Monday, August 25, 2008

Big Mistake?

People make financial mistakes and they don’t want to admit them. It took me a long time to realize that. You’d think that living with my mistakes in the past would have made me own up to them. But no. It took a lot of thinking to even get to the point of admitting that I had made any mistakes.

So today I’m going short-circuit that self-delusional impulse, and admit that maybe I made a mistake a couple of months ago by financing my new driveway with a wire transfer from a credit card. Oh, not because we’re having trouble making the payments, or even making large enough payments to clear the balance before our 3% paid-in-advance fee period runs out. But because this month when I opened my bill I was absolutely horrified to see that the check we mailed on the 1st was credited on the 10th. Thus making our payment late. There was a late fee of $39, but more horrifying was the finance charge of $106.31 which was tacked onto the bill. By supposedly missing a payment due date, the terms of our loan had been breached and the credit card company could now charge us 11.74% as long as there was a balance outstanding.

Of course I called the company and had the late fee and the finance charge removed. And the CSR said she would send the case to another department to petition that the original terms be reinstated, so no more interest would accrue. She said that nine times out of ten, such petitions are approved.

So I should be relaxed now, right? But I’m not, because another bill we mailed the same day—actually, our mortgage payment—was credited the 6th, a full four days before the credit card company claimed to have received the payment. And so now I’m wondering if the credit card company is playing games. Has the company deliberately been ignoring opening its mail? Has it created labyrinthine processing structures just to trap the unwary? Hoping that most people won’t bother to call and protest? In recent years credit card companies have been shortening the number of days between when the bill is received and when it is due. I’m absolutely positive that this is a deliberate effort to entangle customers in late fees, as well as give the company an excuse to hike the finance charge rate. Are the companies now pretending that it takes the US Mail nine days to get a payment from West Virginia to Delaware?

There is legislation in Congress that attempts to set a generous 25 days for paying credit card bills. Maybe it’ll pass, but that might not solve the problem. After all, many credit card companies take up to 10 days after the monthly closing date on an account just to mail the bill. Another processing slowdown that in this electronic age I can’t help but think is deliberate.

Meanwhile, how do I feel about all this? Not so good. I’m seriously considering the online payment option if it turns out to be free. Or even an electronic check via the phone, which my state mandates must be a free service. But credit card companies play games with those, too. They’ll take the phone payment and credit the account a couple of days later, which makes no sense technically but lets them charge a couple more days’ interest on accounts that run a balance. I’m also thinking about just paying off the balance of this loan the next time one of my CDs comes up for renewal. Who needs this kind of roller coaster ride? Even though the plan was good on the face of it, living under it makes me uneasy. It’s beginning to engender that “I’m trapped” feeling that I lived with for so long when I had huge balances on all my credit cards and no way to pay them off. Been there, done that. Don’t want to go back.

So let me be an example to us all. We’ve had two months’ ride on this borrowed money at 3%, which was good. Now we probably will have that same rate for the next 11 months. But it’s not up to us anymore; it’s totally up to the credit card company. They have little incentive except to keep me as a customer. They’ll make a lot more money off me if they refuse to go back to the original agreement. That is, until I balance transfer the debt to another card with low terms, which I will do if I have to. But I hate to have my thoughts tangled up with these strategies. It’s a drag. My next CD renewal comes up in late October. Check back to learn if I go for paying off this debt so I can breathe freely again.

Thursday, August 21, 2008

Cars versus Alternative Transportation

In my previous post, I ranted against Alan S. Blinder’s foolish ideas about giving up old cars. But I didn’t talk about his casual suggestion that people would simply choose other forms of transportation. Now I want to address that, because he ought to know better. His idea is nonsense.

People don’t drive beat up old cars for the fun of it. They drive them because they need transportation. A TV news show I just watched claimed that 50% of us live outside the cities. In the countryside and suburbia, where buses don’t run. As for trains, nearly every new commuter rail proposal gets fought to a standstill for years on end, while existing rail is often at capacity. Our governments don’t want us to use public transportation. If they did, they’d provide very cheap and very convenient transportation everywhere. There still is no public transportation within five miles of the house I bought 20 years ago in Maryland, and there is absolutely no plan to provide any, even though more and more homes have been built up to and in that neighborhood. The government runs the zoning, and could have forbidden the construction of those homes. But it did not. By area, most of the US is not densely populated cities. Some people believe we all should live in cities, and that would solve the transportation problem. But the fact is that some of us don’t want to, and aren’t going to.

I just visited Denver, where the city runs free buses on one mile of a downtown street. The buses are always packed. But that was only on one street, on a pedestrian mall, downtown. The light rail system hardly serves the poorer parts of the city, where people could use a fast, pleasant, and clean alternative to noisy, stinky buses. Or to driving old clunkers. There was plenty of car traffic in the city. The light rail only serves the richer suburbs. People who live there could park in the rail garages and lots, and go into downtown Denver and see a baseball game at Coors Field without having to drive in and park. They could easily attend a concert or other downtown function. This is good. But why does the light rail only serve the fancier suburbs? Because if it served the poorer ones first, the more affluent people would never use this means of transportation? I have a sinking feeling that is the ugly truth. Thinking back on it, I realize that WMATA built the Washington, DC Metro system using the same method: It built the system to the most affluent suburbs first, and only now is finally getting around to hooking up the people most likely to be desperate for public transportation, who otherwise would have to drive old clunkers or take three buses to get anywhere. Or walk.

Walking to work is overrated. It’s fine in a nice, safe city neighborhood in the daytime. It’s not so much fun at night in a creepy neighborhood. Or where there aren’t any sidewalks. Or when the weather is bad. Or when you have to walk for miles because there are no alternatives, not even a taxi. And it takes a lot of time to walk, and few Americans have an extra two hours every day to give to walking.

What about bicycling to work? Most of us don’t want to bicycle in the rain, nor do we have the ability to ride a bicycle on an icy road. Maybe Lance Armstrong can, but he’s got a bicycle that costs more than a car. In some cities, buses are becoming more welcoming to people who want to board with a bicycle. But buses aren’t set up to handle more than a few bikes at a time, if that. And lots of businesses don’t look kindly on employees who show up with bikes. And let’s be candid. Working up a sweat on a bicycle out in the open can make people stink, get them dirty, and even stress their immune systems. Not to mention get them killed by trucks or buses.

Compare this with India, where the burgeoning, computer-assisted outsourcing business has led employers to make rational decisions. They employ many men and women who cannot afford cars. They want these employees to show up on time. And they certainly don’t want the women to be attacked on their way to or from work because they’re CSRs doing the night shift to mirror our daytime. The answer? The company provides free, safe, transportation. Indian companies run company buses that loop through to where all the employees live. Even better, by creating these bus schedules, the company has to promise not to overwork employees. Workers have to be let go to take their company buses home. It’s a win-win situation. Absenteeism is low, overwork is kept to a limit, and hundreds of potential commuters aren’t driving to work and jamming the already overcrowded roads.

But this is America, and we insist that workers find their own way to work—and also that they stay longer and longer hours, which is another reason why public transportation wouldn’t be convenient even if it existed. If employees are forced to stay and stay at the office, then bus and train schedules can’t be limited to classic commuting hours. Which makes the system more costly and inefficient to run. Carpooling can’t happen under these circumstances, either, because it depends on workers who share a ride leaving at the same time. Maybe the traders on the stock market floor actually get to go home at a regular hour once the market closes. And government workers often are allowed to keep regular hours, but not always. With less factory work in this country, fewer and fewer workers leave their jobs at the same time.

Even in New York City, the one city in the US whose public transportation system works, plenty of people own cars. The subways run all night. There are buses and express buses. There are commuter trains. There are taxis and car services. Still, many people have cars. It’s expensive to garage them and inconvenient to move them constantly for street cleaning or risk a fine or a tow. And lots of cars get stolen. But people have cars anyway. They own cars because the automobile is the best invention ever for getting people where they want to go, at their convenience, in comfort, safely, and regardless of their physical abilities. We’re not giving up our cars.

Tuesday, August 19, 2008

Old Cars for New? Or for New Debt?

Recently, I read a remarkably stupid article in the New York Times by Alan S. Blinder. He proposes that the Federal government pay people to give up their old cars. This kind of program evidently exists in several states, and the purpose is to get the cars that pollute the most off the highways. It’s a noble enough purpose. But I dispute the consequences.

Blinder suggests that owners of old clunkers, as he calls them, should be paid 20% over Kelley Blue Book value, with a cutoff of $3,500 to $5,000. A nice enough deal if you are 88 years old and have given up driving. You’d get some cash. But what about the rest of us?

Blinder thinks that people who own really old cars and trucks (older than 10 years) have income as high as $60,000, so that’s the upper income cutoff he suggests. He’s an economist. In theory he knows who owns old cars. But does he? This is one of those times when personal experience seems more accurate. Maybe it isn’t. You be the judge.

I used to own old cars. In fact, until a couple of years ago, I never owned a car that came out in the same decade in which I was driving it. The newest old car I’d buy would be six years old. I ran my old clunkers until they died, usually in their early teens, long before they could become valuable collectible classics. I did not do this because I like driving old cars. I did this because I could not afford a newer car. In fact, I drove such old cars that my mechanic would eventually sit me down and in his fatherly way advise me that it was time to get something newer because I was putting too much money into repairs. Still, until then, it was cheaper to do the occasional $300 repair than to make a car payment every month. Insurance was cheaper. Even sales tax for titling the car initially was cheaper. Fuel efficiency on most of those cars wasn’t outstanding, but wasn’t bad, either. I’d get around 18 to 22 miles per gallon. And all of those cars were big enough so that when accidents happened, no one in the car was hurt.

Is a person who is driving a 10-year-old, paid-for car earning $60,000 a year? I don’t think so. I wasn’t. The person driving a car that old is earning $30,000 a year or much less. Like $10,000 a year. This person depends on the low book value of the car to keep the cost of running it low. They drop the collision insurance to reduce insurance costs. In states where personal property taxes are levied on cars each year, the advanced age of the car also reduces the tax from hundreds of dollars per year to a pittance. And lots of people with old cars and trucks do all the maintenance and repairs themselves. It’s a typical sight in West Virginia to see a guy fixing his car by the side of the road. Keeping the car going with baling wire and chewing gum, if necessary. I’ve known plenty of people who tied their mufflers on with a coat hanger.

But let’s assume I go for this great new government program. I get the maximum $5,000 cash for my car. Now I have no car. Blinder would have us believe that I will then be able to purchase another car, specifically, a new car, thus boosting the ailing auto industry. That’s a laugh. A government payment of $5,000 will not buy a new car. It won’t buy a used car outright, either, unless it’s another old clunker. So I’m stuck replacing my old car with another old car, or with a car loan for a newer car. Which means I have to go into debt.

If employment in this country were secure anymore, which it isn’t, I’d buy a new car on time and make monthly payments for four years. Or even a used car on the same terms. But what if I lose my job, a common occurrence these days? If I still had my old clunker, it wouldn’t cost me anything not to commute in it anymore. But with a car loan outstanding on a newer car, I’d risk having my car repossessed if I didn’t have enough money to make the payment. Unemployment insurance runs less than a year, but car loans run longer. Sooner or later, I’d either be homeless in that car, or I’d try to keep the roof over my head and have to let the car go. Thus making it very difficult to find or keep a new job.

Blinder is happy because an old car has been gotten off the roads. He’s also happy at the idea that people will run out and buy new cars and keep Detroit afloat. But he pays no attention to the dire consequences of piling up more consumer debt. A car loan is a secured loan, which is good for the seller. But a repossession isn’t good for my credit record. It means that the next time I need to get a loan, I’ll be offered higher rates. Blinder probably thinks this is a good thing, because it boosts the bottom line for credit companies. Apparently, the US economy can no longer run without the help of nightmarish levels of consumer debt. But wait, there’s more. The new car is taxed and titled and insured all at a much higher rate than the old clunker was. Thus adding to the coffers of state governments and insurance companies. This makes everybody happy except the car owner, who used to own a car that ran, and now merely owns an interest in a car.

A government program to help remove old clunkers from the road isn’t likely to improve the lot of the people driving them. It’s adding insult to injury to tell people that their cars are too old. They already know it. Thanks, Mr. Blinder. With friends like you, more poor Americans can be poorer still.

Friday, August 15, 2008

Overspending Creates Clutter

People with poor money habits complain about not having enough money. But they don’t want to stop spending the way they always have. They don’t want to modify their lifestyle. What they really want is for someone to show them a system that will allow them to keep on spending and somehow not end up in debt and out of money. Can’t be done.

I recently watched an episode of “Clean House,” a de-cluttering TV show. People whose homes are stuffed with clutter don’t think they have too much stuff. They think they need someone to help them get it all organized. They want someone to perform the miracle of shoving two homes’ worth of possessions into one. Also can’t be done.

Even though money is basically an intangible (dollar bills have no intrinsic value; we merely assign value to them), it is like clutter in that it is finite. Although credit gives us the opportunity to spend money we don’t have, we do eventually have to pay up. And we can’t re-use money to pay off two different bills. (Brinksmanship is merely a transfer of debt from one account to another.) But many people don’t want to accept that money or clutter is finite. They want what is impossible, for two objects to occupy the same space or one dollar to be several.

It’s a known fact that many people who overspend also clutter. Sadly, they often overbuy organizing containers. On this TV show, storage containers played a prominent role. They were everywhere, empty or full, tossed sideways or stacked precariously. They weren’t helping. And the sad reality was that despite the efforts of the four-person staff, the items that they were able to clear out of the house and sell at the yard sale—and these things were covering all surfaces in all rooms—only brought in a bit over $900. That’s right, all the supposedly valuable things with which these people had been choking their home were deemed by willing buyers to be worth under a thousand dollars. And you can be sure that those items cost considerably more to purchase. Most yard sale prices are 10% or less of the original purchase price. There’s a good chance that family spent $10,000 or more just on the items that sold. And then there was the rest of their junk, which nobody wanted to buy and had to be hauled away. I wonder how many thousands of dollars were wasted on that? It’s frightening to think that people are constantly throwing money away to buy possessions that quickly become useless junk.

Having money edges out having possessions, because money is fluid and can be used for many different kinds of needs. Money doesn’t get put in yard sales or hauled away to the dump. So think twice before spending money, that precious commodity, to purchase even one new possession. There’s a thin line between spending and overspending. You may discover that you already own something that can fulfill the desired item’s function. Or that you can live without it. In these tough times, if you have the choice to spend or not, choose not to spend. And especially, not to spend to create the clutter than turns into junk.