Smart Money’s recent article, Ten things not to buy in 2010, listed the who’s who of soon-to-be-obsolete consumer products.  Among them:  CDs, DVDs, and newspapers.

Newspapers, I can understand, especially after seeing a comedian absolutely decimate the folks at the New York Times.  (Though I do fully recognize their point that news gathering is expensive and dangerous.  But that’s veering off-topic a bit.)

But CDs and DVDs are obsolete? Why?  Because, the article suggests, there are cooler, less expensive, more convenient alternatives like iTunes, Netflix, and movies on demand like Time Warner’s and Verizon’s service.

I’m not knocking any of these services, by the way.  My wife loves her iTunes collection because of the huge variety she can find.  Her parents are movie lovers and enjoy the convenience of Netflix (plus, they also use ClearPlay to get rid of all the nasty stuff in the movies).  Not a thing wrong with these services, and many things right with them.

But, if I buy a CD, I can sell that CD when I’m done with it.  I also can buy a used CD on eBay or in a pawn shop, paying only a fraction of the price that the first buyer paid.  I’m pretty sure I can’t do either of these things with an iTunes collection, even if neither I nor the seller/buyer retain copies of the songs.  (Do you know the answer?)

Likewise, if I buy a DVD, I can sell that DVD when I’m done with it.  I can also buy a used DVD for a fraction of the price that the first buyer paid.  Netflix is a subscription.  I pay for the right to borrow their DVDs, but I can’t keep them.  And Time Warner’s and Verizon’s service are essentially pay-per-view services.

If I were a business, I’d much rather take recurring payments than one-time payments.  Why charge just once when you can charge again and again?  It’s the same reason why the Kindle model is so appealing.  Why sell a paperback once — with full resale rights — when you can charge someone access to download the text of the paperback, and control it after it’s downloaded?

But for me, I still see the value in actually owning something, free and clear except for a restriction on copying the content.  Is ownership becoming obsolete? I don’t think so.  I like my CDs and DVDs, thank you very much!

Thanks to My Journey to Millions for including this post in the Carnival of Personal Finance.

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This Huffington Post article puts a big spotlight on all of the money that credit card companies and banks are making by being the broker of donations to charities that support rescue and aid over in Haiti:

About 97 percent of these donations will actually make it to the designated organizations — but the other 3 percent will be skimmed off by banks and credit card companies to cover their “transaction costs.”  Thanks to this hidden fee, American banks and credit card companies are making huge profits — somewhere in the neighborhood of $250 million a year — off of people’s charitable donations, according to a Huffington Post analysis.

Oh, please.  Spare me.

First of all, $250 million per year isn’t that much.  This is only about one-half of one percent of the total processing fees collected from credit card transactions (if the number on TrueCostOfCredit.com is to be believed).  This does not include all of the other fees that can be collected from the consumer side, like late fees and interest fees.  So, calling $250 million “huge profits” is stretching it.

Next, these fees aren’t “hidden.”  They’re well-known to every merchant (and most charities) that accept payments by credit card.  If consumers don’t know about these fees, then it’s probably because it doesn’t affect them directly.  In fact, merchant account agreements typically forbid merchants from refusing credit card transactions or tacking on “service fees” for the transaction, as it is a cost to be borne by the merchant, not the consumer.  The consumer need not care about it.

Next, the only reason that people can put their donations to a particular charity on a credit card is because the charity agreed to accept donations by credit card.  Furthermore, the charities are very wise to do so: according to the article, Oxfam and Operation USA pull in over 85% of their donations by credit cards.  Some of those donations could have been paid by check, but some of them just wouldn’t have been made at all.  Additionally, just as people are likely to buy more if they have a credit card as opposed to cash or check, people are likely to donate more if they donate with a credit card.

Charities aren’t profit-seeking like businesses are, of course, but there is competition among charities for a finite pool of money from donors.  Anything that makes it easier for people to donate makes it easier to tap into that scarce resource, and if there are costs associated with doing that, well, that’s the way things work.

Why should credit card companies and banks be compelled to do all of this for free? If I make a donation of $100 and put it on my credit card, it carries exactly the same risk to the credit card company as if I had bought $100 worth of groceries.  The issuing bank paid my donation to the charity almost immediately, and now they’re left with collecting it from me, which I could choose to not pay (granted, at my own peril).  Yet, that’s exactly what was done:  the credit card companies have bowed to pressure and will waive transaction fees for donations to selected charities for a few months.

If businesses want to contribute to rescue, repair, and aid efforts, that’s great.  You rock!  But if not, hey, you’ve counted the cost, and it’s your business.  I don’t fault airlines for profiting from transporting aid workers to and from Haiti.  I don’t fault oil refiners for profiting from selling jet fuel to the airlines.  I don’t fault companies selling first-aid kits, blankets, water, whatever, to charities to distribute to those affected.  And I don’t fault credit card companies for charging charities to make the donation process smoother so all of this great rescue can happen more quickly, and probably on a grander scale, than without it.

This objection to merchant fee profits is just another day in the credit card provider witch hunt that got the CARD Act through in the name of protecting consumers.  This will actually hurt us all in the long run.  Now a few more tens of millions of dollars have been shamed away from the credit card providers at a moment of opportunity.

If these transaction costs bother you (they might) the solution is pretty easy:  Write a check, mail it in, and bear all of the transaction costs yourself.  (Which actually isn’t true either:  workers have to open your envelope, record the check, take it to the bank, etc.)  Or charge it to a credit card that’s currently waiving its fees for donations to your chosen charity.

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I suppose in some ways it might look like zero inflation is bad for you.  After all:

• Social Security checks don’t go up.
• Marginal tax bracket cutoffs don’t go up.
• The standard federal income tax deduction doesn’t go up.
• Interest rates on savings accounts are in the basement.
• Etc., etc., etc.

These bad things are all distractions from what’s really happening. Let’s compare a couple of examples.  (Before getting in too deep here, inflation is not the same thing as rising prices. Inflation is an increase in the money supply, after which rising prices follow.  But will just treat them as kind of the same thing in this post to keep things simple.)

First, an inflation example.  Say I could buy everything I needed last year for $20,000.  This year, the exact same stuff costs me $21,000 because there was 5% inflation last year.  A social security check that was $1,000 last year is $1,050 this year, but so what?  It buys the same stuff.  My savings account was earning 6%, but that’s only 1% return after inflation.

Next, a no-inflation example.  Say, this year, I can still buy everything I need for $20,000.  A social security check is still $1,000, but that’s all right, because it still buys the same stuff.  My savings account earns 1% (”in the basement”) but at least it’s a real rate of return.

Inflation – an increase in the supply of money – has been going on for decades.  It’s so entrenched in our economy that it’s commonplace.  Prices go up, sure, but wages go up thanks to inflation-based cost-of-living adjustments (COLAs).  We see larger numbers in our paychecks, and we feel richer.

But why is that we feel poorer when the money supply is stable, there’s no inflation, and therefore no COLA?  It shouldn’t, but it does.  Having no COLA next year should be a good thing, yet we feel instead like we’re falling behind.  What’s more, if we never had the need for a COLA, we wouldn’t be having this discussion! The reason “no inflation is ‘bad’ for us” now is because so many things in our financial lives are tied to inflation.

If there were no inflation (well, none beyond what was necessary to support a growing economy) then there wouldn’t be the need to tie anything to inflation, would there?  It’s putting the cart before the horse.  The COLA is around because inflation is around.  Zero inflation doesn’t take your COLA away — the COLA goes away because of zero inflation.  In the end, anyway, a true COLA wouldn’t matter at all, since it would just rise (and perhaps fall) with the money supply.

What’s the bottom line? Zero inflation by itself is not a bad thing at all.  It’s actually a Very Good Thing that we’re unlikely to see in our lifetimes.  It would mean that the money supply is stable and not being diluted.  Zero inflation only appears bad because so many credits, checks, and other goodies are tied to inflation.

It’s important to have the cart behind the horse.

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Makes me wonder:  If I were to ask a New Yorker about the real estate collapse, they might tell me, “Real estate what?”

Tough Money Love commented on Zaarath and Christopher Prokop’s postage-stamp real estate purchase: a 175-square-foot “microstudio” apartment, secured for the cool price of $150,000 plus a $700+/month maintenance fee.  He didn’t really know what to make of it.  Is it sad, stupid, or genius?

I’m not from the City, but this is still stupid.  Why, of all places to live, do people choose the most expensive city in the US, and the 8th most expensive city in the world, to call home?  Where is the advantage of paying off a home in two years (as the Prokops expect to do), if there’s still a $700/month maintenance fee tacked on?  That’s $4 per square foot, per month, after the mortgage is paid off!

What’s more, they don’t cook.  Their clothes are stored in the kitchen cabinets.  Now, I can see the appeal of dejunking a bit, but no pantry?  That’s a very expensive, and likely unhealthy, way to nourish themselves, and it makes them terribly vulnerable to anything that could disrupt their ability to eat out.  In sacrificing their space, they also sacrifice their ability to be independent and self-sufficient.

There have to be better ways to live than this.

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I found out recently that our county is going to be entering the late-20th century in an important way: We’re getting a Walmart.  This is important to us because it’s going to be built adjacent to a subdivision we’re considering purchasing a new house.

But that’s a separate issue.  The issue at hand for this post, though, involves the fact that the Walmart will be a Supercenter.  Meaning that it will be another grocery store just down the road from Food Lion.

Walmart is increasing its presence in our area.  Just a few weeks ago, one of the older Walmart stores just finished up its upgrade to a Supercenter.  I shopped there this past weekend.  It was late-ish Saturday night and only a couple of registers were open.  The line I found was four deep.

I wasn’t standing there for more than a minute before the lady at the jewelry counter offered to check out my groceries.  That was kind.  She didn’t have to do that. Got me out of there about ten minutes faster.

Compare this with my experience tonight at Food Lion:

1. The only cashier that was open had to be called back to her register.
2. She was in such a hurry to get out of there that I loaded the groceries into my cart myself.
3. There was a guy vacuuming the carpet in front of the only exit, and I had to lift my grocery cart over the extension cord.
4. On the way out, the same guy said, “If anyone comes your way, tell them we’re closed.” It wasn’t that close to closing!

Uh, yeah buddy, I’ll get right on that for you.

I don’t think Food Lion is going to last long after the Walmart comes around.  Since I’ve moved to the county they’ve cut their hours three times.  They used to be open 24 hours a day.  Then they closed at midnight.  Then eleven.  Now ten.

And maybe I’m harshing on Food Lion a little bit, but shouldn’t they be trying a little harder to keep their customers happy with Walmart setting up shop down the road?  As of right now I have to drive for twenty minutes to get to a Walmart, so there’s a barrier that makes Food Lion relatively more appealing.  But if the new Walmart’s employees treat me with the same kind consideration that the jewelry counter lady did, the choice between them and Food Lion will be really, really easy.

Not a good idea to alienate your customers with Walmart coming to town.

Thanks to Suburban Dollar for including this post in the Carnival of Personal Finance.

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I mean, it’s still there and all, but does it really mean anything?

And if it does mean something, what more can retailers do that they already haven’t?

WalMart Stores, Radio Shack, The Apple Store, Best Buy, KMart, Kohl’s, Toys “R” Us, and Target have already had their Black Friday ads “leaked.”   I can’t really believe that these leaks were anything but completely planned: orchestrated to create buzz.

Black Friday just doesn’t seem that special anymore. It’s gone from being a crowded, but otherwise lighthearted, shopping day to a spectacle.  People with time on their hands and a few extra layers of clothing stand out all night to grab a few loss leaders, many of them hoping only to ride the wave of hype to sell them on eBay for profit.

Then there are people who just stay out of Black Friday completely, waiting for post-holiday sales or maybe regifting instead.

Retailers need us a lot more than we need them, frankly.  It’s their bottom line that suffers if we don’t go out the day after Thanksgiving.  We, on the other hand, risk blowing our spending plan for indulgence in frenzy and a New Year’s credit hangover.

As Black Friday gets crazier, just picture Happy Days.  And change the channel.

Thanks to Fiscal Geek for including this post in the Carnival of Personal Finance.

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This article on MSN Money misses a bit in the title:

Banks punish perfect customers

The article is another one on how credit card companies are hitting otherwise conscientious users with annual fees.  The users that are being targeted now are those who pay their bills on time and don’t carry a balance.

These are not perfect customers as far as the bank is concerned.  They are close to the worst, actually: just one step above those customers that declare bankruptcy and discharge their debts.  Convenience users are not very profitable for the credit card companies, and could well cost the companies money.

Who are the best customers?  Customers that pay the minimum balance each month for years and years.  Even better are ones that do so while going over their credit limit and occasionally are slightly late on a payment, triggering more fees.  They’re the profitable ones for the banks.  If it weren’t for the profitable customers, the credit card companies couldn’t afford to hold onto the unprofitable ones.  But what’s happening now is that the CARD Act is clamping down on a number of these very profitable practices, and everyone suffers.

The tone of the article is interesting, in that it suggests that credit card companies exist to make the lives of responsible people easier.  That’s just not true.  They exist to make money.  They don’t make money by letting people like me get three weeks’ use of their money, interest-free, and a rebate to boot.  They tolerate people like me because I might fall on hard times, carry a balance, and then they’ll make money off of me.  They’ve kept me around only because I’ll go elsewhere if they make life too difficult for me.  (Perhaps they already want me to go elsewhere.  I don’t really know.)

If most people are responsible with credit and pay their bills in full, then we’ll mostly be convenience users and will have no choice but to pay fees.   But the convenience users are starting to pay fees now because banks are needing to look for sources of income, as it’s been made clear that credit card users shouldn’t have to face the full consequences of their misdeeds.

Thanks to Canadian Finance Blog for including this post in the Carnival of Personal Finance.

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I got suckered into reading this article on MSN from the title:

A $10,000 Social Security hit

There was a stock photo of two obviously very depressed seniors right next to that headline.  At first I thought, “Man, the other shoe dropped fast!” but the article revealed the context of the $10,000:  no cost-of-living adjustment for 2010.

Here’s the math on how “no adjustment for inflation next year” translates to “$10,000.”  The average monthly Social Security check is $1,161, according to the article.  The 3% cost-of-living adjustment they won’t get means $35 extra per month, from now on, that they won’t get.

Compound this $35 per month deficit at a 2% annual rate (a savings account-ish rate), for twenty years, and you arrive at a little over $10,000.

Yes, the headline “A $10,000 Social Security hit” is a lot more sensational than something that mentions cost of living.  I may have read through the headline had it been like that.  What the headline did do, though, is call to attention that this isn’t jut a loss for next year, but for every year after that.

One of my colleagues said that if given the choice between a raise and a bonus, you should always go for the raise.  Why?  Because the bonus is one-time, and the raise is ongoing.  The same is true in the other direction:  the $250 that President Obama would like to give to seniors in order to make things hurt less is one-time, but the lack of a raise is ongoing.  It’s compounding in reverse.

This lack of COLA increases the disparity between rising prices and benefits, and accentuates that inflation makes us poorer.  Benefits don’t need to be cut directly to reduce the real cost of the program.

The benefits just need to be held where they are to reduce the real cost.

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Caught this in a tweet from Wise Bread:

Latest bank fee is for paying off credit card on time every month

The target of new fees for credit card issuers is people who haven’t paid them yet, among others. I mean, why should people who carry a balance, miss payments, or go over their limit have all the fee-paying fun?

The CARD act hurts just about everyone with regard to the price they pay for credit, including people who use it responsibly.  The extra regulations restrict how credit card issuers conduct business, and add non-productive cost to doing business.  This raises the cost that issuers must bear, meaning that consumers, on average, get less of a good deal than they did before.

The article mentions that people with good credit have the opportunity to negotiate with the issuer, as well as to look for greener pastures.  Canceling the newly-non-free card could hurt that person’s credit rating though, as it affects the extent of credit history.

Though I don’t like that I, and others, could end up paying for credit even without carrying a balance, I can’t say that I really blame the issuers.  People who don’t carry balances are the least profitable for the credit card companies. They get a free ride, and the merchant’s fees that are triggered by the purchases they make probably barely cover the administrative costs.  It’s difficult to argue that convenience users of credit cards, after having gotten the convenience for free for so long, should continue to get the convenience for free as the issuers’ costs rise.

I haven’t been notified yet of any new fee action on my account, but at least I won’t be as shocked if it happens.

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I tell you:  It just doesn’t pay to be human anymore.  Big or small.

I’m well aware of how being fat costs money.  But there are now rumblings on the possibility of the following:  If an individual, or family, can reasonably afford health insurance, but does not get it, they face the possibility of being fined: $950 for an individual, and up to $3,800 for a family.  (These are the current numbers as of 9/9/09.)

Presumably the people that would opt out of health coverage would be healthy people, right?  Those that take care of themselves and go to doctors for maintenance visits only?  Either that, or people who are rich enough that they not only don’t need health insurance, but can also pay out of pocket to get treated correctly, and immediately?

You’re fined if you do, and you’re fined if you don’t. You pay to play the game, and you pay to not play the game.  “Make your choice.”

Just in case this appears too lucrative for the insurance companies, with all of the extra business driven to them because consumers were made offers they couldn’t refuse, they’re not off the hook.  As of now (9/9/09), there’s a $6 billion tax that’s in the works for them.

When you hear “health care reform,” think of stuff like this.  Think about whether this is going to help things or hurt things, and for whom.  Think about who’s going to get soaked in the process.

Then, plan accordingly.

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