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October 2013


In terms of credit card offers, Chase Freedom is one of the most popular. This is the card that was selected by expert personal financial bloggers to win the Fourth Annual Plutus Award for Best Credit Card Offer, most likely due to its cash back program, a sign-up bonus, and the strength of the Chase brand in terms of consumer credit cards.

All those late fees and interest charges go to pay more than just the rewards for customers who use their credit card wisely by paying off the balance in full each month. They also help support Chase’s internal consumer research. Every quarter, Chase collects aggregate data related to the spending habits of the Chase Freedom cardholders.

Chase BankChase, like every credit card issuer, knows exactly where and when you spend your money. Your purchase patterns form a unique fingerprint, and whether you know it or not, your credit card issuer probably knows more about you than you know yourself. But when Chase pulls together patterns from across all credit card users, the personal information, like your name or your address, is left out. All that remains is this fingerprint, and as long as it remains combined with other fingerprints, the data analysts have no way of knowing who is attached to the data.

The purpose of this data collection is to determine trends in consumer spending. This can be valuable information for retailers who want to forecast their business performance over the coming months and years. From a consumer perspective, it can be interesting to note changes in the public’s spending behavior. An increasingly number of companies have access to this type of information. When we track our finances on software like Mint.com, or follow financial experts’ advice to use credit cards for spending rather than carrying cash, we willingly share something very personal — our spending habits — with companies that can profit from that information.

By using your credit card, you’re granting permission to various entities to use your data for their own benefit, and whether you’re fine with this concept or not, it’s good to be aware of it. All this data, coming from millions of consumers in the United States and billions of transactions each year, contributes to this new concept of “Big Data.” Big Data is the new monster, kind of like “Big Government,” that threatens to infringe on the private lives of American citizens.

Data sets are meaningless until they are interpreted, and the Chase Freedom Lifestyle Index is one approach to analyzing the consumer data collected from Chase Freedom cardholders. To engage people in sharing information, data can be boring. Stories are more interesting. Stories that come from data and its analysis resonate with people. When we say that the data indicate that there is a “continued strength of Do-It-Yourselfers who might be buying a home or remodeling their current residence,” as the latest announcement from the Chase Freedom Lifestyle Index does, homeowners can relate to it.

It doesn’t particularly matter that the analysis may be only one way of interpreting the data, and that it may be influenced by either a bias of preconception or simply a story that Chase wanted to tell and now has some numbers to back it up. The announcement goes into some detail. Spending at home improvement stores is up only four percent over the past year, but spending at craft stores increased 91 percent over the same time period. There may be more data behind the conclusion Chase is making, but with just the information presented, I’m not sure I would agree with this particular conclusion.

Why would spending at craft stores increase 91 percent? I’ve shopped in these stores, assuming craft stores include retailers like Michaels Arts & Crafts and AC Moore. Their clientele does not seem to include people looking to buy a home or remodel their residence. Craft stores cater to people working on smaller projects, the Pinterest crowd, perhaps. Artists, gardeners, elementary school teachers, yes. That’s one type of “do-it-yourself.” Tearing down drywall, installing your own kitchen cabinets, and building your own deck are all other do-it-yourself activities, but are activities that aren’t served by craft stores, and for the most part, represent a different selection of consumers.

The nearly doubled increase in craft store spending could simply be attributed to the growing popularity of smaller projects, inspired by the Pinterest culture, but also be related to an increase in prices at these stores as retailers react to the increasing demand.

Chase’s announcement contains a comment which struck me as weird: “Perhaps a sign of calm before the holiday shopping storm, consumer electronics spending continued to decline, dropping 7 percent compared to Q3 2012 and 11 percent compared to Q3 2011.” Of course, if you offer a statement with a qualifier like “perhaps,” you remove all responsibility for having to make an accurate analysis.

Here we have evidence of a lowered level of spending in the electronics category, but rather than extrapolate this pattern of decreasing spending into the holiday season, the analysis makes the assumption that either the decreasing spending is an anomaly, or that we can expect an anomaly once people start spending for the holidays. Chase already has an expectation for holiday spending, and regardless of how the electronics category has been shown to perform in the third quarter, the analysts weren’t about to let those data get in the way.

Also in the press release, Chase offers this statement: “The data suggests [sic] that consumers are recommitting to resolutions and self-improvement goals set forth earlier in the year, evidenced by year-over-year spending increases on books (+6 percent), sporting goods (+5 percent), and lessons and classes (+3 percent).” Have you recommitted to your resolutions and goals in July, August, and September? What were the goals you set for yourself earlier this year? Is this a fact or just a story, an interpretation of why spending in these categories may have increased?

J.P. Morgan Chase is not a non-profit organization working on behalf of the consumer. They have no obligation to release their data and allow others to analyze it. The company has a story to tell and will use data to tell that story at the same time they use the data to determine what strategic changes they can make to their business to better generate profit for shareholders. The two stories, one public and one internal, that come out of the same data sets, may not be identical. I’m not saying this company or any other is using data to mislead the public, just that data can be used to support almost any story you’d like to tell.

Photo: Flickr

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Looking back over my career, which for me started in non-profit out of college in 1998 and 1999, included teaching middle school and high school, transitioned into the finance industry, and eventually culminated in working for myself full-time, I’ve had an opportunity to consider my approach to “sick days.”

In the early days, I took as many sick days as possible. The organizations or companies I worked for had policies that guaranteed no fewer than a certain number of sick days. I didn’t normally take sick days to conceal the lack of a desire to go to the office; for the most part, I was sick as frequently as I took advantage of these days, usually several each month. And for me, being sick involved something like the flu or flu-like symptoms.

Perhaps I was exposed to unhealthy people more often because I lived in an apartment with several roommates, shared an office with other people who would go to work while they were contagious, or spent weekends with hundreds of high school students. Perhaps it was a combination of all the above. On most these days I formulated the courage to call a judgmental boss to let him know I wouldn’t be making it in, I was actually sick.

I never once had an employer ask for a doctor’s note, but I’m sure a few times in my first job with the non-profit I received a call from the office to check up on me. I was not calling out sick to go to a concert, I was not partying. If I called out sick, I was either sick or recovering. Every once in a while I would use a sick day for a personal recovery day; but when you work long hours seven days a week because the organization is under-staffed and over-reaching, I think that’s acceptable. Occasionally.

But as I got older, my approach to sick days — and possibly my general health — changed. When my schedule was no longer super-packed, I didn’t get sick as often. I moved out of the communal apartment and found a place with just one roommate — and a few years later, lived on my own. I was no longer exposed to hundreds of children each week. My need to take advantage of the maximum number of sick days allowed by company policy decreased, even though I managed to fill the rest of my at-home schedule with working for myself.

Also, the company I worked for began offering an opportunity for employees to work from home. Although this wasn’t the intent of the flexible arrangement was, I could occasionally work from home if I felt under the weather, and the more relaxed environment might have saved me from developing a more serious affliction each time.

Officially, the financial company I worked for did not want employees to come to the office if they were sick because of the fear of an ailment spreading through the office. Of course, this not a genuine concern of a corporate entity; the company policy was such to avoid the possibility of reduced efficiency among the employees. While staying at home in the event of sickness was the official approach, at the team level it was a different story. Employees were expected to come to the office as much as possible despite the threat of transmitting sickness to others.

Quitting the corporate day job and working for myself full time probably had the biggest effect on my health. By writing this, I hope I’m not tempting fate, but I haven’t really been sick since quitting my job. Perhaps I’ve felt sick enough once or twice a year to prevent me from getting everything done in a particular day, but that certainly isn’t the same frequency of immobilization as I was experiencing towards the beginning of my working life.

It’s also true that my environment is more isolated today than it’s been any other time in my career. I have no office to go to. I do not work with high school or middle school children. I see people only when I choose, and so perhaps I’m not exposed to many of the same infections I would be had I remained in other jobs. I don’t have a stressful schedule. I don’t have stressful deadlines unless I create them for myself. I have control over the way I live and work, which was less true earlier in my life.

And, in some ways, if I have to take a sick day, it affects my own bottom line. That was not the case in the past, though if my superiors and co-workers thought I was taking advantage of company policy — and I’m sure they did — it would affect my reputation at the office.

If you work in an office, when do you call out sick? Have you used employer-provided sick days to take care of chores or to take care of your children, or do you just call out when you’re actually unable to make it to the office? Do you try to go in when you’re sick to continue work?

If you don’t work in an office, do you find that you’re not getting sick as often? Are there other factors that contribute to your health, like being around children or other adults frequently? Are you motivated to be sick less often if you’re working for yourself?

Photo: Flickr/kodomut

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In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.

LastDollar is on Team Neal, with Certified Financial Planner Neal Frankle. Get up-to-date on LastDollars’s progress by reviewing her update from last month.

LastDollar’s own analysis and comments, including her thoughts on this month’s theme of estate planning, are followed by feedback from Neal Frankle.

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

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A bill is currently being considered by the House Financial Services committee in the U.S. House of Representatives that would make it easier for credit reporting agencies to include both positive and negative bill-paying behavior in credit scores.

The Fair Isaac Corporation, which changed its company branding in 2009 to be just FICO though the official corporate name remains the same, calculates FICO scores for every individual who has history with credit from a financial institution. These FICO scores are still the most-used metrics these same financial institution uses for gauging the creditworthiness or risk of anyone attempting to form a new credit relationship, as well as for reevaluating existing credit relationships.

The components of the FICO credit score haven’t changed much over the years except for occasional tweaks and adjustments, but the calculation factors in payment history, amounts owed, length of credit history, new credit, and types of credit. But for the most part, only financial institutions are included.

Companies outside of the financial industry also offer credit, or they have relationships with consumers whose behavior may be relevant to credit risk. The ability to pay rent on time or to keep utility accounts current could be indicative of behavior with financial credit accounts. A good history with rent payments should be a good indicator of how one might behave with a loan, so in theory, rent history could help establish credit — although obtaining an apartment might require a credit history in the first place.

Today, rent payments and utility payments can be reported to the credit bureaus, but only negative information only reaches the bureau. Although this information isn’t included in the FICO score calculation, it’s included in other scores the bureaus make available to corporate partners and customers, and almost always not to the public.

The bill that’s currently in the House of Representatives makes it clear that companies like telephone service providers and landlords can submit positive information to the reporting bureaus, and that information should be used to help consumers establish credit.

Although utilities and landlords can report negative information to the bureaus today, the process isn’t very tight. The reporting might be delayed, or companies might give consumers a chance to fix the situation, a bigger chance than financial companies offer. Some utilities won’t report a payment history to reporting bureaus until an account is in collections, which could be months after the customer stopped making payments.

With a formalized system in place for reporting information from landlords and utilities, this process would most likely become more like the process favored by the financial industry, wherein any infractions like late payments, credit inquiries, and closed accounts are reported in a timely manner and affect credit scores immediately. People who fall behind on utility payments for a month or two but catch up soon after have generally been immune to any credit reporting problems but will, if this bill becomes a law, probably have to deal with lowered credit scores.

Given that consumers facing financial difficulties are likely to default on their utilities, a streamlined approach to reporting and the opportunity to include this information in official FICO scores could damage credit scores overall.

This is a big drawback when weighed against the possible benefit of this new law. Will good payment behavior with rent and utilities allow someone without a credit history to establish financial credibility? Will a history of on-time payments for phone bills allow someone to quality for a lower-rate mortgage? It seems that good behavior won’t increase a credit score, just that bad behavior could damage it, if FICO begins including this history in its calculations. Someone without a credit history might not be able to sign a lease or a mobile phone contract anyway, so there’s only a small possibility of someone without a credit history using rent and utility bills to establish one.

There’s a theory that more data allows better analysis. Credit scores could be more accurate if more relevant factors are included. Bill and rent payments may be relevant to financial credit accounts, and with all of the data — not just some of it, as the bureaus are receiving now — the companies should be able to determine the extent to which late rent payments or late utility payments correspond to problems with financial accounts, and tweak their calculations to better reflect credit risk.

But is all of this worthwhile? Will this potential law only make it more difficult for people to establish a credit history? Will it give another reason for financial institutions to justify higher interest rates on loans?

Should credit scores take rent and utility payments into account?

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Anonymous S’s Net Worth, September 2013

by Luke Landes
Anonymous S Net Worth - Naked With Cash

In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. I’ve partnered with financial planners who will offer some guidance along the way. ... Continue reading this article…

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A Video About Quantum Leaps in Finance

by Luke Landes

This past weekend (including a few adjacent days) I attended the third Financial Blogger Conference in St. Louis, Missouri. I wrote about the experience in detail on my personal website, so check that out for a full report on the conference. Some of the highlights relevant to Consumerism Commentary include winning the Lifetime Achievement Plutus ... Continue reading this article…

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Kathleen’s Net Worth, September 2013

by Luke Landes
Kathleen's Net Worth, Naked With Cash

In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. I’ve partnered with financial planners who will offer some guidance along the way. ... Continue reading this article…

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Calvin’s Net Worth, September 2013

by Luke Landes
Calvin's Net Worth, September 2013, Naked With Cash

In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. I’ve partnered with financial planners who will offer some guidance along the way. ... Continue reading this article…

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Should a Consumer Return a Duplicate Shipment?

by Luke Landes
Unexpected shipment

Day one, there didn’t appear to be a problem. Some time earlier, my girlfriend ordered some clothing online. Either she had received a discount to apply to the order or she would receive a future discount in return for placing the order. I’m not clear on the details of the discount, but it’s mostly irrelevant ... Continue reading this article…

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SteveDH Net Worth, September 2013

by Luke Landes
SteveDH Naked With Cash net worth report, September 2013

In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. I’ve partnered with financial planners who will offer some guidance along the way. ... Continue reading this article…

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Received a Postcard From Bank of America But No Check?

by Luke Landes
Bank of America Class Action Lawsuits

If you’ve received a postcard from Bank of America informing you that you should expect to receive a check as part of the overdraft lawsuit, but you haven’t received a check, you may be wondering what you can do. Consumerism Commentary receives many questions about these checks because I’ve written about them and the lawsuit ... Continue reading this article…

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JW, September 2013 Net Worth

by Luke Landes
JW Net Worth, Naked With Cash, September 2013

In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. I’ve partnered with financial planners who will offer some guidance along the way. ... Continue reading this article…

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Anne and Matt Net Worth, September 2013

by Luke Landes
Anne and Matt Net Worth, September 2013

In the series Naked With Cash, seven Consumerism Commentary readers share their financial progress on a monthly basis. They are joined by Certified Financial Planners who provide feedback on their journey. 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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Failure and Systems Lead to Success, Goals and Passion Lead to Failure

by Luke Landes
Dilbert

Scott Adams, the creator of the “Dilbert” comic strip, recently shared his thoughts about success through an essay in the Wall Street Journal. His premise is that business leaders who share advice for the masses who want to succeed lie about their own experiences. Failure, which Scott Adams feels does not get enough credit, is ... Continue reading this article…

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Adult ADD/ADHD Limits Financial Success

by Luke Landes
Bored Girl

As a kid, I might have had attention deficit disorder (ADD). I was never diagnosed as far as I know, but I had many of the symptoms of the “inattentive” type of ADD, and some of those symptoms continued into adulthood. An actual diagnosis of ADD as an adult would require exhibiting at least six ... Continue reading this article…

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Happiness Is a Choice, Not an Ultimate Goal

by Luke Landes
Smile - Happy

Consumerism Commentary and the articles I write here have changed since I started writing about personal finance in 2003. I’ve personally gone through four financial phases over the thirteen years or so, and because I draw much of my writing from personal experiences, any readers who have been around over the past decade might have ... Continue reading this article…

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The Occupy Debit Card

by Luke Landes
Occupy Banks

Can an organization offer mainstream financial products while being ideologically opposed to the mainstream financial industry? That’s the question I began considering when I first heard that the Occupy Wall Street movement was in the process of developing a prepaid debit card product. The Occupy Debit Card is still just a concept, but if the ... Continue reading this article…

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An Unauthorized Charge From TransUnion: Was My Identity Stolen?

by Luke Landes
Burglar alarm

Earlier this year, the university where I studied as an undergraduate, the University of Delaware, announced that the school had been the victim of a security breach. The announcement indicated that personal information of anyone who had been on the university’s payroll might be compromised, and those who were compromised would receive a letter from ... Continue reading this article…

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Real Financial Progress Requires Quantum Jumps

by Luke Landes
Quantum leap

I don’t completely agree with the “get rich slowly” theory. I accept the fundamental advice, like paying yourself first, making conscious decisions about big financial decisions as well as the full series of small financial decisions, and setting long-term goals, but there is a fundamental flaw with taking this theory as the sole approach to ... Continue reading this article…

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2014 Federal Income Tax Brackets and Marginal Rates

by Luke Landes
Taxes

Anyone who likes getting a look at their future tax expenses might be interested in seeing what next year’s tax brackets and tax rates will be. The IRS has now announced the official rates and brackets for 2014, although the numbers have been predicted for months because the IRS uses a simple process of inflation ... Continue reading this article…

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