Ten Psychological Studies that Might Improve the Way You Manage Your Personal Finances

Do you think it's better to spend your money on a memorable experience or shiny new gadget? Does your tendency to mimic the emotions of other people cloud your judgment? Do you fall for the "money illusion?"

If you aren't sure how to answer these questions, head over to David DiSalvo's Brainspin blog and read his entry titled "Ten Psychology Studies from 2009 Worth Knowing About."

I've covered a couple of these studies in previous posts here on Creditbloggers, but a few of them are new to me. Item #2 on the list -- "First impressions are all about value" -- is particularly interesting. The results of the research study, led by Daniela Schiller, NYU post-doctoral fellow at the Center for Neural Science and Psychology Department, were published in the journal Nature Neuroscience under the title, "A neural mechanism of first impressions." It turns out that the parts of our brains responsible for forming impressions about people we meet for the first time are also responsible for figuring out how we can obtain the most benefit from social interactions.

In the study, 19 volunteers were shown faces of twenty different men on a computer screen. Each photo was accompanied by a short fictional biography about the man, listing both positive and negative traits. The volunteers were asked to rate the likability of each man on a scale from one to eight. During the test, the researchers scanned the brains of the volunteers. They found that the volunteers' amygdalas and posterior cingulate cortices went to work immediately to establish an opinion of the fictional person.

As DiSalvo writes, one of the previously-known functions of the amygdala is to help us decide how much we ought to trust another person. And the posterior cingulate cortex helps us with our "economic decision-making and valuation of rewards."

"The implication," write DiSalvos, "is that we’re all hardcore value processors even before 'Hello' comes out of our mouths. The subjective evaluation we make when meeting someone new includes -– to put it bluntly -– what’s in it for us."


 

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

 

Do We Need Infrastructure Spending Like This?

We have all seen plenty of news about crumbling infrastructure, but the worst of the worst is the number of bridges in America that need re-building. Now that is scary! It is important that we get serious about fixing this problem, because the average age of our bridges is approaching the normal design life of 50 years – and many are well older than that. An estimated one-quarter of all bridges are structurally inadequate or deficient in some other important regard. We all remember the collapse of the bridge in Minneapolis a year ago. There are decaying public structures all over, but just for bridges, the cost estimates are all over the map – and $1 trillion doesn't seem out of the ballpark.

Speaking of ballparks, it was with some surprise that I saw that the New Jersey Nets professional basketball team is hoping to move back to New York. Will they be the New York Nets or the Brooklyn Nets? The reason for the confusion is that the team's new home is likely to be in Brooklyn.

The owner of the team has just successfully floated a $500 million tax-exempt bond issue to help finance the building of a new stadium for the team. Combined with some $450 million in equity, the cost would be over $50,000 per seat for the 18,000 seat facility. It has also been announced that an 80 percent interest in the team and a 45 percent interest in the venue has been sold to a Russian billionaire.

The IRS has entered the fray too, ordering that the financing "loophole" be plugged. It is not clear that having the city create a "charitable entity" under 501(c)(3) in the IRS tax code to build the arena would be approved. New York City and state officials have applied to the IRS for an exemption. This is just y opinion, but I don't see that soaking up American capital to construct an arena is as important as building bridges. And, even worse, using the IRS tax code to provide tax benefits to a Russian billionaire flies in the face of being "right." Why doesn't he buy a team in Minsk?

This news comes amid a veritable blizzard of news that similarly financed stadiums across the country are in financial trouble. These cities include Cincinnati, Indianapolis, Milwaukee, Columbus, Ohio, and the Phoenix, Arizona area. One would guess that if the financing in all such ventures were examined, even more of them would be added to the list.

This appears to be just one more area in which the public good – rebuilding bridges, for example – gets subverted by some local glamor project like a sports arena. I suppose that getting some bank – Barclay’s Bank in this case – or a beer or soft drink company to put its name on a stadium is easier than getting the same company to pay millions to "sponsor" a bridge over some local river. How much beer would that sell?

Yet as this plays out in my mind, I cannot help think about decline of the ancient Roman Empire. I'm sure you remember the stories from school where the emperors sponsored gladiatorial combat in the Coliseum to keep the "mob" satisfied. That kept their minds off of the reality that the Roman Empire was in a state of long-term decline.

Sic transit gloria mundi.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

Help the Economy by Being Stingy this Holiday Season

When I wrote a piece for CNN earlier this week about the joys of making holiday gifts instead of buying them, I didn't realize that my advice might be good for the economy as well as for your soul (and your pocketbook). In my simplistic understanding of the way the global economy works, I figured that buying stuff stimulates the economy by moving money around and raising the demand for labor.

But here's good news if you procrastinated with your holiday shopping this year: According to Wharton economist Joel Waldfogel, gift giving actually hurts the economy. NPR interviewed Waldfogel, who has a new book out called Scroogenomics: Why You Shouldn't Buy Presents for the Holidays. The germ of his argument is that gift spending "tends not to produce nearly as much satisfaction per dollar spent as regular spending." When you spend $50 on yourself, you do so because you feel like you are getting full value for the thing (otherwise you wouldn't buy it). But when you spend $50 on a gift for someone, you really don't know if the recipient is going to get $50 worth of appreciation for the gift. Waldfogel told NPR that "on average gifts generate 20 percent less satisfaction than items we buy for ourselves."

Waldfogel suggests that instead of giving gifts you should consider giving gift cards as a way to optimize recipient satisfaction. That seems like good advice to me.

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

Credit.com's Credit Report Card Featured in USA Today

An excellent article in USA Today talks about why you can and should check your credit reports for free. The article profiles services that provide legitimate "free" credit reports and scores and features Credit.com's Credit Report Card in the list! 

To read more, check out the full article:  You can and should check your credit profile for free.

To order your free Credit Report Card, go to https://www.credit.com/r/credit-report-card to try it out! We love feedback, so don't forget to let us know what you think!

What I Got My Son for Christmas

This year, as a special Christmas gift for my 2½-year-old, I opened him a savings account with our credit union. Now keep in mind it's been over 20 years since I opened any sort of deposit account with a financial institution, so I wasn't exactly sure what I needed to do. And since I had no interest in having to come back four times for lack of proper documentation (think DMV people), I brought everything plus a change of diapers. You would have thought I was trying to borrow mortgage-sized money.



And as the line behind me grew longer and longer, the lovely teller could tell I was getting frustrated with her line of questioning. 'Do you have his driver's license number? Do you know if he's ever bounced a check? We're going to have to check his Equifax before we open the account. Do you want him to have online access to the account or an ATM card?" How many times can you answer different questions with the same answer? 'He's 2 years old, and while he's wanted in 9 states for an old Ponzi scheme... he's never bounced a check."



The upside to all of this is an established relationship with a recognized financial institution and the future benefit of compound interest, albeit $195 at 1.25% annually. So just in case we ever go back to true relationship-style banking, he'll have that to fall back on.



I wonder how long it will be before he gets his first credit card offer in the mail. I'm guessing before he turns 3.  

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Alleged Credit Card Forger Arrested in My Neighborhood

Last Thursday, as my wife was driving home, she noticed a few police cars in front of a house in our neighborhood. She assumed it was another marijuana grow house bust (one was raided in our neighborhood last month). But the detective in charge of crimes in our neighborhood emailed our neighborhood mailing list and explained that it was actually a credit card fraud bust:

"Regarding the activity on Laurelcrest. The owner of the house (which has been vacant for approx 1 month) came home and found his locks were changed and somebody was inside the house. We went in and arrested the person inside. We found dozens of blank credit cards, a credit card embosser along with additional evidence."

I looked into this type of crime, and learned that it is quite lucrative for the criminals. They typically buy valid credit card numbers from Eastern European hackers who get them by breaking into databases on the Internet. Then they print up cards with the stolen numbers on them. The criminals sell the cards to other lowlifes who buy goods with them (often going back to the stores to return the items for cash). The bills get sent to the real owners of the credit cards, who have no idea that their card numbers were stolen.

Where do criminals get the equipment to make phony credit cards? They need look no further than eBay for some of it. A quick search there yielded a number of machines that will emboss cards as well as machines to read and write the magnetic stripes on the backs of cards.

In January, Wired produced a brief video (above) that shows how phony card rings do their dirty work.

Here's hoping my friendly neighborhood forgers have a Merry Chistmas in jail.

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

A Last Minute Holiday Gift That Gives Twice: The United Way Gift Card

Looking for a last minute holiday gift idea? American Express and the United Way are a offering gift card that gives twice!


Get a gift for someone you know, and at the same time you'll provide help for someone you don’t. For every Gift Card purchased, American Express will donate the $3.95 purchase fee to the United Way.



The proceeds generated from sales of the United Way Charity Gift Card will advance the common good in communities across America by funding job training, children’s reading programs, and more. For more information about the card and to order yours today, visit: United Way Charity Gift Card

Possible Cause of Credit Limit Reductions or Account Closures

Why did the credit card issuer do this to me? This is certainly one of most common questions we're getting these days as credit card issuers are continuing to lower credit limits, close accounts, and increase interest rates. While many of you would assume that their decision is simply credit related, that's not the case. There are many other reasons why the credit card issuer may have taken an adverse action against you. I've drafted a list of the possible reasons:

1. Credit Score Related – Credit score falls below minimum score threshold. Action could be based on how far below the threshold the consumer falls.


2. Credit Data Related – A new delinquency hit the credit report; a new inquiry hit the credit reports; a new credit card hit the credit report; the consumer increased the amount of debt he or she is carrying; the consumer's credit card utilization increased on one or all cards. NEW – The consumer's credit report shows too many accounts in dispute.


3. Geography and Economy Related – Consumer lives in an area where home values have descended (no equity). Consumer lives in an area where the unemployment rate is disproportionately high.


4. Non-Credit Related – Credit card issuer finds out that consumer has lost his or her job; wants to take part in a hardship program; took a pay reduction; got divorced; might be laid off. Other reasons: the consumer has account inactivity; uses the card too infrequently (under usage); pays in full each month; or is otherwise not profitable.


5. Issuer Related – Issuer determines that your account cannot remain profitable under current terms. Regarding rewards cards, the issuer's terms changed with the rewards partner.


6. Consumer Usage Related – Consumer violated terms of card agreement (gas rewards cards); usage pattern modeling determines unacceptable risk (CompuCredit); consumer missed a payment with the issuer specifically; consumer's payment practices change significantly (converts from transactor to revolver or vice versa).

Do you fall into any of these categories?

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Count Your Blessings

It is all too easy in troubling in times like this to focus on the immediate problems that are right in front of us.  Whoever we are, each of us has his or her own list of problems.

With that in mind, it is useful to take our minds off our troubles. We can start by looking back in time to put our own place in history in proper perspective. Most of the freedoms we enjoy today have their origin in European history, most specifically the Magna Carta. In the year 1215, the English nobility – barons, bishops, and abbots – went, in force, to King John I and demanded that he affirm certain rights.

Except for the inclusion of habeas corpus and the right of trial by jury, the common man was not particularly intended to be a direct beneficiary of the document. His time would come. Indeed, we find elements of the Magna Carta in our own Constitution.

What is easy to forget is that, sadly, billions of people in the world today do not have civil rights that existed in England 800 years ago. As troublesome as it is to watch our Congress in action, the fact that they and the rest of our government exist is a great blessing.  

Although we are in troubling economic times, the GDP of the United States has exploded since World War II. The GDP per capita has increased from $15,000 per person to just under $50,000 today. While poverty still exists today, even those in the lowest economic groups are much better off than a few generations ago.  

Life expectancy has increased from 50 in 1900 to about 65 in the World War II era to about 78 today. Compare that with the current world average of 66 years. In 1950, you only had a 67 percent chance of making it to age 65. Today, 83 percent of people make into the Medicare years. 

With that firmly in mind, think about how your life is much better today than when you were a kid.

So it might be a nice exercise to sit down with your family and make a list of your blessings. Not only is it fun, but psychologists have shown it is helpful to your well-being. The hope expressed in the Preamble to our Constitution was "to secure the blessings of liberty to ourselves and our posterity."
 
But it is also important to demonstrate to your kids that those personal freedoms, more than anything else, created opportunity. Many of the blessings they enjoy are a result of the hard work of you and your forebearers. They need to understand that the blessings they will enjoy in the future will be a function of them committing themselves to carrying on that tradition as opportunities present themselves to their generation. 

Finally, I find it enriching to remember the words to Irving Berlin's "other song" in the movie White Christmas. 

When I'm worried and I can't sleep
I count my blessings instead of sheep
And I fall asleep counting my blessings.

When my bankroll is getting small
I think of when I had none at all
And I fall asleep counting my blessings.

I think about a nursery and I picture curly heads
And one by one I count them as they slumber in their beds.

If you're worried and you can't sleep
Just count your blessings instead of sheep
And you'll fall asleep counting your blessings.

Merry Christmas, Happy Chanukah, and Happy Holidays to all.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

A book that can help you make smarter decisions about your money

One of the most eye-opening books I've ever read is Robert Cialdini's Influence: The Psychology of Persuasion. I read it several years ago, and it forever changed the way I interact with people who want something from me. His book has probably saved me thousands of dollars and hundreds of hours of wasted time.

Cialdini is a social psychologist who set out to understand the methods that everyone from marketers to con artists use to convince you to give them your money, your time, your loyalty, or other resources you possess, even when it's not in your best interest to do so. Through extensive field research, Cialdini came up with six psychological principles that are used (consciously or not) by people who are in the business of trying to persuade other people to do something, often against their better judgment.

Trent Hamm of The Simple Dollar reviewed Influence and did a great job of summarizing the six principles of persuasion (they are: reciprocation, commitment and consistency, authority, social proof, scarcity, and liking). Even though I recommend that you read Cialdini's book in it's entirety, you'll still get a lot of bang from your buck just by reading Hamm's distillation of the book's major concepts.

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.