

Price controls make everyone worse off in the long run.  Capping overdraft fees is a form of price control: the price a bank can charge a customer for the privilege of spending more than they’re allowed to in their account.  The government got involved as the result of backlash from something or other — people ask or even beg the government to get involved in matters! — and the profitable “frequent fliers” of the bank customer pool aren’t quite so profitable anymore.  So, the bank needs to find ways to make other customers profitable, such as the responsible ones who spend within the confines of their balance.

Prices like to move freely so they can arrive at the price that’s best for everyone.  With controls the price must settle somewhere outside of optimal, and other prices must adjust around the controlled price.  Like $3 or $5 monthly fees where there were none before.  Overall, there’s not much that we can do about it.  We can vote with our feet like the Reddit poster did, but even though he made the point that some other banks and credit unions haven’t upped their fees yet, I tend to side with the bank rep:

… The rep got a little anxious, too, when my wife asked about the procedure for closing our account, and actually started arguing with my wife, saying that it was pointless to move our money because “other banks and even the credit unions are going to do it too!” ….

Whether the additional cost comes in the form of a monthly fee or something else, the cost will show up.  The overdraft income was gone with the stroke of a pen (and a whole bunch of yea votes).  Now we all adjust.

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Nonetheless, the thought of that idea sends a cold chill down my spine, not just because I like my perks — I do — but because the groups that might be calling for the change will be shooting themselves in the foot.  Getting the powers that be to “keep you from getting yourself into trouble” or to “protect you from that bully” , play big brother, or to keep that bully from picking on you is counterproductive, because the energy expended at complying with the powers that be are non-productive.  It’s a burden to everyone, and it hurts just about everyone.

The beauty of credit cards, if you have good credit, is that you can basically choose what terms you want and what perks you want. It’s a bit like ringtones. I have as my weapon of choice the I have the Chase Sapphire® card. Every once in a while, I get enough points that I can cancel a charge from my bill. I like that! Other people have airline cards, or Starbucks cards, or whatever. Why the heck not?  Whatever floats their float!

If merchants push for this, they’ll get bitten too

Supposedly the reward cards carry higher interchange fees than non-reward cards, and this directly hits the merchants’ bottom line.   So banning these cards will help the merchants, right?  Wrong.  When the merchant account providers are restricted in what they can do to make money, they’re not just going to sit there.  They’re going to make it up some other way.  Consider that merchant account providers can no longer demand that merchants accept all credit card transactions, regardless of amount.  Some merchants will set minimum charge amounts, and the issuers won’t see that interchange income.  If we ignore the fact that the merchant is probably going to lose customers, then the issuers will bump up their prices, charge extra fees, etc., to make up the new shortfall.

It’s the same thing with getting rid of reward cards.  Once the financial advantage of carrying a reward card goes away, then a number of things can happen.  First, the additional income that the issuers got from the reward cards will be made up somehow.  Second, the people who were using the card will use them less now that the fun has been taken away.  Less money flying around means less money for the merchants.  Third, it’s one more measure of oversight that is a non-productive drag on the economy.  The short-term gain in interchange fee expense will be handed back, and then some.

If there’s a ban on reward credit cards, what about low-interest cards?  High-risk (high-rate) credit cards?

What about credit cards in general?  That’s the danger of banning any kind of credit card.  It’s a step toward banning more.  It’s the erosion of choice.

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If we cut to the chase, there is a $9 trillion shortfall over the next ten years.  The most stringent deficit reduction measures discussed don’t even come close to addressing the problem.

Compared to proposed spending cuts here, though, this is good progress.  At that point in the discussions, there was a $10.6 trillion shortfall!  (Here are some ways to visualize this huge number.)

Danger!  Misleading graphics ahead!

Each one of these posts has an accompanying graphic:  A large red circle with the amount of the projected federal budget deficit in it ($13 trillion) and a smaller green circle with the amount of the proposed reductions and cuts ($4 trillion or $2.4 trillion).  The problem with both of these graphics is that they suggest that the problem is bigger than it is — which, given the gigantic nature of the numbers, is completely unnecessary.

How are they misleading?  When marrying numbers to the relative size of graphics, size does matter, and the sizes are incorrect.  (There a little bit of math here, so be forewarned!)  Let’s take the $2.4 trillion vs. $13 trillion graph.  I copied the graphic into Paint, and measured the diameters of the circles.  The green circle was 100 pixels across, and the red one was 298 pixels across.

To make a fair comparison between the size of two figures like this, the areas should be proportional.  This means that the red circle should have 13 / 2.4 = 5.42 times the area of the green circle.  Reaching deep into the recesses of middle school math class, we can figure out that the diameter of the red circle should be 233 pixels.  Something like this:

This is less than 298 pixels. The graphic isn’t quite as dramatic, but it’s true to the data. The same thing goes for the other graph.  The green circle was 123 pixels across, and the red one was 298 pixels across.  Running through the same argument, the diameter of the red circle should be 222 pixels:

Be careful when you’re presented with a graphic like this.  You can be misled.

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Let’s just say for grins that this is going to happen.  Putting aside questions like “where will we fit us all,” what kind of a financial nightmare would this be? I thought about this and came up with a few ideas.

• Retirement?  Hah!  As it is, about half of us probably will run out of money before we run out of life on this planet.  And this is life on today’s mercifully short life expectancy:  mid-seventies to early-eighties.  Imagine planning for another lifetime after that.
• Working like you’ll never quit.  The quip about a 95-year-old polishing his resume won’t be a quip any more.  It will be good career advice!  Along with tips on dealing with college grads a sixth your age.
• Inheritances won’t help for a looooong time.  Rich great-great-great-great-grandpa still needs that money, after all.
• We’ll have lots and lots of sick, poor, really really old people.  Jack LaLanne was in fine shape until the day he died, but he also exercised his butt off and ate like a saint.  Most of us don’t, and I doubt that even if medicine can help us to live practically forever, it won’t be able to keep us healthy.  So, unhealthy people that we are, we’ll get to a point long before the end of our lives when we won’t be able to work.  Then we’ll become wards of the state (if that’s worth anything) or dependent on our children who themselves are getting on in years, too!

No thanks! Our current life expectancies already are more than many of us can handle.

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Sites like Groupon and LivingSocial aim to get great deals for consumers.  The deal I took advantage of when it was offered was the 50% Amazon.com deal from LivingSocial.  We purchase things from Amazon all the time, so why not?  It was practically a free $10 gift because there are so many things available there.  For smaller businesses, the discounts can be even higher, and usually are.  Posies’ discount was 54%.  No matter how you slice it, Groupon and other sites like it do bring visitors to your place of business.

Now, of course, Groupon doesn’t do this for free, and the monetary washboarding that businesses take when selling their services and goods at a loss — plus paying for the privilege to do so — is apparently just the start of a business owner’s struggle.

But I tend not to care how much a business loses on these kinds of things.  It’s not my problem.

A few years ago, we went to sell a few things at our local flea market.  I knew there was a charge if we had wanted to rent a table, but I asked if there was a charge if we brought our own tables.  The person I spoke to said no.

The day of the flea market, though, the story was different.  Someone came around to collect money. When we said that we had brought our own tables, she said there was still a charge for selling even if we brought our own.  I contested this, and said that an employee at the citizens’ center said otherwise.  At this point, she said something to the extent of: “You honestly thought that you could just come here to sell stuff for free?”  To which I replied: “It seems a little odd, but who am I to argue?”

Exactly.

Likewise, who am I to argue if a massage parlor (hypothetically speaking) sells a $60 massage to me for $15?  Hey, I just got a $60 massage for $15!  It doesn’t matter to me that massage parlor had to pay half of the discounted price ($7.50) as a commission to the middleman discounter-advertiser.  It doesn’t matter to me that the owner had to pay the masseuse $30 (or more) to provide the massage.  It doesn’t matter to me that the owner shelled out money for the essential oils, the electricity for the calming music, the rent for the building, the whole nine.

That business offered the $15 massage to me.  It was a calculated business decision on their part to get me in the door in hopes that I’d come back.  If they added the figures wrong when making that business decision, that is completely not my concern.

And if you’re the beneficiary of a great deal, I don’t think it should be your concern, either.

(Thanks to A Gai Shan Life for including this post in the Carnival of Personal Finance!)

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A little less than a year ago, sixteen states banned the sale of dishwasher detergents that contain more than 0.5% phosphorus.  My state is one of those states.  (For the record, the states are Illinois, Indiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, New Hampshire, Ohio, Oregon, Pennsylvania, Utah, Vermont, Virginia, Washington, and Wisconsin.)  Phosphates, particularly sodium tripolyphosphate (STPP), is an effective rinsing agent, but it also promotes algae growth to the point for which it can choke local water supplies.  So, in the name of environmental concerns (which I’m not dismissing as unimportant) the sale of phosphate-based dishwashing and laundry detergents has been curtailed by legislation and voluntary compliance from manufacturers.

All well and good, but the low-phosphate and phosphate-free detergents just don’t work as well as the higher phosphate content detergents.  They don’t rinse the grime and food away as well as the older detergents.  Because the change was made suddenly and without much fanfare, owner first suspected that something was wrong with their dishwasher because (a) the dishes weren’t getting as clean, and (b) the dishwasher was malfunctioning in odd ways because the grime and food weren’t being rinsed away effectively.

Like I mentioned at the top of this post, I just learned about this change in the formulation, so perhaps you didn’t know about it either.  You might want to check your dishwashing detergent package.  If you live in the sixteen states listed above, it will almost certainly say “low phosphate” or “phosphate free” somewhere on the package (because stores in these states have to sell that stuff).  However, for the other 34 states, you may be buying the low-phosphate version anyway!

In short:  If your dishwasher has been performing poorly within the past year, there’s a good chance nothing is wrong with the dishwasher, and you need to re-investigate how you clean your dishes, because the new formula has moved everyone’s cheese. (You know about moving the cheese, right?)

What to do, then?  Here are some suggestions.  Please note the disclaimer on the last one.

• Investigate the new best of breed dishwashing detergents. The new ones aren’t as good as the old ones, but a few are very good.  Try them to see if they work better than the brand you may be using now.
• More elbow grease. Not really an appealing solution, but less caked-on food going into the dishwasher means less caked-on food that needs to be rinsed away.
• Pre-soak the dishes, especially if the food is starchy. Loosening up the junk helps.
• Consider other rinsing agents like white vinegar. Some people have seen decent results with this trick, and have said also that it helps glasses look like new.
• Consider just carefully adding the phosphates back in if you’re allowed? If your stores can’t sell dishwashing detergent with phosphates, it may still be within your local laws to obtain the phosphate compound, put it back in yourself, and use it.  Disclaimer: I have not tried this myself.  It’s up to you to do any and all legwork to make sure that you can do it legally, safely, and correctly.  I cannot do that for you.  All I’m saying is that this may be an option for you.  It may also end up not being an option for you.

Some of the same arguments may hold for your clothes washer, too, though phosphates have been removed from laundry detergent for longer.

When something goes wrong, it’s important to figure out what changed.  In the case of suddenly dirty dishes over the past year or so, it’s probably not the dishwasher breaking.

Thanks to Control Your Cash for including this post in the Carnival of Personal Finance!

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I’m probably already old-school because I like actually owning physical CDs and DVDs.  I can buy a CD or DVD (used, for cheap) and then resell it for about the same price if I want, or possibly more.  No monthly fees.  It’s mine for my personal listening and viewing until the thing breaks.

The trend, though, is pointing toward getting rid of physical media delivery.  DVD sales are down 20% from last year, while NetFlix subscriptions are up 33%.  People are ditching the DVDs and heading for video streaming.  When viewers stop paying the subscription fees, the video stops coming in, and there’s nothing to show for it except a bunch of credit card transactions.

It’s the same with books and Amazon’s Kindle.  There’s no physical book to resell when you’re done with it, and there are no “used electrons” that you can buy more cheaply than “new electrons.”

But here’s the really strange thing:  More and more people are choosing this way of consuming media.  As a whole, we seem to like it better this way.

To be sure, these new technologies are incredibly fast and convenient; there’s no doubt about that.  No books to mold, no CDs or DVDs to scratch up, no players to eat them.  Kindles are just neat devices.  So much less clutter.  (No need to buy CD cases like I did!)  The electronic delivery mechanisms (Internet, wireless network) are ultimately far cheaper than the physical ones (books, digital media), so it does allow for far more viewing variety for the price.  For people who watch a lot of movies, and like to watch a lot of relatively new movies, the subscription plan may be a better deal than buying the DVDs.

But the people for whom the streaming model would be killer is the content producers.  Authors would prefer that used book stores didn’t exist.  Why?  In the US, authors make a royalty on only the first sale of the book.  They make nothing when the book is sold in a used book store, on eBay, or elsewhere.  It’s the same with CDs and DVDs.  They would far prefer to sell one copy to one person — or even better, one view or one listen to one person — and then prohibit that person from reselling when they’re done.  In fact, this is already being done to some extent.  We’re moving toward that situation as we move away from physical media and away from ownership of said media.

What do you think?  Is resale rights of your books, music, and movies important, or not?

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1. Cut your taxes. This makes reference to the mortgage interest deduction, which allows the interest on up to $1.1 million of mortgage debt to be deducted.  This deduction goes up with your tax bracket.  But this deduction is only a fraction of the mortgage interest expense at best: 33 cents on the dollar, or less.  That, and this can go away at any time.
2. Blunt the alternative minimum tax. The argument presented is based on the fact that, while many deductions go away when the alternative minimum tax kicks in, the mortgage interest deduction does not.  All well and good, but this is not an excuse to get a larger mortgage (which the article actually recommends!)  Again, it’s a tax deduction, not a one-for-one return of your interest.
3. Pay early. Ok, they snuck a good one in.  Considering a mortgage refinance of your existing mortgage, especially if you can take on some of the interest rate risk in exchange for a lower rate and a higher payment by going from a 30-year to a 15-year mortgage can substantially reduce the interest you pay.  I may be nitpicking, but that seems to be a way to love getting rid of your mortgage, right?
4. Opt for an adjustable rate. Some adjustable-rate mortgages are so low that even at the cap rate it’s not a disaster.  The rate does go down because the interest rate risk is placed squarely on the borrower, rather than the lender.  The article suggests that this is preferable to have an adjustable-rate mortgage if you’re expecting to leave the house before the rate starts to reset, and it could well be.  The trick, though, is selling the house.  Will it be a seller’s market in five years?  Who knows, but there are an awful lot of foreclosures and bank-owned properties to unload between now and then, and many of these aren’t on the market yet.  If house prices have fallen at the time you want to sell, you may be out of pocket quite a bit if you sell.
5. Profit from your equity. The advice in this item is twofold: (a) borrow money against the equity in your house such that you can take the tax deduction, (b) and use the money to invest in something that should give a higher rate of return.  So, for the third time borrowing money to get a fraction of it back in a tax deduction isn’t really that wise.  And borrowing to invest, even in dividend stocks, is pretty risky — far riskier than the article suggests, in my opinion.  It reminds me of the insurance arbitrage scheme that has been around for a number of years — and is still being peddled, unfortunately — which involves borrowing money to purchase life insurance.  There’s a time and a place for leverage, but this isn’t it.
6. Protect your downside. The article did end on one which does make some sense.  Mortgage loans (in general) are non-callable, and non-recourse, which means that the lender cannot force you to pay the entire balance of the loan (call the mortgage) or go after your other stuff if you default (exercise recourse).  So, you are indeed entitled to pay off the mortgage as slowly as the note allows (until you’re old and gray) which at least offers the security of 180 (or 360) equal monthly payments if you have a fixed-rate mortgage.

All in all, in no appreciable way is a mortgage an asset.  The only slightly appreciable way that it might be kind of an asset is if you view it as a way to stick it to the bank for lending you 30-year money at around 4.5%, given that inflation will erode the purchasing power of that constant-dollar payment for as long as inflation is happening.  But then again, deflation happens too.  Ask anyone who lost their home during the Great Depression.  (Will that happen within the next 30 years?  I have no idea.)

But otherwise, a mortgage is, and always will be, a liability, a debt — especially when it used to purchase a consumer good like a primary residence.  Please view it as such, and try to get rid of it.

(Thanks to Magical Penny for including this post in the Carnival of Personal Finance!)

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