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July 2013

Earlier today, Naked With Cash participant Anonymous S offered his latest financial update. He noted in June how after moving into a new apartment, he increased his credit card spending to pay for new household furnishings. He’s been calling this spending an “investment.” Our Certified Financial Planner, Roger Wohlner, offered the same feedback I would have given: calling expenditures “investments” can set a dangerous precedent and affects the way you view your finances.

The words you choose when describing yourself or your actions communicate how you think of yourself or your actions. For example, someone who refers to a problem as a habit rather than addiction when it is in fact an addition could be masking the severity of a problem.

There’s nothing wrong with what Anonymous S did last month. He spent more than he had on hand to furnish his apartment, accepting the cost of interest in return for furnishing the apartment immediately instead of waiting over the course of the next few months. Through his actions, he also indicated he was not willing to satisfy with inferior furnishings that he might have been able to find for less money.

As long as you weigh the consequences of using credit cards to supplement your income and using them isn’t part of an unhealthy pattern, I see little problem in taking advantage of the credit afforded to you. Others may see this differently, and might criticize the use of credit cards in any situation, or in any situation that doesn’t involve being able to pay off the balance in full each month. I’m more of a realist, and I can accept that although credit cards come with a cost, it’s a cost that can be avoided or taken into account. I can also accept that different households have different needs and priorities, and that households in healthy financial situations can handle the occasional interest charge if the trade-off is simplifying life for a short period of time.

It’s not the use of a credit card that worries me in this case, it’s the use of the word investment. Any particular word can have more than one meaning, and dictionaries don’t do a good job of describing the subtle differences between the inferences or senses of a word. To a financial planner, the word investment might have a specific meaning that is tied to a trade of money for some sort of asset that is expected to increase in value, with the idea that some day, that asset can be divested or liquidated, and the investor can walk away with more money than he or she started with. And the word investment might also imply there is some level of risk involved.

But when used by non-professionals, a broader definition might apply. An investment could be anything purchased of value or the process of purchasing anything of value. This is so broad that practically anything can be considered an investment. When I was working at a non-profit organization in my early twenties, I needed to earn extra money using whatever time I had left to myself after 80-hour weeks plus long commutes. I “invested” in a new computer to replace the one I had for nearly five years. In those intermediate five years, the World Wide Web had become mainstream and I needed a new machine to keep up with the latest technological needs for web development. I had no money, but I considered the new computer an investment in my future.

When it comes to building human capital, education is a large part of increasing the worth of your abilities, from specific job-related skills to cognitive flexibility, to yourself and to others. I consider the expense of a college degree as an investment because of the increase in lifetime earning potential that college graduates have over those without degrees. It’s an investment that’s expected to pay off in some form over the course of one’s life, even though recent economic troubles like unemployment make that difficult to see in immediate terms.

I can see how Anonymous S feels vindicated in calling household expenses investments. I know I’d probably be in a similar situation when I decide to buy a house. I wouldn’t want to leave the house empty for too long, and the furniture I could move from my apartment might do only a partial job in furnishing the house, and that’s even if I wanted to keep the same furnishings. With a new house, I’d want to quickly set my living space up to be exactly what I’ve pictured, and if I were unable to save up for the furniture in advance in addition to all the other expenses that come with purchasing a house, I would consider credit cards a valid option if I knew I’d be able to afford the expenses over a short period of time. I would only use credit cards if I didn’t think I wouldn’t be able to control my spending.

But I’d probably stop short of calling the purchases investments. I can see how spending $5,000 plus interest today might decrease my need to spend $5,000 in three months, but unless what I plan to buy is some sort of collectible item that has the possibility of increasing in value, it wouldn’t be an investment to me. And to call an expense an investment might do nothing more than to make me feel better about parting with the money. Personally, I have no need to fool myself into thinking something potentially harmful — spending more than I’ve saved — is potentially positive. For those that do try to present purchases to the world as investments might be setting themselves up for ignoring other negative aspects of their financial condition, and I believe that’s why Roger Wohlner, the CFP who comments each month on the financial progress of Naked With Cash participant Anonymous S, is not fond of the terminology choice.

You can use word choice to affect how you think about your situation. This can turn something that should be negative into a positive feeling or vice versa. Word choice can save you or it can prevent you from achieving your goals. In politics, this process is called “spin.” In marketing, the process is called “marketing.” In some cases, when word choice is used to intentionally deceive others, it’s called “lying.”

When you say that buying a new 72-inch television when your 42-inch will do and you don’t have the money is “investing in your happiness,” it’s just a way of hiding the fact you know it’s a bad financial decision.

Have you ever lied to yourself about the quality of your financial decisions by changing the words you use to describe that decision?

Photo: Flickr


A proposal has been floating around Congress for the past few years, and it should save taxpayers $4.4 billion over the next thirty years. The Currency Optimization, Innovation, and National Savings (COINS) Act would replace the $1 bill with the $1 coin.

The $1 coin has been in production and circulation since 2000, with an extra publicity boost when the U.S. Mint began producing dollar coins featuring the likenesses of former Presidents of the United States. The Presidential dollar coin series was popular with collectors when it entered circulation in 2007, but neither collectors nor businesses seem to have much interest in the coins today.

The public hasn’t wanted to replace the dollar bill with the dollar coin so far. Every time Congress proposes elimination of the dollar bill, the legislation doesn’t succeed. People complain about carrying change in their pockets, and seem to prefer carrying their singles in a wallet. Public adoption of the coin has been non-existent, and this seems to be one of the reasons the bill never passes.

Other western countries have successfully replaced low-denomination bills with coins. If the $1 notes are no longer produced in the United States, consumers will have no choice but to use coins, and eventually it would become the norm. Until production and circulation of the dollar bill is brought to an end, the public will always have a choice.

Although the replacement of the bill with the coin will save money over the long-term, there is a short-term problem according to the Government Accountability Office. In the first ten years after the replacement, the government would lose $531 million. The costs of the transition are front-loaded due to the need to increase production according to the estimation in the GAO’s 2012 report. This is a new report since the last time I wrote about the movement to replace the dollar bill.

The longer we wait, however, the longer these costs are offset. Every year, more dollar coins are produced but never enter circulation. As of last year, the government was storing a surplus of 1.4 billion dollar coins. One estimate claims that the stockpile may reach 2 billion coins by 2016. But due to the poor adoption of circulating dollar coins, the Presidential coin minting program was changed. New Presidential dollar coins are only minted for collectors, with no new coins intended for circulation, although the government continues to mint the Sacagawea $1 coin for circulation.

The gain and loss estimates don’t reflect the total effect of the transition on the economy. The private sector will face some expense, although now that the current dollar coin shape and weight has been consistent for thirteen years, some of these challenges in business have already been resolved. Equipment that accept bills and coins as payment need to be calibrated or fitted to accept dollar coins. The replacement of equipment can be a significant cost to industries throughout the country’s economy.

Had the bill been officially replaced by the coin in circulation in 2000, this would have been a big problem. Companies would have no choice other than retrofitting equipment used for toll collection and vending immediately. But the dollar coin in its current form has been in production for thirteen years now. As old equipment needed routine replacement, business should have been aware of the need to accept these new dollar coins in the future. Machinery installed over the past decade should be capable of accepting modern dollar coins.

Additionally, new laws tend to prescribe change in phases; it’s unlikely that a law would dictate that business must stop accepting dollar bills overnight. The elimination of the bill from circulation would take place over time, allowing business the time to replace any remaining equipment that doesn’t accept dollar coins. By now there shouldn’t be much remaining equipment in need to replacement or adjustment.

The a $4.4 billion savings over the next thirty years worth the pain of a $531 million loss over the next ten? When is a good time to accept the short-term loss that seems to be required when chasing a long-term gain?

Most countries that successfully replaced their bills with coins didn’t see widespread adoption until the dollar bill was eliminated and there were no longer competing types of currency for certain denominations. A few congresspeople think now is the time to move forward with the plan to begin eliminating the $1 note from circulation in favor of the coin. The economy may be technically back on track, but with the continued struggle with unemployment and only small growth in the housing market, perhaps it is too soon to begin accepting the public costs of the transition.

If we expect these trailing or lingering economic problems to subside over the next decade, the loss, a relatively small loss when compared with other government programs, might be a risk worth taken. Asking politicians — and sometimes the public — to think about the long-term benefits of a program rather than the short-term can be a challenge, however. I’d be surprised if the COINS Act passes, but I’m in favor of eliminating the dollar bill, and would prefer to see it accomplished sooner rather than later in the United States. Let’s catch up to other western nations.

It seems the bill is in the news again thanks to Senator John McCain’s recent answer to a question about the potential law. John McCain is a cosponsor of the bill.

I don’t know whether the question was presented as reflective of legitimate concern for the particular industry in question or was simply tongue-in-cheek: What happens to strippers when the dollar bill is no longer in circulation?

McCain is reportedly hoping strippers will receive larger denominations of currency from their patrons, with dollar bills no longer freely available for strategic placement inside undergarments. I think the industry would disappear if customers were to begin pelting coins rather than gently tucking bills in appropriate (or inappropriate) locations. Perhaps dancers would need to design new clothing with built-in change pockets to accommodate the only form of transaction.

Should the government move now to put this transition from dollar bills to dollar coins into effect? What would it take to convince the public that coins are better in the long run? What will strippers do?

Government Accountability Office [pdf]


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 their bio here for background about their financial situation. Anne and Matt are on Team Neal, with Certified Financial Planner Neal Frankle. Review their March update for last month’s progress.

Their goals are to strike a balance between putting aside money for the future and enjoying the present and to save enough for retirement. Keep reading to see their net worth report, comments about the report and their progress, and thoughts from Neal Frankle. Following Neal’s thoughts, budgeting expert Jacob Wade from iHeartBudgets offers commentary.

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

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Last week, I criticized the McDonald’s corporation for producing a website and a toolkit, aimed at their employees, designed to help those employees tackle the financial obstacles they are most likely to face. My first point was that financial literacy education hasn’t been proven to help the most needy, and in some studies, has been shown to be detrimental. My second point was that as far as financial literacy education goes, McDonald’s and the organizations that helped the company design the program don’t seem to understand some of the difficulties their audience faces.

I’ve also commented on the prevalence of financial literacy programs funded by the banking industry. In the example from McDonald’s, VISA was involved with the project to support its pay card — a debit card and account replacing paychecks and direct deposit. It might come as a surprise that I worked with a bank earlier this year to design and produce materials for a financial education series.

PNC is a regional bank, based in Pittsburgh, Pennsylvania, with branches prominent on the east coast of the United States. PNC Bank offers retail banking services: the usual checking, savings, money market accounts, consumer loans, and mortgages, all products offered by typical retail banks. Like many retail banks, PNC also offers asset management and business banking.

The bank, like the rest of the financial industry, benefits when more customers take advantage of their services. There may be some exceptions: banks only want enough depositors to satisfy regulatory requirements because they’d rather borrow from the government than from customers, and providing service to some customers can cost the banks money, for example. For the most part, the wider the pool of potential customers, the better. To widen that pool, banks want more customers to understand what they can offer, and one way to do that is through educational endeavors.

Banks can develop financial literacy resources and fill two needs. They can use education to increase their customer base and they can look like “good guys” doing it.

This project with PNC Bank, a financial education series in which I am participating, targets a different demographic than the McDonald’s attempt. In this particular instance, the reach of the McDonald’s campaign is much broader, and thanks to some ridiculous line items in the budget, has received wide media attention. PNC’s project, the PNC Achievement Sessions, will not receive such wide notoriety. It does, however, address some of the core problems faced by those who might already be customers of PNC or potential customers.

The target is definitely within a middle class demographic. The audience seems to be those already comfortable with the idea of working with the traditional financial industry and those who already know they need to do more to achieve their financial goals. This is not basic financial literacy, a concept that all too often fails in schools. The effort approaches consumer education with tools and resources helpful for handling more than just the basics of money.

Getting involved with the PNC Achievement Sessions

At the beginning of the year, I started working with PNC and their agency to develop the material for a new interactive website to fulfill their goal of consumer education. The project’s mission is for the audience “to have the knowledge and confidence to manage [their] money.”

The website would eventually become the PNC Achievement Sessions. Among the material developed were video scripts, and a few months ago, I spent two days in New York City with a production company taping the videos. Also involved in the project were Anna Newell Jones from And Then She Saved, David Ning from MoneyNing and Galia Gichon from Down to Earth Finance. Between the on-camera “talent,” the production company, and the agency for PNC, it was an incredibly professional team, and it was an enjoyable experience for me.

My contributions resulted in two videos and accompanying material. I handled two of the most complex topics in the series: getting the mortgage you want and credit score myths and facts. I can’t bear to watch myself, but reviews from family and friends have been very good. I’m still waiting for the Rotten Tomatoes review. Luckily, if you aren’t pleased with my work, PNC is taking suggestions for additions to the team for future sessions.

All six videos are presented alongside quizzes, static information, a challenge which can be shared through social media, and links to other resources, particularly those provided by the on-camera financial experts, all excellent writers.

Here is the full list of sessions available on PNC’s website today:

The videos are also available on YouTube, but the have the best effect when viewed within the context of the PNC Achievement Sessions website.

I’ve written so much about how the typical approaches to financial literacy fail. Does it make sense for me to participate in this type of consumer education? Yes.

Consumers are not being force-fed. When banks offer programs to elementary and secondary schools, they’re taking time away from the core curriculum. The students don’t want to be there. Banks are outsiders in the educational environment, and students will not be engaged in the material enough for any lessons to stick.

Efforts like the PNC Achievement Sessions are much different than financial literacy programs. Consumer education speaks to adults, and in particular, adults who seek the information out. They want to learn and feel invested in the information and the potential for improved financial situations.

The demographic is appropriate. When a family is concerned the most with fulfilling the lowest level of needs within Maslow’s Hierarchy of Needs, like food, water, and shelter, education becomes a much lower priority, if a priority at all. This is a tough audience to teach, because all lessons generate a response like, “That’s great, but right now I’m just trying to feed my family.” With kids working jobs to help the household just get by, there’s little time for anything that’s not a job, and that includes gaining practice with new skills that could lead to a better job sometime in the future.

On the other hand, consumer financial education like the PNC Achievement Sessions targets an audience that is ready and willing to move forward with their financial skills. They are eager to prioritize their future, because their present is relatively secure. An emergency fund, for example, is a pie-in-the-sky wish for a family barely living paycheck to paycheck, but for a household that is able or just about able to save money every month, the emergency fund seems like an achievable reality, as does investing for the future, buying a house, and eventually retiring.

All that being said, PNC is still a bank, and thus any material endeavor that costs the bank money, other than back-office operations, should do something to increase revenue for the company. Shareholders wouldn’t have it any other way.

There’s no mistaking that PNC, through creating the Achievement Sessions, would like the project to have several results other than the stated mission. First, the bank would like for its current customers to take better advantage of the services the bank provides. Second, PNC hopes the Achievement Sessions will bring new customers to the bank. Third, the company wants to increase awareness among the public of the PNC brand, and for it to be a positive recognition: education is a much better reason to be newsworthy than a scandal.

I do not personally have an account at PNC Bank, though there is a branch located in my local supermarket. I always encourage bank shoppers to look at fees and customer service. PNC does offer a free checking account that could be worth a look, so if you’re in the market for free checking from a branch and are located with a PNC branch within a convenient proximity, take a look.

Check out the PNC Achievement Sessions. I’d love to hear your feedback. I’m including one of the videos in this article, but I suggest viewing the bank’s website, watching more videos, taking the quizzes, and participating in the challenges. If you’re so inclined, offer suggestions to the bank for topics and experts to be featured in future sessions. If you have any feedback for me, please feel free to share it here.

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LastDollar, June 2013 Net Worth

by Luke Landes

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. LastDollar’s update this month includes her net worth as of the […]

3 comments Read the full article →

JW, June 2013 Net Worth

by Luke Landes

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. […]

11 comments Read the full article →

Don’t Take Budgeting Advice From McDonald’s

by Luke Landes

I had planned to write about McDonald’s ridiculous budgeting tips for employees when I first saw the news circulating through social media. I’m so far behind with my editorial plan that every last Consumerism Commentary reader has probably heard about this latest manifestation of corporate ignorance of reality by now. Writers of all stripes and […]

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IRA Balances At Five-Year Highs: Time for a Retirement Check-Up

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Thanks to the stock market’s upward trend since the recession (if the trend hadn’t been upward, we couldn’t say “since the recession”), policy changes that allow investors to convert traditional IRAs to Roth IRAs without limit other than the income tax bill, and perhaps even younger savers inspired to plan for their retirement by saving […]

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Variable Annuities Customers Facing Benefit Reductions

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When people find out I’ve been writing a blog about personal finance for ten years — yes, it seems crazy, but the tenth anniversary of Consumerism Commentary is Tuesday — they recognize it is an opportunity to share their financial troubles and triumphs. I’m a good listener. For the most part, I am happy to […]

5 comments Read the full article →

Debit Card Pay: Extra Fees or Money-Saving Opportunity?

by Luke Landes

Last month, a McDonald’s employee in Pennsylvania sued her employer to receive all of her rightful wages. This was a class-action lawsuit for the benefit of all employees now faced with an annoying trend. Employers are forgoing paychecks and direct deposit in favor of distributing wages on prepaid debit cards. Here’s how it works. When […]

7 comments Read the full article →
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