The Good, the Bad, and the Money

Getting the Debt Ceiling off my To Do List

2011-07-28T11:19:00.004-04:00

I was going to write a post today about the Debt Ceiling debate, but then I read Ramit's piece and decided to save myself some time by simply pointing to it and saying, "Yeah, what he said."

The highlights? Don't freak out. Don't do something stupid with your money just because your anxiety makes you feel like you have to do something. Think long-term and don't get distracted by (potential!) short-term events:

Yes, it’s possible the government could default, or the stock market could tank overnight…but it’s more likely that very little will happen in the short term. So would you rather focus on the 0.05% chance…or the 99% chance?

Thanks, Ramit! Now that that's done I can get back to compiling all of our current account statements for our new financial advisor. Yes, seriously -- that was my other To Do this morning. Thanks for the reminder!

Solution to Saving: Find Your Inner Rat.

2011-01-14T09:53:00.006-05:00

In the realm of financial activities, saving is rarely thought of as fun. Sure, having savings is fun, but the act of deferring today's spending for tomorrow's benefit is something we usually have to push ourselves to do.

When people try to move their needle from "spend" behavior to "save" behavior they almost always start by coming up with a goal. Not a bad idea, except that they usually start with the wrong goal. Retirement? So far away. Emergency fund? Snooze. Plus nobody likes to contemplate emergencies - especially when there is a beautifully distracting SALE! sign in that window. I'm not saying that it's not good to save for retirement or emergencies (please do save for those things), what I'm saying is that if saving is a new behavior then you need to actually learn how to do it. Walk before you run.

Learning a new behavior is a process that has ups and downs. To persevere through the downs, we need consistent reinforcement that the change is worth our efforts. This reinforcement can be negative (avoiding something painful) or positive (being rewarded with something pleasant). Failing to save for retirement or an emergency fund is huge, but those consequences are probably too far removed from the day-to-day difficulties of your behavioral change goal to be meaningful motivators.

(Many people will say that the solution to this is to automate your savings for those things, and while I agree with that, our topic today is not the savings result. It's improving the savings behavior.)

The solution to increasing the savings behavior is to make it pleasurable. You want condition yourself to save like a little B.F. Skinner lab rat gets conditioned to tap a lever and receive a cheese reward. Your cheese is the enjoyment of spending what you've saved, and in the beginning you will need these rewards to be more plentiful than after you've got some savings practice under your belt.

Start by saving small. DailyWorth has a great Save to Spend monthly budget that I think is absolutely genius. Then save for longer-term (but still fun, and not too longer-term) goals like a vacation or a splurge (iPad, anyone?). Soon you'll be such a seasoned saver that it will be easy to integrate emergency fund and retirement goals into your already established savings routine.

Tara Siegel Bernard, the New York Times journalist who interviewed me for her piece on ineffective budgets, just blogged about how she's going to establish some small, meaningful goals to improve her own savings behavior. Enjoy that trip to Europe, Tara!

The Have-Nots vs. The Used-to-Haves

2011-01-10T13:43:00.009-05:00

Let me begin by saying I am a huge lover of DailyWorth and the amazing, talented women who run it. I'm sure this post about the new Vh1 show "You're Cut Off!" was done in a spirit of fun and wasn't intended to be mean spirited:

“I nevah knew you could spend less than $800 on shoes,” says one girl, shaking her head sadly. And you nevah knew that watching dumb rich girls would make you feel so good about your own finances.

It makes me once again shake my head at how much we as a society love to laugh when someone who comes from money gets taken down a peg. We judge them when they discover, often painfully or in some situation of comical ignorance, how the "other half" (actually the other "99.99% of us") lives. Just because the overwhelming majority of Americans know that one can -- quite easily! -- spend less than $800 on shoes, it shouldn't mean that this one individual's discovery is worthy of our scorn.

Why is it funny when a person finds that the financial conditions she's been prepared for have evaporated? (Okay, okay, it's for the sake of a reality television show here, I grant you.) Would you find it funny if all of the sudden you had to go from indoor plumbing to having to fetch your own drinking and cooking water every day? Should people laugh at you when you wistfully talk about how wonderful it was to turn on the kitchen sink or flush a toilet?

It amazes me that a country that loves to fantasize about the effects of weath simultaneously loves to demean and humiliate the wealthy. Judging those who have more than us blinds us to the privileges we do enjoy. It keeps us all in rigid little boxes about the "right" amount of money to have (hint: it's always just slightly more than we personally have).

It's wonderful that the young women appearing in "You're Cut Off!" will be learning about financial competence. Despite the narcissistic paradox of participating in a show like this ("Act like a spoiled brat! Excellent! Now cry when I take your money away! Awesome!"), I'm relieved to see that they will be working with a life coach in order to -- hopefully -- come away with this having experienced some actual personal growth.

Will that be true for the viewers as well?

Amanda in the NYT: Why a Budget is Like a Diet

2011-01-02T07:15:00.002-05:00

One of the more difficult things about becoming a healthy adult is how we reconcile ourselves to limitations. In the US, where there is a strong cultural attachment to the value of freedom, healthy limits are especially tricky. "If some is good, more must be better! And anyone who tells me differently is trying to oppress me!"

We can get a little touchy about limitations.

In fact, healthy limits are essential to self-regulation. The key is to not get overly distracted by what we don't have, and to instead let the limitation increase our awareness of what we do have.

When our subjective financial experience is set to "broke" or "not enough," it can be very painful to pay attention to money. We spend and spend, but no amount of spending makes the feeling go away. And when that spending behavior makes us go in debt or leaves us unable to pay our bills, then we've created a financial reality that reflects our internal "not enough" state.

People are often shocked to discover that a proper spending plan can be the cure for "not enough." A spending plan requires that we establish priorities, tune in to our values, and put a dollar amount on the choices we make. It can be tough, but ultimately a spending plan demonstrates that there is, in fact, money being spent and the emotional setting of "broke" is not accurate. This can be an important first step in realigning your financial experience to one that is healthy and purposeful.

The Sustainable Money piece by Tara Siegel Bernard in today's New York Times includes more of my thoughts on how money should be seen as an energy source that helps us get to where we want to go. Hope you enjoy Why a Budget is Like a Diet -- Ineffective.

Do you have a money story to tell?

2010-11-04T13:52:00.003-04:00

I am moving forward with research for my book, currently titled The Good, the Bad, and the Money, and I am looking for subjects to interview. Do you know someone -- or do you -- have a money story to tell?

The Good, the Bad, and the Money is a project about how people experience financial challenges and how these experiences lead to personal change and growth. It will include profiles and stories about people from all walks of life, rich and poor, old and young, male and female. My work and research indicate that there is a universal process to how people overcome financial challenges. By including a broad range of voices and stories I hope to show that our experiences with money are life experiences, and facing a financial challenge can be a vehicle for personal transformation.

All names and identifying characteristics will be changed so participation will be anonymous. I would be happy to go into more detail about the project if you have questions. Any interested parties can email me at info@amandaclayman.com.

Amanda in The Gentlewoman (UK)

2010-09-26T15:57:00.002-04:00

A few months ago my dear friend Felix Salmon connected me with the editorial folks at The Gentlewoman. The Gentlewoman is an amazing new publication which describes itself as "a forward-looking magazine devoted to international women to love and admire." Needless to say, I am pretty excited to be included in such beautiful, smart, fabulous company.

I was interviewed by Emily King for a piece called Modern Money, which included a photo shoot with renowned photog Liz Collins (see photo box). If you can find The Gentlewoman on newsstands, I suggest you snap up a copy. Hope you enjoy!

Amanda in Women's Health Magazine

2010-08-19T17:13:00.009-04:00

Look at that amazing picture of me on the cover of this month's Women's Health magazine!

Sigh... only kidding, that's actually the uber-beautiful Brooklyn Decker, of course. I am, however, featured inside the magazine in an article titled When You Clash Over Cash, about the risk that money issues can pose to committed relationships.

Money issues abound in couples. Even the most financially healthy person in the world is bound to have strong preferences around money management, priority, or expectation that don't correlate 100% with their partner's.

And once begun, even small disagreements over money have a tendency to get very heated, very fast. Since money is closely tied to our sense of security, the self-preservation insinct can overwhelm any promise to love, honor, and cherish.

Next time you are your partner experience a financial spat, try to remember that money is a subjective entity, vulnerable to influences of the past and to emotional associations. Stop trying to be right and instead reach for connection. It's okay to ask your partner to cooperate simply because you need it. Though your partner may not comply, I would argue that this is still a more effective tactic than asserting that their collection of action figures/shoes/Civil War memorabilia is "obsessive and juvenile."

Money makes us want to protect ourselves, not fight fair. It's tough to ignore that rush of adrenalin and stay constructive. But couples who can learn to do it discover that it pays dividends of every kind.

Break It Down, Avoid Breakdowns

2010-08-06T12:52:00.000-04:00

Changes are afoot in our house. My husband and I recently reviewed our split of financial tasks and decided to revise who is responsible for what.

Just because I counsel people on issues of financial self-care doesn't mean these processes are always perfect in my own life. I probably have more than my share of quirks and blind spots -- why do you think I went into this business in the first place?

So I begin with a confession: I have fallen down a rabbit hole. I sit here surrounded by multiple stacks of open files. I have two online accounting programs open, as well as a now-four-page Excel workbook. I'm totally over-caffeinated and I've been in this chair for five hours.

It's not uncommon for large financial initiatives to inspire manic bursts of effort. But problems arise when we let our mania run the show. I started out on one small task -- creating a simplified family budget -- but then I had to look up some insurance info in our files. That led to reviewing policies. Then I opened Mint to look at numbers for shopping and groceries. This led to a hyper-detailed tagging project. Then I wanted a clearer idea of how much our daughter's activities cost per year, so I started pulling data going back several months.

Somebody help me!

Large financial tasks require structure. They require a goal, sub-tasks, and a time line. When you jump in with only a hazy idea and a Venti-sized twitch in your fingers, it's too easy to get into trouble. You start off strong, then you run into a snag, and then you get distracted, and then you start something else, until finally you're waist-deep in fifteen different projects with nothing actually accomplished. The cycle ends when you run out of time or energy, and the emotional imprint that's left on this experience is one of frustrated depletion. What's even worse, you've left the task in such a state of mess that it's hard to find the thread to pick it up again later.

If I were to be my own client here, this is what I would advise:

Set a start time and an ending time.

You never want to make your level of motivation the key determinant of task structure. This morning I was filled to the brim with motivation. I couldn't wait to get started! But five hours in I had exhausted myself. I'm walking away from the task feeling terrible. My motivation for picking it up later to continue the work? Not high, my friends. I've created an association between this project and feeling crappy about myself. That emotional association is going to make it more difficult to resume the task and see it through to completion. To create a positive emotional association, you want to structure the task such that you walk away with some motivation still in your tank. Then, next time, you'll be excited to jump back into it.

Make 'Create a Clear Plan' the first sub-task.

My simplified family budget idea was too vague. What's the purpose of said budget? What does "simplified" mean? Knowing that I have a visual learning style, I should have sat down with a blank piece of paper and sketched out exactly what it was that I wanted to figure out, what resources (information) I would need to do it, how long it would take and when I planned to do it. Only then should I have allowed myself to touch the computer or filing cabinet.

Make 'Organize the Project for Next Time' into the last sub-task.

Have you ever seen a contractor at work on a big construction project? It may seem like a waste of time (and your money) when they start putting everything away at 3:00 in the afternoon, but the truth is that ongoing jobs require careful organization for each phase of progress. Along with setting an end-time for today's work, I should have also allotted time to tidy up and put things away in some sort of order. Looking out at my sea of files, I want nothing more than to just dump them all in a drawer and never open it again.

Put the project away and do something rewarding.

Okay, so I was not good at these first three, but my reward today was to vent a little by writing a slightly whiny blog post. There is also a very good chance that as I type this I'm sitting here with a generous bowl of ice cream. And I'm totally watching The Closer as soon as I wrap this up.

Review of process is the only way we learn to do things better. The good thing about financial tasks is that they are a regular part of life. I am going to get many, many, many opportunities to work on this some more, and when I do I am going to follow my own advice.

The World Spins Madly On

2010-06-24T10:01:00.000-04:00

Surprisingly, I'm not a numbers person. When I do sums in my head I actually visualize colored bars of varying lengths that represent the "size" of the numbers, and then I mentally manipulate those colored bars. True story.

Dancing colored bars have their limits, so of course I'm totally fascinated by programs that visually model complex data. The World Bank Data Visualizer uses colored bubbles to show how population, life expectancy and income per capita have changed by country from 1962 to present. Watch the bubbles chase each other! It's not the World Cup, but you might still find yourself chanting "USA! USA!" as China and India race us across the board. Thankfully, the World Bank chose not to set this to an annoying vuvuzela soundtrack.

Before You Cut, Spend

2010-06-21T18:39:00.000-04:00

There’s an old business adage that says you can’t manage what you don’t measure.

It’s surprising how many people ignore this advice when it comes to budgeting for discretionary expenses. In designing a monthly plan they simply write down what they think they should spend rather than taking some time to figure out what they’re already spending.

Why is this? In my experience resistance to measurement stems from two things.

First, people want to rush through the budgeting process. Sure, I like to linger over a bank statement like it contains the drama of a Jane Austen novel, but I’m wired a little differently that way. For most of us, budgeting is something we do in response to financial stress – we want to do it as quickly as possible in order to fix a problem.

Secondly, reflecting on past purchases contains all of the anxiety of spending with none of the pleasure. Those numbers in aggregate often seem astronomical (“I spent HOW MUCH on coffee last month?”) and trigger a backlash of self-judgment that can short circuit the whole process.

So people guess. They come up with idealized numbers that are not necessarily a reflection of their actual behavior. In doing so they usually fail to account for what they need or value, and down the road their budget fails accordingly.

Provided there is no cash flow crisis, I usually recommend that people track their spending for a solid month before we even discuss what expenses to adjust. A baseline measurement of your routine is valuable not only because of the data generated but also because it gives you the opportunity to work on another important budgeting skill – being able to engage consciously in financial activities and tolerate the feelings that come up when doing so.

A healthy budget is not a problem to be solved. It is a statement of purpose that reflects where you want to allocate your resources. There is nothing wrong with spending $200 a month at Starbucks provided that experience is meaningful to you and the rest of your financial choices fit around it. The challenge is whether you can look at that behavior and own it without self-judgment.

If you want a slimmer spending plan that still gives you optimal quality of life, start by going about your normal routine and simply recording when, on what, and how much you spend. A month of measurement is an investment you make in your long-term financial wellness.

You're Not Broke(n)

2010-06-16T11:12:00.000-04:00

Of all of the different ways that people describe their financial woes, the one that always raises my hackles is “I’m broke.”

Broke is a state of having little or no money. But there is a deeper connotation, which is that there is something broken in one’s financial life or one’s ability to earn enough money. “Broke” indicates an internalized attitude of insufficiency, which is about as motivating as a blanket of wet felt.

Terminology is important. It frames how we experience our financial lives, both mentally and emotionally. “I am [x negative descriptor of self]” is a particularly toxic frame, because it takes an external, temporary state (in this case, of depleted cash flow) and makes it a character statement.

When we see ourselves as broke we ignore or devalue the money we do have and how we choose to allocate it. Managing cash flow is a series of choices. You can choose to own those choices and stand in your own economic power (even owning your mistakes), or you can choose words that disempower you and reinforce a sense of personal failure each time you run out of money.

Look at the difference between saying “I’m broke,” vs. saying, “You know, I can’t afford to do that right now because it’s not in my budget, but let’s plan to do it next month.” The first one is a non-starter. Want to do something with me? Well you shouldn’t, because I can’t and I don’t have any idea when that will change.

The latter statement expresses healthy choices, boundaries, and it furthers the relationship with the person to whom you're speaking. Sure, it’s a little wordier and may feel a bit awkward at first, but when you’re using financial behavior to transform personal attitudes, words matter. Plus they're free. Use the good ones.

Building Financial Intimacy

2010-02-09T16:05:00.000-05:00

With Valentines Day coming up this weekend, I understand that your romantic plans with your sweetie probably do not include money talk -- yet. Let me make my case for the least understood, most unappreciated, yet totally romantic topic of them all.

After the intoxicating initial flush of love, financial cooperation and compatibility are one of the cornerstones of true intimacy. Money is tied to our most basic sense of security. When we can't trust our partner or we feel we can't be our own true financial self in the relationship, then the long-term prospects for the relationship are terrible. Chances are we will either blame, bolt, or cheat (financially speaking). You've heard the statistics about how conflict over money is the leading cause of divorce, right?

How do you boost the financial intimacy in your relationship?

Having different financial mindsets doesn’t have to be an issue. You simply need to communicate in order to play to the other person’s strengths. Next time you’re gazing at each other over candlelight (and maybe after a glass or two of wine), see what happens when you introduce a little money talk.

Here are the questions you should ask your partner:
After your regular bills are paid, what do you like to do with the rest of
your money?
Do you have any financial goals in the next five years? What are you doing
right now to work toward those goals?
How do you feel about debt?

My article for LearnVest on How to Have the Money Conversation with Your Significant Other has more on the right questions to ask whether you're just dating or moving toward marriage.

Tweet Your Way to a Balanced Budget

2010-02-08T12:35:00.000-05:00

One of the biggest obstacles to tracking spending is creating a habit around it. Writing down each expense may seem awkward, uncomfortable, or time-consuming.

What if you could use your addiction to social media to help put yourself on a budget? That's the idea behind Tweet What You Spend, a free financial tracking tool that works through your Twitter account.

After each transaction, you simply send a direct message to TweetWhatYouSpend (@twys) with the amount you spent and what you spent it on. There is a special TWYS syntax that makes sending the information quick and easy. Tweet What You Spend then securely parses the information into your own Cash Journal.

And while I am no fan of shame-based strategies for keeping yourself on track, TWYS does have a "Wall of Shame" feature that allows you to highlight transactions that are not in keeping with your financial plan by dragging them onto a special bulletin board. If for some odd reason you'd also like to share this information with a community, you're welcome to do that, too. (Personally that sounds a little weird to me, but I have been known to get a lot of clients who begin each session with a mea culpa, so maybe there is a huge need here for public shaming.)

Because I'm Worth It

2009-11-05T15:59:00.001-05:00

I know a lot of superwomen. We pride ourselves on shouldering the challenges of career, family, charity, and friends with nary a hair out of place. Complaining about this is really a form of bragging. Secretly we don't want to change anything because being needed makes us feel secure.

Superwomen are notoriously awful at voicing needs, setting boundaries, and saying no. This may make us beloved (and thus relationally “safe”) but it puts us at serious disadvantage in other ways.

Amanda Steinberg at Daily Worth recently asked me to comment on the news that only 4% of venture capital is directed to companies with female chief executives. Is this because women entrepreneurs tend to prefer a different type of business than the kind favored by VC firms, or could the reason be more insidious?

Sure, there probably is a component of gender bias in the VC system, but my hunch is that the superwoman complex is also present. Women run small businesses in record numbers (where they will take on monumental work loads and start up costs, not to mention considerable debt) but competing for capital is another story.

Being financially powerful women, whether that means raising capital or saving for our own retirement, requires that we confront unconscious paradoxes that hold us back. Too many of us believe that we are only loveable (or attractive) when we are non-threatening givers, focused more on the needs of others than ourselves.

What kind of ROI can be expected from a belief system like that? Apparently not the kind that attracts VC money.

"Who Spends $1,000 on a Necklace?"

2009-10-02T13:25:00.000-04:00

“Not me.”

That was the answer given by a New York woman when she contemplated buying such a necklace while on a trip to Italy. Did she love the necklace? Absolutely. Did she have the money? She did – that wasn’t the problem. The obstacle was that she didn’t see herself as the kind of person who spent $1,000 on a piece of jewelry.

How we see ourselves has a profound effect on how we operate. Some social psychologists define the Self as a process having two parts, the “I” which represents our spontaneous, authentic desires and impulses, and the “Me,” which is how we inhabit and execute the social roles that give our lives meaning. We experience tension between the “Me” and the “I” all the time. For instance, I may feel like kicking up my feet with a glass of wine when I get home from work, but it’s important to me to be a good mother and thus off I go to supervise bath and bedtime routines. (The wine will have to wait until 9:00pm.)

“Me” and “I” tension is common in financial behavior. In the necklace example above the “I” wanted the necklace, and this caused great distress to the “Me.” The woman in the piece even described the event as “an existential crisis” – which it absolutely was. Who are we, if not our feelings, experiences, and actions? When these elements conflict we lose the feeling of having a cohesive self.

In my work with clients I always try to figure out which part seems to be dominant in creating the issue at hand. A tendency to spend too much may be due to an overwhelming impulse to buy coming from the “I,” or it may be because the person believes “someone like me” wears this kind of clothing or eats in this type of restaurant. Once the dominant process is identified I can engage with the client and help them work toward more balanced financial behavior that is also consistent with their sense of self. This makes the change sustainable and more likely to lead to long-term success.

The next time you find yourself having an existential crisis around money, try to tune into the language of your thoughts to see if it’s an “I-Me” conflict.

The perspective of the “I” is easy to identify, because the thoughts all start with the same subject: I want, I feel, I like, I hate, I dread, I fear… etc. The “Me” thoughts may vary a bit more, but they will sound somewhat like conventional wisdom: It’s important that, It’s reasonable to, One should, Someone like me does, Other people always… etc. (Watch out for “I believe” – it’s a tricky one. Starts with “I” but is really the “Me” in disguise.)

Balancing the “I” process and the “Me” process is a lifelong art and there is no easy formula. People who always go with the “I” live a life of chaos and people who live in the “Me” never get to be themselves. The best way to live a conscious, purposeful life is to take a moment to consider both sides and then remind yourself that this just one choice about a necklace, it’s not the sum total of who you are. You'll get the chance to make another choice tomorrow.

Stressed About Money? Keep It to Yourself.

2009-08-17T14:11:00.000-04:00

I feel a lot of sympathy for Therese Borchard. She wrote a piece in the Huffington Post today about How to Cope with Financial Panic and Recession Anxiety. Borchard is not a financial advisor or a mental health professional (as far as I can tell), but she has been treated for Depression and she keeps a blog on the topic. Today she ventured to share her personal strategies for managing intrusive, stressful thoughts about what would happen if she or her husband lost their jobs. She calls one of these strategies Imagine the Worst:

I remind myself that if both Eric and I can't find work, then we can sell our
house and buy a very small apartment in the suburbs. We can pluck our kids from
Catholic school, even as much as I would hate doing that, and move to a better
school district where they could go to public school free.

Imagine the Worst is a completely respectable strategy in terms of anxiety management. You take nebulous anxious thoughts and make them concrete in order to apply more rational analysis and problem solving. None of Borchard’s readers seem to have a problem with her recommended method. What they violently attack is the version of “the worst” that she’s imagining.

Tlgeiger62 commented:

What a ridiculous piece you've written. Paying for school uniforms? Swim
lessons? Are you insane?! How about paying for groceries? So if you're going to
write about "coping", you might want to consider the make up of your audience.
We're dealing with MORE than paying for swim lessons.

There are several other comments in this same vein, criticizing the author’s worst case plan to get a waitressing job (even experienced waitresses can’t get those) or sell her house (who is she to complain if she is so well-off that she owns instead of rents?).

At a time when many – if not most – Americans worry about how economic upheaval might impact them, it appears that we are supposed to keep the content of our worry to ourselves. Talk too specifically about your own losses and you risk being shamed by those who have it worse.

After the most basic level of survival is met, most indicators of financial well-being are entirely subjective. Social psychologists have discovered that an individual’s level of perceived poverty, his subjective assessment of income relative to what he identifies as “essential” expenses, is a stronger indicator of economic coping and adaptation than any measure of objective circumstances and events.

So in plain English, if you consider Catholic school for your kids to be an essential expense, the loss of it has the same potential “equivalence of suffering” as another person losing the thing that they feel defines their identity and security. We can all agree that not being able to buy food is a terrible thing, but does that mean that any material attachment above the level of basic survival is somehow crass and unsympathetic?

I say to my clients all the time: “Everyone in the world has either more or less money than you.” It’s easy to have compassion for those who have less. But until we can also have compassion for those who have more, I’m afraid we are all of us doomed to carry our individual financial burdens in isolation and shame.

Listen In! Amanda to be featured on Voice America Radio

2009-06-03T10:51:00.000-04:00

I will be featured on tomorrow's broadcast of The Kitchen Table Entrepreneur, a Voice America radio show hosted by Jackie Rogers.

The episode is titled "Mind Over Money" and I'll be on for the full hour. The Kitchen Table Entrepreneur features topics related to entrepreneurism, freelance employment, and business ownership. Most entrepreneurs are dreamers and risk-takers, and Jackie and I had a great time discussing the particular financial psychology of this group.

To listen to an archive of the broadcast, click here.

Paying for "Protection"

2009-04-07T15:12:00.000-04:00

Did you know that the average overdraft amount is $17 but that the average overdraft penalty fee is $34? Does that seem right to you?

At this very moment there are several pieces of important banking legislation being crafted in Congress. Two in particular, H.R. 627 (the Credit Cardholders Bill of Rights) and H.R. 1456 (The Consumer Overdraft Protection Fair Practices Act) are lightening rods for consumer anger and frustration.

Americans for Fairness in Lending is collecting stories from consumers about their experiences with overdraft "protection" programs to pass along to Congress and The Federal Reserve as part of the official comment period on H.R. 1456.

IMPORTANT: The comments you submit will be part of the federal public record made available to the public online and in paper form. Your name and address may be included as part of your comment. Don't include your account numbers in your comment, or any other information you don't want made public.

How to be Successful in Conversations About Money

2009-03-02T15:24:00.000-05:00

This Wednesday I will be taking part in a panel discussion titled "Yours, Mine, and Ours - Money and Relationships." The panel is presented by Barnard College's Young Alumnae Committee Office of Financial Fluency (don't you just love it?). I'll be presenting with my colleagues and friends, MP Dunleavey and Galia Gichon. Here's the text of the handout I'll be giving to attendees entitled "How to be Successful in Conversations about Money."

Start from a clear place.
It’s easier to communicate about money if you’ve already done your own homework, have your own goals, and have completed your own budget.

Be direct.
If you have a financial issue with another person, treat that issue (and the relationship) with respect by giving the subject your attention. Yes, it may feel uncomfortable to bring up a topic as sensitive as money. But it comes off as insincere to treat the subject casually, bring it up on your way out the door, or introduce it with, “Oh, by the way…”

Be concrete.
When trying to come to a consensus, make sure you’re both being concrete about goals, amounts, and time lines. This includes defining terms. For example, “You say it’s important to you that I be more responsible with money. What does it mean to be ‘responsible?’” “It means being able to pay for your lifestyle with cash. It means not having any credit card debt. [etc.]”

Just tell the truth.
You always have a right to your feelings and your point of view. Simply say, “I’m not comfortable with [spending $x on dinner right now].” Let the other person be responsible for how s/he chooses to respond.

Notice when it’s not about the money.
People use money in all kinds of interpersonal ways: to express love, to exert power and control, to punish, and to betray. Sometimes financial behavior becomes a way of saying something about what is happening in the relationship.

Money beliefs run deep.
Money connects with our most basic sense of security. Thus when someone feels financially threatened they may lash out (in an effort to self-protect) with an intensity that appears irrational to others. When you’re faced with a situation like this – someone is being overly aggressive, defensive, or resistant – rely heavily on Be Concrete and Just Tell the Truth.

Make consensus the goal.
Money is highly subjective and the other party has his/her own beliefs. Seek consensus instead of affirmation that your point of view is correct. Many friendships, relationships, and marriages have ended because each partner tries to make the other person agree that s/he is “right” about money.

Growing Pains

2009-02-24T09:24:00.000-05:00

Yesterday the Dow closed at 7,100, and man, was I mad. I felt disappointed, angry, and resentful. Is it irrational to have these strong feelings about a non-human entity? You betcha. Is it a little crazy to feel like the market's "behavior" is out of line? Sure, but I would wager I'm not the only one who is re-evaluating her "relationship" with the market these days.

It feels terrible to lose money -- nothing odd about that -- but why was I taking it all so personally? The intensity of my feelings caught me off guard and I found myself pondering the relational nature of my experience. What role was I projecting onto the market, and what enactment was I engaging in?

The closest parallel I could come up with was one of an adolescent going through the pains of maturation. I had come to expect the market to be a kind of benevolent parent. I followed the "rules" -- save your money, invest it, diversify your portfolio -- and then I expected the rest of it (the nurturing and growth of my money) to be "taken care of."

Obviously the market is not a parent -- that's not the point I'm trying to make. And lots of people who were a lot more hands-on than me have lost even more money.

But the growth pain that I'm going through is one of waking up and knowing that I have to be more responsible for myself. I have to do more homework. I have to make more informed decisions. I can't ever trust that my money is just going to be "taken care of."

I don't know what change this realization is going to make in my net worth. Maybe it won't change anything. But at least I will feel like more of a financial grown up living powerfully in the world, instead of a disappointed child.

Are You Worth It?

2009-02-09T18:09:00.000-05:00

MP Dunleavey has a great article in the NY Times today (subs. req.) about why debt seems to “stick” to some people but not others. Debt may be the result of your negative cash flow, she posits, but it may also be tied to the “emotional underbelly” of your spending.

T. Harv Ecker says something similar in Secrets of the Millionaire Mind. He wrote (and you’ll have to forgive me for paraphrasing, I don’t have the book here in front of me) that most people do not have the internal capacity to create and retain great wealth.

For Dunleavey and for Ecker the solution to one’s financial woes lies not in a better spreadsheet but in cultivating a better mindset.

I’ve definitely seen this phenomenon in my work. People tend to have very strong beliefs about themselves and their place in a money world. The problem is that these beliefs are usually unarticulated and live unchallenged in the person’s unconscious.

Unchallenged beliefs create patterns of behavior that resist every effort to change. For example, if you have an unconscious belief that having money will expose you to envy and resentment, you will always release the money in your life rather than risk being a target of antipathy. You will probably spend a lot of money on others and generally treat money with great disrespect. Any accumulation of cash will create a huge amount of anxiety, and as your bank balance rises so will your fear that other people are judging you.

The “secret” here (it’s actually not so very secret, but it is hard work) is to do some digging into your own financial psyche. Millionaire Mind is a good book, but I feel that books that only focus on wealth building are rather narrow in scope. Financial wellness should be about a lot more than just a string of fat assets. Dunleavey’s book, Money Can Buy Happiness, is a good one, so is The Money Mirror by Annette Lieberman and Vicki Lindner. For those in search of a more interpersonal approach is to start a Money Awareness Club per the folks at the Women’s Institute for Financial Education. Whatever method you choose, bringing your unconscious beliefs about money into awareness can be the most valuable experience of your life.

The Money Complex Just Got Less Complex

2008-12-05T10:24:00.000-05:00

I haven’t written in awhile for a couple of reasons. Number one, work and my practice have been really busy (as you can imagine). Number two, our culture has been on a rollercoaster ride to match the dips and loops of the market. Each day seems to usher in a whole new socioeconomic “reality.” It astounds to me how quickly our society has pivoted to embrace values of frugality, simplicity, and human connection over consumer expression. As someone who works from a systems perspective, this is mind-bending stuff. It also feels slightly schizophrenic.

It puts me in mind of Arlene Modica Matthews’ book, Your Money, Your Self. In her book Ms. Matthews talks about the five-layer “Money Complex” which resides in each of us. Whenever we are poised to make a financial choice or action, our process gets filtered through each of these layers:

Layer 1: Intrapsychic Response – Feelings, reactions, the "little voice" of truth in your head.

Layer 2: Family Training Response –What you learned or saw in your family and how you interpreted that as right or wrong.

Layer 3: Social Training Response – What you believe is true about others, especially those you admire.

Layer 4: Technology Based Response – Is there a financial instrument (such as a credit card, HELOC, floating 0% balances) that will enable me to take – or avoid – this action?

Layer 5: Pack-think Response – The pressure you feel to do what everyone else is doing or not doing.

Certain layers are stronger or weaker than others depending on the individual and the situation.

In recent years financial stress has ticked quietly higher as our debt levels rose and certain middle-class givens started to stretch out of reach. The Intrapsychic Response Layer (“this feels terrible, something is wrong here”) was ignored while the Social Training Layer (“people like me have this, it's the normal thing”), Pack-think Layer (“I certainly don’t want to be the ONLY person who doesn’t have that”) and Technology Layer (“I can have it if I charge it and just pay the minimum”) ran the show.

This seismic cultural shift seems primarily driven by the about-face in financial technology – the loss of cheap, easy credit along with job insecurity and the end of perceived wealth from a stock boom and housing bubble. When the technology abruptly changed the culture did, too.

I didn’t have a name for it then, but I feel like the last two or three years of my practice might be summed up as Layer 4 Mania. People have been completely distracted by the myriad of financial instruments and scams. Our culture has mistaken the ability to buy something as the ability to afford something.

What we’re experiencing now is a hard, painful look in the mirror. The Intrapsychic Response Layer is screaming, and it’s finally being heard.

Amanda in the WSJ: Keeping Spending in Check

2008-09-06T10:43:00.000-04:00

Different life transitions bring with them different financial challenges. For young people just entering the workforce post-college, the challenges include establishing a professional identity, developing a budget that balances their new expenses with their new income, and managing all of the stresses that come with any period of transition or change.

One of the ways that people often blow off emotional steam is with spending. How do you know when the spending -- particularly deficit spending -- is worth it? Figuring that out can be confusing when the new laptop or suit is something you "need" for your new professional life.

In my financial counseling practice I have an easy rule of thumb for figuring out when people are spending based on mood versus based on necessity. Was the purchase made on the spur of the moment or was it planned for? If it was done on the fly, there's good chance that anxiety, unease, or insecurity was responsible for the impulse to buy. Rationalization after the fact won't make up for that.

Shelly Banjo writes the Starting Out column in the Wall Street Journal and asked me how young professionals can Keep Spending in Check.

Amanda in the NY Times: A Conflict that Came in the Mail

2008-07-26T09:44:00.000-04:00

Spouses are always doing little things "for each other's good." In the past I may have taken it upon myself to retire some of my husband's more-than-gently-worn socks (to all the TSA agents who were privy to the site of his big toe poking through in the security line: you're welcome).

MP Dunleavey writes in her Cost of Living column for the New York Times about another case of marital editing, this one having to do with catalogs that (did not quite) arrive in the mail.

Reading, Writing, and Relevant Cost?

2008-07-21T19:18:00.000-04:00

As a high school student, I never learned economics -- home, macro, or otherwise. Interestingly enough I went to a math and science-focused magnet school, so I was better prepared to handle infinitesimals than interest rates.

In fact, my personal finance education started right about the time I walked into mu college bookstore to buy my textbooks and was handed a Visa application. Fast forward a few years and I was the proud carrier of about 10 platinum cards and a whopping amount of gut-churning, insomnia-producing debt.

I learned most of my early economic lessons the hard way - by mistake.

Unfortunately it seems that my learning experience is the norm. In today's New York Times Freakonomics blog Stephen Dubner asks, “Are We a Nation of Financial Illiterates?” The sad answer is probably yes. And Stephen turns to Annamaria Lusardi, a professor of economics at Dartmouth, who has some answers that make sense.

Your Creditor is Silently Judging You

2008-07-02T09:12:00.000-04:00

You stay below your credit limit, pay your bills on time, and always pay more than the minimum balance due. Yet your creditor mysteriously raises your interest rate and cuts your credit line in half. What gives? Maybe it was because you swiped your card at the bar or at a massage parlor, and the lender's scoring model deemed your purchasing behavior a credit risk.

Lenders, insurers, other financial firms (and, increasingly employers, landlords, cell phone carriers, and the voting public) have always used credit scoring models to make decisions about people. While we have some very general information about the design of the most widely-used models, many lenders use proprietary formulas based on their own evaluative criteria. In the case of CompuCredit's Aspire Visa, these criteria allegedly included individual spending behavior.

The Federal Trade Commission recently filed suit against CompuCredit accusing them of "deceptive" marketing practices because they did not properly disclose to consumers that they monitored spending. The suit alleges that when the cards were used at places like tire and retreading shops, massage parlors, bars, billiard halls, and marriage counselors (really? marriage counselors?), CompuCredit cut their credit lines.

Now keep in mind, the legal issue here is not that a lender monitored purchasing behavior and used it to evaluate the terms of credit. The legal issue is that the lender did not properly communicate the policy to cardholders.

But the relevance to consumers is far broader, because this suit gives us a glimpse into the heretofore secret world of credit scoring. Consumer advocates have long suspected that purchasing behavior is included in scoring models but because the models were protected as intellectual property there was no way of knowing for certain. As Jennifer Silver-Greenberg writes in BusinessWeek:

With competition increasing, databases improving, and technology advancing, companies can include more factors than ever in their models.... The worry is that companies may tweak the credit scoring system in unfair or biased ways, weeding out or limiting borrowers based on race, gender, or sexual orientation.

Personally, and this is my opinion here, I would say of course creditors are monitoring purchasing behavior. If they can do it, they are doing it. It's simple human nature to want to know things about others, and creditors are not any purer than the rest of us. They have the additional incentive of being in business with their customers, so if the mechanism exists for them to gather the information then I think we can safely assume that they will do so.

The concern is not that financial institutions are gathering the information, the concern is in how they are evaluating it. "Scoring model" sounds analytical, but in reality all models that evaluate data are exactly as biased as the person or people developing them.

Models are, in effect, hypotheses. You come up with a hypothesis, you enter the data, and you discover if the data predicts the outcome that you are expecting. If it does then you consider the hypothesis valid. It's reliable if it gives the same valid outcome again and again.

The problem with the credit scoring model is that it's only being selectively tested and only by the same biased people who developed it. In the natural and social sciences we cannot say, "Hey, psychotherapy and antidepressants are more effective in treating depression than psychotherapy alone. Don't ask me how I know this, just buy my medicine." The scientific method dictates that we present all of it -- our hypothesis, subject selection, testing process, data gathering, analysis -- and encourage others to try exactly what we did and produce the same results.

People might not be so outraged about creditors analyzing purchasing behavior if we were allowed to shine the light of public scrutiny on their scoring model.

This particular instance with the Aspire Visa also just smacks of moralism. Why is using your credit card at a bar or marriage counselor so bad? What about people who use a credit card "convenience check" to pay their rent -- that seems more indicative of financial instability than a night out at the pub. We can't ask the lender these questions because their process is protected.

In our complex financial world, selectively directing the quality and availability of credit products has profound social consequences. We've already seen how institutions were able to perpetrate bias (consciously or unconsciously) in the subprime lending market. With credit so interwoven into the social fabric, do we have a right to public oversight of how lenders make their decisions?

Seminar: Remain Calm, Create Wealth

2008-06-23T09:07:00.000-04:00

If you are in the New York area and are looking for a hands-on, solution-focused personal finance seminar I would like to recommend the June 30th session of Remain Calm, Create Wealth. MP Dunleavey (personal finance journalist, MSN Money contributor, and New York Times Cost of Living columnist) and Galia Gichon (founder of Down to Earth Finance) will guide participants through setting up a quick financial plan, establishing a strategy to control spending, and setting investment goals. Register here!

Is There a Doctor in the House?

2008-05-31T10:12:00.000-04:00

In my financial counseling practice sometimes I have to deliver bad news. Whether it’s showing a client how his income doesn’t support his already modest lifestyle or helping a family understand the terms of their unmanageable debt, I am there when painful economic realities are revealed, often for the first time.

My role in these scenarios is not unlike a doctor sitting down with a patient to give him a poor test result. Given this parallel I watched with interest a lecture by Elly Hann D.O. on How Best to Deliver Bad News to Patients and Family. Dr. Hann, a hospice physician specializing in palliative care and pain management, emphasized the importance of communicating bad news clearly and compassionately so that the patient is able to begin organizing his thoughts around the diagnosis and treatment plan.

Without the doctor’s effective communication, patients remain stuck in a state of anxious confusion. These feelings compromise the patient’s ability to trust his doctor and follow through with necessary treatment.

While this all seems obvious in a medical model, it really made me think about our socio-financial model and how we meet consumers’ needs for assessment (diagnosis), communication, and support.

In the medical model the doctor is the expert, the one with the information. The doctor is required to be the patient’s advocate without any conflicting loyalty. Thus the patient can trust the doctor to decide and to act in his best interest.

In the financial world, one can retain similar unbiased expertise in the form of a fee-only financial planner or accounting professional. These services are excellent but can be prohibitively expensive for all but the most affluent. Some professionals offer pro bono or reduced-fee services through local non-profits or public agencies but these programs are spotty and not scalable to the population at large.

In the absence of expert guidance what has happened is that we’ve made “doctors” out of lenders. We assume that because lenders incur risk the market drives them to become experts on how to extend credit, at what competitive terms, and to whom.

This is not a patient- or consumer-based model. This would be like a person going into a hospital with pain in his shoulder and being told by the radiologist, “Hey, what you need is an x-ray,” and then the orthopedist countering with, “But if you sign up with me now I will give you an excellent deal on this cast!” How is the patient supposed to determine what to do with something as complicated as his health?

Our financial world has become similarly complex. Many consumers feel lost, anxiously confused about how to diagnose their own needs, identify the right course of action, and organize themselves around a plan.

Anxious confusion poisons the whole system. We can see the erosion of trust in the lending establishment. Whereas once consumers put too much faith in the promise of credit, now you see people suspicious of lenders’ motives to the point where they feel the system is out to get them.

I definitely see a need for a more widespread combination of consumer advocacy, information, and support. Right now all of those functions are operating somewhat disjointedly. For example, I can provide expert communication and support in my counseling practice, but I must partner with financial services professionals to get clients the information and analysis they need. The financial services industry has the information, but is mostly geared at helping already stable people protect their security and not at being a consumer sounding-board. Consumer advocates exist, but they often take an adversarial, system-focused position that is not necessarily based on the needs of the individual consumer.

I’m writing this post as a real thought-in-progress. Our socio-financial set-up seems inadequate but I don’t know what the right answer is. It’s hard to point to the state of the health care industry as any sort of positive example, but I think that the doctor metaphor is helpful in illustrating the vacuum that currently exists. This is not generally a comment-heavy blog, but if any readers have an opinion on this I would be glad to read it.

My Future's So Bright, I Gotta Buy Shades

2008-05-05T13:41:00.000-04:00

In The Secret Life of Money, Tad Crawford offers this revolutionary concept:

Keeping the symbolic value of money in mind....we can gain a new view of debt, seeing it not as merely an obligation to be paid but also as a statement about how our inner richness will be expressed in the future (italics added).

That is actually completely brilliant. Until I read that I had not heard the phenomenon articulated so clearly.

When it comes to understanding how money doesn't work in a person's life, debt is often where the narrative begins. Debt is the manifestation of some sort of imbalance, either internal or external (or sometimes both).

An external imbalance may be quite difficult but it's usually pretty straightforward. Perhaps a major life crisis affected a person's finances, or their resources are simply not adequate for their needs.

An internal imbalance, on the other hand, can be many things. It may be around self-concept, such as when you buy things to try to feel like a new person or to correct for some felt deficit. It may be around impulse, when the desire to buy something rises up and cannot be deferred. There are a million ways we might be slightly skewed in perception, judgment, mood, etc. and all of these can affect how we use money.

What I love about the Crawford quote is how artfully it captures a distortion of both self and time. It shows how debt is a way of not fully living life in the present, but rather projecting oneself forward into some fantasy future where money is more abundant (along with approval, achievement, and sex, most likely).

This more affluent future-self is perceived as the true manifestation, and the debt is simply the price we pay to express our confidence in that belief.

I see this again and again in my counseling practice. When people arrive at a point whereby they can no longer afford to sustain their debt, they experience an accompanying personal crisis. It is not that they are so attached to the things that they bought on credit. It is that their coveted future self -- who is much more real to them than the life they live in the day to day -- must be sacrificed to come to terms with the reality of their financial position.

The good news is that most people who get appropriate support through this crisis come out healthier on the other side. It's true one can amass huge amounts of debt but there is pretty much always a limit. Being forced to a financial reckoning brings many activities that are effective in re-aligning the temporal distortion and the imbalance in self-concept. Tracking spending, for example, reinforces connection to the present and helps a person to remain grounded in their life as they actually experience it.

Unless there is true mental illness, a derealized existence actually gets pretty uncomfortable after awhile. You only get one life. Spending all that "future richness" wastes so much more than just money.

Explanatory Styles and Financial Baby Steps

2008-05-04T08:27:00.000-04:00

This morning as my daughter was learning to pull herself up in her crib, I became aware of how I kept my hand on her back, supporting her. Without thinking about it I maintained a presence that was close enough to mitigate a swift fall that might injure, but not so close that she couldn't experiment on her own (and perhaps get a minor bonk or two to the head as she went along). It occurred to me that even this small activity of learning a new skill was a template for her in how she would see the world.

Our experiences shape our beliefs, and experiences are quite subjective things. My daughter's experience of her new activity might be "I am so strong!" or "The room looks different from here." Should she fall, her experience would indicate "Well, that was unpleasant but I sure liked standing while I was up -- maybe I'll try again." Or if the fall was enough to hurt or scare, she might believe that standing is a dangerous activity that should be avoided.

This is a small example (and one that probably only occurs to a caffeine-deprived therapist whose baby wakes up at a quarter to 6:00), but the idea behind it is well-established.

The beliefs that we use to give meaning to our experiences are generally organized into patterns, or Explanatory Styles. Dr. Martin E.P. Seligman is the clinician who is most often associated with the concept of Explanatory Styles through his work in the field of Positive Psychology.

Awhile back I developed a simple quiz to demonstrate how people bring their Explanatory Style into their experiences with money. The quiz asked respondents to identify the thought or belief that would occur in the following situations:

1) You overdraw your bank account and are charged a $39 fee.
Option A: "I never have enough money."
Option B: "This month I didn't account for some extra expenses that I had."

2) You find $20 in a jacket pocket.
Option A: "This is my lucky day!"
Option B: "I'm so lucky!"

3) Even though you've always paid your bill on time, your creditor mysteriously raises your APR.
Option A: "Maybe a temporary dip in my credit score caused this creditor to try to raise my rate."
Option B: "Creditors are unfeeling beasts."

4) Someone with your creditor's fraud department calls to alert you to suspicious activity on your account.
Option A: "Here is one instance when this creditor actually did something right."
Option B: "Creditors do their best to provide good customer service."

5) Your investment portfolio grew significantly in value over the last couple years.
Option A: "The market did well."
Option B: "I did a good job choosing investments."

6) When bringing some items to the register for purchase, the total price is higher than you'd anticipated.
Option A: "I must have miscalculated how much these things cost all together."
Option B: "Some of these items must have been mis-marked."

The six items are organized into three sets of one positive scenario and one negative scenario. The positive/negative dyads correspond to the three dimensions of interpretation that constitute one's Explanatory Style.

The first two scenarios have to do with the value of Permanence, or how we perceive time. When something bad happens, do we think that such a result is to be expected always? What about when something good happens? Is that a result of something that is permanent (such as a character trait) or is it something that just happened randomly?

The second set of scenarios relate to the value of Pervasiveness, whether something is seen as specific or something that is true across all situations. A jump in APR could thus be experienced as a particular event relating to the one account or it can take on the specter of everything that is terrible about the credit industry. A helpful customer service agent could be seen as either an anomaly or as an accurate representative of overall good business.

The final two scenarios demonstrate the value of Personalization, whether we see the event as due to our own actions or whether it occurred because of outside forces. Personalization is the most important dimension when it comes to determining how we feel about our ability to change. A person who sees negative events as universal and always true might still find the will to alter his behavior, but only if he believes that doing so might make a difference. If he believes that he himself is the source of his misfortune then what motivation is there to change?

I posed these six scenarios to a group taking the Seven Weeks to Financial Sanity teleconference organized by Galia Gichon and M.P. Dunleavey. What we discovered was that even people who were familiar with Explanatory Styles and Learned Optimism were surprised how often they identified with the pessimistic/negative statement when it came to money. It seems that we can view the world as generally good and believe in our own positive self-agency, and money can still be an area of our lives where we struggle with destructive frames.

Why is this true? Well, perhaps we grew up in a home where money was treated as a great evil or a cause of conflict. Perhaps the consequences we experienced around our earliest financial decisions were too punitive or hard to bear. Perhaps issues of money separated us from others and caused us to feel isolated.

Perhaps we did not have that supportive parental hand guiding us, preventing the worst spills but still allowing for experimentation and learning. Not to blame parents here -- it's much more straightforward to help a child learn to walk than to navigate the complexities of financial self-care.

Whatever the particular cause (or more likely accumulation and reinforcement of causes), it behooves us to think about how we view ourselves as agents in a money world. The benefit of being an adult is that you can bring events from the past forward into consciousness and apply adult maturity and cognition to understanding them. This new understanding can, with applied practice, become a new cognitive frame that supports healthy financial self-care.

ING Direct "Funny Money?!" Event on May 21st, 2008

2008-05-02T13:27:00.000-04:00

I'm going to be participating in an event on May 21st in conjunction with ING Direct NY Cafe. The event is geared toward engaging artists and performers to think about the ways they use money to take care of themselves. Below is the press release. If you are interested in the event and are in the New York area I encourage you to RSVP to cafenyterm1@ingdirect.com and stop by. All attendees are eligible to sign up for a savings account that starts with a $25 balance, and there are raffles for other financial prizes.

For Immediate Release
Contact: Katie Northlich, ING DIRECT NY Café, knorthlich@ingdirect.com, 302-255- 3394; Diana Santana, ING DIRECT NY Café, dsantana@ingdirect.com, 302-255-3407.

New York, NY (5/01/2008)–ING DIRECT NY Café, The Actors Fund, and comedians Rick Younger, Keith Alberstadt, and Mike Siscoe team up to present FUNNY MONEY?!, a night of entertaining and informative dialogue on financial challenges artists and performers face in New York City. On Wednesday, May 21, 2008 at 6:30PM at the ING DIRECT NY Café (45 E. 49 Street, between Park and Madison Avenues), these hilarious comedians lighten up the crowd for the financial solutions provided by Amanda Clayman of The Actors Fund and the savings solutions of ING DIRECT. Entry is free. Food, beverage, and door prizes are provided. Please RSVP to cafenyterm1@ingdirect.com by May 19, 2008.

Rick Younger has made audiences around the nation roll in laughter. From television to the Broadway stage, Rick’s performances have shined on BET's Comic View, It's Showtime at the Apollo, NBC's Last Comic Standing, NBC’s The Today Show, the Broadway musical RENT and popular national commercials for Verizon, Staples, and McDonald’s. His current status as star of The Rick Younger Show, featuring Dean Edwards (SNL) and Todd Lynn (My Wife and Kids), allows Rick to give the audience what they need most – the joy of laughter and the comedic energy of Rick Younger.

Keith Alberstadt has entertained audiences nationwide with his easy-going sense of humor and approachable personality. Appearing on the nationally syndicated Bob and Tom Show, The John Boy and Billy Show (radio), and the Boston Comedy and Film Festival, Keith delivers consistently entertaining performances. He has traveled the globe entertaining U.S. troops in Kuwait, Iraq, and beyond, and has been featured on Country Music Television's "Funniest Video Countdown" and "Greatest Redneck Moments." Keith is a contributing writer for National Lampoon's syndicated "Sports Minute" and for The Complete Sheet, a nationally broadcasted radio show.

Mike Siscoe’s quick-witted, high energy shows keep audiences laughing for hours. Voted funniest comic in San Diego by The Reader (1999), Mike began his stand-up career in 1997 at the world-famous Comedy Store in La Jolla, CA and was soon opening for Tommy Davidson, Jeff Altman, Mitch Hedberg, Margaret Cho and Richard Jeni. Now based in NYC, Mike performs at marquee clubs including Gotham, The Laugh Factory, The Improv, Dangerfield’s, and The Laugh Lounge. He has also been featured in national television commercials.

ING DIRECT, fsb is best known as the revolutionary on-line savings bank whose mission is to “Lead Americans back to Savings.” Operating in the US for 8 years, ING DIRECT has stayed ahead of competitors by providing exceptional customer service, high yielding savings products with no minimum requirements and no monthly fees, and through its innovative Cafés, the face-to-face interaction with the internet bank. ING DIRECT NY Café is the only one of its kind in the NY region and is a focal point for customer interaction and outreach.

The Actors Fund is a nationwide human services organization that helps professionals in performing arts and entertainment by providing programs and services such as supportive and affordable housing, emergency financial assistance, employment and training services, and skilled nursing and assisted living care for those in need, crisis, or transition.

Amanda Clayman, a pioneer in the field of Financial Wellness, counsels individuals and couples on the topic and has developed a number of workshops that support the unique financial challenges facing entertainment industry and performing arts professionals.

Media: For information, press inquires, or interviews, please contact Katie Northlich, ING DIRECT, knorthlich@ingdirect.com, 302-255- 3394, or Diana Santana, dsantana@ingdirect.com, 302-255-3407. For more information on the comedians or institutions, please visit http://www.rickyounger.net/; http://www.keithcomedy.com/; http://www.mikesiscoe.com/; http://www.ingdirect.com/; or http://www.actorsfund.com/.

The New Value of Value Consciousness

2008-04-30T09:23:00.000-04:00

Which is easier: trying to make healthy food choices when you’re surrounded by people who value nutrition and find creative ways to enjoy food, or trying to make healthy choices when you’re in the midst of folks who binge on transfats and disdain calorie counts?

It takes a lot of effort to moderate our desire for gratification – not just with food but in all areas. It helps when our efforts are seen as positive, valuable, and are reflected by others in our social context.

This is why it is so interesting to me how the media has pivoted lately in their coverage of personal finance stories. People have been in financial distress for years. Years. The unsustainable rises in housing prices, coupled with massive amounts of consumer debt and student loans have been akin to a thin person with 90% blocked arteries. Just because you can fit into a size 2 doesn’t mean you’re healthy, darling.

It’s hard to put yourself on a debt diet when you feel like you’re the only one who has to watch what you spend. But now that we are in a recession, budgeting and frugality suddenly have positive social value. I see evidence of this in how the media has begun to favor stories about efforts to manage family costs over pro-consumption pieces. Open the paper or watch the news, and you will see article after article about how generics are beating name brands and the top ten hot new ways to save.

If you agree that the economic trouble is not new, then how do we explain the new frame?

I think there are two major forces in play. Number one, the problems have reached critical mass. Denial can no longer protect us from being aware of threatening material without great damage to the collective self. What kind of society would we be if we didn’t pay attention to the record number of foreclosures and utility shut-offs? It would seem callous and insensitive to celebrate free-wheeling spending when thousands of people are in crisis.

Number two, when the challenges are external and commonly felt, then the locus of the problem shifts. The experience is no longer framed as “I struggle with the price of gas (because I personally have no money)” but rather “The price of gas is a problem.” When the cause is externalized the ego can still preserve the self as good, and thus activities of problem-solving are seen as good as well. Living on a budget goes from being ego dystonic to being ego syntonic.

This shift in how our media frames the issue may seem incidental to how we as individuals experience it, but it is actually of profound significance. In modern society media serves as the closest thing we have to a collective voice. When that voice does not reflect – with sympathy and affirmation – the individual’s struggle, then the struggle becomes a source of shame and steps to resolve the struggle are usually inhibited.

I think that we as a nation are ready to embrace the ideals of economic contraction. I want to be careful here. I do not suggest in any way that any person enjoys financial distress. Economic troubles are painful and the crises are real. Rather, going back to the point I made earlier I believe these troubles have been present for a long time and it has been a source of unconscious frustration that they’re been rather ambivalently acknowledged. For the past five years at least, people’s anxiety about the economy has been met with encouragement to go out and spend more or to just find another credit product to tide them over until… something (that part was never quite answered).

A brief sidebar – the growth of the Green Movement, especially among the higher income strata, constitutes an interesting complement to the rise in value consciousness. Because the movement promotes conservation as part of ecological stewardship, even those who don’t experience personal economic strain can still demonstrate support of activities of sustainable (lowered) consumption.

In a way, I think people are a bit exhausted by the prolonged pressure to consume. Deficit spending is anxiety-producing, and the individual members of society have been containing those feelings in isolation for too long. Being value conscious is suddenly the thing to be, and I am glad of it.

MyFICO, Myself

2008-04-23T10:19:00.000-04:00

I’m going to go out on a limb here and say that some people need to stop worrying so much about their credit scores. When did credit scores become an obsession? If I see one more article about how people spend hours each month trying to “game” the model to drive their score up a few points, I am going to tear my hair out.

Look, I understand that a higher credit score can save thousands (or tens of thousands) over the course of a major loan such as a mortgage. I’m not saying that the number is unimportant or that we should ignore it.

My point is that I feel like people have a tendency to become overly distracted by their credit score. This distraction can constitute a relatively benign waste of time or may range all the way to financial paralysis or even self-destructive behavior.

For example, I’ve met with several people who have been under terrible duress with their credit cards: late payment fees, default interest rates in the 30-percents, collection calls coming non-stop. But these people are too afraid to take action (contacting a credit counseling service about a debt management plan or even learning more about bankruptcy protection) because they’re irrationally concerned about the effect these actions might have on their credit score.

At the other end of the spectrum there are people like Jeffrey Sheldon (from the credit score article referenced above), a 36-year-old systems administrator in Virginia, who is taking great pains to bring his 740 credit score even higher in hopes of qualifying for the best terms on a planned home refinance:

When Mr. Sheldon was shopping for an auto loan last fall, he first compared rates online. Then, he allowed only two lenders to pull his credit report because he knew that lots of inquiries could drag down his score. Now, he’s making extra payments so that he can pay off the five-year loan in 3 ½ or four years. He figures the lower debt level will boost his score, which is already near the upper end of … the range.

I applaud Mr. Sheldon for doing what he can to save money and reduce his debts. But I see a lot of people who go through these same efforts who are not even planning to take out a major loan in the near future. They want a higher score simply because they see it as some sort of personal validation.

The credit score is tantalizing because it pushes specific psychological buttons. It is seen as completely empirical measure of our behavior (ha!) that provides feedback about our actions. It presents an individual “score” (double ha!) based on that behavior. The score categorizes and ranks us. Additionally, there is the reward for a good score that comes in the form of better terms on loans and therefore saved money (just tell that to all of the borrowers with good credit scores who still got subprime loans).

Let’s take a minute to address these assumptions. First of all, the credit score is not a measure. It is a model. It compares specific financial behavior against the behavior of others in order to predict the likelihood that a person will default on a payment. Period. It doesn’t measure how “good” or “bad” you are with credit – it simply lets lenders know how they can best make money off of you. If you get a high “score” (I’m going to force myself not to put that word into quotes for the rest of this piece even though I’m tempted to – indulge me just this once) lenders know they can make money off of you slowly over a long period of time. If you have a low “score” (okay, I promise that’s the last time) then they need to make money quickly before you are statistically likely to have trouble making the agreed-upon payments.

Why are credit scores so commonly misunderstood? Why are they so broadly applied outside of what the model is designed to capture?

I think people get distracted by their scores because humans are social creatures and thus hard-wired to crave feedback and validation from external sources. Credit scores can seem like the ultimate measure of all the things adults strive to be– mature, trustworthy, and responsible.

A high credit score can also serve as a psychological balm during insecure times or when facing a daunting challenge. It’s as if you say to yourself, “See – Fair Isaac Corporation thinks that I’m going to be financially stable enough to make these payments for the next 30 years. I’m going to believe that, too.”

The reward that we get for having a high score can indeed be of significant monetary value. But the more we try to game the score the more we pervert the validity of the model. This touches on the Observer Bias, where people change their behavior when they know they’re being watched. The Observer Bias can skew the results to the point where the validity of the measure (model) is ruined and must be revised.

Overemphasis on score is also problematic when people focus on the number to the exclusion of the good behavior it is supposed to measure. When we don't take the actions that we need to (such as accepting a short-term dip in score in order to address a pervasive debt problem) or when we lose significant amounts of time or quality of life in order to game the system, then I think we have lost sight of what's important.

Remember that the actual scoring algorithm is kept completely confidential so at the level of specific action we can't even know for certain how our behavior will change the score. For the vast, vast, vast majority if we just pay our bills on time, live within our means, only take out the amount of credit that we can manage, and check our credit reports for errors, then our scores should reflect that we are capable financial stewards without any more self-conscious forms of management.

Amanda in the New York Times: A New Model for Financial Planning

2008-03-26T15:51:00.001-04:00

My involvement in this article started when the writer, M.P. Dunleavey, shared with me something she had noticed over the years. In social situations, when she meets women and tells them she is a financial writer they often respond with almost dismissive disdain about taking responsibility for their financial lives. I reflected that that was interesting to hear, because I feel like I have the opposite experience. When I am in social situations, as soon as I describe what I do I am often deluged with women telling me the most intimate and compelling details about their struggles with money.

We wondered what the difference was. My hypothesis is that women have a lot of anxiety about how they handle money, and would see M.P. as an “expert” who might judge them and tell them that they should or shouldn’t be doing. I, on the other hand, would be seen as someone who would be willing to hear about all of the concerns, difficulties, and failed attempts that might be part of that woman’s money story.

In clinical work you’re trained never to attack a client’s defense mechanism until you understand what it’s defending. So if, for example, someone is in denial you don’t open with, “Hey! Looks like you’re in denial!” That wouldn’t change the defense and it would probably cost you the client.

In traditional financial planning there is an almost exclusive focus on problem solving. This makes sense – what you’re “buying” is the solution. But the problem solving approach is in some cases the equivalent of attacking the defense mechanism. For those whom financial responsibility is wrapped up in a complex cocoon of emotions, it is impossible to get to the solution until the issues have been unpacked and the resistance reduced.

So maybe it is time for a new model of financial planning.

The Road from Financial Infidelity to Financial Intimacy

2008-03-18T12:47:00.000-04:00

The Spitzer Scandal has ignited a firestorm of discussion regarding the broader spectrum of what can be considered “infidelity.” Along with the marital betrayal and the criminal act, many people are also taking note of the breach of financial trust.

As New York relationship therapist Bonnie Eaker Weil notes “Everyone in my practice who is committing adultery is committing financial infidelity.”

While it is not always possible to protect yourself from this kind of event (it’s important in a healthy relationship for there to be trust and autonomy, which means you can’t always be trying to guard yourself from potential betrayal by your partner), you can reduce the chances that you will be blindsided by such an egregious act of deception.

Have a budget.

Have an agreed upon allocation for all family funds. If you have a plan for where your dollars should be directed, you won’t be confused about where your money is (or isn’t).

Each partner should share in the money management responsibilities.

If both partners are involved in executing the financial plan, there is less opportunity for sums of money to go missing or be diverted to unauthorized activities (be they extramarital or simply extra clearance shopping).

Review your credit reports together at least once a year.

Neither partner should ever open a new credit account without the other’s knowledge. Never, ever, ever. Jointly reviewing your credit reports also ensures that you are both aware of how each is managing credit and debt payments.

Financial infidelity is getting a lot of press these days but we should take a moment to consider the positive side of the couples and money issue, too. Financial intimacy calls for open, constructive discussion about how both partners want to use their money. As part of this process each person should feel heard by the other and should see their goals represented in the joint plan.

At its heart, financial intimacy addresses each person’s dearest hopes and darkest fears. It’s a great foundation for emotional intimacy in all areas of the relationship.

Amanda on MSN: Solutions for a Spender-Saver Marriage

2008-03-13T10:19:00.000-04:00

Awhile back I wrote about how when two people plan a life together, "financial intimacy" is rarely a topic that is even on the radar. So what do you do when you find out that the person you're married to is your complete opposite in terms of spending and saving priorities? This MSN.com article explores how to tackle a difference in money dynamics.

Amanda on MSN: Does Money Trouble Come in Threes?

2008-03-13T10:17:00.000-04:00

When it rains it pours, so the expression goes. But is this true when it comes to your money, or does it just seem that way?

Amanda on About.com: Artists and Money

2008-03-12T20:21:00.000-04:00

It really is possible for artists to have a stable and healthy relationship with money! Truly it is!

Amanda in The New York Times: The Conflict of Spending and Candor

2008-03-12T20:19:00.000-04:00

I am quoted in an article on communicating with your partner about spending behavior. My comments may surprise you!

Money Lessons for Kids (and Parents)

2008-03-12T19:47:00.000-04:00

Kids today have a pretty challenging money legacy. From different kinds of student loans to exotic mortgages and default interest rates, the answer to the question “Can I afford this?” has taken a trip down the rabbit hole.

Parents are scrambling to prepare their children for this brave new reality. In an article for the WSJ (subscription required), Jonathan Clements lists four “financial tricks” to try with your children so that they’ll grow up to be money-smart adults:

Favoring Today

Offer your child his regular allowance, or a greater amount if he's willing to wait a week before getting it.

Slowing Spending

Give your child his money in the largest denomination rather than a combination of smaller denominations (a $5 bill instead of five $1 bills, for example).

Making a Wish List

When your child expresses desire for a particular toy or other expenditure, have her write it down on a list. Go back to the list later and ask which items she would like to use her own money to buy or would like to receive as a birthday or holiday gift.

Keeping the Change

See how your child makes purchasing decisions when he is given an amount of money and allowed to keep the change compared to when you ask for the change back.

As a clinician, I appreciate how these four activities really do open up the cognitive and emotional processes we use to make decisions about money.

Favoring Today
The “favoring today” experiment demonstrates your child’s time preference for delayed gratification. All of us have a time preference for delayed gratification**, which is basically the point at which it becomes worth it for us to trade the opportunity of the present for some potential future gain.

Many things influence a person’s particular time preference, age first and foremost. For a very young child the future is still a murky concept, and it’s unreasonable to expect a four-year-old to choose $7 next week over $5 this week even though it’s 40% more. A perfect time to start playing with the favoring today exercise is around age nine or 10, when the child develops the ability to conceptualize the future and to compare present gratification against future gain.

Besides age, the level of perceived deprivation in the child’s environment plays a key role in shaping time preference. Five dollars means more to a person who feels he has very little than it does to a person who feels he has much.

A person’s early experiences with trust also factor in. Children who are exposed to instability in their caregivers or environment are basically taught to devalue the potential over the concrete present. If a child has learned that a promise for $7 next week might go unfulfilled, he will always opt for the $5 today.

Slowing Spending
The “slowing spending” trick employs a person’s “bias for the whole.” In children and adults, bias for the whole refers to the tendency to hold a larger bill in higher regard than the equal amount in smaller bills. It’s easier for us to comprehend the value of $100 when we see a $100 bill. When we see ten $10 bills, we perceive a number of potential values based on combinations of the bills -- $20 here, $50 there – and it’s easier to part with the smaller amounts.

Using a debit or credit card totally circumvents this bias by taking away the perception that we are breaking any “whole” at all. Maybe we adults should play with this exercise a little more often, too!

Making a Wish List
Learning to modify impulses is a cornerstone of maturity. Making a wish list helps children to review their choices outside of the impulse of the moment. When children practice identifying, examining, and re-evaluating their wants it plants the seeds for self-aware purchasing in later life.

What this also does is start to organize wants for comparison with other wants. When working with clients around budgeting, I have found that this can be a revolutionary concept. Consider the difference between these two questions: “Do you want to go out to dinner?” vs. “Do you want to go out to dinner more than you want cable television?” Wants cannot be considered in the abstract, they must always be evaluated in comparison with the other available choices.

Keeping the Change
Some people have an innate preference for saving vs. spending even as children. Giving your child the opportunity to spend or keep the money given to her will show you where your child’s preference is – for that particular moment in time.

It is totally appropriate for children to experiment with decision-making behavior and for their choices to range all over the place. One week your son may blow every last cent you give him and have to borrow a dollar from his friend besides, another week he may be more penny-pinching than Ebenezer Scrooge.

Keeping the change is a great mini-lesson on budgeting. For what is a budget after all but a system of allocating amounts for expenses? Five dollars for souvenirs on a field trip is basically a $5 single-item budget. When sonny decides that he prefers some alternative use for the money, be it savings or a future spending opportunity, you are giving him a safe experience in financial autonomy.

The author of this article expressed it best when he suggested that parents “try these tricks on your kids, talk to them about the lessons to be learned – and then quietly muse about whether you, too, fall prey to these financial traps.” These activities are not lessons in and of themselves. They are a jumping off point for parents to engage their children in developing how money works for them.

** See Shlomo Maital's Money, Minds, and Markets. Ch. 3: From Pleasure to Reality, Learning to Wait Begins in Childhood. Basic Books 1981.

Financial CPR: C is for Cash Flow Plan

2008-01-25T03:44:00.000-05:00

This post is the first installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

Remain in control.
Though the interruption to your income may be out of your hands, it does not mean that your entire financial life is out of control. Stay calm. You have the power to make choices, minimize the debt or damage to credit that you will incur, and plan for a successful financial recovery once you’re employed again.

Remember that you always have options.
Usually the best options are available when you act pro-actively instead of waiting until the problem becomes a crisis.

Follow the Four A’s to create a Cash Flow Plan:
1. Acquire information

Tally up your cash on hand;
Survey your expenses and income to get a complete financial picture;
Read your contracts and user agreements to see what opportunities there are to cut or change service plans, memberships, etc.;
Solicit price quotes for comparable services;
Identify opportunities for “found money” – items you can return to stores for refund or credit, gift cards, etc.

2. Analyze

What can be cut?
What must be protected?
Are there ways to increase income?
Do not make random, haphazard, or emotional changes. Work purposefully.

3. Adjust

Take steps to make the identified changes.
Schedule time to make a few calls a day; don’t try to tackle everything at once.

4. Ammunition

This information = power!

Serenity now!
Even if you are still operating at a deficit, you can be confident that you have done everything you can to minimize the deficit and put yourself in the best position to get back on your feet quickly once you’re back to work.

Financial CPR: P is for Protect Yourself

2008-01-25T03:38:00.000-05:00

This post is the second installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

Anticipate problems.
Look at your Cash Flow Plan and determine which bills you’re going to be late on or unable to pay.

Educate yourself.

Use your Cash Flow Plan as a guide to all your actions;
Understand your position as a consumer (How valuable is my business? How long have I been a customer? What rates are fair for other people in my circumstances?);
Have a copy of the Fair Debt Collection Act;
Read your lending agreements;
Learn about your repayment options;
Know the terms of default and consequences of default.

Prioritize.
Put your bills in order of their importance in terms of consequences for non-payment. For example, not paying your mortgage could result in eventual foreclosure and losing your house. Not paying your credit card bill in full could damage your credit but will not otherwise threaten your security.

Know what you’re asking for.
Before you dial the phone, have a plan for what you want. Do you want to skip payments? Do you want to make interest-only payments for a period of time? (Remember to research what your repayment options are ahead of time.)

Contact your creditors.
Taking the initiative to contact your creditors will keep you in the driver’s seat. These companies are much more willing to work with you if you don’t make them chase you down after payments have already been missed.

Know what you can deliver.
Your credibility is absolutely priceless. Never promise something you know you can’t follow through on. It destroys your credit and may lead to harsh penalties and punitive action on the part of the lender or service provider. Even if you think what they’re offering you is a “good deal,” DO NOT accept it if you are not able to deliver. It is better to get off the phone without reaching an agreement than to agree to the impossible.

Negotiate.
Try to get the best deal for yourself. Remember, credit terms are not about your value as a person or how likeable you are. This is a business transaction, and you will only get as much as you’re willing to ask for. If you feel like the person you’re talking to is not willing to negotiate, ask to speak with someone else.

Go up the chain of command.
Oftentimes the people you get on the phone the first time are not authorized to make a deal. Ask to speak with a supervisor (several times if you need to) and keep going until you get to someone who has the authority to make a decision.

Don’t take it personally.
Creditors have been known to use every trick in the book to get you to make an emotional decision if it means they get their money. They will try to make you feel guilty for not being able to make your payment. They will try to manipulate you into prioritizing their payment over your other (more vital) obligations. Do not be fooled. Know your rights and know what you can realistically and reliably deliver.

Be accessible.
Even if you can’t make any payment at the present time, you still earn credibility points by staying in touch with your lenders and apprising them of your situation. This doesn’t mean you have to take the time to talk to every single collections agent who calls your house. Make appointments to return their calls, and then follow through.

Borrow judiciously.
During a financial crisis there is always a temptation to hold on to your cash and to live on credit. Sometimes this is inevitable, but you always want to think carefully about how you go about it. Get the facts. Credit cards offer flexibility but high interest rates make revolving debt very expensive. Tapping into home equity can be lower cost but puts your property at risk. Retirement accounts are protected from judgment even during bankruptcy – don’t touch them if you can possibly avoid it!

Think about the long-term.
Carrying debt should never be the long-term plan. There is too much inherent risk for debt to become unmanageable if anything interrupts your ability to pay. Try to minimize how much new debt you’re incurring during this time by keeping your expenses as low as possible.

Financial CPR: R is for Recovery

2008-01-25T03:24:00.000-05:00

This post is the third installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

This situation does have an end.
At some point, the unemployment crisis will be resolved and it will be time to think about how to get back on your feet. Ideally you will have:
o Kept your monthly deficit to a minimum;
o Protected yourself from penalties due to non-payment of accounts;
o Incurred as little new debt as possible.

Don’t zone out!
When you have been through a period of high stress it’s normal to want to decompress once the worst is past. You may feel an overwhelming “urge to splurge” and buy yourself those comforts you’d been denying. But before you throw out your budget, take a deep breath and pause.

Create your Recovery Cash Flow Plan.
Now that your income is back on track, you will need to move forward with paying your regular bills and addressing any debts you accumulated during the interruption. Your Recovery Cash Flow Plan should allow for the following:

Net Income
(minus) Fixed Expenses (reg. housing payment, reg. car payment, utilities, etc.)
(equals) Discretionary Fund

Take the Discretionary Fund and subtract your necessary out of pocket costs. Then try to budget for one non-necessary treat if you can, such as a monthly movie with the family.

Discretionary Fund
(minus) Out of Pocket (groceries, gas, parking, etc.)
(minus) ONE treat (if you can afford it)
(equals) Repayment Fund

Resume payment on your regular bills.
Once you have income again, begin making on-time payments on all of your regular bills. This does not necessarily mean that you return to all of your pre-unemployment expenditures. If you reduced your cable package for example, you may need to continue with the lower-priced plan for awhile until you’ve paid off some debts.

Determine your proposed repayment plan.
Divide the amount in your monthly Repayment Fund by the number of creditors for an equitable repayment strategy, or direct more of your resources toward certain accounts to give them priority.

Re-connect with your creditors.
Using your Recovery Cash Flow Plan as ammunition, contact your creditors and propose the terms of repayment. You may need to negotiate like crazy to get your creditors to accept the plan, and you may not be able to budget for the “treat” at this time. But try to resist at all costs having to miss payments on any of your regular bills in order to repay debts.

Be secure for the future.
Once you’ve paid up all of the debts, convert your Repayment Fund payments into a Contingency Fund payment. Try to have three to six months of financial reserves for any future disruption in income.

Giving til It Hurts

2007-12-15T21:51:00.000-05:00

Pop quiz: It’s December 15th, have you finished your holiday shopping yet? If you’re anything like me the answer is no. I tend to keep shopping right up until the clock ticks down to Christmas. I’m in good company here. Only 16% of respondents to a National Retail Federation poll had completed their gift-buying by mid-December – this despite the fact that people are starting their shopping earlier and earlier in the year.

I know for a fact why I am still in the throes of the retail maelstrom. It’s not that I procrastinate, or that I enjoy shopping during the busiest time of the year. It’s just that gift-giving is so complicated that I second guess myself right up until the calendar hits December 25th and I am forced to stop the crazy. In almost all areas of my financial life I am the measure of discipline. However gift-giving taps into a deep pool of anxiety – and anxiety makes a terrible shopping partner.

I am not alone in feeling the stress of this practice. According to the American Psychological Association, 42% of respondents polled felt pressured by gift-giving. It’s no wonder, when we have so much emotional investment in the act of gift exchange.

In the 1970’s, social scientist Dr. Theodore Caplow completed a seminal study about the rituals of holiday gift exchange. According to Dr. Caplow, a proper gift must surprise the recipient, demonstrate familiarity with his or her tastes, and its cost should reflect the perceived emotional value of the relationship between the parties.

That’s a daunting combo of conditions and meaning to pack into a simple bottle of cologne or a snowflake sweater.

I would add that its also important for gifts to be proportionate. Giving “too big” or “too small” of a gift can demonstrate inequalities that are definitely not in keeping with the holiday spirit. How awkward is it to give an inexpensive or generic gift to someone who obviously invested more in their gift to you? Or the other way around? When giving is disproportionate both the giver and givee may feel emotionally exposed. It hearkens back to the “I have her my heart and she gave me a pen” moment in the movie Say Anything. Ouch. Not very Christmas-y.

Economic differences between parties exacerbate the difficulty of proportionate giving. In the same APA poll cited earlier, Americans listed “lack of money” (61%) and “credit card debt” (23%) as sources of holiday stress. It’s hard not to dread receiving a nice gift from someone when you feel obligated to incur debt in order to give something proportionate in return.

Sometimes it seems as if all of the stressful aspects of holiday giving threaten to overwhelm the joy and meaning of the season. There is a lot of great advice out there about how to put limits on runaway gifting. Definitely have a budget. In large families or groups, agree to hold a drawing or only give gifts to children.

One strategy I’ve employed in recent years to honor the true meaning of Hanukkah and Christmas – and to simplify things – is to give some charitable donations as gifts. Each year I pick a charity or two and make several modest donations in the names of my friends and co-workers. I put information about the donation in a card, and that’s my gift. This kind of gift actually feels really great to give, plus I feel like it’s creative (I like to try to pick organizations and causes the person I’m giving to would support). It saves time and energy that would otherwise be spent shopping, and let’s be frank, most of us don’t really need to receive more candles or bath salts.

Gift exchange is a complex and nebulous social activity, and I’m certainly not the first person to feel anxious about it. I think as adults we want to idealize how wonderful the holiday season should feel, but the truth is that it’s normal for some parts to feel downright unpleasant. But if we let go of the ideal and accept that the holidays can be wonderful and difficult, I think it at least takes away the pressure of trying to achieve perfection.

Amanda on MSN: Why Your Money Plans Sink or Swim

2007-10-05T18:12:00.000-04:00

I haven't been able to post in awhile because I've had a lot on my plate lately, but that doesn't mean I haven't still been fighting the good fight for financial wellness! Check out my quotes in the MSN Women in Red article Why Your Money Plans Sink or Swim.

The Jack Sprat Accord

2007-02-19T17:51:00.000-05:00

Remember that nursery rhyme about Jack Sprat and his wife? Evidently Mr. Sprat had a predilection for leaner fare while his wife was more of a… gourmand. Between the two of them, so the story goes, they managed to efficiently apportion meals and thus together they would “lick the platter clean.”

Food tastes and food consumption are often a handy metaphor when it comes to material tastes and material consumption. Not that one can use eating behavior to predict what kind of consumer a person will be – in fact, oftentimes sublimated physical hunger is translated into a compulsion to buy – but there are certain areas of overlap. Unconscious eating often accompanies unconscious spending, for example.

But back to Mr. Sprat et famille. The point of the rhyme is to show how differences in partners often lead to greater stability or efficiency in the overall system. Two individuals may have certain extremes that are evened out by the opposite traits in their partners.

In my own work with couples this often seems to be true. Perhaps the two spouses are not as dynamically opposed as the Sprats, but even where there is a high degree of harmony and overlap there are inevitably certain areas where members of a couple find themselves coming from two very different positions (not Mars and Venus necessarily, but you get the drift).

Many times this is the case when it comes to responding to financial crisis. I’m not talking here about day-to-day financial management or long-term planning. In in these areas there is a greater likelihood that the partners have worked out some sort of agreement or at least had a discussion about how such a task will be approached. But in a financial crisis we often revert right back to our core selves, when primitive impulses grab hold and the decision-making process becomes more reactive.

Sometimes these reactions catch a couple off-guard and make it more difficult to negotiate how to respond to the crisis. One partner may want to sell everything in the house and the other may be equally convinced that they need to hold on to every last little item because they won’t be able to buy anything else they may need. Each feels that they are offering up the best and most practical response, yet they cannot understand how the other person sees it so differently.

It would be a mistake for the couple to become mired in trying to convince, coerce, or manipulate each other into simply accepting one person's course over the other. Usually reactive positions are too extreme to provide a truly workable solution. Also, the “solution” may be implemented at a serious cost to the relationship if a partner feels shut down and shut out of so important a decision.

One reason it is difficult for couples to find compromise in this area is because they think they are arguing the merits of their suggested course, but chances are they are really reliving a previous trauma.

Financial crises threaten our most basic sense of security. For someone who experienced distress around money as a child (which includes many if not most of us at one point or another), going through a financial crisis as an adult is likely to re-activate that part of the self that once felt completely vulnerable, afraid, and overwhelmed. When we are children we are powerless to affect the course of action taken by our parents yet we suffer their anxieties and yearn to help resolve the problem.

Often the “solutions” we perceive then are small acts of self-control or strategies for self-protection. We may tell ourselves “I won’t let Mommy know that that’s the doll I want because it’s too expensive and it would upset her not to be able to buy it,” or “If I rip my shirt I will try to pin the hole so I won’t get yelled at for ruining more of my clothes.”

These seemingly minor actions are the germs of adult behavior patterns to come. “Don’t tell Mommy I want” is a way of exerting control by cutting off feelings of desire, and can easily grow into the adult reaction of “sell everything in the house.” Hiding the tear in the shirt is a conservation response that protects against fear that a replacement can’t be had (or is not worth the misery it takes to get it).

Early experiences are the foundation upon which we build our patterns of preference. In a crisis, there is a strong emotional component to the experience that may contend or even defy the part of us that is rational.

Because these early events are often unconscious and do not readily spring to mind in a crisis – who would equate not getting a coveted doll with trying to stave off foreclosure? – couples are often at a loss as to how to find a common course of action AND support each other. Working with a clinician who is competent in financial wellness can help, as can having an idea of one’s own emotional and historical territory around money.

When it comes to financial decision-making, what constitutes a “good” or “bad” choice is only partly about the bottom line. Other concerns are also important. Personal integrity matters, as does trust. Maintaining a nurturing relationship should be included as a priority.

If it does not threaten their security, couples should endeavor to use a financial crisis as an opportunity for exploration and growth. Sometimes when people discover where their preference pattern began they are able to diffuse some of the emotional intensity behind it, allowing them to determine a more balanced and rational course of action. They may also be better able to hear their partner's point of view and elect a solution that takes both positions into account – the Jack Sprat Accord, if you will.

When a solution is emotionally balanced and co-developed, not only is there a better chance for cooperation and success in resolving the problem, but there may be a renewed sense of intimacy in the partnership as well. Licking the crisis together can be the greatest reward of all.

The Leased Lifestyle

2007-01-31T21:34:00.000-05:00

American Express really had our number when they said that “membership has its privileges.” We love to belong, to feel like we’re part of something. Maybe it’s the association that membership has with being cared for (as by a parent) or with the security of the crowd (as with a… herd. Sorry, folks, sometimes the analogies aren’t flattering.). Whatever the reason, as a culture we’ve demonstrated time and time again that consumer goods and experiences are part of how we define who we are to ourselves and each other.

What does it mean to live in a society that uses material goods to make abstract concepts like “identity” and “membership” more tangible? Well first of all, it seems to involve selecting, buying, and displaying a whole lot of stuff. A tremendous amount of energy and attention goes into keeping up with those pesky Joneses, who seem to always be one step ahead of us in getting the latest aspirational hoo-ha.

If this sometimes feels exhausting, stressful, and over-stimulating that’s because it is. It’s tough to keep up with the consumer treadmill. When “new” and “latest model” become the most attractive product attributes, then actual ownership becomes more tedious and the Leased Lifestyle takes on a whole new appeal.

When you own something you are responsible for its care and eventually for its sale or disposal. Depending on the item, ownership has a semi-permanence that comes from the value of that item becoming part of your own net worth.

When items have little or no long-term value, the benefits of ownership are decreased. This is why many financial advisors do not recommend buying new cars or expensive computers, because these items traditionally lose most of their value soon after they are purchased.

Leasing, on the other hand, offers a couple of interesting alternatives to the ownership experience. When you lease something – be it an apartment or a car – you are able to walk away from the item when the term of the lease is over. You are not committed to the item for perpetuity or until you find another buyer. The item will also usually come with some sort of additional service, such as yearly maintenance for a leased car or the on-call superintendent who will fix the pipes when they break. That’s because the owner is the one who has a vested interest in keeping the item in good condition. As the leasor, you’re just there for the use of the item – and isn’t the using the best part?

In some cases, leasing even allows you to procure a more expensive item than you would be able to buy outright. This was certainly the case in the 1990’s when a leasing boom in the luxury vehicle market took hold. Someone who found it prohibitive to pay $60,000 to buy a Lexus might be more than willing to pay no money down and $500 a month for five years to drive one.

Nowadays we’re seeing consumers’ desire to lease as opposed to own creep into some very interesting sectors. Bag, Borrow, or Steal allows members to pay a monthly fee and in effect rent a different designer handbag whenever they are ready to trade in their current selection. With bags in the Couture category starting at $175 a month this is not cheap. But it’s certainly less than paying $2,000 to actually buy a Chloe Paddington bag – especially when what you really want is the bag’s very time-sensitive It Status rather than its last-a-lifetime quality construction.

For the Leased Lifestyle to be profitable and therefore worthwhile, sellers and service provider must make a profit. And in fact, some industries have shaped their entire business model around the consumer’s preference for low-commitment, high-novelty products. In the United States wireless carriers offer cell phones at far below their manufacturing cost in order to sell lengthy service contracts that more than make up for the loss they take on the device.

This can lead to some confusion and therefore disempowerment on the consumer’s part. “Service” is abstract and difficult for consumers to value. For example, I have no idea what it costs Verizon for me to call my mother, and therefore would be hard pressed to know if I’m being gouged.

When we try to apply what we know about product pricing to this Brave New Leased Lifestyle it gets even more convoluted. Debt Hater writes:

I just bought a new cell phone. I bought it because I had a $150 rebate that expires in March. Then the MotoRazr Red was half off with another credit for a new two-year contract. Then, Radio Shack had an additional couple bucks off. So a phone listed as $309.99 became $19.99 and I bought it.

What does this do to the consumer’s idea about the product’s value? She believes any item that sells for $20 must “really be worth about $10.” Her attention is on trying to assess the value of the product rather than the value of the service. (By the way, this kind of scenario just about makes a blood vessel burst in my husband’s head.)

The Leased Lifestyle is growing, moving from traditional areas like vacation time-shares and into whole other facets of our daily lives. Zone Diet meals that are delivered to your home so you don’t have to cook or think about calories. Tie-of-the-Month gift clubs so that your “gift” is, in fact, the ongoing experience of newness and novelty.

So is the Leased Lifestyle bad or good? Well, it’s certainly a useful adaptation to the stresses of an ownership lifestyle that moves too fast. With our love of trends and the continued growth of the service economy, it does seem that the Leased Lifestyle is going to continue to evolve and expand. I think we’re at the beginning of something and time will tell if both consumers and retailers continue to favor it.

Fight, Flight, or MasterCard

2007-01-17T20:57:00.000-05:00

There is a lot of buzz right now in the mental health field about advances in neural imaging and the growing application of brain scans. It used to be that the only “topography” clinicians cared about was that of the conscious (pre-, sub-, un-, and regular), but now there is a surge in collaboration between those who study the brain and those who study the mind.

Including, it seems, those who study how the mind dictates economic behavior. This brings us the relatively new field of neuroeconomics.

The Economist just published a fascinating article about a Carnegie Mellon study where researchers mapped the brain activity of subjects evaluating a product and deciding whether or not to buy it.

In the experiment, subjects were shown a series of products flashed on a computer screen for four seconds. After each product was shown, its price was displayed for four seconds. Finally, the subject had four seconds to decide whether or not to “purchase” the product out of the $40 fee they were given for participating in the study.

The researchers discovered that different parts of the brain handled different sub-tasks. The nucleus accumbens, which processes potentially rewarding stimuli such as food or monetary gain, was activated when the subject was viewing the product. When the price appeared, activity switched to the insular cortex. The insular cortex is associated with expectation of pain or presentation of upsetting material.

The more attractive the product, the greater the activity in the nucleus accumbens. The more prohibitive the price, the more fired up the insular cortex became.

These reactions were synthesized by the medial prefrontal cortex, the part of the brain involved in rational calculation and predicting outcomes. The prefrontal cortex had to make the “choice” between balancing the desire for the product with the anxiety created by the price.

Here’s what’s interesting about these findings. First of all the evidence contradicts one of the most fundamental tenets of classical economics, namely that when we trade something (i.e., money) we must decide if the value of the trade is worth more than the future value of what is being given up. The Carnegie Mellon study shows that we’re not so much concerned about future utility as we are about the present pain of paying for something.

If you think about this in your own life it makes sense. When you are in a store and really want to buy something, the strong desire to possess the item can often override the more sensible (but abstract) idea of “I should save this money toward my long-term goals.” It’s the same principle when you have to spend a lot of money on something that is necessary (say car repair or health insurance). Even though you know it’s good for you (high utility), the pain of paying a relatively high price causes you to seize up with anxiety.

Let’s go back again to the prefrontal cortex for a moment. In this choice scenario, the prefrontal cortex is charged with being the mediator between the impulse for pleasure and the instinct to avoid pain. But this part of the brain has another vital function. It is one of the most important mood centers as well. Disturbances in the activity of the prefrontal cortex are linked to Major Depressive Disorder, Bipolar Disorder, and all types of mood dysthymia.

It makes one wonder how this part of the brain can execute its dual role. I’m no neurobiologist, but it seems like the “rational” function might be compromised when one is also in an affected mood state. I would venture to bet I’m not the only person on the planet who has ever tried to spend her way out of a bad mood.

The other implication of the study is that it explains why we love our credit cards, despite repeated demonstration that using them can be dangerous or even downright harmful to our economic security.

If when we buy something we’re choosing between pleasure and pain, then the biggest allure of charging something is that it removes pain from the equation. It obscures the anxiety of parting with actual money and makes the experience more abstract. After all, what is “future money?” Of course we will pay that off in the future! We always have the best of intentions about what our future self will do.

It’s only when debt becomes a problem that charging will once again engage the insular cortex in deciding a purchase. And then suddenly there is the desire for the product contending with the pain of parting with money and anxiety about how to manage the debt. Not a pleasant mood state to be in.

Studies like this one are incredibly valuable because they illuminate the process behind our most “irrational” choices. Hopefully as we better understand the fundamental workings of the brain, we can stop seeing ourselves as flawed beings for operating the way we do.

Actually, You Are a Beautiful and Unique Snowflake

2007-01-10T17:52:00.000-05:00

I have a secret for you. This secret is going to change your life. Here is the big news:

Everyone in the world has more or less money than you.

That’s right. There is no sameness. No comforting lie that in America “we’re all middle class.”

I read a great post last week on Getting Green titled Why I Keep Quiet About My Salary. In it, the poster writes about why he does not disclose how much money he makes on his blog (or to anyone but the most intimate people in his life). While I fully support his personal choice, I read with great interest his rationale for privacy:

If I made substantially more than my roommate or other friends, they would probably become jealous of my salary. They might be well-intentioned, good people, but over time they would more than likely become jealous and… resentful. They’re not bad people, but money just has a way of effecting [sic] people.

If I made substantially less than any of my friends, they would probably naturally feel superior to me. If I made less than them, they would figure that they are worth a lot more than me and work a lot harder than me. If this were to happen I would have the privilege of dealing with a superiority complex.

I find this position really interesting. First of all, the writer chooses to speak only about how he believes others will feel if they find out he makes more or less money than them. Instead of stating his own feelings (he never says, “I feel inferior when others earn more than me”), his primary concern is to avoid others' judgment. In describing what is “natural” to feel in response to this information, he is perhaps revealing something that is true for himself but that he may not be comfortable owning. Comparison judgment can be very disruptive, and this writer has a strong desire to avoid it.

Money is a sensitive topic, especially when it impacts our social selves. One of the reasons people are so anxious about money is because it is often a basis for comparison. While I don’t deny that people rampantly compare, it's unfortunate, because I think money is about the most invalid form of comparative measurement available.

If one person has $20,000 in the bank and another has zero, then is the one with $20,000 that amount… “better” at “money?” If one person earns $50,000 a year and another earns $75,000, is that person getting it 50% more “right” than the first guy?

Of course this example seems ridiculous because it’s not just about the dollars – maybe one person received an inheritance and the other did not, or one is a school teacher and the other works in marketing. With so many ready contextualizers, money immediately proves itself to be a poor standard of personal comparison or worth.

Even if two people both earn exactly the same income they can have widely varying financial lives. Inevitably they have different housing or transportation costs. Maybe one pays a student loan. One may support a family. I will guarantee you that they will have differing values about what they prefer to spend on food, clothing, entertainment, etc.

At the end of the day, money is a resource that empowers a person’s choices. But different responsibilities, liabilities, and opportunities affect the amount of “choice” a certain income is likely to afford. And while there may be similarities or trends, the delicate combination of resources, liabilities, and choices is unique for each individual.

If I may wax rhapsodic for just a moment, it is this uniqueness that makes me love what I do. When I read a person’s budget and talk to them about the role of money in their lives, I get such a strong sense of who they are as a person that I sometimes joke that I can “psychoanalyze a budget.” Where does the person treat himself? Deny himself? What are the boundary issues in this person’s life? What was provided in his early years or what did he have to overcome? It’s all there in black and white if you explore the meaning behind the numbers.

I think most people find this concept of financial uniqueness surprising and terrifying. Surprising, because most of the popular wisdom about money involves certain universal truisms: save a portion of each paycheck, don’t buy a new car, pay off your debt. How can we be unique if we’re all supposed to be doing the same things?

And it’s terrifying, because if there is an area of our lives where we’d appreciate the comfort of the crowd, it’s in our finances. Making choices about money can be anxiety-producing. We would all like our choices to be validated -- or forgiven-- and since we tend to keep our personal information private we measure ourselves against those universal truisms to see how we’re doing.

When I say to clients, “Everyone in the world has more or less money than you,” my words are usually met with a surprised laugh and then a sigh of relief. Inherent in this phrase is permission to be an individual, to have limitations, and to still be okay.

Certainly there are economic realities that must be acknowledged. It is beneficial to spend less than you earn, and it is prudent to save for the future. But it is not a sign of one’s moral superiority to be in a favorable financial position. Nor should it be shameful to have less. (Or, conversely, to feel guilty for having more, or virtuous for having less.)

I feel strongly that it’s important to diffuse some of the isolation that we feel around money, and to not be so emotionally constricted on the topic. When our financial decisions are grounded in personal meaning, there is such freedom to own the whole spectrum of who we are. It doesn’t matter who has more or less, because we are all beautiful and unique snowflakes.

Fees and Loathing

2007-01-01T22:10:00.000-05:00

A "sucker punch" is an act of violence where the one being punched is either caught completely off guard by a landed fist, or a punch which is thrown to disable another in a place which is not normally a target in a "fair fight”…. Although it is commonly known to be embarrassing and painful to be upon the receiving end of the punch, the act often belies the character of the one throwing the punch, which is often attributed as a cowardly act. (Wikipedia.org)

Hidden fees are the economic equivalent of the unfair and cowardly sucker punch. Unfair, because they comprise important information that is either withheld or obscured from the buyer’s consideration set. Cowardly, because they imply that a seller does not feel confident that his product or service can simultaneously satisfy the conditions of competition (meaning a buyer will choose it over other alternatives), and profitability (meaning it is in the seller’s interest to offer that product at that price).

I’m working hard here to resist the urge to editorialize and rail against hidden fees for their sheer perniciousness. I am a consumer, and any act that leaves me feeling manipulated and injured is of course going to inspire anger. Anger is a natural response that helps motivate a person to avoid future injury.

But anger is only helpful when avoiding the injury is a possibility. Undisclosed administrative fees, “paper ticket fees,” or even “minibar restocking fees” (because the $5 Snickers bar does not cover its own overhead) are often charged after the consumer has already checked in to the hotel or booked their flight. Also, we live in a world where the hidden fee is becoming more and more widespread. This is not a case of a few shady sellers, but rather a culture of manipulation that is based on behavioral economics, the psychology of what consumers “are likely to do.”

People are busy, and most of us do not have an infinite amount of time to research every economic decision we’re going to make. We depend on heuristics, short cuts, and even on basic gut reactions. This is why brands are important, because brands are the ideas and associations that wrap around the products we buy. Brands take on human characteristics such as traditional, trustworthy, or cool. So we may choose a Volvo in part because we’ve done some research, but also because we believe that “Volvos are safe and dependable cars.” Trusting a belief about Volvo’s general dependability saves time that would otherwise need to be spent gathering and analyzing the facts.

How does this relate to the issue of hidden fees? Hidden fees are an act of deception that threatens trust. Mistrust negates the value of brands, and forces the buyer back into the odious task of having to look at all the minutia of the choice. The buyer is hardly going to thank the seller for this additional responsibility.

Unfortunately, there’s no easy market solution for this one. In their Quarterly Journal of Economics article this past May, David Laibson of Harvard and Xavier Gabaix of M.I.T. argue that there is no incentive for another seller to blow the whistle on their competitor’s hidden fees.

Think about it. Let’s say this alternative seller runs an ad that says, “Hey, we don’t have hidden fees like those other guys. We charge you the fair rate for the product instead of sneaking in all those other charges in order to make a profit.”

According to Laibson and Gabaix it’s unlikely that this message will attract new customers to the alternative seller’s product. Instead, the message is more likely to educate potential buyers to still choose his lower-cost/higher fee competitor, but to be much more savvy about how to avoid the fees.

So sellers decide if you can’t beat ‘em, join ‘em. Thus every seller gets in on the fee game and we consumers lose in terms of both trust and choice.

This is one of the reasons I think we have so much consumer anger in our society. We feel abused by the sellers and powerless to select an alternative, so we go on a sort of passive aggressive rampage.

We do everything from stripping anything that’s not nailed down out of our hotel room to fighting tooth and nail to get the entire can of soda (not just the 4 oz. glass) from the flight attendant. And when even these tiny battlegrounds are denied us, it is the desk clerks, customer service reps, and floor managers who must suffer our wrath.

I don’t know if hidden fees will ever go away. So far we consumers have demonstrated time and time again that we love a bargain – even if it’s just the illusion of a bargain. At present the only alternative is to do your homework ahead of time, or be prepared to make a fuss and try to get some of the fees removed.

Or savor the small victories in that extra bag of peanuts and handful of shampoo bottles.

Debt, It's Not Me, It's You.

2006-12-26T17:53:00.000-05:00

“I’ve kept up with the debt payments as long as I can. I mean, I charged the stuff and I agree that it should be my responsibility to pay it off. But in 6 months my rate has gone from 0% to 12 to 23 and now it's at 33%. Credit card companies have become worse than loan sharks. I don’t think it’s right that they can charge so much interest that you can never pay off your debt. And when you’re struggling they call your house night and day and treat you like some deadbeat! I’ve tried and tried, but if I pay them what they ask I won’t even be able to afford to feed myself. So forget it. They’re not getting a penny more of my money.”

Most people agree that if they borrow money they should pay it back. They will even agree that it is acceptable for a lender to charge interest on the amount borrowed (unless their religion forbids it). But what happens when the terms of repayment go beyond a person’s idea of what is fair and reasonable, or when the borrower feels powerless to meet the lender’s demands?

As terms become more unbalanced in favor of the lender, the borrower’s sense of ownership for the debt decreases.

Call it the consumer's APR: Adjusted Personal Responsibility.

I’ve said before that lending is a business, and right now the lenders are holding a lot of cards. Regulatory caps on interest rates and fees have been eroded in recent years, and consumers live in a world where the 0% APR on your Visa can jump to 23% (or higher) just because you’re late paying the electricity bill. These are pretty tough terms. Factor in the aggressive practices of collection agents and you have a situation where the besieged borrower, already stressed, now feels attacked and victimized.

In these situations, the mind will reframe the circumstances in a way that preserves the borrower’s sense of his own self-worth (“goodness”) and will recast the lender as predatory, unfeeling, and downright evil.

Part of the problem is the way that consumer goods in general, and credit in particular, are marketed and sold. In order to ease consumers through the anxiety that comes from parting with their money, they are presented with the option of buying on credit. And in order to get the consumer to override their natural aversion to debt, they are flattered and told that this credit is something they’ve actually “earned,” something available only to people who are “worthy.”

So when a lender switches from acting like a loving parent or an approving friend to acting like a wronged lover, this can come as somewhat of a shock to the consumer. The consumer may experience the lender’s escalating (punitive) interest hikes as erratic and unreasonable behavior.

First, the borrower is wounded:
Creditor, I thought you loved me!
Next, the borrower reproaches himself:
Maybe I’m not as great as Creditor said I was.
Then the borrower’s sense of self-preservation kicks in:
This Creditor is acting like a real creep.
Finally, the borrower rejects the negative message:
Creditor, we’re through.

The “break up” can take a number of forms depending on the situation. Maybe the borrower stops answering the creditor’s calls or opening their letters. They may transfer the balance to another card (if they’re able), or take steps toward filing for bankruptcy.

Since you cannot actually break up with a creditor, all of these scenarios are bound to cause more grief for the borrower than they will for the lender. Trust me, you can't punish MasterCard by throwing their bills in the trash. Eventually they will get your attention.

However, I do feel that creditors are taking the wrong tactic with their penchant for ever higher fees and interest rates. I’ve spoken with many consumers who feel personally betrayed by the actions of their creditors. Having experienced extreme consequences for what they perceive as relatively minor missteps, they are bound to be wary of exposing themselves in the same way again if they can possibly avoid it.

Creditors should be concerned about the rising tide of consumer anger. When creditors hold all the power in a relationship, they also hold a higher proportion of responsibility. Even in Shakespeare's day, nobody cried for the money lender.

Stars - They're Just Like Our Libidinal Fantasies!

2006-12-17T16:40:00.000-05:00

I am a tabloid reader. I admit it. I’m not proud of my up-to-the-minute knowledge of Britney’s hair color changes or how Brangelina feel about marriage. Tabloids are my candy, my escape from complicated thoughts.

Even the most casual tabloid browser knows that there are two major celebrity activities that end up in Us Weekly or Pink is the New Blog: nightclubbing and shopping. Getting Starbucks runs a distant third, mostly because there are still a handful of stars who spend their days running to and from meetings, not acting out for photographers.

I snark with some affection here, because I myself have pored over what the It Girls wear when they go to It Girl parties. (Or, as of late, what they don’t wear – yuck, Britney.)

But why shopping and clubbing? Why do people outside of Los Angeles even know about the existence of Kitson or Hyde?

Shopping and clubbing are activities that are primarily driven by libidinal impulse. Besides just a sexual drive, Freud felt that the libido was an instinctive life force that bucked at the conventions imposed by civilized society. This is the society where you and I live, forced to repress our libidinal impulses in order to work, follow traffic laws, and pay for things using money we earn. Repressing the desire to act out and run free takes energy, and so to let off steam we fantasize about scenarios where youth (youth is the playground of the Id), beauty, and lack of responsibility are celebrated traits.

Who hasn’t wanted to walk into a store in the middle of the afternoon, try on loads of fabulous, expensive outfits, and then walk out with whatever we wanted without a care to cost? Or go out any night of the week and not worry about having to be functional the next day? And what’s more to be fawned over for such behavior?

I raise this topic on The Good, the Bad, and the Money because the escalation of celebrity consumer culture has a profound effect on our sense of what is “normal” (hence “good”). When we are surrounded with images that portray a certain way of living, this is bound to influence our own expectations.

Earlier in my career I used to call this the Nice Girl Complex, because this was how I thought of the set of expectations that influenced me and my girlfriends. Nice Girls have their nails done. Nice Girls have good haircuts and keep their roots re-touched. Nice Girls know about this season’s bag, heel shape, and hemline. (Though my ideal of a Nice Girl may not have been too concerned with actually being nice, she was awfully fashionable.)

Being seen as someone who was able to stay current (or as I might say at this point in my career, “able to effectively manage the signifiers of competitive material culture”) was a demanding job and a serious drain on the finances. Eventually I had to shake the Nice Girl and decide for myself what my priorities were for myself and my life.

I still see many people who need a constant diet of new and stimulating, or else they become agitated, bored, and even self-destructive. These people are highly likely to try to spend their way out of an unpleasant mood. A new outfit can represent a shiny new self. A night on the town can stand in for love and approval.

These people are usually terrified of a balanced spending plan, because the idea of having to defer the impulse to spend, consume, and to run free is tantamount to a maximum security prison. Having never learned to manage their own emotional processes and self-soothe, they are afraid they will never be able to. These are usually people who declare that they are “bad with money” or “hopeless with budgeting.” This is actually code for “I can’t (or won’t) control my impulses.”

To give in to an impulse is not necessarily a bad thing. In fact at the opposite end of the spectrum are people who experience every impulse as bad and dangerous. They are the ones who must have rigid structure or else they feel completely out of control.

True emotional maturity is characterized by appropriately moderating impulses. In my financial wellness practice, I try to help clients flex their beliefs about what is “good” and “bad” financial behavior and instead look for what is healthy and sustainable for them.

Healthy spending involves meeting one’s needs and experiencing gratification in ways that are not destructive to oneself or to others. It’s okay to buy yourself something nice. It’s not okay if it means you won’t be able to pay your rent, if you have to lie to your significant other about the expenditure, or if it creates unsolvable debt.

A sustainable, well-formed budget should create balance between your impulses and your priorities for growth and self-care. It should feel like a perfectly tailored garment, with the right fit, construction and support to make you look and feel your best.

Fantasizing about the hedonistic lives of celebrities can be a harmless diversion, but if it makes you feel bad about yourself, creates temptation to buy things you can’t afford, or causes you to devalue your own personal experiences and relationships, then it is not an activity that contributes toward your quality of life.

To chase an "ideal" of good, bad, fun, or fashionable means that you are pursuing an extreme. And any extreme is very likely unhealthy. In money as in life, you are unique.

Besides, you've can see how well it's all turning out for Lindsay Lohan. A cautionary tale if ever there was one.

The Belly of Beliefs

2006-12-16T09:31:00.000-05:00

Most therapists I know love the word “inappropriate.” In social work assessment, where we look at how the individual functions in his/her environment, “inappropriate” usually means that something in the client’s presentation is inconsistent with other aspects of his/her life. In my work, a good example of this would be, “The client’s lack of anxiety was inappropriate given the severity of his financial crisis.”

Inappropriate is a flag for further investigation. When we probe how individuals think and feel about the events in their lives and their role in shaping these events, we find a gateway to clients' underlying beliefs.

Belief frameworks are what financial wellness work is all about. Beliefs tell us what is “good” and “bad” behavior, and we measure ourselves against these internal standards. Most beliefs about good and bad can be traced back to our families, the original crucible where we are taught how to understand and interpret the world. Depending on the circumstances, children come to either accept (repeat) or reject (react against) their parents’ interpretations.

If prompted, most people can recite a laundry list of financial lessons learned when they were growing up. Some are popular adages, such as “money doesn’t grow on trees,” or “if you do what you love, the money will follow.”

However, the strongest beliefs are often unconscious, and uncovering these unconscious beliefs can even surprise the person who holds them. Children are finely attuned to the emotions of their caregivers, so when a parent angrily tosses off a comment like, “Look at that jerk in the BMW,” a child may understand this to mean that having a nice car is somehow associated with being a jerk, so if they want their parent’s love they shouldn’t have expensive things. This may sound far-fetched, but I’ve treated many adults who experience powerful ambivalence about material good fortune, and in 9 cases out of 10 it is because a parent felt unfairly thwarted or punished by others’ success.

Parents themselves can be surprised to learn what interpretations their children are making. Children lack adult cognition, so when left to fill in the blanks they can make wild leaps that may be far out of line with what the parent intended. If seeing mom take out the checkbook to pay bills is usually followed by a period of crabbiness and hearing her say “no” to anything you ask, you’d better believe that children will learn to fear that checkbook. Because of this, a parent who is careful to the penny may have a child who eschews even the most basic activities of financial management because he associates them with anxiety.

Parents can mediate this by talking about money more openly with their children. Asking children what they think about who should earn the money in a family or how the family’s money gets spent can provide parents with an opportunity to guide and reshape beliefs as they form.

For adults, cognitive therapy techniques can be an effective in exposing beliefs that are unconsciously directing present day actions.

Though we may think about money often, many of us still experience a disconnection between financial activities and the more personal aspects of our lives including relationships, values, and dreams. Yet money is a subject that is deeply personal, often painful, and very seldom rational. Financial wellness work is a way of exploring the role of money its full context: taking into account our cognitive processes around money, how money is a factor in our social environment, and how we learned about money in our family.

Are You In (Over Your Head)?

2006-12-15T14:05:00.000-05:00

You may be surprised to hear that I’m actually pretty temperate on the topic of credit. Though I’ve seen how debt can cause serious strife, I don’t believe that the lending industry exists to deliberately wreak havoc in the lives of its customers. Profits are profits, and for better or worse this industry profits by siphoning off the earning power of all those who carry a balance. Caveat emptor, cardholders. At least read the Schumer Box before you’re seduced by the suggestion you’re “worthy” of “platinum status.”

My general neutrality ends when lenders cross the line between offering a product and enabling an addiction. Arriva is being positioned as a card designed for the gaming lifestyle. How so? Because the major selling point of the Arriva is the fact that you can get a cash advance of up to 100% of your credit limit. You know, because throwing your car keys or the deed to your house on the table after you’ve lost all your money is only really done in movies.

I won’t belabor the facts about how Arriva charges you 3% on every transaction (makes the $5 fee on casino ATMs seem like a downright bargain), or how Arriva’s interest rates, from 15.49% to 24.49% are significantly above the current industry average of 13.16%. The terms and conditions page lays it all out for you in black and white (and red, with pictures of pretty girls and guys having loads of fabulous fun).

So why does this product fill me with outrage? Because it’s primary attribute is that it enables a problem behavior. “Enabling,” in the addictions world, is defined as depriving the addict from the consequences of their behavior in a way that prolongs the cycle of addiction. Labels can sometimes distract from the point at hand, and I want to be clear that I’m not labeling all Arriva customers gambling addicts. But when you choose to borrow money at 15%+ so that you can continue to gamble, it might be time to take a hard look in the mirror.

For the non-problem gambler, it hurts to lose money. It hurts, but the non-problem gambler uses this environmental feedback to enter a healthy decision-making process that goes something like this:

“I came to the casino with $500 to gamble with. I’ve lost my $500. That sucks. I’d really like to continue gambling – maybe I could win my money back! No, I should step away from the tables (slots, etc.). Five hundred was my limit, and I can’t afford to lose any more.”

The difference between the problem- and the non-problem gambler is that the problem gambler’s persistent impulse to continue gambling overrides the negative environmental feedback. He/she engages in progressively more risky behaviors in order to continue gratifying the impulse.

The Arriva is the enabler here, because this card's entire premise implies that it’s perfectly okay to borrow money to continue gambling. And Arriva is hardly a disinterested enabler. The parent company of Arriva, Global Cash Access, is "a leading provider of cash access products and related services to approximately 960 gaming properties..."

The message that it's okay to borrow to gamble is also obscured by offering rewards and points that seem almost like the consumer is getting a deal.

This is a gross distortion of reality. A person who borrows $5,000 – oops, make that $5,150 because you have to tack on the 3% transaction fee – will pay back $463.59 a month for an entire year, and Arriva will collect $563.08 in interest and fees above the $5,000 you withdrew. That's a great deal for Arriva.

What do you get? Well, you get a chance to gamble with that $5,000 and you get a whopping $37.50 in cash-back rewards (redeemable for food or merchandise on the casino floor). And don’t make a late payment over the course of the year – I computed the above example using 15.49%, the lowest rate offered.

Arriva is a product that profits from the poor choices and limited options of its customers. It might even be subject to products liability regulation because offering high-cost credit for gambling purposes is inappropriate and predatory.

Bottom line: it feels bad to lose money. It feels bad to have to walk away from an activity that’s fun and exciting. It feels bad that this is your vacation, and you don’t want to have to stop having fun on your vacation.

Sometimes things happen in life that are difficult and unpleasant. When we can’t face this, we enter a process of denial that takes away our ability to make good choices. Arriva promises escape (or delay) from the pain of loss or anxiety in much the same way one might use opiates. It’s important that potential consumers examine the dangers of this product, and try to limit their exposure to risk before they’re in an emotionally-charged situation.

When it comes to using Arriva to gamble, just say no!