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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


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…


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 future values, and trading is such a big business that the cost of these futures gradually affects the price of corn in the store.

Corn is a natural food, grown and farmed in various locations throughout the world. It appeared in nature originally without intervention by humans, but now humans cultivate the crop, sell it, and help feed people all around the world.

It’s difficult to see much difference between corn, and other natural foods, and water. The planet is 70 percent covered in ocean water. Our bodies are 65 percent water. Water evaporates and returns to earth in the form of rain and other precipitation. Water is a basic building block of life as we know it. The first cities were always located very close to natural water because, among other life-providing uses, water was — and still is — the primary method of long-distance travel for a mass of people.

Can a natural resource like this be turned into a market commodity like corn?

Today, water is relatively inexpensive. Cities provide water to their residents. Water service has spread to the outskirts and suburbs through municipal planning. Residents of rural communities without water service, in most areas, can still get their own water through a private well. But there’s a problem: access to clean water is not available to everyone living everywhere. Where public water supplies are contaminated because communities can’t afford to clean or because communities were willing to accept outside corporations to pollute their lands in exchange for the promises of a growing economy, the lack of clean water leads to poverty and disease.

Across the world, the quality of life correlated to the quality and availability of water. For an individual family, moving from a poverty-stricken area to a modern city is a good solution, but there are several problems.

  • Moving a household costs money, and it is difficult for a family living in poverty.
  • Because of the difficulty, it can be a long process, taking several decades to raise the money and resources.
  • Even after moving, the households needs to adapt to a different culture.
  • Any one family moving doesn’t solve the particular problem of poverty in locales with no access to clean water.

The good news is there are large non-profit organizations working on the problem, but adding to the difficulty is the fact that private enterprises are jockeying now for the ultimate marketization of water as a resource.

Nestlé, Coca-Cola, and PepsiCo all see the advantages. If all drinking water throughout the world were to be controlled and distributed by private companies, shareholders would profit. Water is a basic necessity to life, even more than any particular solid food. When not provided for free, people would be willing to pay whatever they can for access to clean water. On a human hierarchy of needs, whether you’re looking at Maslow’s model or talking to a doctor about basic survival, our bodies must have water at all costs, clean water in order to avoid disease.

The potential for profit is virtually unlimited.

Here’s where a private water market becomes dangerous. And the concepts are easily recognizable with memories of the Enron debacle still fresh. With the privatization of energy, resources shifted to whomever was able to pay the best price for the service. This created artificial shortages in some areas — keeping supply low and demand high kept prices moving upward while at the same time depriving households of the resources they should have had. To benefit shareholders, corporations take shortcuts and play as close to the line of legality as possible. They employ clever people who determine how much can manipulate while escaping legal scrutiny, while at the same time, these corporations spend billions of dollars from their revenue to lobby lawmakers and fund politicians around the world so once in office, they owe favors to the same corporations.

If drinking water is owned and controlled by private corporations, society would recognize that access to water is not a basic human right. Humans also need oxygen from the air to live. Do we have a right to breathe or will we someday need to pay for our access to clean air?

With privatization, the lack of universal access to drinking water will no longer be a societal problem, it will be an economic problem. Those who can pay for clean water will have it, those without the wealth do not. This is already the case at a community level; poor citizens in wealthy cities have access to the water they need, but poor citizens in poverty-stricken areas do not.

There seem to be two options: either the government controls the water supply or private corporations do. It’s often argued the private corporations can do what governments do more efficiently precisely because they have to answer to shareholders who expect efficiency and profits. The question is whether we can trust private corporations with a public good, and in many cases as seen throughout recent history, we cannot. Shareholders’ priorities often conflict with providing a public need democratically to all citizens. I’m not anti-capitalist, but the shareholder form of capitalism is poorly suited for handling societal issues.

That isn’t to say we can trust governments fully with these responsibilities, either.

The eventual privatization of water seems to be unavoidable. In today’s world, private money seems to always win these discussions. Therefore, consider what the future will look like and what we can do now to prepare for this inevitability.

If you’re in the “upper middle class” or you are able to build up your savings month after month, you probably won’t notice a difference in your life. Most Consumerism Commentary readers are going to fall into this category. It’s in a corporation’s best interest to make sure its class of shareholders have access to their “product,” so this particular class of consumers, those who are more likely to invest in the stock market, will be shielded from most economic obstacles to access.

If you own a home that falls under municipal water access, you already have a bill you pay, and you already budget for the expense. Even if the price of water increases to be more along the lines of your electricity or gas bill, you could probably still afford it. Keep in mind you also pay state, local, and property taxes which help municipalities provide water service; don’t expect those taxes to decrease just because the rights to water have been privatized.

For those in the above category, there may be some minor occasional inconveniences. For the most part, your life won’t be disrupted, but as the industry matures, expect some inconveniences. Just like we saw the the privatization of energy and Enron, regulations may not always be able to stop manipulation of the market. Droughts, now brought on by the weather and climate change, will be controlled by private corporations looking to manipulate the market. Corporations will have more control over people’s lives than ever before.

Expect swings in the price of water. Once water is listed on a commodities exchange, with a price that fluctuates constantly as traders and their algorithms try to predict next month’s price, water pricing will be more volatile, like the price of gasoline at a pump. Speculative bidding causes prices to rise and creates market bubbles. That will make it harder to budget for the family and can result in shortages.

The shortages will affect those living in poverty. First of all, poverty-stricken regions already have poor access to clean water. Privatization promises a more efficient way of delivering the product, but it’s clear that corporations have no interest in customers who are not profitable. Conditions will get worse for those already disadvantaged. The result will be disease, famine, and death around the world.

Charitable organizations committed to water access will rise. To fill in the holes left by corporate-controlled water, non-profit organizations will rise in prominence. As the need for financial help to pay for water increases, so will the efforts of charity. One of the most popular non-profit organizations in recent years with a mission to increase access to potable water is charity: water. This organization builds wells; in the future, charity may take the form of providing water subsidies to help pay for the cost of water from a private company.

Make changes today that could save your family and community in future generations. My ancestors moved from Europe to the United States. Some were more financially successful than others, but all saw the conditions in Europe as unfavorable and did whatever they could to secure the potential for a better life, even if only for their descendants. The voyage was strenuous and long, so the parties who arrived were different than the parties who departed. Migration out of economically depressed locations is the selfish solution, but is the only solution for those unable to change conditions in their homeland.

Prepare for war in locations where the issue is most pronounced. Big economic gaps between the rich and poor — and in this case, wealth is represented by access to clean water, those with, and those without — in close proximity foment violent rebellions. With privatization the gaps that currently exist will only become more pronounced, as corporations provide their services to where they can mine the biggest profits.

I confess that I’m a small part of the problem. Although there’s nothing wrong with the water provided by my town, I’ve been drinking bottled water — and a Nestlé brand at that. I chose this because for whatever reason, I don’t like the taste of my tap water, even after filtering. As a child, I don’t remember ever drinking bottled water, and I believe this is part of a societal trend. As a whole, middle class society is much richer than it was twenty or twenty-five years ago, but we might not feel wealthy because our expectations of a middle class life have changed so much.

I’m already taking part in the privatization of the water supply. I’ll make a concerted effort to switch to tap water, but the world is already on the road towards full privatization of a water market. In business, people talk about five-year plans as if they represent a long-term view. In a societal shift as important as this, you might want to consider your fifty-year or hundred-year plan for your family and your descendants.

The market will bear a significant price increase for clean water because it is, besides clean air, the only substance needed to survive at the most basic level. If you’re not in a position to be able to afford water at prices ten to twenty times what they are today, start shifting your world now so your grandchildren will have a chance to survive.

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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 prevented him — and prevent many people — from investing.

I didn’t start investing until I was in my fifties, despite having a comprehensive education in finance and business. When I finally started, I was fortunate in many ways to be able to make up for lost time, and that enabled me to retire recently and start blogging about investing.

A good friend asked me the other day why, with all my financial education, I waited so long before getting started.

Good question. If someone asked me when I was younger if investing was a good thing, I would have said, “Of course!” But I didn’t invest. Why not?

As I was thinking about the question, I started asking other people why they don’t invest. I wanted to see if I was the only one, but I also wanted to get a better understanding of what I believe might be a common problem. As I put it all together, four excuses that hold people back from investing seemed to emerge.

Here are the common threads:

  • I don’t have money to invest.
  • I don’t have time.
  • What’s the point? I’ll lose all my money anyway.
  • Investing is over my head.

I don’t have money to invest.

I thought this was a valid excuse for many years. Initially it may have been true; very few people come out of college raking in “drop-dead” money, and this was my situation. However, it wasn’t long before my wife and I had three cars between us, all purchased new (financed), and an oversized house. We were always able to make the payments, but it never occurred to me that this was just a silly way to manage your money.

It was only after some time that it hit me: I always seem to have money for the things I really want.

How does it get there? By saying “no” to other things. And that’s what I started doing: saying no to everything not totally essential for our basic needs, and saving the rest. It’s amazing how much you can squeeze out of your budget if you’re really serious.

Initially I didn’t even have enough to open a brokerage account. So I opened a new savings account and put all amounts I could spare in there, just like a child’s piggy bank. It earned no interest, but I didn’t care. After a couple of years — and it did take that long — I finally had a few thousand bucks saved up, enough to surpass the broker’s minimum initial deposit amount. I used that to open an online brokerage account and make that year’s IRA contribution. That was the small start.

Where there’s a will there’s a way. No way too often means no will. It did in my case.

I also learned that even though it may look like nothing for the first few years, there is no ending without a beginning.

Starting small isn’t the killer, starting late is.

I don’t have time.

This is something I used to say while I was in my hamster-wheel career. But when I took some time out for a mid-career break, I found I had the time then, but I still didn’t invest. That’s when I learned that when anybody says they don’t have time for something, nine times out of ten it’s just code for, “I don’t want to do it.”

I learned that we all make time to hike, bike, or buy a house. If we want to do it, we’ll make the time. And investing is not a full-time job — not even close.

Once I had the desire to learn about investing, the time magically appeared. It always does.

What’s the point? I will lose all my money.

This is the reason I hear more than any other when I talk to people about investing. It’s just fear of the unknown. I got cured of this early on through a friend who was an investor. He had made the transition from living off an income from his business to living off his investment income.

As I got to know him, I saw him make money on some investments and lose on others. What I learned is most investments allow you to cut your losses quickly, but you can ride the increases as long as you want.

Is fear a valid reason for not investing? Consider something else we all do: driving. Have you ever gotten a ticket for anything? If so, you lost money. Did those fines wipe you out or stop you from ever driving again?

No. You’re aware of the risk of a speeding ticket, so you watch the speed limit and, for the most part, stay within it.

Driving is about mobility and freedom, not about fines. There’s the occasional fine, but the fines don’t define driving.

Same with investing. Investing is about gain. There might be a loss or two along the way, but those losses don’t define investing. There are some speed limit signs, if you will. When you heed them, your performance improves and the gains outweigh the losses.

Fear of loss is reason to be cautious, not to refrain from investing altogether.

Investing is over my head.

Can you buy a house? Really? What qualifies you as a house buyer? Shouldn’t you rather call a real estate agent, a real professional, and tell her to just go out there, find a house she thinks will be good for you, buy it, and let you know where it is and when you can move in?

I didn’t think so. Even if you buy a house for the first time, you do your homework, you find out what it’s all about, you schlep from house to house until your feet ache. You may not know exactly what you want, but as you see what’s available you figure out what suits you.

It’s the same with investing. You get yourself up to speed, you see what’s out there, you schlep from one investment to the other (figuratively) until you have an idea of what suits you.

If you can buy a house, you can learn to buy an investment.

Why invest?

In life you get an income from only two sources:

  1. Your job or business (labor), or
  2. Your investments (capital).

Most of us can think of something better than the grind we’re in right now. To get there, you need to move from number one on that list to number two.

And starting early is the only effective way to do that. I didn’t have someone to tell me that when I was younger, and I lost out big as a consequence.

Man learns from his mistakes. A wise man learns from another’s mistakes.

Thanks to the internet you can learn from my mistakes. There are a plethora of resources to learn about investing before you have the money. With knowledge, any fear of “losing it all” will fade away, and you’ll find yourself becoming excited about the opportunities and find the time to learn even more.


LastDollar March 2013 Net Worth

by Luke Landes

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 […]

9 comments Read the full article →

Financial Role Models vs. Money Classes

by Luke Landes

Non-profit organizations and for-profit businesses promote financial literacy education as the solution to a society of citizens unskilled with managing their own money. If only we could have mandatory money management classes in high school and earlier, advocates claim, the United States would be a nation of savers, free of most debt other than mortgages, […]

9 comments Read the full article →

Anne and Matt March 2013 Net Worth

by Luke Landes

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 […]

8 comments Read the full article →

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

by Luke Landes

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 […]

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5 Responsible Uses for Your Tax Refund

by Luke Landes

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 […]

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Keep Your Old Credit Cards Open

by Luke Landes

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 […]

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