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March 2014


Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).

For more information, read this introduction.

This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.

Laura and Leon earn more than $124,000 a year together. Currently, their goal is to tackle their student debt. Right now they don’t have children, but they are considering starting a family soon. They max out contributions to tax-advantaged retirement accounts and are actively trying to change their financial habits so that they are ready for a possible family and for retirement. (Read last month’s update.)

After reading Laura and Leon’s comments, you can read commentary from Roger Wohlner, CFP. Roger Wohlner appears courtesy of The Chicago Financial Planner.

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Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).

For more information, read this introduction.

This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.

Brian is a 30-year-old software engineer. He and his wife have two young children, and their finances are in transition as they get used to dropping down to one income from two. They have student loans and a mortgage, and usually pay their credit card balances off each month. Brian and his wife want to get their finances in order so that they can retire comfortably and help their children pay for college. (Read Brian’s update from last month.)

After reading Brian’s comments, you can see video commentary from Jeff Rose, CFP. Jeff Rose appears courtesy of Good Financial Cents and Life Insurance By Jeff.

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At the end of last year, I took advantage of a sale on some photography equipment. I perceived the deal to be good, and after contemplating the purchase for some time, I decided to go ahead. The sale price was manipulate through the offering of a manufacturer’s $300 mail-in rebate after a retailer’s discount of $300. This type of deal is similar to those on many other products when this particular manufacturer, Canon, wants to move their merchandise faster.

For anyone wondering about the specifics of the purchase, this was the new version of the Canon 24-70mm professional lens, offered at $1,999 instead of $2,299, with a $300 mail-in rebate. The total cost would be $1,699, or a discount of 26%. As far as I know, the deal hasn’t been offered since. Whether the new lens is worth $1,699 is another question, but it tends to be a favorite among professional photographers.

American Express Prepaid Rebate CardI waited a long time before completing my rebate paperwork. I almost missed the deadline and forfeited my $300. That’s one way they “get you.” The company accepted my rebate paperwork, and a few weeks later, in a nondescript envelope I almost didn’t open, I received the rebate in the form of an American Express prepaid reward card.

Assuming a third party company handles the rewards program for Canon, this seems like a great way to save money. They can buy prepaid reward cards in bulk for less than the face value. Compare that benefit with rebate checks. For every $300 written on a check, the company has to have $300 in the bank, just in case every recipient cashes their rebate checks (which doesn’t happen, anyway).

In order to avoid keeping track of a gift card balance — you can’t download gift card transactions into Quicken to know where you stand, and going online to check the balance periodically can get annoying — I wanted to wait to use the card for something worth at least $300. When the opportunity finally came about a week ago, the transaction, a vacation stay at a hotel, was not approved. In order to avoid trying to troubleshoot the problem, I handed the cashier a credit card. It turned out that I just didn’t tell the cashier to put only $300 on the prepaid card.

Since then, I’ve used the rebate card for smaller purchases and checked the balance today — $13.74 remains on the card. I’ll have to remember that number, so the next time I use the card, I can take the balance exactly down to zero.

Back in 2009, I noticed how more cash-back rebates were taking the form of prepaid debit cards, and it’s a trend I still don’t like.

1. It forces you to spend to see your savings. With a rebate check, you can put your cash back right back in the bank account from which you paid for your discounted item initially. All it takes is a deposit, and after some time, you’ve effectively received the product for the discounted price. Some prepaid debit cards can be “cashed” at local bank branches, like a rebate check. For example, Visa claim their prepaid rebate cards can be “cashed” at any “Visa member bank,” but Visa can’t tell customers which banks qualify as Visa member banks. I took a Visa rebate card to a Visa member bank, and the teller would not cash the prepaid card and had no idea what to do with it.

For the most part, in order to realize your savings through the rebate, you have to use the card to spend more. Money is fungible — whether you deposit a $300 rebate and spend $300 on groceries or you use a $300 rebate to buy groceries, the outcome is the same. The difference shows up when you use the rebate card to buy something you wouldn’t have purchased otherwise — like another item from Canon.

And with the big Canon logo on the card, you can be sure the company is aware that it is encouraging rebate customers to use their rebate — in a form that looks suspiciously like a Canon gift card — to purchase more of the company’s products.

2. Checks are free. Rebate cards often carry a fee. If you deposit or cash a check at a bank where you have an account, you get to use your money for free. Rebate cards often carry fees in states where this is allowed. Right on the back of the card, American Express offers this warning:

Subject to applicable law, a $2.00 monthly fee will be assessed against card balance starting 7 months after card issuance. Funds do not expire.

There is no reason for this fee to exist except to justify the discount offered to merchants who sign the contract with the card issuer to take advantage of prepaid rebate cards. Customers who don’t use their rebates make this type of rebate profitable. But so do customers who use the rebates. Every time you swipe a card, be it a charge card, credit card, or gift card, and it creates a transaction over the Visa, MasterCard, or American Express, card issuers and banks make money.

On the other hand, there are some customers form whom the prepaid debit card is actually cheaper. Many households living in the United States do not have bank accounts. Many live without a bank branch within walking distance, and others wouldn’t want a bank account even if it were convenient. In order to cash a rebate check, they might need to pay a fee to a check cashing store or Walmart. And there is a clear problem with rebate checks of low amounts, as many Consumerism Commentary visitors noted with the settlement checks for the Bank of America overdraft lawsuit. No one wants to pay a $3 fee to cash a check for $0.89.

The debit card, however, is free to use for spending within seven months.

3. You’ll likely leave a balance on the card, not realizing your full rebate. The best way to use a prepaid rebate card, if you’re going to use it for a purchase, is to use it for a partial payment on one transaction that is worth more than the card. The problem you can run into, especially with a high-value rebate like mine for $300, is that you may not get the chance to use the card for a purchase beyond the rebate’s value.

When that’s the case, you run into the problem described above. You have to watch your balance and track your purchases just so you know how much remains of your rebate after each transaction. If you don’t, or if you forget about having the rebate card, the money on it goes unused until fees deplete the balance.

If I neglected this particular $300 rebate card, the balance would be completely depleted 157 months after it was issued, according to the rules on the back of the card. That’s a little more than 13 years. But the card expires before then — in April 2022. Cards that operate on the network must have an expiration date, and this one is 98 months after the card was issued (assuming it was issued when I applied for the rebate, in February 2014).

Realistically, the chances of a card like this surviving until expiration in April 2022 are low, but it’s impossible to know what the process will be for replacing an expired prepaid rebate card with a remaining balance in 2022.

4. If your rebate card is stolen and used, you can’t recover your money. That’s not much different from cash, but it’s certainly different than debit and credit cards. With credit cards, you have liability protection against theft.

If your credit card is stolen or lost and used by someone else, if you’ve reported the card lost or stolen or disputed the transactions, you are not liable for paying for the transaction with your own money. With a debit card, you have some protections, but with the transaction linked to your bank account, you may have some short-term headaches while you resolve the issue. See these five reasons to avoid debit cards.

A rebate card is not a secure method of payment. The transaction itself is secure just like any other transaction over the electronic payment network, but because the rebate in this form isn’t your money, once it’s used by anyone, even a thief, it’s gone, unless you immediately report the card lost or stolen.

5. Cashiers don’t always know how to use them. Restaurant employees seem to know how to split checks with separate payment methods. That’s essentially what you need to do if you have a rebate card with a remaining balance and want to get that balance to zero, but don’t have a transaction for the exact amount of the remaining balance. You need to split your purchase into two payment methods, with the prepaid rebate card being one. For example, if you have $8.25 left on your card but your purchase is $10.00, the cashier would need to split your purchase into two payment options.

Not every cashier is well-versed in this process, and not every point-of-sale system makes this possible (but most do). As a result, it could be a hassle to deal with the remaining balance on a card, and that leads to the possibility of having more consumers who don’t take advantage of the full refunds. Unlike checks, which could get escheated to the state if never used, unused rebate card balances just remain with the card issuer.

Despite these drawbacks, receiving a rebate for a purchase is better than not receiving a rebate for the same purchase. It would be great if retailers offered a choice, but that’s not how the rebate system works most efficiently for the retailers. For many people, a rebate check is a better choice than a prepaid rebate card, but where the choice isn’t provided, being aware of the drawbacks of cash back rebate cards will help avoid the pitfalls and take advantage of the full rebate as advertised.

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Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).

For more information, read this introduction.

This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.

Betsey is a 27-year-old government analyst. She recently started a new job, and has been revamping her finances to fit with the new situation. She is single, and lives with two roommates in order to help share costs. Betsey plans to save up for a down payment on a home. Her long-term goal is to feed her passion for craft beer by opening a brewery. (Read her update from last month.)

After reading Betsey’s comments, you can see video commentary from Sara Stanich, CFP. Sara Stanich appears courtesy of Stanich Group and Cultivating Wealth.

Read the full article →

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Naked With Cash: Jake and Allie, February 2014

by Luke Landes
Jake and Allie - Naked With Cash - Feb 2014

Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs). For more information, read this introduction. This year, we have four ... Continue reading this article…

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Podcast 172: Jaime Tardy, The Eventual Millionaire

by Luke Landes
Jaime Tardy

Although I was tracking my net worth closely, I can’t pinpoint the exact moment my total net worth would have crossed into seven figures and someone might consider me a millionaire. It was something I wasn’t thinking about for a variety of reasons, but because I was an entrepreneur, I was the owner of a ... Continue reading this article…

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Overtime Pay for More Workers

by Luke Landes
Would you like fries with that?

Wages for the working class tie directly to the performance of the overall economy. When the largest group of consumers feels they have money to spend, they will do so. This spending may be to the detriment of their own quest for financial independence, but it also allows businesses to thrive. It’s always been the ... Continue reading this article…

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How Much is the Obamacare Penalty?

by Luke Landes
Take up thy stethoscope and walk

The Affordable Care Act requires most American citizens to have health insurance or health care starting in 2014. Many of those required to have health insurance will owe additional tax if they are not enrolled in a plan. It’s no surprise that many citizens are not happy about being told by the government that they ... Continue reading this article…

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Can You Sue Your Parents for College Tuition?

by Luke Landes
Crying baby

This story has all the makings of something viral. It fits right in with our fascination with people doing things that normal Americans wouldn’t even consider doing. We gawk at reality television shows and follow the stories about their stars, like the recent news about the couple from the “Real Housewives of New Jersey” show ... Continue reading this article…

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Grow Your Dough: My Investing Results as of February

by Luke Landes
Grow Your Dough February

As I mentioned at the beginning of the year, I’m participating in an investing competition — well more of just a game than a competition — with several other writers and bloggers this year. The premise of the game is to start the year with $1,000 invested in discount brokerages of our choice, and track ... Continue reading this article…

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