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We live in an era of cheap, disposable goods. My closet full of clothing, much of it rarely worn, even though I sort through my wardrobe about once a year to eliminate items I no longer need, is a good indicator of this situation. For a good period when I was a kid, I wore hand-me-down clothes — as the eldest child, I received clothing from a family friend — and when an item became damaged, my mother fixed it with her sewing machine.

Prices for clothes have certainly increased over the last few decades, but clothing is not expected to last. When a piece of clothing becomes damaged, it’s easier and cheap enough to replace.

Broken ToasterBroken kitchen appliances, lamps, and other household devices past their warranty periods can’t be fixed with a sewing machine. Many would need specialized care by a professional, and with today’s disposable consumer culture, many people just opt for replacement rather than finding a repair shop and paying nearly as much money as they would to buy a new item.

Additionally, retailers and manufacturers have embraced the concept of planned obsolescence. To keep manufacturing costs low and to maximize profits, there is little concern for making products that last as long as their owners. This is a primary feature of high technology — a house phone sold fifty years ago may still function properly today, but a cell phone purchased five years ago not only doesn’t keep up with the latest technology, but it likely doesn’t work at all. Furniture built in the eighteenth century was made to last in a family for generations; IKEA furniture might last a few years under regular stress of use.

In Amsterdam, there is a small movement in opposition to this disposable consumer culture. The community has come together to repair its members’ broken items. Volunteers bring their tools and sewing machines to an open building several times a month and offer to fix any broken item brought to the gathering. This Repair Café helps reduce waste by encouraging reuse of broken items, and makes fixing an affordable alternative to replacement.

The government in the Netherlands, private groups, and individual donors have helped the Repair Café Foundation raise $525,000 over the past few years, and these funds have helped the organization create these gatherings at various locations across the country. These Repair Cafés provide a chance for consumers to make better use of their goods and for volunteers, particularly those with repair skills that might no longer be in demand, use those skills for a good cause.

Would Repair Cafés; be welcome in the United States? It’s not exactly a profitable business venture, and as such, is unlikely to draw much attention. The model, however, could easily be recreated, perhaps in low socioeconomic neighborhoods, to provide a money-saving alternative for spending money to replace slightly damaged items. Strong marketing encouraging consumers to exist in a cycle of buying and replacing comes at a price to retailers and manufacturers. If these expenses were redirected towards making better, durable products without planned obsolescence, consumers might lose the desire to constantly have new items, and would be able to hold onto the same products for a longer period of time. There would be less waste. Companies and their shareholders would find they have more loyal, life-long customers. Customers would shop with a focus on the differentiation in quality rather than with their tunnel-vision focused solely on price. Companies that build their products to last would succeed while those focused on the short-term would fail.

Could Repair Cafés be an answer to the consumer culture of disposable products? Would the availability of free repairs in the United States change the way consumers buy goods, and thus force companies to build products that are made to last rather than go obsolete? Is the trend towards disposability reversible at all?

Photo: phozographer
New York Times

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Yes, it’s frustrating to need to reach for my wallet and type in my credit card number every time I want to complete a purchase online. According to a recent MasterCard and Harris Interactive survey, 58 percent of consumers agree with me. Consumers even abandon their online shopping carts when the check-out process requires too much effort.

That might be good news for consumers. If a small barrier is all it takes to prevent someone from making a purchase, perhaps that purchase was not a necessity. Leaving more money in the bank rather than spending that money on some product that does not drive enough desire to get through a relatively painless process can only be beneficial to the shopper’s financial condition. Retailers, on the other hand, will obviously see consumers’ lack of purchase consummation as a problem, directly affecting sales and revenue.

The solution is to store the details pertaining to your payment method so it can be automatically retrieved at the point of sale. Amazon.com is certainly a pioneer with this approach. This company’s one-click purchasing process using stored credit card or debit card information makes buying a smooth process, although it created an uprising about patents when this feature was introduced many years ago.

PayPal has a good solution as well. Stores that allow payments through PayPal enable users to associate a credit card and avoid the need to type in a credit or debit card number each time.

Consumers can also use browser add-ons or downloadable programs, like LastPass, to store credit card information retrievable with a click or two.

Purchasing items online is much safer and more secure than being out in the world, carrying a wallet with all your credit cards and cash, and handing your credit cards to a waiter or gas station attendant who disappears for several minutes. Online security, as long as you confirm you are visiting a secure website, is trustworthy. No one is going to intercept my secure internet connection when I’m buying something online, and for the most part, I trust companies not to expose a database of credit card numbers to the public. That exposure is just as likely to happen when shopping in brick-and-mortar stores as when shopping online. The situation is unlikely, and shopping online does not add to that risk.

There is no universal solution, a one-click purchasing experience like that on Amazon.com, available to all retail websites. But there is also no equivalent to the one-click purchasing experience when you shop in store locations, either. Swiping a payment card or transmitting a secure wireless signal from your mobile phone gets close to the experience, but you still need to take out your wallet or your phone.

While retailers want to make it easier for consumers to pay money, consumers should be careful about making this process to automatic. Trading money for an object of some type should involve at least some opportunity to stop and consider the purchase. Technology makes it incredibly easy for consumers to part with their cash or increase their debt burden, and retailers want to make it easier. Consumers should be working against that trend and moving in the opposite direction.

If not, retailers will soon be able to simply reach into consumers’ pockets and take that money. Some companies offer free trial periods for their products and services without making it blatantly obvious that customers will be charged at the end of the trial period. Some create significant barriers to canceling the service in advance of the ending of the trial period. Consumer groups often criticize these policies, and some might be considered scams. If consumers make it increasingly easy to give up money without thought, then we’re just as much to blame.

Photo: Håkan Dahlström
BusinessWire

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A few weeks ago, a Consumerism Commentary reader asked me on Facebook whether it would be a good idea to purchase shares of Facebook at $48 a piece. I do not give stock buying advice, but I mentioned that shares had recently been sold for $44.10 on the secondary market, so if someone were to accept an offer to buy shares at $48, they’d have to believe that the value had increased since the auction.

Interest in buying shares of Facebook has increased as rumors about the company’s going public continued, and when Facebook finally filed for its initial public offering (IPO) in February, shareholders (mostly company employees and investors willing to buy in the secondary market) celebrated. The company now plans to become a public company on May 18, though that date is somewhat flexible. Also flexible is the target range for the initial share price when the company goes public.

FacebookFacebook has set its open share price to be between $28 and $35. With the shares Facebook’s famed CEO, Mark Zuckerberg, plans to sell at the opening, he will personally cash in $1 billion, while the company raises at least $12 billion through new shares. The total valuation of the company could lie anywhere between $75 and $98 billion, according to CNN Money.

There is no doubt that Facebook is the biggest success story in technology in this century so far. Those who invested early, friends of Zuckerberg since the beginnings of the company and employees who received significant amounts of stock options, stand to be able to cash in their shares and retire pleasantly wealthy. Those buying shares on or after May 18 may be able to catch a star continuing to rise.

Google continued to perform well after its IPO, for example. Investors were concerned about overpaying for Google shares at about $100 around the time of that company’s initial public offering, but today’s price is over $600. Facebook’s shares will be sold at a price-to-earnings ratio of 99, higher than almost all companies in the S&P 500 index, making the investment seem to be at a high risk for its price to fall. Both Zynga and Groupon, after going public last year, are now trading below their initial share prices.

Are you planning to invest in Facebook’s common shares once you can buy them through the stock exchange? Has Facebook seen its heyday of growth or is there more to come from the company?

Update: Although average individual investors have traditionally had limited access to initial public offerings, Facebook, following a trend of other technology companies going public, will likely be opening its IPO up to E*Trade. If you have an E*Trade account in good standing, you can indicate how many shares of Facebook you would like and the maximum price you’d like to pay. E*Trade will distribute the shares it receives among its individual investors who bid high enough.

Photo: kudumomo
CNNMoney, BusinessWeek

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Government-Reported Inflation

This article was written by in Economy. 8 comments.

Over the twelve months ending with March 2012, the increase in the consumer price index (CPI-U) as reported by the Bureau of Labor Statistics, often referred to as the inflation rate, is 2.7 percent (2.3 percent if you exclude food and energy). While these numbers are below the historically-cited norm for inflation, 3 percent, the numbers are still troubling for some people.

Government-reported increases in the consumer price index do not tie to any individual’s experienced increase in the cost of living. No person can assume that if wealth grows by the rate of inflation that life is just as affordable as it was a year ago. For example, if my income was $100,000 in 2011 and $102,700 in 2012, although my salary would be keeping pace with inflation, it’s likely that I still would find that this year’s income would not afford me as much as last year’s income was able to afford me.

Helium balloon inflationWith $100,000 in a high-yield savings account, the $750 I would have earned in before-tax interest not only loses to government-reported inflation, it would be pathetic compared to any rate of increase of expenses I experienced personally.

Part of the problem is that the CPI-U is calculated by measuring the change of price of a variety of consumer goods, but each type of good is weighted according to its importance. The level of importance is taken as an average importance across all citizens based in or near cities in the United States. Thus, the weighting may not be appropriate for any one individual. For example, as of the last CPI-U calculation, gasoline for vehicle fuel was weighted 5.7 percent. 5.7 percent of the year-over-year increase in consumer prices can be attributed to the increase in gas prices.

Any one family’s exposure to the cost of gasoline could easily be greater than 5.7 percent. A household with two incomes might involve a husband and wife who both commute an hour or more to, and an hour or more from, their places of work. For a family like this, the effect of an increase in gas prices could be much more devastating to their finances than the CPI-U would indicate. The increase in this category year-over-year is 9.0 percent. So if for any family, gasoline accounts for more than 5.7 percent of all expenses, the real cost of living would have increased more than the reported inflation rate.

We are often concerned with finding investments that provide a return higher than inflation. Financial planners consider inflation one of many benchmarks. If you want to maintain purchasing power with your funds, you’d look for a low-risk investment that meets or stays on par with the rate of inflation. The government even offers inflation-protected securities, whose yields are designed to artificially keep pace with the rate of inflation, thus providing investors a method of investing with a guarantee of not losing “purchasing power.”

The comparison between investment returns as experienced by one individual and a calculation of an average increase of prices is invalid. Financial experts continue to use the average inflation rate as a benchmark for individuals because it’s easy and can seem to apply to an entire population at once — even if it really applies to no one.

The criticism of the CPI-U as a personal rate of inflation doesn’t end with the idea that an average measurement doesn’t apply to any one individual. The method of calculating inflation has changed over time, and modern calculations are criticized for masking the truth. If the rate of inflation were to be calculated the same way it had been four decades ago, the rate would be significantly higher. The public is sensitive to bad economic news, and it’s safer for the government officials who are in power to continue to report subdued numbers. The Bureau of Labor Statistics should be free from political influence, but that’s an impossible ideal, especially over the course of a generation or two.

As a result of the realities behind criticism of the inflation rate, real inflation in the cost of living is destroying your net worth. Inflation keeps investors chasing returns that, while being better than earning nothing or losing money, are not high enough to continue a standard of living. Fifteen years ago, the most popular television sets might have cost an average of about $500. This was before LCD technology and high-definition became widespread. Today, the average cost of the most popular televisions might be $1,000. Today’s LED-backlit LCD HDTVs, while $1,000 today, would have cost more than $10,000 a few years ago when the technology was new. So in one sense, advancements in technology lower consumer costs, but offsetting that reduction is the consumer demand for better equipment, and that demand outpaces the decline in prices. Nobody’s buying the first generation iPad today.

Photo: Kai Hendry
Bureau of Labor Statistics

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Review of ING Direct’s Remote Deposit

by Flexo
ING Direct

Several readers contacted me yesterday with this piece of good news. After months of promising its customers to launch the new feature soon, ING Direct now offers remote check deposit. The delay was likely caused by the efforts that resulted in Capital One purchasing ING Direct USA. Previously, in order to deposit a check into ... Continue reading this article…

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How to Handle a Credit Card Data Breach

by Flexo

Last week, Global Payments confirmed a massive security breach involving credit and debit card numbers and information. Global Payments operates a gateway; when you use your credit or debit card to purchase an item — and this could be online or in a brick-and-mortar store — your card information is sent through Global Payments or ... Continue reading this article…

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Should You Pursue a Non-Profit Career?

by Flexo

I was never destined for the life of a high-income individual. While I was in elementary school, I decided, like many young individuals inspired by good teachers, to become a teacher myself. As I developed an aptitude for mathematics, science, computer programming, languages, and music throughout my time in public school, I eventually leaned towards ... Continue reading this article…

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Vanguard Voice Recognition for Security

by Flexo
Voice Pattern Waveform

After a few years of testing this new security feature, Vanguard has begun rolling out voice pattern recognition technology for security. According to the representative I spoke to today, this feature will be available for Flagship customers first, and all customers will eventually follow. Voice recognition adds another layer of security to your financial accounts, ... Continue reading this article…

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