I get a lot of value from listening to Dave Ramsey on the radio. His politics are about as far removed from mine as possible, and I often disagree with what he says, but he often serves up a lot of food for thought, which, on a good day, can nourish my financial thoughts and quench my financial curiosities for a good part of that day.
Thank you. Thank you for that, sir.
Recently I mentioned how I’ve done ten thousand hours of writing, and then some, tying in with Malcolm Gladwell‘s idea of full-bore expertise requiring about ten thousand hours of efforting. So how does Dave come out on that scale in terms of call-in financial talk-radio?
I don’t know Dave’s work history all that well, but if we assume that Dave typically does three hours of radio each day, for four days each week, then he would be doing about 500 hours of call-in financial talk-radio hours each year (he takes some vacay, right?). And then, if we assume that he’s been doing it for thirty years, Dave clearly has his call-in financial talk-radio act down cold — and, why, with these assumptions, he’s all the way up to 1.5x the Gladwellian number (one and a half Gladwells?).
Now if only he could be more open-minded about how the government is not all bad . . . especially when you compare it to other large, powerful, self-perpetuating, self-aware, self-interested institutions, and, for that matter, if he could be more open-minded about how there are many, many more ways than just one to skin a peace-financial cat.
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Speaking of large, powerful, self-perpetuating, self-aware, self-interested institutions, the other day Dave was talking about how credit card companies are superbly skillful at coaxing dollars out of credit card users, mostly via the overall remove that credit cards put into the entire purchasing decision — i.e., they divorce the pain of the spend from the pleasure of the buy — but also via all the miles and cashback programs they offer, all of which, he argued, when taken together, lead people to spend a lot more than they would if they were simply spending cash or using a debit card.
No matter how smart or mindful you are, Dave argued, you’ll spend more when you use a credit card than you would if you use cash or a debit card. The Chases and the Citis and the Wellses and the BofAs of the world [did they cabal together and agree to use names that are hard to pluralize in writing?] have got your number, and they’ve got it down cold. So you better believe that they’ll suck your cash right out of you.
I don’t feel as strongly negative towards credit card usage as Dave does (as best I can tell, he thinks no one should use credit cards, not even people who are rich and debt-free, while I think that, other than people with debt problems and people who’ve had credit card problems anytime in the past, everyone should use them). But I do concur with him about what the CCCs (the Credit Card Companies) are good at, i.e., soaking as much of the economic essence out of as many of us as they can, by using as many of their sure-fire economic-essence sucking methods as their fiendish mind-meld plus mind-trick experts can devise.
Because behavioral finance theories can be used for bad just as easily as they can be used for good. Nudges can hurt you. And a mad scientist of the behavioral-finance ilk could make a decent villain in a dark, angst’y Batman flick of recent Christoper Nolan vintage.
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When I first went into financial planning, I worked at a place where financial planning wasn’t the primary or even secondary or tertiary offering, which meant that the Powers that Be hadn’t set up a clear-cut pricing model for us to use with financial planning, so we were pretty much on our own.
They did at one point, though, have us watch a video of some expert who very excitedly insisted that 700-based numbers are near-magical, just like 99-cent and 99-dollar numbers are near-magical, in the sense that both are good at getting people to unconsciously, unknowingly, unmindfully spend more money than they think they are spending.
As a result of seeing that fellow’s spiel in the video, early on I often charged $1,700 or $2,700 or $3,700 for a plan — or, for that matter, $any-x,700 for a plan that the client and I deemed appropriate and in-scale (with the client and I both caring about the first digit, but with me caring much more than the client about getting the number 7 in there!).
Later, when I went out on my own and decided to focus solely on financial planning, I set out to come up with a very clear-cut pricing model. Initially, given my earlier teachings, that model included a lot of 7s. But then one day it hit me like a ton of bricks that I should kill the 7s, because, given that a big chunk of my work is all about helping people become more conscious, more knowing, and more mindful of what’s going on in their financial lives, why would I intentionally design my pricing to be something that attempted to do just the opposite — to be something that tricked them into spending more money than they thought they were spending?
And why on earth would I ever consciously, knowingly and mindfully try to get clients to be less conscious, less knowing and less mindful in this one instance – an instance which just so happened to benefit moi, little ol’ moi? Well, there’s one, and only one, reason, as far as I can tell, for doing so, and it’s way obvious, i.e., to make more money!
This reason, though, did not seem to me like anywhere near a good enough reason; I guess I got too much of The Golden Rule implanted into me when I was a youngster. And then there were the hippie days too.
So from then on, it’s been nothing but the aughts and the centuries and an occasional half-century — $2,000 or $2,750 or $3,500 or $6,000 or $12.5k or whatever. These are pricing amounts that loudly, defiantly and head-on announce their precise scale. No balls hidden. No magician-me redirecting your gaze over here with my right hand when way over, somewhere else entirely, my left hand is doing something else entirely. No back-dooring it by having someone else pay me for getting you to do something that benefits that someone else. No paying myself out of your assets so that my compensation is totally out of mind — your mind, that is (talk about a remove between spending and buying!).
Instead, there’s just two biological, living, breathing human beings — two BLBHBs — eye-to-eye’ing the amount of value delivered and received, and the dollars that well-compensate for same.
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How many times have you ever paid someone in your financial life via a check made out to that person?
I’d venture a guess that the answer is zero.
It’s just not done.
For instance, if you’re buying a house or leasing a commercial space, you don’t pay a thing. Someone else does (the seller and the lessor, respectively). Sure, you’ll un-get yours on the other side of the mountain (i.e., when you sell your house or if you ever need to sub-lease your commercial space), but on this side there’re no numbers for you to even worry about. (Yes, in some ways the commission your seller or your lessor is paying is built into the price you pay, but that’s the point, right? You are not in any position to negotiate down the seller’s or the lessor’s agent’s commission. Of such triangular situations are economic rents made.)
For another instance, if you’re buying insurance, you don’t pay the person who sold the policy to you. Instead, you write out a check to the InsCo. and then the InsCo. pays a commission to the person who sold you the policy, and, if you’re like most people, you have no idea about how much commission that person just made off of a decision you just reached (one data point that many people find flabbergasting, for one reason or another, but which insurance agents take very much for granted, is that the commission for selling a simple life insurance policy is usually in the neighborhood of 100% of the check you just wrote out to the InsCo. for the premium for the policy for the first year).
And then there is always the CCC example, which many people, but by no means all, know about, in which the credit card company that processes credit-card-swipes (yes, running a credit card transaction through the money system is what’s known as a swipe) charges, say, in aggregate something on the order of 2% to 3% of the swiped amount. So the credit card end-user (i.e. you and me) doesn’t pay the fee, but the vendor with whom the credit card end-user is doing business pays the fee, and probably passes a portion or all of it over the long run onto the credit card end-user — with the CCCs ever-appearing as the innocent party, as the provider of the convenience that is everyday modern plastic. We just need our 3% off the top, don’t’ch’ya know.
And then there is the example which is the most elegant in a Ramsey-esque, credit card’y never-notice-the-spend sort of way, which arises in the world of money managers and investment advisors, who simply have you sign a contract by which you agree that they can pay themselves out of the money they are managing for you, so that, every three months, come hell or high water, come your satisfaction or your dissatisfaction, come their excellence or their putridity, they can go in there and help themselves to some of your money.
And do they ever send you a little email reminder that they just paid themselves? Do they ever highlight for you, separate from the line item buried on the 20-some-odd-page statements of database regurge that many of their clients barely glance at, other than to find the main numbers (i.e., how much do I have and how much did it change since last time?)?
Do they ever do that?
I’ve never seen that happen.
Because out of sight, out of mind. Look at my hand over here, not the one over there.
And because most businesses are really, really happy to be paid in a way that let’s you, their customer, very easily avoid seeing even the fact that they are being paid — let alone the facts of how much they are being paid, by whom, and when and how and all sorts of other invisibilities that they are really happy to have remain . . . invisible.
You can think of it as payment via magician’s sleight of hand, but in this case, looking away and not seeing what’s really going on can be had for you, whereas not seeing that the magician’s helper just slipped out the back of the box and is going to make a surprise entrance stage right, where you least expect the helper to appear, can be a whole lot of fun and a whole lot of entertaining.
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Now this piece has only tangentially talked about how this sleight of hand usually ends up with someone being paid too damn much money for doing too little work — how all of these hidden balls and magician’s hands and triangular relationships make for hidden revenue streams being too damn fat, and too damn economic rents’y. That topic is for another day.
Suffice to say in this context that, in the good ‘ol fashioned eye-to-eye, person-to-person check-writing compensation milieu, the odds of someone being well-compensated rather than way-stupidly compensated increase dramatically. This much is of the essence to the financial health advisor, and to the relationship between financial health advisor and his or her client.
The Consumer Financial Protection Bureau is scaling back rules on credit card fees in order to dodge a court battle with the financial industry.