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April 2013


A friend of mine once lamented publicly: “When did the standard restaurant tip change from 15 percent to 20?” Sure, I remember paying typically 15 percent for a tip when I first started dining out with my friends. That was when I gained my first sense of independence from my parents twenty years ago, as a teenager in high school. At some point within these intervening years, I recognized that social convention called for a 20 percent tip. I didn’t complain; if you can’t afford to participate in the social expectations for dining out like tipping exceptionally, you can’t afford to dine out.

Perhaps some time in the past, a long, long time ago, the purpose of tipping was “to insure prompt service,” but that’s not the case today in the United States. (Actually, the word “tip” or “tips” was not coined as an acronym; someone retrofitted the oft-cited phrase to the word after the word had been in use, and it caught on like a pre-internet meme.) I’m not complaining, just pointing out how providing a small bonus on top of a published price is customary and expected for a number of services.

According to an informal survey conducted by Tom Frank, one of the founders of P.F. Chang’s China Bistro, 40 percent of restaurant-goers see tipping as an obligation and tip the same amount, 15 to 20 percent, regardless of their servers’ performance.

In other words, the waiters who don’t attend to your water glass and who don’t return your under-cooked meat generally earn the same tips that others do meet their patrons’ expectations.

In an article on Kiplinger, Frank suggests customers should reserve their best tips for when they receive the best service. The assumption here seems to be that by using tips as reward, ineffective waiters will determine what they need to do in order to warrant the best tips. Can you train your waiters with a monetary reward, like you might train a puppy with a treat?

I don’t think so. There are several problems with this theory.

What makes a tip a reward? In order to train someone using rewards, the reward must be recognized as such. If you leave a 20 percent tip to thank your waiter for performance, but many other customers also leave tips around the same amount, why would the waiter perceive this as a reward? He doesn’t know you normally tip 15 percent unless you’re a regular customer.

What exactly is the reward for? For a reward-based behavior modification system to be effective, the reward must come immediately after the behavior you wish to imprint. The last thing a waiter does before you tip is generally delivering the check. And many waiters seem to know that this is their chance to modify your behavior. Studies show that customers tip more when presented with a check with a hand-written “Thank you!” or a hand-drawn smiley face (the latter only if the waitress is female).

Because the tip is separated in time from the specific behavior, you can’t use a good tip to reinforce that positive behavior. The waiter doesn’t know what it was that inspired you to leave what you thought was a generous contribution.

Who really gets the tip? Although in the customer’s mind, a tip is reinforcement for the waiter’s behavior, in many restaurants the waiters pool their tips and must share their earnings with busing staff. The waiter may appreciate your extra five percentage points, but if that bonus gets spread among a group of people, he doesn’t benefit much from the reward. At the other end of the spectrum, under-tipping could punish more than just your own server.

The communal nature of tips in establishments managed with this method decreases the incentive for performing well unless the entire staff agrees to perform well.

Here is my tipping and restaurant behavior philosophy. I rarely receive what I perceive to be poor service, but I’m not saying I’m always a perfect customer.

  • I enter with a positive attitude. Being happy, inviting, friendly, and courteous are infectious. It starts a relationship, even one that will last no longer than two hours, on the right foot.
  • I know someone who used to treat waiters and waitresses as if they were house servants, using a tone of voice that subtly communicated that she was of a higher social standing than the lowly restaurant workers. It was a behavioral trait she inherited from her parents, but when she changed her behavior, she found that she received better service and her friends were no longer embarrassed to dine out with her. I always treat waiters with the respect I’d want in their position.
  • I admit I get frustrated sometimes, but I deal with it without taking my frustrations out on anyone else. For example, I generally choose to drink water rather than soda, and a lot of it. If my glass is empty for an extended period of time, I’m looking around. Usually, I see the server is busy with other tables so I leave him alone. I take a deep breath and relax.
  • If I want to leave feedback, I speak to the waiter. I don’t assume that he or she will know what I’m thinking based on the size of my tip. Now, I don’t like when people tell me how to do my job, so I assume that the same goes for anyone else. So any feedback I give is positive.
  • There’s only one way to make a statement with a tip, and that’s to leave one large enough to be recognized as a real bonus. Think 30 to 50 percent.
  • I didn’t realize this was “wrong” until I started seeing restaurant checks with suggested tips listed below the amount of the bill, but I always calculate my tip on the total price, not the pre-tax subtotal. And if I’ve received an item gratis from the waiter, I add the price of the item back in before calculating the tip.

I don’t believe my tips, or anyone’s for that matter, have a direct impact on the behavior of waiters and waitresses. Perhaps some waiters will give some thought to what they’re doing if they consistently receive lower tips than everyone else they work with, but if tips are pooled, the only incentive to perform better would come from peer pressure. Tipping within social norms is customary, therefore necessary for anyone wishing to dine out. Under-tipping at restaurants hurts customers more than anything else, so I agree with Tom Frank’s statement regarding that. If you’re looking for good service, be a good customer.

How do you tip at restaurants? Do you try to influence your waiters or waitresses with your tip?

Photo: Flickr

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Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. This month, the participants and experts are discussing, among other things, tax planning. Read this introduction to learn more about the series.

Kathleen is thirty-one years old, single, and living in Portland, Oregon. She loves her job, even if it isn’t very lucrative. With her $33,000 income last year, she’s looking to make more money from “side hustles” this year, such as her blog, Frugal Portland. To learn more about Kathleen, read her bio here. Kathleen is on Team Sara, with Certified Financial Planner Sara Stanich.

For Kathleen’s progress over the past year, see her 2012 wrap-up. Kathleen has already made great progress this year, as you can see from last month’s February update.

This month’s report, below, includes Kathleen’s progress over the three months leading up to the end of March 2013. Following Kathleen’s own self-analysis, normally Sara Stanich would offer thoughts from her perspective, but this month, Neal Frankle, CFP is standing in. Following Neal’s comments, budgeting expert Jacob Wade from iHeartBudgets will also provide his own insight.

Neal Frankle, CFP appears courtesy of Wealth Pilgrim and Wealth Resources Group.

Read the full article →

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Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series. This month, the participants and experts will be discussing tax planning as part of their analyses.

SteveDH is retired, and he and his wife have two grown kids. By the time he retired in 2008, he had reached his retirement asset goal of $500,000. His goal now is to ensure his savings last as long as he does. Read his bio to learn more about SteveDH. SteveDH is on Team Roger, with Certified Financial Planner Roger Wohlner.

This is Insurance Month at Naked With Cash, so each participant has been encouraged to share details about their coverage, and the experts will provide their perspectives on the topic.

Keep reading to see his net worth report, updated for March 2013. For SteveDH’s progress over the past year, read his 2012 summary. Following the analysis from SteveDH, Roger Wohlner will offer his own thoughts and guidance from his planning perspective. Jacob Wade, a budgeting expert who publishes from iHeartBudgets, will also provide commentary.

Roger Wohlner, CFP appears courtesy of The Chicago Financial Planner.

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A few times a month, Lance from Money Life and More will stop by to share some of the best articles from across a variety of publications, including other blogs and mainstream media.

Life has been extremely busy for us over the last few weeks! I recently bought a house and had to write a huge check for it at closing. Well, at least it was huge for me. It is weird not seeing that big chunk of cash in my bank account but we still have our emergency fund intact.

We’re hoping that the new house won’t lead us down the path of the Diderot effect. Paula at Afford Anything explains that the Diderot effect very well, and luckily we haven’t fallen victim to it in a major way yet. I have a feeling we’ll be more susceptible down the road though so we’ll have to keep our guard up.

Len Penzo says you can call me almost anything but please don’t call me cheap. Have you ever done something and had someone call you cheap? Len explains the difference in his mind between cheap and frugal. Do you agree with his assessment?

Frugal Rules shared an awesome example of customer service. LL Bean is an awesome company with an awesome policy. Unfortunately you normally only hear about bad customer service stories on the internet so this was a nice change of pace. You can read more about what LL Bean did for her when she contacted them about her many year old worn out slippers. It is an awesome story.

Michael from Financial Ramblings offers a few tips for haggling, even for those who hate haggling. It’s a great way to save money here and there, and sometimes all you have to do is ask. Michael shares seven “magical” words that help get the haggling started.

Finally, J. Money at Budgets Are Sexy reminds us about the paradox of our time. I think everyone can relate to this poem. Take the time to read it. It’s short and helps us remind us what is important in life.

I hope you’ve enjoyed these posts from around the internet. Take some time this weekend and do something you’ve wanted to get done. There is no time like the present! Until next time…

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Anonymous S March 2013 Net Worth

by Luke Landes
Anonymous S Net Worth - Naked With Cash - March 2013

Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series. This month, the participants and experts will be discussing tax planning ... Continue reading this article…

3 comments Read the full article →

JW March 2013 Net Worth

by Luke Landes
JW March 2013 Net Worth - Naked With Cash

Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. The participants and experts are discussing tax issues among their commentaries this month. Read this introduction to learn more about ... Continue reading this article…

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Get Ready For Water As a Market Commodity

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Every food produced has a market price. As I’m writing this, the price for corn is about $277 a metric ton, but sophisticated traders are looking at what they expect the future price to be, which right now is about $251 a metric ton in May. Speculators trade on the minute-by-minute or second-by-second expectations for ... Continue reading this article…

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Calvin March 2013 Net Worth

by Luke Landes
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Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis, and April is “tax month.” I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series. Calvin is in his early 40s, ... Continue reading this article…

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Four Excuses Prevent You From Investing

by William Cowie

This is a guest article by William Cowie, who writes at Bite the Bullet Investing. While I considered myself a late bloomer in the world investing, not doing much with my money besides spending it until I was about twenty-eight, William started much later in his life. In this article, William describes how certain attitudes ... Continue reading this article…

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by Luke Landes
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This month is Insurance Month in the series Naked With Cash. Each month, seven Consumerism Commentary readers anonymously share their financial reports to gain insight about their progress towards their goals. Read this introduction to learn more about the series. LastDollar is thirty-three years old, an entrepreneur and single mom with two children with learning ... Continue reading this article…

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Anne and Matt March 2013 Net Worth

by Luke Landes
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This month is Insurance Month in the series Naked With Cash. Each month, seven Consumerism Commentary readers anonymously share their financial reports to gain insight about their progress towards their goals. Read this introduction to learn more about the series. Anne and Matt are twenty-seven years old, living in the Midwest, with two children. Read ... Continue reading this article…

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What To Do If You’ve Donated to a Fraudulent Charity

by Luke Landes
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It happened after September 11, Katrina, Sandy, the Boston Marathon, and other disasters, man-made and natural, around the world. After serious tragedies, when a compassionate public is at its most vulnerable, unscrupulous individuals find taking advantage the world’s generosity comes easy. Within hours — even minutes — of the news, new operations spring up, offering ... Continue reading this article…

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5 Responsible Uses for Your Tax Refund

by Luke Landes
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For most citizens of the United States, tax season is over. There’s no longer a need to run around gathering documents. You’ll stop seeing television commercials for TurboTax and H&R Block in which each insinuates the other is a deficient company. You can stop thinking about government’s wasteful spending and income redistribution — which always ... Continue reading this article…

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Keep Your Old Credit Cards Open

by Luke Landes
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There may come a time when you have no need to keep your credit score as high as possible. Perhaps you have no need for debt now and in the future. It’s not common, but there are a few methods of arriving at that point. You’ve fashioned a life for yourself off the grid. You ... Continue reading this article…

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Pay Off a Mortgage Early, Affording a Smartphone, and JCPenney’s Gimmick

by Lance

A few times a month, Lance from Money Life and More will stop by to share some of the best articles from across a variety of publications, including other blogs and mainstream media. I am excited to be starting a new series here on Consumerism Commentary! The goal of my new series is to share ... Continue reading this article…

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Are Financial Planners Hurting Investors Approaching Retirement?

by Luke Landes

If you’ve watched the financial industry over the course of the last decade, you’ve probably noticed some important contradictions. It’s a good indication that taking generalized investment advice and applying it to your own situation is not a smart idea. Anyone who retired at the height of the recession is going to understand exactly what ... Continue reading this article…

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Prepaid Debit Cards Are Riskier Than Checking Accounts

by Luke Landes

Thanks to heavy marketing campaigns, including endorsements and partnerships with everyone from Russell Simmons to Kim Kardashian to Suze Orman (it’s hip! it’s popular! it’s financially smart!), use of prepaid debit cards has surged. Prepaid debit cards were once a fringe financial product. They were intended to be used by people who have a communal ... Continue reading this article…

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Psychological Barriers: Admitting There’s a Problem

by Luke Landes
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It’s difficult to get into this topic without sounding too much like a motivational speaker. I am strongly averse to most motivational training. Here’s my problem: Motivational training, in the corporate world, encourages teamwork — good — but often at the expense of personal identity and independent thinking — bad. The nuances are subtle, though; ... Continue reading this article…

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Who Needs a Budget?

by Luke Landes
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There are a number of excuses for ignoring the concept of budgeting for one’s own personal finances. Budgeting has a poor reputation. It’s not fun, it’s time-consuming, it’s depressing. While budgeting can be one of the most important steps for beginning a journey towards financial independence, there’s a tendency to ignore this in favor of ... Continue reading this article…

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