Archive for November, 2008

When I was young, the term “Black Friday” always had an ominous tone about it, along the lines of “Black Monday,” “Black Tuesday,” and “Black Friday,” terms associated with the stock market crash of 1929. (I’m not old enough to remember the stock market crash — heck, neither are my parents — but I’m fairly well-versed in American history.)

“Black Friday,” of course, refers to the Friday after Thanksgiving, when holiday shoppers fill the retail stores and buy up so many items that it helps the various retailers reach profitability for the year, moving from red ink (i.e., losses) into black ink (i.e., profits) on their books. As I grew older, I came to realize the difference between the terms (aided in part by a job I took as a Macy’s stockboy one year, a job from which I resigned on the Wednesday before Thanksgiving after hearing horror stories from veterans of previous “Black Fridays”).

This year, though, the term “Black Friday” brings to mind those dreaded terms about the Crash of ‘29. Not only are today’s stock markets way down for the year, but retailers from Kohl’s and Lowe’s to Sears, KB Toys, and a host of others are so concerned about the huge drop in consumer spending that they’re offering all sorts of discounts, substantially reducing their profit margins on discounted items. Their goal is to make up for the price difference by selling larger quantities, but that may be a hard goal to achieve this year.

The National Retail Federation (NRF) estimates that up to 128 million people could go shopping this weekend, which is a lot of people but still seven million fewer than they estimated would be shopping a year ago.

“Retailers realize that low prices will get consumers into stores this holiday season, and this could be the most heavily promotional Black Friday in history,” according to NRF President and CEO Tracy Mullin. “Shoppers who held off buying a DVD player or winter coat over the last few months will find that prices may literally be too good to pass up.”

So … will you/did you find some prices “literally too good to pass up” this Black Friday, or are you sticking to a tight holiday budget this year?

• Having the ability to reserve hotel rooms, travel accommodations, or restaurants by phone or Internet
• Having the ability to make a purchase by phone or Internet to take advantage of special online deals or to avoid having to run out to the store unnecessarily
• To benefit from rewards programs for frequent travelers, get cash back on purchases, or receive merchandise in exchange for responsible credit card use
• To pay for unexpected, necessary expenses that would drain our financial resources over a few months, rather than having to borrow from a friend or take out a loan

When a credit card is used responsibly, the cardholder only charges what he or she can afford to pay off in the same month the transactions occur (with the exception of those occasional, necessary larger purchases that you pay off in a few months).

Being a personal finance writer means reading and writing about the state of the economy on a daily basis, at a time when there’s not a whole lot of good news out there. Inflation fears one month, deflation the next. Falling prices following closely on the heels of rising prices. Rescue plans in assorted flavors. Jaw-dropping budget deficits. Job losses, foreclosures and debt. And the many incredibly resourceful ways Americans are cutting back or doing without.

Most days you can count on me to be outraged over well-compensated bank and insurance executives getting taxpayer-funded handouts, scared about what lies ahead and certainly depressed about my withering 401(k) balance.

There’s always a survey to tell us how we’re thinking, and now there’s a new one by the Pew Research Center that tells me that what I’m feeling is remarkably in sync with the rest of the country. According to the results of a November survey released yesterday, pollsters have ranked the emotions Americans most frequently feel in the pit of their stomachs when they read the latest economic news:

Angry (49%)
Scared (43%)
Confused (37%)
Depressed (35%)

And, inexplicably, 30% are feeling “optimistic.” Huh?

Perhaps not surprisingly, people age 65 and older are more likely than any other age group to feel angry when watching the evening news report. I guess they’re thinking that the secure and worry-free retirement they worked so hard for is slipping from their grasp, and, being past normal working age, there’s not much they can do about it now.

What’s going on in your mind when you tune in to your local news report?

In the 2008 Credit Card Satisfaction Study conducted by J.D. Power and Associates, the responses from 7,600 credit card users were analyzed to determine the best customer service credit card across five different service categories: interaction, billing and payment process, rewards programs, benefits and services, and fees and rates. The study compared results between “Transactors” (people who pay their transactions off in full at the end of each month rather than carry a balance) and “Revolvers” (people who carry balances from month to month). Results from the study show that American Express scored highest among all credit card companies, receiving best credit card satisfaction ratings in most of the five categories for customer service analyzed.

In the study, AmEx took best credit card for the Rewards, Fees and Rates, and Customer Service Call Center categories. Interestingly, American Express is most often used by cardholders who pay their balance off in full each month rather than carry a balance from one month to the next, which explains why the card would probably receive top scores in the fees and rates category. It also makes sense that cardholders who are paying their credit card balances in full each month would generally receive higher rewards from rewards programs and have higher overall satisfaction with their credit card in general. If you aren’t carrying a balance on a credit card, you aren’t paying interest or fees on that balance, you’re getting more rewards for less money, and you’re not watching your credit card payments get eaten by the interest and fees applied to many cardholders who carry balances.

For individuals who tend to carry a balance on their credit cards, Discover Card was considered the best credit card, thanks to cards with no annual fees and interest rates that were considered low among this group of credit card users.

Regardless of whether the cardholders in the study were considered transactors or revolvers, one aspect stood out as being extremely important to them: credit cards with good customer service. Having a twenty-four hour call center available to take cardholder calls and answer questions or solve problems was important to all cardholders, regardless of how they pay their balances. American Express took best customer service credit card, followed again by Discover Card; Chase was ranked third.

Most Americans think of the Friday after Thanksgiving as Black Friday, the official, frenzied kickoff to the holiday shopping season. But in some circles, November 28 is known as Buy Nothing Day.

That’s right, there’s a growing international movement, publicized via YouTube, activists and bloggers, encouraging shoppers to experience what it feels like to opt out of the consumer culture, if only for a day. The notion of Buy Nothing Day was born of a desire to protect the environment by consuming less; it could also do wonders for your finances if you skip the big shopping rally and, better yet, change your mindset about overindulging at all.

Are you planning on scaling back your holidays this year? If you are, are you doing so to save some money or save the planet?

A year or two ago, most people had never even heard of the term “short sale.” Today, though, as the real estate business has become a heavy casualty of the severe economic downturn, short sales are becoming an increasingly popular alternative to foreclosures — especially for the buyer.

A short sale happens when the sale price is less than what the seller still owes to the lender via a mortgage loan. Let’s say you own a home, and you know you won’t be able to continue making the payments — that foreclosure seems inevitable. For you, a foreclosure is bad news on a couple of different fronts: Your credit score will take a big hit, you’ll have to move elsewhere, you stand to lose money on the deal (potentially a lot of money), and you compromise your eligibility for a future home purchase.

That’s why short sales have risen in popularity. Today’s falling home prices, combined with homebuyers making low down payments at the time of sale, mean that many homeowners owe more on their mortgages than the properties are currently worth. (This is what’s known as an “underwater mortgage.” It’s a lot like the term “upside down on a car loan,” except it’s often worse: an “underwater mortgage” typically involves larger dollar amounts.)

Add to that the population of homeowners who face foreclosure due to resetting mortgages (when adjustable rates reset, for example), not to mention the need to relocate for work or other reasons, and it makes sense that lenders would consider short sells to offset bigger losses from foreclosures.

On the other side of the coin, a short sale doesn’t recoup all of the home borrower’s losses, but it can help to limit the damage — and hit the “reset” button on the borrower’s future finances at a slightly more desirable level.

Most of us realize that there’s a lot of valuable information that can be gleaned from the Internet. Whether you’re looking for the latest gossip on your favorite Hollywood star, following the election or researching a paper for school, the Internet can help you get the information that you need.

While most of us spend a lot of time pulling information from the Internet, sometimes we find ourselves posting it as well. We might be posting a question to a newsgroup seeking a technical answer or looking for that long-lost relative. What we must also realize is that in much the same way that we use the Internet to get information about our favorite topic, identity crooks are surfing the Internet looking for bits and pieces of personally identifiable information that they can use to steal our precious names.

Be careful what you post

All information is not created equal. As tempting as it may be to simply advise people not to post or provide any information online, it isn’t practical. There are legitimate reasons to post information online, and by not doing so, we reduce our online experience and limit the benefits of the Internet.

What we can do, though, is be careful about the type of information we provide. While it makes sense to post detailed information online about a technical problem so you can get help resolving it, it’s more difficult (but not impossible) to justify providing more personally identifiable information, such as name, address, date of birth, Social Security number, mother’s maiden name, etc.

We also need to remember that the more information we provide, the more significant it becomes. For example, if someone comes across your first name on the Internet, it means very little. Add your last name to it, however, and it means a bit more. Again, add a few more bits of information, such as your address and your date of birth, and you can quickly see where things start taking shape for an identity thief who’s on the prowl. So it’s not simply the type of information, it’s how it all can be used together.

Understand why you’re providing information

I doubt there are many people who’ve heard about protecting their personal information more than my friends and family have. Considering my background, it’s just my thing. I’m constantly telling them to protect it and to do so fiercely. Yet, even after hearing it day in and day out for the last five or so years, they’ll still sometimes provide information without really knowing why. Legitimate business or not, just because someone tells you they need your Social Security number doesn’t mean they really do. Don’t provide it without asking why. You’ll be surprised at how many of those people asking for it really don’t know why they need it and, in the end, won’t require you to provide it if you challenge it.

In the online world, even if some online forms request personal information, the information may not be required. Don’t assume that it is — see if you can proceed without providing it. If the information is required, take a minute to decide whether it makes sense for you to supply it. If something doesn’t seem right, don’t provide the information.

Is it worth the risk?

As you provide information online, measure not only whether it makes sense but also if it’s worth the risk. For example, if you’re getting your credit report online through a secure website from one of the three bureaus, you should expect to provide some personally identifiable information. In this case, the risk is relatively low, since you’re dealing with one of the three credit bureaus, making the transaction through their secure site, and getting a credit report in return, which is an important item and likely worth the small risk.

However, what if you’re providing personal information on a form as part of an online contest to win a free phone? Do you know who the recipient of that information really is? Is taking the chance of providing that information to an identity thief really worth the chance to win a free phone? It may sound far-fetched, but it’s not — people do it all the time. As part of surveys or contests, they provide very personal information without stopping, taking a deep breath, and asking if it’s worth the risk. They get caught up in the moment, as I vividly remember just a couple years ago when my wife received her free phone in the mail. As I asked all those questions that you would suspect that a person with my background might ask, we found out that what she really won was a new cell phone contract that she didn’t need.

How much information is too much?

There’s no quick and simple answer to this question. It depends on the type of information and why you’re providing it. I’ll go so far as to say, however, that providing any information that you don’t need to provide is too much. Protect your personal information fiercely, and always remember that your information might stay out there in cyberspace for a very long time. There will always be a crook out there browsing the Internet looking for those bits and bytes of information to steal someone’s precious name. Don’t let yourself become the next identity theft victim.

During the 2007 Christmas season, an estimated $26.3 billion was spent on gift cards at retailers. Gift cards are the gift people choose when they’re just not sure what to buy someone on their list — but they can become a problem for gift card holders if the retailer goes bankrupt before the gift card is redeemed.

When a retailer goes bankrupt or begins closing stores in an effort to downsize, the Bankruptcy Court considers gift cards “unsecured debt.” This means they don’t always have to honor them once they file for bankruptcy protection, or they may be able to pay them off at much lower values. For example, Consumers Union said an estimated $20 million in unused gift cards were left behind when Sharper Image filed for bankruptcy protection this year; Bombay Company paid gift card holders 25 cents on the dollar when they closed 388 stores.

Some stores that have filed for bankruptcy or are closing stores to downsize operations include: Sharper Image, Bombay Company, Fashion Bug, Lane Bryant, Linens ‘n Things, Levitz, Domain, Fortunoff, Harvey Electronics, Lillian Vernon, Zales, Ann Taylor, Foot Locker, and Circuit City.

With the economy in a state of decline, you might want to consider your gift card purchases carefully this holiday season. If a store is doing poorly, skip the gift card, since there’s no federal protection for consumers to recover that money if the store closes its doors the next day. If you receive gift cards, don’t toss them aside — use them immediately to make sure you can redeem them.

Understand the terms and conditions of gift cards

• Fine print. Gift cards have terms and conditions similar to credit cards.
• Exceptions. Some companies only allow you to use gift cards for in-store purchases but not for online purchases. Other exceptions can apply, too, so be sure you know how and where you can use the card.
• Expiration. Almost all gift cards have expiration dates, regardless of whether the retailer is in financial trouble.
• Fees. There are even gift cards that charge activation fees, transaction fees, inactivity or monthly maintenance fees that reduce the actual value of the card. Ask before you buy — you may not see this information printed on the card itself.

Everyone with a credit card or loan of some kind understands that making a late payment or missing a payment altogether will hurt their credit score. In general, when we talk about a credit score, we’re referring to the FICO score, the three-digit number calculated by a formula created by Fair Isaac. But some companies rely on their own formulas for score calculations that are then used to make decisions about consumers and their credit worthiness (or lack of it!).

For example, your mortgage interest rate, credit card maximum limit amount and the amount of money you pay for automobile insurance premiums may all be a result of proprietary scoring models created by statisticians for the companies you do business with. The trouble with such systems is that consumers don’t have any idea what factors are playing a role in their financial futures. How can you work at managing your credit if you don’t even know what companies use in their calculations?

There’s currently a Federal Trade Commission suit against CompuCredit’s Aspire Visa card. The credit card is intended for risky borrowers and falls under the classification of a subprime credit card. The card, like all credit cards, claims you can use the credit card anywhere. The problem is, CompuCredit conveniently left out the fact, that if you use your card in certain locations, your credit line could be cut. A reduced credit line often results in a lower FICO score, as it reduces the amount of credit you have available to you while simultaneously increasing the amount of available credit you’re utilizing.

What purchases are punished by CompuCredit? Any purchases made through tire retreading shops, bars, marriage counseling offices, billiard halls and massage parlors, to name a few.

Is it possible your lifestyle and credit score are working together to influence other lenders as well?

How many times have you found yourself inside a store, not knowing exactly why you went there, and before you knew it, you were headed home with a bag full of purchases (“But it was on sale!”) and a much lighter wallet? For many of us, those impulse buys lead to guilt and regret a short time later.

Now there’s a new way to relieve your guilt. A website, www.spendster.org, was created by the National Endowment for Financial Education (NEFE) for visitors to see others’ shopping faux pas and share their own on video.

For the generation that was brought up on YouTube and other social media sites that celebrate videotaped confessions of outrageous behavior, Spendster’s the perfect forum for shopping mea culpas. Nearly everyone has something stuffed in the back of a closet, the attic or the basement that they “just had to have,” for reasons now forgotten.

A sampling of current videos on the site features a woman fighting a 10-year Diet Coke addiction and a woman whose spouse collects $1,000 bicycles. (He’s got 8 in the garage). Another shopper bemoans her attraction to “tacky stuff” like a faux leopard hat with tassel ($10) and a pink stuffed animal from Wal-Mart ($15).

One man questions why he spends $150 a year on newspapers he doesn’t read. A woman wonders how much money she’d have now if she’d invested it instead of buying the Super Deluxe Steamer. Other stupid purchases included a fancy coffee-maker, an electric can opener, an electric putting system, DVDs (still sitting on the shelf unopened) and a set of golf clubs owned by someone who doesn’t play golf.

NEFE’s not trying to make you feel bad. Trust me, we’ve all been there. They’re just trying to help make you more aware of how much years of bad purchasing choices can cost you.

Thinking back on my own stupid choices, I must admit to a variety of clothing and shoes that haven’t really gotten much mileage. But I’m working on that. So you may just spot me raking leaves this weekend in my Tartan red plaid leotards, my “rain cape” and the pointy cowboy boots.

What about you? What’s your all-time worst, most money-wasting purchase?