But I’m guessing the rules are a lot more permissive than you think. They probably grant food stamps, or Supplemental Nutrition Assistance as it is now technically called, to folks you probably do not think should be eligible, possibly including you.

I know this from an article now reverberating around the blogosphere that was posted Monday at Salon, Hipsters on Food Stamps. (I am nowhere near hip enough to read Salon. I found it from thoughtful commentary the next day called Using Food Stamps at Whole Foods, on The Big Money, which I do read.)

The Salon article, brilliantly subtitled "They’re young, they’re broke, and they pay for organic salmon with government subsidies. Got a problem with that?" profiles a pair of significantly underemployed urban intelligentsia types who get $350 a month from the government to spend on food. Needless to say, they exercise their good taste by buying stuff of which I have never actually heard, but which I am willing to believe is expensive, hip, and a scandalously inappropriate use of taxpayer dollars. Salon even coaxed the sound bite "I’m eating better than I ever have before." from the female of the pair.

Don’t get me wrong. If I was eligible for food stamps I would sign up in a minute and happily use them at Whole Foods. (I’m not. I checked. They consider household rather than personal income and the wife is doing pretty well.) And I would, without hesitation, advise anybody who can get this bit of free money from the government to do so.

But that doesn’t mean I don’t think this is government policy gone awry. Using food stamps at Whole Foods is prima facie evidence you are getting too much in food stamps. And it is not even clear to me that the program is universally generous, it may just be arbitrary. A New York Times article from last November profiled a family of seven that gets $300 a month, $50 less than the hipster couple.

During the present Secretary of State’s attempt at health care reform, then-Senator Phil Gramm said something like "If we paid for food the way we pay for healthcare in this country, I know I’d eat better. And so would my dog." It’s one of my favorite quotes, and one that I think ought to have been repeated many times during our current go at reform.

Of course, Gramm meant (further) government involvement in food purchases to be a humorously bad idea. And to a point, the results of giving food stamps to those under a certain income level are pretty predictable when some of those people are starving artist types.

The Big Money piece points out that, in a way, this latest hullaballoo is a step forward. Up to now the recurring worry about food stamps was that they were being used for unhealthy junk food. (That worry being a part of a larger effort to treat the food Americans like to eat as a public health crisis. See, for example, the current vogue for taxing soda, cigarettes having been more or less wrung dry by now.)

So it seems inevitable to me that the government will need to set up panels of experts to review the purchases made with food stamps and disallow those that are either too tasty or too bad for you. In the meantime, we should all get food stamps if we can. Whole Foods awaits.

[Photo – David Shankbone]

As an exercise in laying bare the state of mainstream personal finance advice and/or journalism, let us examine this piece in detail. It’s not long, at seven paragraphs and 532 words.  I should be able to get my hands around their advice and, if necessary, refute it without too much fuss.

Paragraphs 1 and 2 tell us about a retired couple, Bob and Linda Gillet of San Diego, who live a life of European cruises and dinners out. They can do this because they paid off their mortgage early.

Now they estimate they’ve got an extra $600 in the budget each month. "We don’t ever think about whether we can afford things," Linda says.

I guess $600 a month is more money than I thought.

Paragraph 3 reinforces the message of 1 and 2, telling us that the finances of the family home is a big deal for most people and getting bigger. And it shares a statistic that suggests that people over 55 are now much more likely to have a mortgage than they were in decades past.

Okay, so we’re about halfway through the article, and I can see where it is going. This will be a Ramsey-like screed about how you should pay off your debts so you can live comfortably. I know how to discuss that. I’m ready.

Paragraph 4 reads:

Still, prepayment isn’t right for everyone. Bankrate.com senior financial analyst Greg McBride says it’s not worth it if it keeps a family from meeting other savings goals or forces them to liquidate investments. Also, if the mortgage balance is large enough that it still creates a significant tax deduction — typically, above $100,000 — it’s often better to leave it be.

Huh? But didn’t you just…? Okay, fine, turns out this will be more balanced than I expected. It’s true, prepayment isn’t right for everyone. Good for you for saying that.

But what’s this about not doing it if it interferes with "other savings goals" or forces you to "liquidate investments?" What has that got to do with it? What matters is the return on investments versus the interest rate on the mortgage. If your savings goal is socking away money in Treasuries paying you 4% while you pay a mortgage at 5% (after taxes) then you really ought to rethink the goal.

And what’s this about not paying off a mortgage over $100K because it still creates a significant tax deduction? A person should work out the after-tax cost of the mortgage. There are some non-linear effects of the standard deduction, but nothing special happens at the $100K level and not paying it off because it’s bigger than that is, well, counterintuitive.

Paragraph 5 tells us that a homeowner could also refinance the mortgage. Okay, that’s often a great idea. Not really on-topic, though.

Paragraph 6 returns to the topic of how much you owe on your house, sort of, by suggesting you borrow more with a home equity loan or a reverse mortgage. Of course, this is a last resort and the "least evil" way to borrow money if you need money, but it’s an option. I wonder how Bob and Linda feel about it.

The last paragraph is a chain of non sequiturs that nobody would believe if I didn’t reproduce it in full.

Of course, homeowners can always profit from their home the old fashioned way, by selling it. Experts at the Joint Center for Housing Studies at Harvard say remodeling should pick up this year, after Americans spent a paltry $114 billion on it in 2009, barely half what they spent in 2004. But homeowners appear to do best when they focus on the basics. In a recent industry survey, the projects that recouped more than 65 percent of their costs included entry door replacements, roofing replacements and basement remodels — not as flashy as a marble Jacuzzi, but the kind of improvement that looks good on the market.

Assuming that by "profit" we mean cashing out, then I don’t have a problem with the first sentence, although it has little to do with what is left of the narrative thread at this point.

Then, out of nowhere, we get a particularly unsurprising prediction about how much will be spent on remodeling this year. Wha? So I guess we if decided to sell the house because this mortgage thing was just too complicated, we should spend some money on fixing it up first. We then get the commonplace observation that boring and cosmetic improvements recoup more in resale value than flashy ones. Of course, when we say recoup more, we mean involve less of a loss. Even more commonplace than the observation that the dull improvements do better is the one that none of them increase the value of the house by as much as you pay for them. So the last thing you would want to do if you were thinking of selling would be to spend money on remodeling. Wait a sec, what were we talking about?

So let’s recap. In this article from SmartMoney we learn: 1) Paying off your mortgage early is a good idea. 2) Not necessarily. 3) Refis can also be a good idea. 4) Or you could borrow more. 5) Or sell the place. 6) If selling, consider making dull improvements, because they will be less bad of an idea than flashy ones.

And they wonder why Old Media is in trouble.

So it feels a little strange to be discussing the first birthday of the bull market. Most people are not comfortable even calling it a bull market, using paler terms such as rally or recovery. But in any other economic context it would be hailed as a great and wondrous upswing that we have all been lucky to live through.

The S&P 500 closed at 682.55 on March 5, 2009. That turned out to be its low for 2009, and indeed for the decade. It was a level last seen in September 1996. In other words, with dividends ignored, the market had on average returned nothing for thirteen years.

As evidenced by that market low, last March was the peak of economic fear and pessimism. The banking system seemed liable to collapse, unemployment was rising fast, the housing market was in a tailspin, and nobody, not consumers nor businesses, was spending a dime more than was absolutely necessary for anything.

But unless a person was willing to assume a true doomsday scenario, the stock market was then compellingly cheap by just about any measure. (I listed some of them a year ago.) As some wag put it, and I wish I had an attribution for this, "Either the market is a screaming bargain or the world is coming to an end. Well, if the world comes to an end I’m going out fully invested."

Of course, the world did not come to an end, and as confidence built that it would not, the market staged one of its greatest rallies ever. On March 5, 2010 the S&P closed at 1138.70, a one year return of 66.83% before dividends. For most of us, that is a once-in-a-lifetime 12 month gain. The runner up in modern memory is the year ending June 1983, at the start of the 1982-2000 bull market era, in which the S&P gained 52.94%.

And just as most of us had never seen a gain like that before, and likely never will again, virtually all of us missed out on taking full advantage of it. Somewhere there is somebody who got out of the market in the fall of 2008 and then jumped in with both feet in March 2009, but for everybody else the 67% gain is more theory than reality.

Last Friday the S&P closed at 1149.99. That is a little lower than the close on October 1, 2008. And a little higher than the close on November 18, 1998. For most investors, who lack market timing skills and nerves of steel, the 67% run-up gets lost in what is on a longer term basis a very disappointing period for the stock market.

The market is, in my not-so-humble opinion, still fairly cheap. It is hard for me to get my head around the idea that corporate America is now worth the same as it was 11 1/2 years ago. A reasonable person might argue that the market was way too high in 1998, but I am not one of those people. And it would have to have been very overvalued back then in order for today’s level to make sense. If nothing else, inflation has pushed prices up about 33% since 1998, so in real terms the S&P is now about a fourth lower.

Despite the recent glory and present cheapness, I do not perceive much enthusiasm for the stock market these days. Indeed, it is the recent glory and cheapness that is psychologically working against it. Most people do not look at a 67% one-year gain and invest expecting another one. On the contrary, they view 67% as an anomaly. It is either a one-time correction for a one-time problem, or an implausible and unsustainable gain that will no doubt have to be at least partially undone soon.

And the relative cheapness of the market, the fact that it is now where it was 10-15 years ago, tends not to fill investors with optimism. The "Lost Decade" just ended has caused many to question the primacy of the stock market in mainstream investing. On balance, that is probably a good thing. The stock market is not, and has never been, free money. The truly historic 1982-1999 period, in which the market was up 16 of 18 years and averaged 14.8% annual return, gave a generation of investors unrealistic expectations.

But the stock market is still just about the best thing available for ordinary investors. It should not be the only place to invest, and probably should get a lower allocation than has been recommended by most pundits in the past, but over the long run it can still be expected to be the highest returning investment that most people are able to make. (And, not at all coincidentally, also the most risky.)

Now is a scary, or at the least uncomfortable, time to invest in the stock market. At the risk of cliché, it is worth citing the truism that in hindsight the best times to invest were always the times of lowest confidence. It is the times of high confidence, when putting your savings in the market seems like a no-brainer, that tend to lead to tragic events.

First, I don’t like basketball. I’m not sure why. I’ve been accused of being off  the deep end about baseball and I’ll catch the occasional football and hockey game, but basketball does nothing for me. I never liked playing it as a kid, even during that brief window when I was taller than my friends.

Second, I do not have a job.

So I lack much in the way of personal experience to help me understand what is apparently a GDP-threatening scourge, the annual NCAA Men’s Basketball Tournament. It seems that employed basketball fans, who make up a surprisingly large proportion of the population, will waste enough work time to cost their employers $1.8 billion in "unproductive wages" in the tournament’s first week alone. Add in the money lost gambling on the games and the hit to e-commerce from the slowdown in internet speeds caused by people watching the games, and you’ve got a serious menace to the economy.

Or so I am told.

Then again, could this possibly be numerical fiction? These numbers certainly qualify on the three warning signs: they reinforce previously held beliefs, they are remarkable but not unbelievably extreme, and there is no organized group that would object to them.

Perhaps I can use my ignorance of this subject to my advantage. Since I know nothing about it, I can approach it with a open mind and more than my usual level of scientific purity. I will be like an anthropologist discovering a new tribe deep in the jungle.

This particular tribe exhibits peculiar behavior for only a few weeks a year. During this time, they participate in ritualized betting pools with their work colleagues and then use their employer provided computers and internet connections to watch the NCAA games that they have bet on during work hours. Last year, CBSSports.com’s free webcasts of the games logged 8.6 million hours of viewing. That’s a lot of productivity busting broadband usage.

Wait a second. No it’s not.

According to Nielsen, Americans admitted to spending an average of 3 hours a month watching internet video in the first quarter of 2009. That works out to about 915 million hours. So March Madness was a nice blip for CBS, but it was less than one percent of the overall internet video viewing going on during the tournament. And it is hard for me to believe that college hoops was more likely to have been watched on company time than the other 906 million monthly internet video hours.

So maybe the 8.6M number doesn’t support the economic menace story very well. But there’s still that $1.8 billion in wages paid to workers wasting time on basketball.  That’s real money, ain’t it?

The $1.8B figure comes from John Challenger, CEO of of Challenger, Gray & Christmas, a Chicago-based firm that describes itself as a "global outplacement consultancy." I will leave to the reader to ponder why a company that works with people who have just been let go might feel it was an expert on the productivity effects of the NCAA tournament. Apparently, estimating the workplace impact of March Madness is an annual ritual there.

Challenger’s calculation, helpfully laid out in the link above, runs off the rails into implausibility almost immediately. "A 2009 Microsoft/MSN survey found that 45 percent of Americans planned to enter at least one college basketball pool."

I am quite fond of MSN. Posts from this blog regularly appear on MSN Money’s Smart Spending and I know a fair number of you found Bad Money Advice that way. But the 45% number, which comes from an on-line survey, seems a tad high to me. Again, I am outside my field of expertise, but Gallup did find, via an old-fashioned phone survey, that only 4% of Americans bet on college sports of any kind in 2007. To put 45% into further perspective, consider that the same Gallup survey found that 46% of Americans bought a lottery ticket in 2007.

Challenger takes the 45% and multiplies it by the 130M US non-farm workforce (I guess farmers either don’t like basketball or object to gambling) to arrive at a figure of 58.3 million NCAA office pool participants. Then, based on the $748 average weekly wage number from the Bureau of Labor Statistics, he finds that the average worker is paid $18.70 an hour or $6.23 for a 20 minute period.

So, among the 58.3 million office pool participants, every 20 minutes of unproductive work time costs employers roughly $363.2 million (58.2 million X $6.23). It is conceivable that workers participating in pools could waste an average of at least 20 minutes per day the week between Selection Sunday (March 14) and the end of the first round (March 19), when March Madness-related activity is at its height as people research teams, put together their brackets and watch games online during work hours.

“By the end of that first week, employers across the country may pay unproductive workers a total of $1.8 billion,” said Challenger, multiplying the $363.2 million by five.

I will be the first to concede that 20 minutes a day wasted on March Madness is conceivable. But then so are a lot of things. Not knowing much about this, I will accept Challenger’s 20 minute number. And his wage number is a reasonable a shot in the dark as any I can come up with. But, just for fun, I’m going to plug in some different numbers at the start of the calculation.

I will use 4% instead of 45% overall participation. Based on the Gallup results, which were for college sports betting of any kind, that’s a generous estimate. Then I am going to cut the workforce number in half. Office dwellers may predominate in the blog-reading audience, but they are not, in fact, the entire non-farm workforce. And although I would be willing to believe that the folks at McDonald’s and Wal-Mart are just as likely to enter an NCAA pool as cube dwellers, they are much less able to spend company time on it. So I get 2.6 million office pool entrants.

2.6M times $6.23 times five days is about $81 million, somewhat less than $1.8 billion. And even $81M is probably orders of magnitude too high. Virtually all office workers that could be wasting time on March Madness are not paid by the hour. They are paid to accomplish what their boss considers to be an appropriate amount of work in a day. If they fritter away too much time on-line they will sooner or later have to make it up if they want to stay employed. Their bosses know that they do not work constantly all day long and they don’t care. That’s not the deal. So the basic premise that 20 minutes spent on a non-work activity is 20 minutes lost to the company doesn’t really make sense.

Verdict: numerical fiction.

Yesterday the FTC and 35 state attorneys general announced a settlement with one of the major players in the ID theft business, LifeLock, in which the company agreed to pay $12M and stop its hitherto deceptive advertising.

I am willing to admit that when I entitled a post The Death of LifeLock last June I jumped the gun a little. Still, the outlook for the company continues to deteriorate. Yes, for a company of its size, a back-of-the-envelope has annual revenue at $180M, forking over $12M is not the end of the world. But it’s a noticeable hit. And the restrictions on advertizing may just be the beginning of the end.

LifeLock is all about advertising: TV, radio, magazines, billboards, direct mail, and even on-line. And it is not known for subtlety. In fact, what it is universally known for is a campaign based around its CEO disclosing his social security number. Media outlets ranging from The New York Times to Wired started their stories on yesterday’s announcement by identifying the company by that stunt. Of course, both stories also mentioned that somebody used the CEO’s SSN to get a fraudulent payday loan in 2007.

LifeLock’s pitch is that if you send them money you will no longer have to lose sleep over the looming specter of ID theft. As quoted by the FTC, its ad copy has included such reassuring items as:

• “By now you’ve heard about individuals whose identities have been stolen by identity thieves . . . LifeLock protects against this ever happening to you. Guaranteed.”
• “Please know that we are the first company to prevent identity theft from occurring.”
• “Do you ever worry about identity theft? If so, it’s time you got to know LifeLock. We work to stop identity theft before it happens.”

The FTC’s release did not get down to details as to what LifeLock will be allowed to say in the future, but any reasonable person would have to assume that it included the above as examples of what would no longer be allowed. The first two clearly exaggerate LifeLock’s effectiveness. Nothing is guaranteed or simply "prevented." But the third one only claims that the company will "work to stop identity theft." If the company won’t be allowed to even claim to be attempting to stop ID theft, then what can it say?

It is possible that from the FTC’s point of view, the answer to that question may be nothing at all. From reading the complaint and based on some of the quotes in the media, it is fairly clear that the FTC and the state attorneys general think LifeLock is a borderline criminal scam that might as well just go out of business.

I agree with that sentiment, but the FTC is ignoring half of the ad campaign, and it my view it is the more damaging half. LifeLock doesn’t just offer a guarantee that it cannot make good on that ID theft will not happen to you. It works hard to hype up the danger of ID theft until you are willing to pay $10 not to worry about it. (See my discussion of LifeLock’s frightening numbers here.)

Unfortunately, the FTC is on the side of the ID theft scare mongers. Far from knocking LifeLock for exaggerating the danger, they complain that the company was deceptive in focusing on ID theft involving new accounts being opened, which makes up, according to the FTC’s definition, only about a fifth of ID theft incidents.

Except that for most people, that is exactly the sort of thing they are worried about. Most folks wouldn’t consider a teenager who borrows mom’s Visa to buy a pair of earrings at the mall to have committed ID theft. But the FTC does, and it uses this broad definition to pump up the numbers. Even then, it counted only 318,000 occurrences in 2008, which works out to about 1 in 1000 Americans.

Add to these rather long odds the fact that in the vast majority of cases the damage to the person whose ID was stolen is trivial, and you realize that LifeLock is not merely selling something that does not work as promised, they are selling something that you probably would not need if it did work.

So far, it’s a story that could be called poignantly mundane. But add in a few more facts and it transforms into a personal finance parable that will be repeated, and probably distorted, for some time to come.

In 1935 Groner bought three shares of her employer’s stock. From that day on, she reinvested the dividends and never sold a share. She past passed away this January, having reached 100. Her estate, including what is now a $7 million position in Abbott, was left to her alma mater, Lake Forest College.

Had she left the fortune to relatives (it’s not clear she had any) the secrecy of her millionairedom would likely have been preserved. But a bequest of that size to the college is news, and in Chicago this has become a well known story. The Chicago Sun-Times discussed it. So did the Chicago Tribune, which actually went so far as to file it under “Happy News.” (Here’s hoping my obituary doesn’t wind up there.)

The Weekly World News picked up the story. As did, on the same day, The Huffington Post and Wallet Pop. Then just yesterday The Wall Street Journal’s peculiar Wealth Report blog wrote about it.

My crystal ball tells me we will  be hearing about Grace Groner for a long time. To the Automatic Millionaire Mind Next Door crowd, she is an irresistible example of how a pittance saved when young can, when invested on a strict buy-and-hold basis, turn into a great fortune when old.

In a fairly pointless effort to temper this, let me point out a few things about the story.

To begin with, the single investment in 1935 left perfectly untouched and growing to $7 million in 2010 is implausibly tidy. In the 40 years from when she bought the shares to when she left Abbott she never thought either to sell some of what she had nor to buy any more?

On the other hand, in the last decades of her life, how did she manage to reinvest all those dividends? I calculate that in 2009 she got $205K in quarterly checks, which would work out to a federal income tax bill of $31K. It is very hard to believe that a woman of otherwise modest means would, or could, scrimp enough to reinvest the entire $205K. Indeed, news reports say that in her later years she gave money to charity, including $180K to Lake Forest College.

But for the sake of argument, let’s accept the Immaculate Reinvestment Theory. Groner bought three shares in 1935 for $180. That may sound like next to nothing now, but in 1935 it was real money, probably about a month’s take home pay for her.  Saving that four years out of college and at the height of the Great Depression was not a matter of skipping lattes.

Then there is the observation, made in a few of the linked articles above, that Groner did a lousy job of portfolio management. The mythmakers will say that you can’t argue with success, but by any objective measure her allocation of assets was foolish.

Investing in the stock of your employer, as traditional as it may be, is generally a bad idea. Because you work there, you will be worse off if the company does poorly. There is no need to double down by buying the stock too. As the Sun-Times points out, many employees of Enron, GM, and Bear Stearns did this and wound up both unemployed and broke.

Yahoo Finance only has stock data for Abbott going back to 1983. Using that I can back out that Groner had about $193K in Abbott stock then. (This assuming perfect reinvestment from 1983 to 2010. Since I don’t think that happened, I think she actually had considerably more.) In 1983 Groner was 74 years old. Does anybody believe that it is a good idea for a 74-year-old to have substantially all her assets in stocks, never mind in a single stock?

It should be clear that Groner wound up with a small fortune in spite of some unwise decisions largely because of luck. Abbott turned out to be a good basket for all her eggs. Assuming $180 to $7M in 75 years is correct, that is 15.13% annualized return, nicely ahead of the 10.63% from the S&P over the same period. Then again, 10.63% ain’t too bad. As unlucky as it was to graduate from college in 1931, 1935 was a great year to make long term stock investments.

But more than anything else, Groner was fortunate to have lived so long. Had she had the modesty to leave us in 1989 at age 80, roughly her life expectancy when she retired, the Abbott stock would have been worth a still impressive but not newsworthy $636K. Since she made it to triple digits, her wealth had the rare chance to further compound and she became the stuff of legend.

The advocates of becoming rich from frugality will point to Grace Groner as an example of an ordinary person who became rich from modest living. If she can do it, anybody can. That is true. All you have to do is take inappropriate risks, get lucky, and live a very very long time.

Laundry continues to be a fertile area for frugality. Keeping Kingdom First carried a guest post that thoughtfully reminded us to make sure our dirty laundry is really dirty. But the author may go too far when she advises that you ask yourself "If I was paying someone to wash my laundry, would I want to pay to have this item washed?" Obviously, if a frugalist were paying somebody else to wash their clothes they would do it themselves to save money.

SavingAdvice.com brought us instructions on how to make our own dryer sheets. Finally, a way to save money on these household miracles with a thousand thrifty uses.

SavingAdvice.com had a very good month, also sharing a useful guest post on the many advantages of dental tourism, that is, flying to Mexico for a root canal. It was written by the president of Pan American Dental Tours, so he must know what he is talking about. And SA had a third post advising that we Get Politically Active to Save Money. The author shared her experiences saving money by campaigning to save her local library and keeping the county from raising her taxes. After all, what could be more  frugal than lobbying for free services and tax breaks?

Of course, there was a major holiday in February, and many blogs helped out with tips on how to make your Valentine’s day a frugal one. Most of the suggestions were fairly commonplace: celebrate it on the 15th, make dinner at home, give your special someone a "certificate" for "services", and so on. One blog that did break new ground was Almost Frugal, which suggested Google AdWords as a budget gift for your special someone. "Target the keywords your partner search the most, write some ads and you are set."

For year-round savings, Quirky Momma explains that you do not need to buy a newspaper to clip coupons. Just bring your scissors to the library. They won’t mind.

More than a few blogs mentioned it was a good time to buy a Toyota. But PersonalFinanceAnalyst went further, spreading the secrets of really saving money with Cars for Under 500 Dollars: How to Find Them. The author does mention that it takes skill both to find such a car and to operate it safely, as it may be missing such things as second gear. "A novice driver will probably end up in an accident."

Continuing on the car theme, and adding to the growing science of Frugal Thermodynamics, The Simple Dollar had a list of tips to save on your daily commute, including that you should only use the A/C or heater long enough to get the temperature in the car where you want it, then switch it off. After a while, "If you find the temperature getting uncomfortable again, just flip the A/C or heat back on." Of course, if you have one of those fancy over $500 cars, it might be equipped with a high-tech device known as a thermostat.

(Speaking of which, I am no engineer, but I’ve noticed that car engines tend to get hot after running for a little while. Couldn’t somebody rig up a car heater that used engine heat to warm the passengers? Wouldn’t this be practically free, or at least a lot cheaper than heating the inside of the car with electricity, or forced hot water, or however it is done now? Again, I don’t know much about this….)

Wise Bread rounds out this month’s survey of what is new in the frugalosphere with a post suggesting we reduce the number of birthdays we celebrate. They suggest 1-10, 13, 16, 18, 19, 20, 21, 30, 40, 50, 60, 70, 80, 90, and every one after that. I am not sure I share their enthusiasm. Firstly, it is not clear to me that, with appropriate planning and frugal party skills, a person cannot garner enough presents to make a profit on any birthday. And if your birthday celebrations are doomed to run at a loss, why celebrate any of them?

Of course, there is the terrible problem of children’s birthdays. This is a raw deal for most parents. They are expected to have the little urchin’s friends over and feed them ice cream, cake, and soda. You get nothing out of the deal other than the mischievous joy of handing the brats back to their parents just before the sugar crash sets in. Sure, there are presents, but the damn kid gets those. Parents get nothing.

Which is why I am surprised that the entire month of February went by without a single mention of a frugal strategy I have long advocated: having kids on February 29th. It does take planning, and possibly induced labor, but it is well worth the effort. Instead of having to endure and pay for 13 birthdays (according to the Wise Bread plan) before the kid goes to college you only have to celebrate four times.

[Photo – Tudokin]

For fans of the good old USPS (there must be a few out there) it is grim reading. Mail volume is projected to decrease from 177 billion items in 2009 to just 150 billion by 2020. On its present course, the USPS is projected to lose a total of $238 billion over the next decade, a number that makes the shortfalls in Detroit seem relatively manageable.

The AP story on this was headlined Postal Service’s emerging model: Never on Saturday. The media seems to believe that delivery six days a week is a hot button of some kind. Personally, I don’t care very much. Deliver my mail three days a week if you like. Last year Gallup found 66% of Americans favor dropping Saturday to save money.

Of course, the same poll found that only 17% favored laying off postal employees, which is a problem since virtually all the savings from being closed on Saturday would be from reduced payroll. This sentiment, plus ardent lobbying from the postal employees union, means that eliminating Saturday delivery has been periodically rejected for decades. (Canada, by the way, stopped six day service in 1982.)

The USPS release obliquely suggests a list of other drastic actions they can take to narrow the budget gap, most of which will require congressional action. Translating from diplomatic euphemism, they want to close branches, reduce headcount, raise prices, and put off paying for retiree health care.

All this is based on the findings of three top-tier consulting firms paid $4.9 million by the USPS to assess the state of their business and come up with a plan for the future. The results of those studies were also released yesterday. Read them and you realize that as dismal as the picture painted by the USPS press release is, its assumptions are wildly, even implausibly, optimistic.

Going from 177 billion items in 2009 to 150 billion items in 2020 sounds realistically pessimistic until you find out that in 2007 the number was 213 billion. Part of that decline was the Great Recession, but projecting that an 8% annual decline will shrink to a 1.5% one is a bit much. Trends like these do not slow down over time, they accelerate.

BCG, the firm that came up with the volume projections, based the 150 billion number on a survey of “senders” i.e. businesses. They got a somewhat lower number from asking consumers, and a much lower number, 118 billion in 2020, based on actual experience in Europe. And all the projections were based on the rather unlikely assumption of no reduction in service and no increase in prices beyond inflation.

This is where the harsh economics of the Postal Service rears its ugly head. The USPS is a classic example of a business with fixed costs and variable revenue. If you decide to pay a bill on-line rather than mail a check, revenue for the PO is down 44 cents. But they get to save essentially nothing in costs. Even if a billion fewer bills are paid through the mail, the USPS still has to maintain the same number of offices and pay the same number of letter carriers to make the same number of stops during their day.

Granted, there is considerable fat to be trimmed, assuming the government permits it. The post office has 36,500 retail locations, a number that McKinsey deftly compares to that of McDonald’s at 13,900 and Starbucks at 11,100. Each post office serves an average of 600 customers a week. Average. Do the math.

Current law bars the USPS from closing offices “solely for economic reasons.”

It is inevitable that the price of mailing things will increase as the fixed costs of running the Postal Service are spread over fewer and fewer items. And that increase in price will further accelerate the decline in volume, leading to a downward spiral with an obvious final end. No more post office, probably sooner than you think.

If it seems inconceivable that snail mail could go the way of telegrams, imagine what would happen if an extraordinary natural disaster of some kind wiped out the PO tomorrow. The first month would be hard. You would have to sign up for electronic billing from a few places. The guy who plows my driveway would have to call around and get everybody’s email and then sign up for PayPal. We would have to get used to reading magazines on-line.

After six months all would feel normal and the mailman would be just another vanished part of our civic culture, like the iceman and the lamplighter.

Extremely selective meteor showers being rather unlikely, the USPS will not disappear overnight. But it will disappear.

But there is a popular heresy that opposes this firmly established orthodoxy. It holds that all debt is a bad idea, and paying 3X to the bank so you can save X on your taxes is loopy. Free Money Finance made this case recently. And Dave Ramsey is probably the high priest of this particular sect.

I have an instinctive contempt for orthodoxy and a sympathy for heresies of all kinds. But, alas, this is one of those cases where the conventional wisdom is spot on. Sad and boring, but true.

Mortgages are easily the cheapest way a consumer can borrow money. Even setting aside the tax effects, the raw interest rates paid on mortgages are the best deal going for most people. And once taxes are factored in, for many of us mortgages are so cheap we would be very foolish to pay them off.

To illustrate, I will do something I generally try to avoid doing, use myself as an example. Two weeks ago, after three months of hassle and bureaucratic wrangling, I succeeded in refinancing the old homestead. (The appraisal was the biggest challenge. I live in a small and eclectic neighborhood where comps are hard to find and appraisers are understandably very conservative these days.)

The reward for my efforts was a 5/1 ARM at 3.875%, no points. Thinking about that rate still makes me smirk. It is probably even money that inflation over the next five years will average more than 3.875%, meaning that the expected real cost of the loan is zero. The interest I pay will be counterbalanced by the erosion in the value of the principal.

And then there are taxes. Whether or not mortgage interest will have an impact on your tax bill is not as simple a question as you might think, or as it should be. There is the issue of the standard deduction: if your itemized deductions aren’t safely bigger than the standard deduction then the net effect of mortgage interest on your taxes could be small to zero. And at the higher end of the income spectrum all deductions "phase out."

But for me, as for many people, mortgage interest works out to be a straight-up reduction in taxable income. Best I can figure, our marginal federal income tax rate for 2011, the first full year of the new mortgage, will be 36%. So for every dollar I spend in mortgage interest, the tax bill will go down by 36 cents. Put another way, on an after-tax basis that 3.875% rate is just 2.48%.

I’ll borrow at 2.48% all day long. Seriously, I am willing to borrow as much money as is offered at that rate. I’ll take a thousand, a million, a billion, whatever. I may not be as good an investor as I think (few of us are) but I am quite certain I can get a return north of 2.48%.

And just to be clear, for me, investing the money is explicitly the point of the mortgage. I have the liquid assets to pay it off at short notice if that ever became necessary. For example, it is more than conceivable that at some future date interest rates will be much higher and the positive effect on my tax bill will be lower. In the meantime, I am quite happy to borrow this cheap money and to accept the government subsidy that makes it even cheaper.

It is important to remember that the tax deductibility of mortgage interest is a discount on something of value rather than a goal itself.  The heretics argue that paying a dollar to get 36 cents back from Uncle Sam doesn’t make sense. If that was what was going on, it wouldn’t. In fact, I’m paying the $1 as a year’s rent on about $26. I think I can put $26 to profitable use. The 36 cents is a discount, meaning I am really paying only 64 cents to rent $26. That’s a great deal, even if it is boring and conventional.

On the remote chance that the term fiduciary does not ring any bells, let me explain. Investment advisors and managers, including, for example, mutual fund companies, are fiduciaries. They are required to put their clients’ interests first, which basically means watching over client money as they would their own. Of course, there are limits to this, nobody would expect a mutual fund company to lower fees out of fiduciary responsibility, but by and large this works and consumers get what they expect from the relationship.

At the opposite end of the trust spectrum are ordinary salesmen and the ordinary profit-maximizing companies for which they work. Of course, the great majority of people and firms we do business with fall into this category. We know this and think nothing of it. When the waiter suggests dessert, nobody indignantly objects he is not putting the interests of the diners ahead of that of his employer. Ditto for the salesgirl at the mall who says you look great in those pants. Again, this system works and consumers get what they expect.

Stockbrokers, for several reasons, fall somewhere in the middle. They are not fiduciaries, but are expected to temper their own desire for profit with that of their clients. The legal requirement is that the investments they sell must be "suitable." They need not be the single most ideal investment for each client, but they do need to be at least plausibly appropriate. If this was the rule at the mall, the salesgirl could sell a middle-aged guy a pair of raspberry corduroy pants, but would be breaking the law if she sold him a pair of pink leather shorts.

It would be tempting to say that stockbrokers are held this modestly higher standard because with investing the stakes are so obviously greater than with a pair of pants. But it is not the amount of money involved that makes us expect a little more than ruthless salesmanship from stockbrokers. We expect nothing more from car salesmen and real estate brokers, for example, and they deal in large transactions too.

What makes stockbrokers different than most other salesmen is that selling what is suitable is, generally, in their own interest as well as that of the client. Unless they are incompetent or criminal, their goal is to build a long-term relationship. Successful brokers commonly keep clients for decades and even serve multiple generations of the same family.  Selling something that the buyer will soon realize was inappropriate is a poor long-term strategy, even if it is sometimes a profitable short-term one.

This is in contrast to the salesgirl pushing the leather shorts or the real estate broker extolling the virtues of a view of the interstate. Both of these people can reasonably assume that the customer is unlikely to do business with them again whatever happens, so they might as well cash in now.

So we expect stockbrokers to give advice that is at least approximately sound partially because most of them do it anyway. But there is another reason why consumers yearn to have stockbrokers held to a higher standard than other salesmen. Investments are complicated things that are difficult for non-professionals to understand and make decisions about.

Other professions that help ordinary folks navigate technical and arcane fields, such as lawyers, doctors, and accountants, are expected to put their clients interests before their own without exception. And those professions have elaborate rules that govern and help avoid conflicts of interest. But in none of those lines of work are the conflicts as common as they are with stockbrokers.

The reason for that is fairly simple. Lawyers, doctors, and accountants charge by the hour. (Well, lawyers and accountants do. How doctors get paid is a little mysterious, often even to them.) At the margin, these professions have some incentive to advise clients to do something that will result in more business, a lawyer could recommend suing somebody, for example, but in general they do not need to talk their clients into things in order to get paid.

On the other hand, under the traditional and still typical model, stockbrokers need to talk their clients into transactions in order to put food on the table. If the broker will make $1000 if the client buys a certain mutual fund, and nothing if he does not, how candid can we really expect his opinion on that fund to be?

That’s a significant and fundamental conflict of interest that can’t be legislated away by declaring stockbrokers to be fiduciaries. In fact, I think that the conflict is so large that making brokers fiduciaries would put them in an untenable position.

Paying financial advisors via commissions on transactions is widely considered to be an anachronism and there has been a slow, multi-decade movement away from it. Fee based financial planners, who generally charge like lawyers and doctors and who are often legally fiduciaries, have become relatively common in the past generation or so. And some brokerages have started offering accounts with fees based on assets under management rather than transactions.

These are encouraging trends. Perhaps in ten or twenty years most financial advisors will be fiduciaries, with incentives that are closely, if not perfectly, aligned with those of their clients.

In the meantime, we still have quite a few traditional brokers who are essentially salesmen working on commission. Although less than ideal, that ought not to be a crisis that needs fixing. We deal with people who make their living selling stuff every day. In fact, perhaps the worst thing that we could do would be to obscure the nature of that relationship. Relabeling stockbrokers without changing the underlying nature of their incentives introduces the danger that consumers will forget how the broker makes his living. Despite what he says, you may look ridiculous in those pants.