I do not have much patience with the oppressors shtick. Thankfully, the great majority of Americans agree with me. Outraged complaints about how the rich are not paying their fair share of taxes is something leaders of the Blue Team voice to raise money from their navy blue supporters early in an election cycle, only to be conveniently forgotten as the day of actually voting approaches.

Support for raising taxes on high income households dissipates quickly once how much they are already paying is understood. An easy majority of Americans will say yes when asked if those making more than $250K should pay more taxes to reduce the deficit. But if the pollster gets specific and asks just how much those lucky few should cough up, a big majority choose rates lower than the current ones. Raising the marginal rate on households with incomes over $250K to 40%, which the administration claims to want, was found by a February poll to be supported by all of 4% of voters.

This clash between rich mythology and rich reality is typical. Even amongst the ambitious would-be emulators of rich behavior, accurate visions of the rich are surprisingly rare. Any number of successful personal finance gurus have for years gotten away with such unlikely stories as the rich buying cars by the pound and other howlers because their audience does not know any better.

I am not at all a fan of the “secrets” of the rich genre, but I will concede one thing. For many non-rich people, the rich are a mystery. Our media does not help.

Recently the WSJ’s Wealth Report asked Do the Wealthy Work Harder Than the Rest? Depending on your outlook, the answer to that question could be interesting, obvious, or irrelevant. Or maybe a mix of all three.

The academic research cited by the post is thin and indirect. “Highly-educated” men spend less time on leisure, 33.2 hours a week, than “low-educated” men, who clocked an average of 39.1 hours. If you are willing to assume that highly/low is rich/poor and that less time at leisure means working harder, then yes, the rich do work harder.

You might also believe several other equally as plausible explanations. The higher number of hours spent not working by the less educated might not be entirely by choice. Or perhaps cause and effect have been confused. Guys who like to work a lot naturally became highly educated. And hours worked may not be a good proxy for effort. An hour in an office is not the same as an hour digging a ditch.

But at the highest level, it is almost inconceivable that there would not be a positive relation of some kind between hours worked and income. Everything else equal, you work more, you make more. There are clearly many other factors playing a role, but in isolation the hours worked factor ought to positively impact income.

Indeed, what is striking is the degree to which this dog-bites-man finding is surprising to a few academics and a WSJ writer.

Serious Marxists believe that there is no sense in which the rich deserve to be rich. They got that way entirely because of luck (particularly accidents of birth) and a coordinated effort to rob the rest of society of the fruits of their labor. While I am not saying that the author of the WSJ’s Wealth Report is that far off the deep end, his surprise at hearing that effort might actually play a role is telling.

Not that I think that hours worked is all that explanatory of wealth. I am sure that Mitt Romney put in staggeringly long hours in his glory days at Bain Capital, but I expect he worked about twice the number of hours of a typical white collar worker and got paid about a hundred times as much.

In my view, the two most important factors determining wealth are luck and talent. I am not sure which of the two are more important, but I do think that after them everything else, hours worked, physical attractiveness, etc., hardly matters at all.

Romney benefitted from a host of advantages others did not have, the best schools, a well-connected father, great hair. But that describes a lot of people. How many sons of ex-governors are there? How many made $250m?

Of course, an argument that people might become rich even partially based on talent is fingernails on a chalkboard to Marxists. It would undermine everything. Hence the valiant effort by academics and others to find an explanation, any explanation, other than talent for how rich people got that way.

Which, unfortunately, makes it much harder than it ought to be for those without a political axe to grind and who want to know, for simple and practical reasons, how people get rich.

[Photo – William Helsen]

Would you like to own a share of this outfit? Too late. You already do.

The inevitable, if not imminent, demise of the US Postal Service is one of the recurring themes here at BMA. Aside from affording me the opportunity to poke fun at Washington, and make predictions that are safely in far off in the future, I keep returning to the topic because it is an example of one of the core ideas of this blog, that vague and wishful thinking is no match for the reality of dollars and cents.

The Post Office is in serious trouble. If it were a normal corporation with private creditors it would almost certainly be in Chapter 11 by now. Deficits are large and getting larger. The top line is shrinking quickly.

Mail volumes are down 23% since 2007. And that decline is part of a long term trend, not some short-term effect of the Great Recession. Overall volumes peaked in 2006, but first class mail, which is is the real money maker for the USPS, peaked in 1999.

Moreover, it is a monopoly. These are not revenues lost to a competitor that they might someday win back. People have just reduced their usage of mail. It does not take much insight to see that technology is gradually, inexorably, eating away at this business.

The horrible truth is that there are very few applications for snail mail for which an electronic alternative would not be cheaper and faster. That most of us still use it as much as we do is driven more by laziness than a rational preference. As time goes on, we will all get around to using the USPS less. A lot less.

Recently, the Post Office backed down from a scheme to close 3,700 of its 36,500 locations. That would have saved $200M a year, implying that each to-be-closed office loses about $56K a year. The new plan is to significantly reduce the hours at 13,000 offices, which will save $500M a year. (Part-time offices mean part-time workers, and they do not get such expensive benefits.)

That sounds like a big step in the right direction until you remember that the USPS is losing $36M a day, so this will close the gap for just under two weeks out of the year. What about the rest of the red ink? Well, they have a plan.

Released in February, the five year “Plan to Profitability” lays out $20B in annual savings, of which about half will require legislative action. At first blush, it all seems plausible. Then doubt sets in.

Part of the savings turns out to be “revenue management” that is, raising rates, which seems to be based on the very optimistic idea that fist class volume is not affected by changes in price. They project a 14% decline in volume over the next five years (which would be a meaningful improvement over the past five years) but only a 7% decline in revenue.

And the single largest contributor to the $20B in annual savings is $7B on healthcare. To put that in perspective, there are currently 557,000 employees, so that is a savings of about $12,500 per employee per year. Of course, it is not current employees but retired ones that cost the real money. And here is the biggest slight of hand in the plan.

A few years back, Congress got this crazy idea that the USPS should “pre-fund” its future retiree healthcare obligations. In other words, instead of trusting that in decades to come they will be able to pay for retirees healthcare out of current revenues, they should set aside money now to match the liability. Turns out, that is a lot of money to set aside, more than $5B a year.

The Plan to Profitability fixes this by zeroing out the $5B line item. The unstated implication being that should the USPS someday be unable to cover healthcare costs for its retirees the Federal Government will.

The plan also includes drastically reducing the workforce by attrition (more than half of current employees are eligible for retirement) closing locations, and ending Saturday delivery. All things that an autonomous organization that could make its own decisions would have done years ago.

What is remarkable about all this is not that the USPS is in trouble. That is the natural order of things, the unstoppable march of capitalism’s creative destruction at work.

What is weird is how little anybody seems to notice. At 557,000 employees and 36,500 retail locations, the USPS is nothing short of gigantic. Just about every American uses its services. What would the media buzz be like if McDonald’s (420,000 employees, 33,500 locations world-wide) was in similarly dire straits? And remember GM’s (209,000 employees) bankruptcy and bailout?

The crisis at the USPS flies under the radar partly because of its twilight status, neither an independent corporation with shareholders and creditors, nor a government agency that appears in the Federal budget. But in a larger sense, the problems at the Post Office do not enter our consciousness because we all have a vague feeling that the PO has always been there and so always will.

The numbers just do not work. Wishful thinking aside, it is hard to see the USPS surviving in recognizable form without ten or even eleven digit annual subsidies from the Federal government, and it is not clear to me that Congress would go along with that. I would not.

How about the New York Times’ weekly Mortgages column? The Times is as august and authoritative as you can get in the old media world. And real estate has been an obsession for New Yorkers for as long as anybody can remember. (Rome has a foundation myth involving twin orphans and a wolf. New York’s centers on buying Manhattan really cheap. Tells you something.)

Vickie Elmer writes the column for the Times on mortgages every Sunday. It appears to be all she does there, and it is reasonable to suppose that it is her full time job. So she must be an expert. This must be the place for the confused to learn about mortgages.

I would not have brought it up if it were. To be fair, I have no place else to nominate, but last week’s installment of the Mortgages column leaves me wondering if maybe living in ignorance is preferable.

The topic was a relatively basic one in the mortgage area: when should a person refinance? It is the sort of thing you would assume that Elmer would rehash often enough that she would have it down pat by now. Alas, no.

She gives a few reasons why a person might not refinance. The one she discusses the most, spending about a fourth of the column on it, is the misbegotten idea that you should not refinance if your current mortgage is old enough that your payments contain relatively more principal and less interest.

Quoting a woman identified as a “financial planner in Manhattan”:

“When you refinance, you’re not building equity,” Ms. Walker Hartwell said. “You’re starting at the beginning” of the amortization tables.

This is staggeringly, eye-rollingly, jaw-droppingly, and you’ve-got-to-be-kiddingly dumb.

To begin with, the idea seems to assume that paying off the principal of the mortgage is some kind of special privilege that you earn from making payments for a few years. This is not so. You can pay off principal any time you have some cash you feel like sending in.

In fact, if you refinance you will have a lower monthly payment and will have some more cash laying around that you could, if you so chose, use to reduce your principal. A person with a flair for tidiness might just continue to send in the old higher payment every month on the new mortgage. That will pay down the principal faster than sticking with the old one, guaranteed.

But that would only make sense as advice if you took as given that paying down principal was a good thing. Elmer and Walker Hartwell appear to be confusing building equity in your home with building wealth. As if taking $1000 in cash and paying down your mortgage by $1000 makes you richer. Of course it does not, at least not in the short run.

Moreover, interest rates are now so low, and the whole point of the exercise is to get yours even lower, that paying down any more principal than you absolutely have to is likely a bad idea. Particularly if the interest is tax deductible and you are in the 25% bracket or worse, which I think describes most homeowners. An after-tax rate of 3% is not atypical, and that is remarkably cheap money, likely once in a lifetime cheap.

Even taken a face value, the effect that Elmer is talking about is trivial.

[The amortization effect is] “very important,” said Edward Ades, a partner in Universal Mortgage in Brooklyn. He noted, for example, that in the first year of a $300,000 30-year mortgage at 4 percent, a borrower would have paid off 1.76 percent of the balance; in the fifth year, that rises to 2.06 percent.

0.3% of $300,000 is $900. A person is supposed to hold off on refinancing because of the golden opportunity to pay off $900 in principal over the course of a year? This is more attractive than lowering your interest rate by, say 0.5%?

Indeed, this is so unconvincing as an argument against refinancing that I am pretty sure Mr. Ades, a broker who makes money if people refinance, is having a little fun with Ms. Elmer.

Happily for her, she and her editors are not in on the joke. Too bad about the readers.

[Photo: Luigi Novi – Nightscream]

First, an apology. We have not managed to post our round-up of doings in the frugalosphere for a while. The cost of the extra electricity required to conduct our research was exceeding our frugal-by-choice budget limits. But now that we have our new-to-us steam turbine generator in the backyard up and running (it burns toilet paper tubes, egg cartons, and dryer sheets for fuel) we are back in business.

But where to start? How about birth? If you are thinking about reproducing, you might want to read Shopping Detox’s analysis Which are most frugal: cats, dogs, or babies? Spoiler alert: it is cats.

If you take that lesson to heart, you might be looking for frugal contraception. Of course, the the most frugal method is abstinence, something that comes naturally to many frugalists. But condoms are a good second choice and Wise Bread’s Mikey Rox points out that there is really no reason to pay for them.

I see them all kinds of places for free. They’re available at bars, doctors’ offices, clinics, street fairs and festivals, and more. I have a huge fish bowl full of condoms in my living room, and I pick up extras whenever I see them.

It is not just frugal contraception, it is frugal home decor!

Then again, if you do not have a baby you will miss out on the opportunity to save by not using disposable diapers. And they are the ultimate DIY project. But remember, timing is everything. FamilyancialWealth [sic] explains that you should get yourself pregnant in late February or March to get an end-of-year baby. You will get full tax benefits as if you had had the kid the entire year.

And if the new addition on the way means you have to move, StupidCents has a great tip: instead of paying to have your furniture moved, just sell it. Problem solved.

Of course, it is not only the big changes in life that provide frugal opportunities. Personal care, for instance, is rich with possibilities. This That And The MBA passed along the suggestion to save on those expensive disposable razor blades by using an old-fashioned straight razor. That will save literally dozens of dollars a year. Better yet, the author reports that “the first time I used one it looked like I was in a knife fight.” So not only can you be frugal, you can show others how frugal you are. Always a plus.

Also in our personal care department is lip balm. If you are like the author of a post at YouHaveMoreThanYouThink, you apply it more than 50 times a day. And you know that even that totally normal and not weird level of use can get very expensive. Not to worry, the post gives a recipe to make your own lip balm in 9 simple steps. All you will need is 5 ingredients you are unlikely to have in your house but can probably find if you visit a few stores and 10 to 15 empty lip balm tubes with caps. Projected savings from the batch is $2, but your mileage may differ.

Speaking of mileage, there have been a lot of new posts listing ways to save on gas. Most of them, sad to say, have been the sort of thing frugalists have been doing for a long time: keeping the air conditioning and heat off, driving very slowly, etc. But RamblingFever had one that was new to us: draft behind 18 wheelers. Remember: if you can’t see my mirrors, you are saving money.

Food and drink outside the home is another area full of frugal possibilities. CNN even passed on a tip to save money while on a cruise. “Try emptying a water bottle and replacing it with your favorite vodka or gin. "No one will notice," says David Tuder, a banker from New York.” (Come to think of it, that Wall Street bankers believe that nobody can tell if they are guzzling vodka explains a lot.)

FreeMoneyFinance pointed out that you can save as much as $2,000 a year by making a meal of free samples at Costco just three times a week. Great idea. But then the same blog confused us with a post that asked What are the Accepted Limits of Free Refills? They are refills. And they are free. The limit is that the soda fountain will run out of soda eventually. Also there is probably some medical reason why you should not have an all liquid lunch of 50 oz. of Coke more than, say, three times a week.

We started this survey with birth, so it is only fitting that we end it with death. Shopping Detox, which brought us the analysis choosing cats, told us that “the most frugal way to die would obviously be to wander around the woods and pass away, becoming one with the dirt and the trees.” We agree, but there are some practical issues, particularly around timing if you expected to go from natural causes. On the other hand, if you were planning to help a close relative along, doing the job in the woods has some advantages.

More practically frugal was Prairie EcoThrifter, who told us that in “most states” you are allowed to bury a loved one on your own property. Also, in most states, embalming is not required. And, in most states, you do not even need a casket. So just dig a hole in the backyard and toss Grandpa in. We would skip the headstone. Not only will that save money, it will help protect your home’s resale value.

[Photo: Derek Harper]

In the past I have politely implied that this is a failing of mine, that I am just too old or too dense to understand what everybody else does. I hope nobody was fooled by that. I really think I may be the last person in America who can think clearly about plastic.

A few weeks ago, SmartMoney ran a round-up of the best credit card deals. The listing of best offers for the various categories of credit cards was fine, but the introductory gloss managed to encapsulate just about all the craziness (and I do mean craziness) that clouds thinking about cards in America.

… credit cards have lately emerged as the surprise champs, offering fewer fees and better rewards than the typical debit card.

Surprise to who? As far as I know, credit cards, in general, have always had lower fees and better rewards than debit.

One of the clearest indications that something is not right in the credit vs. debit discussion is how hard journalists seem to work trying to justify one type over the other, introducing spurious criteria that mask the relatively simple bottom-line.

… consumers may find they’re more protected with credit cards than with debit cards. Fraudulent credit card charges are forgiven by banks, but with debit cards, card holders could be on the hook for hundreds of dollars, if not more.

Of course, like much else written on identity theft, this is more urban myth than fact. While it is the case that the regulations that set the maximum consumer liabilities are different for credit and debit cards (they are regulated by different branches of the government, after all) for most practical purposes the legal cap is $50 for both, provided the consumer reports the fraud soon after discovering it. And in any case, for practical purposes consumer liability is zero, because both Visa and MasterCard cover it all for both types of card.

Until recently, debit cards offered a one-two punch credit cards couldn’t match: a convenient way to access money without the fear of going into debt, along with generous reward programs… .

I believe that the single largest manifestation of America’s money neurosis is the fact that debit transactions outnumber credit transactions. Given the terms offered consumers on the two kinds of plastic, if we were being objective and rational, debit cards would be a tiny minority the the business. A credit card can do everything a debit card can, also provides credit if needed, and is cheaper.

Indeed, so far off the deep end are we about debit vs. credit that we cannot even plausibly explain why we prefer debit. Choosing it because you can buy stuff “without the fear of going into debt” would be crazy enough. It would only make sense if your spending was akin to an addiction: that mere willpower could not keep you from whipping out the plastic at the mall.

If you think about it, that sort of compulsion being widespread would be remarkable. It lacks the base biological drivers that underlie substance abuse or even adultery. And yet the majority of us, apparently, have so little control over our spending impulses that we must resort to the drastic measure of paying more to not have the option to borrow.

If that were the whole story, it would be crazy enough. But I do not think it is. The guardrail feature of debit cards, that you can’t spend more than you have, does not quite hold water as an explanation for why we prefer debit cards. Even within the perverse twilight logic of our compulsion to spend, it does not make much sense.

First, many, if not most, debit cards carry an overdraft protection feature, meaning you are just as able to go into debt as with a credit card, but under worse terms. Second, you could get exactly the same guardrail effect by carrying a credit card with a low credit limit. (I imagine that card companies are very happy to lower your limit if you ask nicely.) And third, limiting your spending to every penny you have leaves something to be desired as a means of behavior modification.

I have another theory to explain debit vs. credit which I think fits better with the evidence. Many consumers, at least in the abstract, wish that they spent less money. That in itself may not be rational, but I think we can agree it is a common phenomenon. And those consumers prefer debit not because they are ultimately limited in their spending to cash in the bank, but because they are (or think they are) more reluctant to spend money out of their checking account than incur an otherwise identical debt they will be billed for in a few weeks.

That is layers of crazy. But there is more. At the highest level, it would be reasonable to suppose that debit cards would be cheaper to use than credit cards. They provide less of a service and are, or should be, less expensive to issue. Credit cards, even if normally paid off every month, involve some credit risk as the bank fronts the money to the merchant before it gets paid by the customer. Debit cards, of course, just involve moving money from one account to another.

And yet debit cards are not cheaper. They are more expensive because credit cards are such a remarkably, even implausibly, good business for issuers. And the way that business is so profitable is itself a bit odd. Some consumers (apparently just under 60% of them) carry a balance on their cards, that is, they borrow money at high interest rates from the issuing bank.

This is such a profitable business that it subsidizes all that is near it. Wet blankets like me in the 40+% who pay off the balance every month get a really useful service essentially for free. Actually, better than free if you consider rewards and the short-term interest free loans. And the whole amazing infrastructure that allows me to buy just about anything, just about anywhere in the world, from complete stranger and without using cash, exists because loaning money to the people who do not pay their balances is so profitable.

And that is more than a bit crazy. I am not ideologically against debt, and I can imagine all sorts of emergencies and semi-emergencies that would reasonably result in carrying a credit card balance. But there is just no way that habitually borrowing money in this way is rational for more than half of American consumers.

The icing on this layer cake of irrationality is the reason why debit cards are getting even less economical for consumers relative to credit cards. The Durbin Amendment, one of the few bits of the Dodd-Frank financial reform law that actually did anything, introduced government regulation of the fees that merchants pay on debit card transactions. (And by “regulation” I mean it cut those fees roughly in half by fiat.)

It is not entirely clear what the goals for Sen. Durbin’s (D-Illinois) pet project were. But I am betting that increased use of credit cards was not among them. I will even speculate that the folks in Washington consider the banks’ newfound eagerness to issue credit cards and comparative lack of interest in debit, just because debit is no longer so profitable, to be an unforeseeable consequence of the legislation. And that is crazy.

[Photo: Lotus Head]

What drives me up the wall is the pious focus on them as a great green savings of energy and/or money. A focus which some years ago resulted in the federal government actually banning the old-fashioned Edison bulb.

Do not get me wrong. I agree that switching to energy saving bulbs will save energy. My point is that it will save only a tiny amount of energy. An amount that really only works as a symbolic act, and symbolism is in the eye of the beholder. What some may see as a visible sign that we love the planet is for me a sign we are governed by innumerate twits. I am here referring to both our politicians and the citizens who elect them.

What pressed this hot button of mine is a minor non-news item bouncing around the web. Apparently, last August the Department of Energy, the one Gov. Perry could not remember, awarded a $10 million prize to Philips for a new LED light bulb. This “L Prize” was intended to “substantially accelerate America’s shift from inefficient, dated lighting products to innovative, high-performance products.”

Philips has recently started selling the things, which prompted a piece in the Washington Post that, among other things, pointed out that at $50 each, these bulbs do not quite satisfy the stated L prize goal of affordability.

Indeed, it is hard to see how these particular LED bulbs are a prize-worthy improvement on the existing offerings. Yes, they produce the light of a 60 watt incandescent with only 10 watts, but that only sounds impressive until you learn that the old LEDs did it with 12.5 watts. And the old ones cost less than half as much money.

Why does the prize winning bulb cost so much? Well, one reason could be that the prize rules required that it be made (mostly) in the USA. The $50 bulb will be assembled in Wisconsin. Philips’ not-quite-as-good $25 version is made in China. (Of course, Philips is a Dutch company, so the L Prize Bulb is American in the same way an iPhone is Chinese.)

A round up of eco-friendly bulbs in the Wall Street Journal says the new bulb “works pretty well” and then recommends an $8 CFL instead.  This is proudly linked to on the L Prize website.

Philips was the only entrant in the prize competition.

The bottom line is that our government gave a cash prize to a foreign company for producing something that no consumer in his right mind would ever buy. The Post article makes it pretty clear that retailers would prefer not to waste shelf space on this turkey, but may do so just as a face-saving favor to Philips.

The L Prize strikes me as an example of Obamaism at its worst: a cutesy dinner-party-friendly solution to a problem we do not really have.

Needless to say, others disagree. Right Wingers Attack Innovative $50 Light Bulb Because They Can’t Do Math is a typically shrill response to the Post item. It focused on a since-removed info graphic not prepared by the article’s author that attempted to compare the lifetime cost of the L Prize bulb to the equivalent number of incandescent bulbs.

This graphic was fundamentally flawed for several reasons. 1) It used a much too low estimate of electricity cost. 2) In the context of the article, comparing the $50 L Prize bulb to existing $25 LED bulbs would have made more sense. 3) It is an academic question, as Americans will not be able to buy incandescent bulbs in the future. 4) Totaling expenditures over 30 years is not how you decide which is cheaper.

#4 bothers me the most. This is a simple time value of money problem that comes up in consumers lives with some frequency and that everybody ought to be able to solve. In the forlorn hope it will do some good, permit me to walk through the proper way to do the math.

I will start with the L Prize bulb vs. incandescents comparison. LEDs last a long time. Indeed, they never really burn out at all. When Philips says the bulb will last 30 years, what they mean is that after 30,000 hours of use (1 year = 1000 hours apparently being the standard assumption) it will have faded to 70% of its original brightness, which will be annoying enough for the consumer to want to replace it.

So if we assume the L Prize bulb will last 30,000 hours, and the incandescent alternative will last 1000 hours, then you will need 30 of the old style bulbs to match one L Prize. You can get the incandescent ones for about 50 cents each, at least the cheap ones that only last 1000 hours. To make the calculation both realistic and simpler, let us assume that you will buy all 30 bulbs today, while they are still available. That would set you back $15, $35 less than the L Prize bulb.

And what do you get for your $35 in additional outlay if you spring for the L Prize bulb? Why, a lower electric bill, of course. You will be using 50 watts less of power over 30,000 hours, which is 1500 kilowatt hours. At $0.10/kWh, that is a total 30 year savings of $150, which you only paid $35 for. Hooray.

Not so fast. $150 dribbled out over 30 years, at $5 a year, is not worth $150 today. To find out what it is worth, you need a discount rate, essentially your expected return on investment. To price the $5 payment in 2020, you need to work out how much you would need to invest to have $5 in 2020.

I will assume (very arbitrarily) a discount rate of 8%. And based on that rate, $5 a year for 30 years is worth a grand total of $56.29 today. So buying the L Prize bulb nets you $21.29 in present value. How very exciting.

Just for fun, let’s imagine that you lived in a country so permissive that it actually allowed you to buy 60 watt incandescent bulbs during this 30 year period. In that case, going old school would cost you $5.50 a year, $5 in extra electricity and $0.50 for a new bulb. The present value of that cost is $61.91, but you have to pay $50 out of pocket today to avoid it, for a net savings of $11.91. So almost half of the $21.29 savings is due to the government created constraint on buying incandescent bulbs.

Furthermore, there are a few unlikely assumptions baked into this calculation. First, 1000 hours a year is about 2 3/4 hours a day of use, which is probably more work than most of the bulbs in your house get. Second, the analysis only makes sense if you are going to stay in your house for 30 years or are the kind of person who would pack up the light bulbs when they move out.

And what about the comparison that should have gone with the Post article? Which is cheaper, the $50 Wisconsin-made L Prize bulb or the $25 Chinese-made no prize bulb? The prize winner gets the job done for 2.5 fewer watts, which over the course of a year would save 2.5 kWh, or $0.25. 30 annual payments of a quarter, assuming an 8% discount rate, comes to $2.81 in today’s money.

And what is that worth? $10 million, apparently.

[Photo: KMJ]

What’s that? You meant is it a good idea for a consumer to buy a timeshare? Oh.

No. It isn’t.

I am reminded of this by a recent item at SmartMoney telling us how the prices for some second-hand timeshares, that is, those owned by consumers who now want out, have dropped to $1. They are not so much for sale as up for adoption, free to a good home. Given the annual fees involved, that is not as illogical as it might sound, but it is a stark contrast to the five figure sums those consumers were dazzled into paying just a few years ago.

As a general rule, the harder somebody tries to sell you something, the worse the deal is. And I have trouble thinking of anything that the seller works harder to move than timeshares. Life insurance salesmen are comparatively low key.

Even car dealers, who are selling items at a similar price level, do not go to such great lengths to get you to buy. They will let you drive the car for a few minutes. You might get a free cup of coffee. And maybe balloons for the kids, if there is a special event going on.

Timeshare vendors will often give out discounted or even free stays at their resorts, if only you are willing to sit through their sales pitch. They have even been known to use fake sweepstakes to lure you in.

The difference is that while selling new cars is roughly a break-even venture for most dealerships, the profit margin on selling new timeshares can be staggering. And for that, we have only ourselves to blame.

Timeshares are usefully thought of as a bit of real estate that has been sub-divided using a calendar rather than walls. And for modestly mysterious psychological reasons, folks are willing to pay a lot more for the time-divided pieces than the whole. A $500K condo might go for $15K a week, which is a big difference to the developer. Add in a handful of annual fees, which can increase over time, and you have a serious money maker, hence the lavish marketing.

And in a way, this is a shame. Because the basic timeshare idea ought to work. Vacation homes, by definition, can only be used by their owners a small portion of the year. A scheme whereby several people own the same property by dividing up the calendar ought to be a practical and efficient solution. It is easy to imagine a group of friends buying a beach house that way. Building a resort to be owned by hundreds or thousands of people under the same terms ought to work too.

Alas, it does not. Ironically, the core reason is that timeshares seem like such a great deal. Consumers, some of them anyway, are willing to pay a lot more for a timeshare than it is objectively worth. That causes developers to build more timeshares than the world really needs and to aggressively sell them.

Inevitably, as the years pass some of those once enthusiastic purchasers sour on the deal. They realize that what they bought was not just the right to use a bit of real estate for a week each year, provided annual fees are paid. It is also the obligation to pay those fees, whether or not the real estate is used, essentially forever. And as if that was not bad enough, those fees are not fixed and will rise with inflation.

Indeed, rising with inflation may be something of a best case scenario. If a timeshare owner wants out of his timeshare but cannot get out, because nobody else is willing to take on the obligation of paying the fees in exchange for annual use of the property, his natural next step is to stop paying those fees.

The SmartMoney piece quotes an outfit called TimeshareResortCollections.com, which is apparently a specialized debt collection agency, saying that “Up to 48% of timeshare owners are behind on their annual maintenance payments by at least a year.” The words “up to” confuse me a bit, but it is clear that this is a big problem.

In theory, an operator of a timeshare resort could sue a non-paying owner for the fees or foreclose on the timeshare. In reality, neither option is particularly practical. The money owed is not enough to sue over. And taking the timeshare does not help much given that the whole point is that the owner cannot give the thing away.

What happens is that in order to raise the money needed to run the place, the resort operator raises fees for the owners who are paying. And that leads to a classic downward spiral, as higher fees lead to more trapped owners who stop paying.

So, no, timeshares are not a good idea.

I am pleased to report that I once again have a reason to put on a tie every day. I’ve signed on with an investment management start-up in Boston. Details are not relevant here, but bottom line is that my thinking hours are now consumed by commercial activity, to the exclusion of, among other amusements, this blog.

Of course, start-ups are fragile things. For all I know I’ll be back here by summer. Either way, I’m going to keep paying the (very small) fees involved in keeping this site up for those who find my old posts worth reading. Google still sends a steady stream of readers this way on daily basis so I guess some of you must still find this stuff of use.

Once again, to all my readers, loyal and otherwise, a heartfelt thanks for allowing a curmudgeon to ramble on a bit.

[Photo: Asa Wilson]

There is a movement amongst earnest policy wonks that might be called Nanny State Light. It’s a compromise position between full-on centrally  planned we-know-what’s-best-for-you control and you’re-on-your-own-kid libertarianism.

The idea is that instead of making people do the right thing or hoping that they do what’s best on their own, you give them a little nudge and hint in the right direction. This is, I am told, the topic of a clever and popular book, Nudge, which I haven’t yet gotten around to reading. (But I bought a copy a few weeks ago.  That’s something, isn’t it?)

The latest scheme along these lines to hit the media is in today’s Wall Street Journal. Apparently, all we need to do to get people to save more money is to send them a text message reminding them to save more money.

A new study by a group of economists looking at why people save money found that simply sending out cellphone reminders increased savings balances by 6%.

The study challenges the idea that people don’t have enough self-control to save. Instead, the problem may be that they just aren’t paying attention, said Dartmouth University economics professor Jonathan Zinman, one of the study’s four authors.

"Savings isn’t at the top of their mind," said Mr. Zinman. "Basically all we did was remind them."

Brilliant! So it turns out that all we need to reverse multiple decades of Americans saving less than other countries is systematically nag, I mean "remind" them to save. That’s a relief. I guess we just have a reminder shortage.

I had thought we saved less than other countries for other reasons.  Like because we have a hyper efficient retail system that delivers consumer goods more cheaply than anywhere else and that we don’t have a VAT tax on those goods.  We also have a peculiarly high level of home ownership, which tends to skew the numbers. And, of course, optimistic assumptions about future wealth is ingrained in the national character.

Oh, and one more thing I used to believe. I used to think that saving for retirement was confusing and scary and that most people who spent too much and saved too little did so because they didn’t know any better.  Come to think of it, I still believe this.

The nudge crowd loves to bring up the well documented phenomenon that if you make enrolling rather than not enrolling in a 401k the default for new employees, enrollment will go up.

I think that increasing 401k enrollment is basically a good thing and that this is a good policy, but let’s be honest about what is going on here. There is a group of consumers too ignorant, intimidated, confused, and/or lazy to change their 401k participation status. For their own good, we are rigging the system to get them to fall into the right choice. That’s better than the other way around, but we’re still ignoring the core problem.

Our money lives are very complicated and getting more so. A lot of us don’t really know what we are supposed to be doing. Nor is it easy to find out. Much of the available advice and instruction on money is unhelpful or just plain wrong. Text messages aren’t really much help here.

Nudging people in the right direction is probably, mostly, a good thing. But when it comes to the Personal Finance Problem, we need more than nudges. There are only so many simple topics to nudge on. And we quickly get into the problem of the nudgers not knowing the right answer either.

No, like it or not we have a you’re-on-your-own-kid society and little hints from nanny aren’t going to get us anywhere. What we need is a better way to teach the kids what to do.

[Photo: Remi Jouan]

We are coming up on what we Americans call the Holiday Season. And it is a season: not just one holiday, but a joyous period in which every day is special. A few of those days don’t have names yet, but I am sure that in time that gap in our culture will be filled. Here’s a rundown of the next week or so.

The traditional fun begins with Travel Nightmare Wednesday. Observed the day before the last Thursday in November, this holiday is celebrated around the nation by crowding into planes and spending quality time with loved ones inside cars crawling along interstates.

Then comes Thanksgiving, when we solemnly thank the Almighty for football and giant balloons in the shape of cartoon characters. Some families also give thanks that once again they deep fried the turkey without burning the house down.

Things pick up a bit with Black Friday, a holiday that celebrates the simple pleasures of buying stuff. Traditionally, it is observed by talking about how everybody else is going to the mall that day and recounting how it is traditionally the busiest shopping day of the year. It is not, nor has it ever been. That honor usually goes to Most Busy Saturday, which falls this year on December 18th.

Next up is Tryptophan Saturday. On this day we eat cold turkey sandwiches and decide we don’t like turkey nearly as much as we thought we did. It is named in honor of the amino acid that is traditionally thought to be the special ingredient in turkey which makes you sleepy. It’s actually no more prevalent in turkey than in chicken, beef, or pork. And eating turkey doesn’t make you sleepy.

Pretty Bad Travel Sunday follows.

And finally Cyber Monday arrives this year on November 29th. This is the day we do our shopping the modern American way: surfing the web on company time.

To cynics like me, the best part of holiday traditions is the total blindness we have about how traditional they actually are. If you are over 40 you know that Black Friday as a "holiday" was invented in the past decade or two. But I am sure that in another generation people will be quite sure it dates back at least to the Great Depression, if not the Pilgrims.

In fact, we seem to be in the habit of mistaking the relatively recently invented for ancient and the actually traditional for unwanted recent innovation. The President pardoning a live turkey? That dates all the way back to 1989. Complaints that the way we currently celebrate Christmas is crowding out the religious meaning of the day? Literally ancient, dating back to the Christian re-branding of pagan winter solstice holidays as Christmas.

Even our habit of believing that the newly created is old is itself a Christmas tradition of long standing. "A Visit from St. Nicholas" a.k.a. "The Night Before Christmas" (1823) convincingly described the whole St. Nick riding in a reindeer pulled sleigh and coming down the chimney thing as if it was a long standing legend, even though the poem pretty much invented the whole thing from scratch.

Every year stores put up their Christmas decorations at about the same time, and every year we are startled and complain how they are putting them up so early this year. Complaints that it’s all become too commercialized are as traditional as you can get.

And there have always been Scrooges who think the whole thing is a waste that has gotten out of hand. The Society for the Prevention of Useless Giving (SPUG) was formed in 1912 to combat the "custom of exchanging gifts at Christmas without sentiment". Sadly, I can’t find a current web address for this group.