Archive for October, 2006

Get Rich Slowly on writing a will

October 31, 2006

The fantastic Get Rich Slowly has a great post on writing a will today. As J.D. says, “It’s Halloween — time for a scary, morbid subject.”

Will making was step #1 in the 9-step plan Jason posted about earlier, for good reason.

Bankrate's Fall 2006 checking survey

October 30, 2006

TwinkiesLooking for a reason to close all your bank accounts and keep your money in a pillowcase under your bed? Head on over to Bankrate and check out their Fall 2006 Checking Survey. Bankrate collects information on bank fees and surcharges, so reading the report is kind of like looking at the “Nutritional Information” box on a 12-pack of Twinkies. Deep fried!

Like Twinkies, the results aren’t good for your heart. Here’s a good clip from the conclusion:

While more banks are permitting customers to go to another bank’s ATM without charge, those transactions don’t come without a cost. ATM surcharges are higher and more prevalent than ever, and even the “deal” some banks give by allowing free nonbank-ATM withdrawals requires maintaining a large balance in a low-yielding checking account. By settling for average interest earnings of 0.34 percent instead of the 5 percent returns available in a savings or money market account, an account holder forfeits more than $100 per year in interest earnings on a $2,500 balance.

It takes a lot of ATM withdrawals to make up for that, and you’ll still have a hard time avoiding surcharges. Instead, it pays — literally — to manage your ATM withdrawals more proactively. Plan to take money out of only your bank’s ATM, planning ahead so the withdrawal can take place in the normal course of a workday or weekend when you’d otherwise be near your bank’s ATM. This sure beats waiting until you’re really in a pinch for cash, then having to make the withdrawal on another bank’s turf.

There’s lots more to learn in the report, and it’s short (three pages) and informative. Definitely check it out. (I’ve put the main conclusions below. If it’s too depressing, allow yourself a Twinkie for Halloween.)

Bankrate's Fall 2006 checking survey

Interested in getting a preview of Wesabe?

October 24, 2006

We’re getting close to the first public release of Wesabe, and we’re looking for people who would be interested in helping us test the site out to make sure it works as well as possible. Starting tonight, we’re letting in small groups of people to give it a try. As each group goes through, we’ll ask for suggestions or feedback, and then let in the next group. We’ll send out invitation groups in the order we receive requests.

If you’re interested, head on over to https://preview.wesabe.com/invite and put in your email address. We’re only announcing this invite on this blog, and we’re hoping the people who have been enjoying the blog will also enjoy getting the first peek at Wesabe.

Thanks for your interest, and for all the fantastic comments and feedback we’ve gotten since launching the blog. We hope you like what you see.

Update: Wow, we got a huge response to this post. Please be patient if you haven’t received your invite — we’re working our way through and will get as many groups in as we can. Thanks to everyone for signing up!

Two kinds of risks with "swipeless" credit cards

October 24, 2006

Yesterday’s New York Times had a good article on security risks from carrying so-called “swipeless” credit cards — credit cards that come with radio transmitters, so you can make a payment just by placing the card near a reader, rather than having to swipe it through a credit card machine:

They call it the “Johnny Carson attack,” for his comic pose as a psychic divining the contents of an envelope.

Tom Heydt-Benjamin tapped an envelope against a black plastic box connected to his computer. Within moments, the screen showed a garbled string of characters that included this: fu/kevine, along with some numbers.

Mr. Heydt-Benjamin then ripped open the envelope. Inside was a credit card, fresh from the issuing bank. The card bore the name of Kevin E. Fu, a computer science professor at the University of Massachusetts, Amherst, who was standing nearby. The card number and expiration date matched those numbers on the screen.

The demonstration revealed potential security and privacy holes in a new generation of credit cards — cards whose data is relayed by radio waves without need of a signature or physical swiping through a machine. Tens of millions of the cards have been issued, and equipment for their use is showing up at a growing number of locations, including CVS pharmacies, McDonald’s restaurants and many movie theaters.

I’m glad to see this research, and to see that people are calling attention to any security problems that exist in these systems now, before the systems become more widespread.

Unintended data loss is really only one of the risks of these systems, though. The whole point of having a swipeless card is to make it easier for you to spend your money quickly and impulsively. That may be a bigger risk! If you can avoid having a radio transmitter in your credit card, it may well be worth asking not to have one, both to protect your privacy, and to make it just a little harder to make those purchases you haven’t really thought through…

Self-awareness and staying engaged

October 20, 2006

I liked this part of Jason Kottke’s wrap-up of his first day at Pop-Tech:

Alex Steffen: Cars equipped with displays that show gas mileage, when compared to cars without the mileage display, get better gas mileage. That little bit of knowledge helps the driver drive more economically. More visible energy meter displays in the home have a similar effect…people use less energy when they’re often reminded of how much energy they use. (Perhaps Personal Kyoto could help here as well.) At dinner, we discussed parallels between that and eating. Weighing yourself daily or keep track of everything you eat, and you’ll find yourself eating less. In the same way, using a program like Quicken to track your finances might compel you to spend less, at least in areas of your life where you may be spending too much.

Merlin Mann of 43Folders fame wrote something very similar a while ago, and when I read it, it totally resonated with me:

My theory is that the secret code for most self-improvement systems — from Getting Things Done through Biofeedback and the Atkins diet — is not hard to break; any idea that helps you to become more self-aware can usually help you to reach a goal or affect a favorable solution. That’s pretty much the entire bag of doughnuts right there.

Both of these sentiments are right on. Self-awareness — a mirror that reflects back who you are and what you’re doing — can be enormously helpful for getting you on track to make changes in yourself. This is probably where Quicken had its biggest success, and where it did the most for me personally: showing me what had happened in the past. My experience over time, though, was that it was really hard to stay on track with a change that came from that insight. I felt like I was working for Quicken, not the other way around! Where Quicken falls down, for me and for many of the other people I’ve spoken with, is in two main areas: (1) it takes way too much work to keep it up to date (see my post on “Tamagotchi Software“); and (2) it’s stuck in the past, in two senses, both by being entirely retrospective (“you were broke — you’re still broke — yup, signs point to broke”) and by focusing on the financial needs of twenty years ago (writing checks and balancing checkbooks). Self-awareness is necessary, and great, for any change you want to make. But it’s not sufficient for making a real change in your life.

For me, the secret to making truly useful tools or systems for helping people change lies in combining Jason and Merlin’s insights with Kathy Sierra’s exhortations to “Give users a way to kick ass“:

The key is to have a cycle where the user can keep building their skills to reach higher and higher levels! In other words, the challenge keeps building, but so do the user’s skills and knowledge. The spiral is a continuous cycle of motivation/seduction followed by a period of intense activity toward a goal followed by REACHING that goal which then gives you more skills and knowledge (superpowers, tools, whatever) that let you achieve still higher levels… and on it goes. Five hours later you’re at Level Eight, or skiing bigger moguls, or helping save the world.

It’s very easy to summarize your financial information these days — the tools exist, some credit card companies and banks will even give you an “end of year report” that shows you where you spend your money in pie chart form. That’s a start. Look at that data, and something will probably jump out at you — restaurants, debt, clothes, whatever your particular “biggest slice” is. It’s even easy to start working on that biggest slice. The hard part is getting to the next level — not just going out to eat less for a month or two, but really changing the way you view, and interact with, and take control of your money. What do I do when I’ve gotten the self-awareness, started to make a change — then what? How do I stay on course? I think Kathy’s got the formula right, and we’re doing everything we can to learn from her.

What Holds You Back?

October 17, 2006

Scott Adams, creator of Dilbert, wrote a book called “The Way of the Weasel.” In it, he lays out a one-page list for how to manage your money. While I recognize that a book consisting largely of cartoon is an unorthodox place to find sound financial advice, I think he is spot on — if you do these things you will be fine:

1. Make a will.
2. Pay off your credit cards.
3. Get term life insurance if you have a family to support.
4. Fund your 401(k) to the maximum.
5. Fund your IRA to the maximum.
6. Buy a house if you want to live in a house and can afford it.
7. Put six months expenses in a money market account.
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
9. If any of this confuses you, or you have something special going on (retirement, college planning, a tax issue), hire a fee-based financial planner, not one who charges a percentage of your portfolio.

Done. I get it, and if you are here reading this blog you get it also. OK, so how many items on the list have you actually completed? We’ve done four of the first eight, but I believe we can hit all eight by the end of the year — I’m showing the list to my wife and am going to hold us to it.

If you had shown me this list seven years ago I’d have still been working on getting my credit cards paid off — the rest of the list would have seemed a distant dream.

There are really three challenges facing people:

  • Knowing what to do (easy, see above)
  • Being able to do it, i.e. having money to save, invest or buy a home (hard, a lot of good decision need to be made to get you to this point)
  • Making the decision and taking action to fund retirement. You know what to do, you saved the money, and now you just have to do it (should be easy, but it’s not)

Putting money into 401(k)s and funding IRAs is hard. There are always reasons to not do it, but they really boil down to an unwillingness to take action with money. I’ve spoken to friends about why this might be and the reasons vary, but they usually come down to this one thing: we don’t want to make a bad decision, so we don’t make any decisions at all…which is of course a bad decision.

My new goal with money isn’t to get things perfect, and instead get it mostly right, i.e. Get the nine things on the list done. I believe if we do this, over the next 35 years, we’ll be fine when it comes time to retire.

Fear of making a mistake held us back, but I’d be curious to hear from people where they are being held up in their financial goals?

A TOTALLY AWESOME economics paper

October 12, 2006

(Wait, wait, don’t leave just yet. I know I just said “totally awesome” and “economics paper” in the same headline, as if those two terms were not matter and anti-matter, as they so obviously are, doomed to explode on contact. I know you think your RSS reader must be broken, that link you followed must have hijacked your browser and sent you into some twilight zone of people who find economics totally awesome. But wait — don’t leave. I promise I’ll make this worth your while.)

Last year, Xavier Gabaix and David Laibson published a paper entitled Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets, on why two companies competing for customers in a market with lots of fees and add-on charges have no incentive to educate those customers on how to get a better deal. They give an example of two hotel chains, Hilton and “Transparent,” where Transparent is a made-up firm that is trying to take Hilton’s customers:

[…C]onsider a hotel room that costs Hilton $100 to supply. Suppose that all consumers are initially myopic (i.e., they do not think about add-ons when they plan a hotel visit). When such a customer stays at Hilton, she ends up paying $20 to purchase add-ons like parking, telecommunications, room service, etc. Without loss of generality, assume that these add-ons cost Hilton nothing to provide. In a competitive market, Hilton will then advertise “Hilton’s rooms cost only $80,” neglecting to mention the costly add-ons that effectively raise its revenue. In competitive equilibrium, Hilton’s costs ($100) equal Hilton’s total revenues ($80+$20).

Sounds familiar, right? We talk about this here all the time — how to avoid “fee revenue” and add-ons that wind up costing you far more than the advertised price of a service. So could someone compete with Hilton by not charging fees?

Now consider another hotel chain, called Transparent, that is picking a business strategy. Transparent could tell consumers about the shrouded add-ons that consumers pay for at Hilton. Transparent could advertise, “Watch out for add-on prices at our competitors. Tranparents’s add-ons are all free.” Naturally, if Transparent did this, they could not subsidize their room fees with add-on revenue. An aggressive transparency strategy would be to charge $100 for rooms and nothing for add-ons.

The authors argue that what Transparent will wind up doing is not educating consumers to take a more transparent, less fee-laden deal, but rather educating consumers on how to avoid Hilton’s mark-up fees. As result, Transparent wouldn’t get any customers from marketing against Hilton’s hidden costs — instead, consumers would lose their “myopia” about Hilton’s add-ons, and learn to avoid those add-ons while staying at the lower-priced Hilton hotel. Consumers are better off, but both hotels suffer. They go on:

In essence, we show that there are two kinds of exploitation. Firms exploit myopic consumers. In turn, when consumers become sophisticated, they take advantage of these exploitative firms. Finally, when sophisticated consumers exist, firms cannot rid themselves of them. In equilibrium, nobody has an incentive to deviate except the myopic consumers. But the myopes do not know any better and often nobody has an incentive to show them the error of their ways. Educating a myopic consumer turns him into a (less profitable) sophisticated consumer who prefers to go to firms with loss-leader base good pricing and high-priced (but avoidable) add-ons. Hence, education does not help the educating firm.

This mechanism applies to a wide range of markets. An educated banking customer gets the benefit of a $50 gift for opening an account and avoids paying some of the fees that snare myopic consumers. An educated credit card holder gets convenience, float, and miles and avoids paying interest charges and late payment fees. An educated home printer buyer gets a loss-leader price and avoids paying for frequent cartridge replacements (by printing in black and white instead of color, printing in draft mode, or printing fewer large jobs at home). In such markets educated consumers prefer to stick with the firms that feature high add-on prices, since these firms have loss-leader base-good prices, and the educated consumer can partially substitute away from the overpriced add-ons.

Credit card companies have a name for this kind of educated, sophisticated consumer, one who avoids all the fees credit card companies normally charge. They call consumers like that “deadbeats.” Sounds like someone who doesn’t pay their bills, right? But no — it’s exactly the opposite. A deadbeat is someone who does pay their bills, and thereby avoids late charges and overlimit fees. I want to be a deadbeat!

So why is this economics paper so totally awesome? It is teaching you, as a consumer, how to get the best deal in a huge number of circumstances. Namely:

  1. look for a company with a low base cost and tons of add-on fees; and
  2. avoid the fees.

Done. (See, I told you it would pay off to read this post. You got to skip the other 34 pages of the paper!)

Now, I should say, the authors say that no one has an incentive to help consumers become more knowledgable about their money — none of the companies in a fee-loaded market will get anything out of it, and third parties are either non-profit and therefore fighting a losing battle (they give Consumer Reports as an example), or for-profit but biased (like investment brokerages). I think they’re wrong on that point. The people who have an incentive to educate consumers about getting better deals are other consumers. By pooling our data, we all have better information to draw from, and better tools for getting great deals. (This is, in fact, exactly how the credit reporting system works, in reverse.) This is the model we’re pursuing at Wesabe. Don’t try to run a business telling people what the best deals are. Instead, give people a way to show each other what the best deals are, where the best values are, and how to understand different offers in a market. We’ll see what happens, but I have a strong belief that we can do it, and that everyone who joins can be the “sophisticated consumers” Gabaix and Laibson talk about in their paper.

And hey, it’s definitely worth a shot. Better than reading economics papers!

Finding Good Music

October 11, 2006

I first read about The Hype Machine in Fred Wilson’s AVC blog. I find his posts on the venture business interesting, but what I really like is his enthusiasm for music, and the way he makes it a family affair. We also both like The Flaming Lips and TV on the Radio. So, I read about The Hype Machine on his blog, but I have been so disappointed with last.fm (does anyone know what it does?) that I never checked out the site. I read about it again on Business 2.0 and it had this quote at the end of the article: “Prepare to click on something that will change your life.” That really got my attention.

I go to the site, it take me about 15 seconds to figure out what to click (which is about 10 seconds too long in my opinion) but I find a random song, listen, and love it. I then see a band that I know, and a song that I don’t, listen and love it. Two for two, so I look around some more to see if there is a better way to use the service, and there is, so I do that. Now I’m a very happy camper, so I don’t just bookmark the site I put it on my toolbar, and uninstall last.fm (whatever that is).

Seriously, this is what the radio should be like — music that you haven’t heard before that rocks (in all of rock’s various forms).

If you are interested in a website that rules and finding music that rocks — check out the hype machine. Oh, and my new favorite artist and tracks

Pas/Cal — CAU Sans Muscle
Under the Influence of Giants — Faces
Latyrx — Muzappers (Lyrics Born is on this track)

Do you know what rebate "breakage" is?

October 11, 2006

ZDNet has a great find today (via The Consumerist) — a patent application from a company that processes rebate submissions. From the patent:

The present invention satisfies a need for a more consumer friendly method for processing rebates that maintains a breakage rate […] the rebate processing system provides a user friendly interface, yet retains hurdles sufficient to maintain breakage.

Breakage refers to any event that prevents a rebate transaction from being completed, for example, denying based on bad verification materials such as receipts or UPC symbols, denying based on improper purchase dates or purchase price, or slippage from checks issued but not cashed.

Breakage

Last year for my bachelor party, my friends got together a fund to get me a Canon camera — the Digital Rebel XT, which has been a fantastic tool. Canon offers a yearly rebate around the holidays, so that if you buy Canon camera bodies or lenses, you get a generous amount back. I filled out the rebate forms and sent them in — because I got a new camera and two lenses, I wound up with a $315 total rebate. I waited the 6-8 weeks the rebate was supposed to take, called them, and was told my rebate submission had been lost. “You kept copies, right?” they asked. Why, yes, I did — since I worked as a paralegal right after college, I’m a little nutty about keeping copies of everything like that. “Oh,” they replied, obviously disappointed. They had me send the copies to a different address and told me to expect a check in another month. A month passed and I got nothing, so I sent a letter to the CEO of the rebate fulfillment house, copying the Canon customer service address, telling them to get me the refund in a week or I’d go to small claims court. A week later, the check showed up.

If you look on DP Review, a popular digital photo site, and search the forums for canon rebate lost, you’ll see that a huge number of other people were also told their rebate submissions had been “lost.” Many of those didn’t keep copies and were out of luck. It makes you wonder who gets paid to lose those submissions so often.

In contrast, when I bought an Intel iMac earlier this year, the Apple Store offered me a $100 rebate on a $100 printer — and then made it incredibly easy to get that rebate. They gave me the rebate form with some information already filled out, and a copy of the receipt stapled to it. When I sent in the rebate, they sent me an email as soon as they’d received it, telling me it was in process. I got the check about four days after that. Total time spent? Maybe 15 minutes. Kudos to Apple for making it so easy.

Rebates can still be a good deal as long as they aren’t an outright scam — $315 back on a ~$1000 purchase, as in the Canon case, is pretty substantial. (I wonder if there’s an inverse correlation between the value of the deal and the “breakage” rate.) But when you evalutate the offer, don’t look at it just for the amount you’ll get back. Think of it this way instead:

rebate value = rebate amount - (hours I'll spend dealing with it * how much my time is worth)

Don’t take a rebate offer without considering what “breakage” is, and what it will mean to you as you try to get your rebate check. Make copies of every rebate you submit, and assume that you’ll have to spend a couple of hours chasing down any rebate. With that in mind, you can evaluate the offer for what it will really get you and really cost you — not just the face value.

Update: I accidentally credited The Consumerist with this find originally — it looks like ZDNet should get the credit. I also updated with quotes from the patent (per the ZDNet article).

Upcoming appearance: Web 2.0

October 9, 2006

I’ll be leading a workshop discussion, “Whose data is it?” at next month’s Web 2.0 Conference in San Francisco. I’ve been to the previous two conferences, and each time I’ve been initially overwhelmed by the number of people and sometimes the buzzwords, but I later find myself sitting next to people I’m very happy to have met, or attending talks that are amazingly good. Last year’s session capturing technology opinions from a high school- and college-aged panel was hilarious and wonderful, and Pierre Omidyar’s closing talk was inspiring. I’m very much looking forward to it. If you’re attending, please drop by and say hello.