By Stephen Padgett on May 6, 2013

Giving is something that is very innate in human beings. Giving our time, money, and emotions make us feel good because we went out of our way to help someone in need or make the world a better place. Around 65% of American households give to charity and in 2011 Americans gave over $298 billion to charitable enterprises. This large amount of cash flowing freely out of the pockets of America’s individuals and businesses has also created a market of not so charitable organizations working to get their share of charitable gifts. While charitable giving is important to many Americans, there are some things that individuals should keep in mind when next looking to give.

One of the most important things to keep in mind is to not give emotionally. This sounds counter intuitive because giving charitably is often an emotional process. By giving we feel positively about ourselves. Giving from emotion however, is problematic if individuals really want to get the most social “return” on their time and money. Research is the key to maximizing this social return. First, an individual should make sure that the organization he or she is interested in giving to has similar values. All charities have an obligation to share information with interested donors including their mission statement, Board of Directors, values, results or accomplishments in previous years. The nature of the work that is performed, where it is done, and whether their goals are more short term relief or long term change are all things to consider. Many of these facts can easily be found on the internet and are worth taking a few minutes to search them out. Individuals should also be sure to be careful with organizations which names just sound familiar. Often new organizations or scams will use similar names as well-known organizations to increase their revenue.

Another important component of researching possible organizations to give money to is their efficiency. Efficiency, commonly referred to as a program ratio, is the measure of how many dollars goes directly to programs and ventures tied to the organizations mission statement or goals. Believe it or not, but many non-profits spend a ton of money and man power solely on bringing in more money. Giving to an efficient non-profit is important because it means that more of donated money is actually affecting the cause that donors are interesting in helping. Sites like guidestar.org and charitynavigator.org provide resources that are useful for discovering how efficient a non-profit is. Typically an organization that uses at least 70% of its resources towards its programs is a legitimate group, although higher efficiency rates are common. It is also useful for individuals to keep in mind that not all types of charitable work can result in the same efficiency levels. Non-profits should be compared to peers in similar types of work for a better representation of how efficient they really are.

There are hundreds of thousands of charities out there, which makes it difficult to narrow down which one or ones are best to give to. This can lead to individuals wanting to give to many charities in an attempt to spread their generosity to many different causes and programs. This is actually a very inefficient way to give if an individual is concerned with how their money is effecting change in the world around them. This is because when an individual gives to a charity that charity begins spending money on that donor. This money is spent in order to retain the donor and try to convince them to give even more next time they are donating money. This is problematic if an individual gives a small amount of money to many charities because then there will be many charities wasting time and money to retain them in the future. While this is not the donor’s fault, it is how the system works. Giving to only a few very important charities is actually a much more efficient way to give money. In addition to this, if an organization reaches out to an individual to give money a strong no is much better than a maybe. Again, a maybe will lead that organization to continue to spend money and time recruiting the possible donor, even if it may just have been that the individual was too polite to directly say no. Ways like these lead to individuals unknowingly wasting much of the time and money of the organizations that they mean to help.

Giving money to non-profits is a great way for people to create positive change in their communities and world around them. Individuals should be sure that the money they give away is going to whom and to what they intend. Using the internet wisely and taking the time to do research can prevent individuals from making mistakes when it comes to being charitable with their money.

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Sources: nptrust.org; www.today.com ;  www.charitynavigator.org; www.charitywatch.org

By Stephen Padgett on April 11, 2013

Although the housing market has begun to improve across the country many areas are still having a hard time. Many homeowners looking to sell in these pockets of the country must find ways to entice buyers; or be forced to significantly reduce or their price or put off selling all together. Traditionally home warranties are a way sellers can entice buyers to make the leap of buying a home. The idea is that a home warranty significantly reduces the chances that new homeowners will have to shell out additional money on repairs for a home they just purchased. While in theory this should make purchasing a house easier, do home warranties really hold much worth to potential home buyers?

One of the major considerations when it comes to home warranties is what exactly is covered. The problem is that each warranty and warranty provider is vastly different. It is unwise to make any assumptions when it comes to the home warranty provided. If the seller has already made arrangements for a home warranty be sure to understand what is included. According to Money Magazine the average American homeowner spends over $1,000 a year on typical household repairs and maintenance. Often home warranties will do nothing to decrease this number because of their limited scope. A warranty is only as useful as what is included within it – so be sure to spend time going over the details and ask questions!

Another consideration is the fact that a warranty creates a middle man in the process of home repairs. If an appliance breaks the homeowner does not get to call their favorite mechanic or home handyman who can come by that afternoon but instead usually has to call the warranty company or 1-800. The warranty company then contacts their “preferred” repair company in the area which then calls the homeowner to schedule their appointment. While not necessarily a huge deal, this could become a major annoyance if a major appliance broke during an important time; say the oven during Thanksgiving or the holidays.

A final consideration is the lack of decision making power the homeowner often has under a home warranty. The decision to repair or to replace is no longer a personal one but instead a mathematical one. The insurance company must make a judgment of whether it makes more sense for them to repair or replace, not which makes more sense for the homeowner. Usually companies that issue warranties will receive information from the homeowner, and sometimes the maintenance workers who come to the home. Information such as year, model, problems, replacement parts and historical data are all examined, usually quickly through an automated process, to determine whether the expected cost of repairing or replacing is less. This can be a major problem if for example an insurance company usually only expects to sell a policy to a homeowner for a couple years but the homeowner is planning on staying in the house for many decades. If a homeowner is going to stay in the same house for a long time replacing an appliance, such as a water heater, is probably a more cost effective solution than a repair that is most likely going to break again in a few years. To the insurance company however, it makes more sense to pay the smaller cost to repair the water heater, since they do not expect to still have the policy holder for much longer. Basically, if the incentives and plans of the homeowner and insurer do not align then the repair or replace decision is likely to cause some difficulties.

Overall it is hard to judge the worthwhileness of a home warranty. The details of what is covered, how repairs work, and what companies the warranty provider works with varies vastly between each warranty and provider. However, there may be situations where a home warranty makes sense, such as a new homeowner who just maxed on their budget to purchase a home with a very old and necessary appliance. It is probably worthwhile for this new homeowner to look into a possible home warranty to cover the appliance for the next year or so while their finances recover from their recent purchase. It is important to note however, that just because a potential seller is willing to throw in a home warranty does not mean that the house listed should be more attractive to a potential buyer. It is important to take time and understand exactly what a home warranty entails before making a decision.

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Sources: Money Magazine

By Stephen Padgett on April 10, 2013

We’ve all heard the ads claiming that identity theft is everywhere, and that credit monitoring sites are here to protect us from these threats. From the annoyingly catchy songs, such as Freecreditreport.com to the ever persistent pop-up ads online warning us of the danger of our identity, many of these ads appeal to the need to feel secure in our lives. These sites claim that through their credit monitoring services we not only will be able to check on fraudulent reports on our credit scores but also more quickly learn of and address threats to our identity, for a small fee of course. While feeling secure is important, are these credit monitoring sites really worth the monthly fee to the average person?

So what do you really get when you sign up for one of these credit monitoring services? Usually there are two major components. The first major component is that these services provide an indication of possible fraudulent activity. This basically means that you hand over your personal information to the company and they watch for actions in your name that can affect credit scores. This includes things such as hard credit checks, new bank accounts opened in your name, and new credit cards, among other things. If anything the company deems “out of the ordinary” comes up in your name they notify you immediately to make sure you know actions are going on. For many this really means peace of mind when it comes to their finances and credit, which to some can be worth a lot. Additionally, many of the services offer a “free” credit scores for those who sign up for their credit monitoring services. Freecreditscore.com is infamous for this ploy to get individuals signed up for their credit monitoring services. A credit score report provides you information on the factors, both good and bad, that affect your credit. Looking over credit reports allows you to find incidents that were inappropriately or incorrectly reported to credit rating agencies. This is usually the first step when it comes to an individual wishing to improve their credit scores – it is hard to improve something that you do not understand.

One of the most popular reasons individuals sign up for credit monitoring is because they have reason to believe their credit or identity is under a serious threat of being exposed to criminals. Whether it is losing your wallet, losing a phone or laptop, or even having your home or apartment broken into - many things can increase your risk of having your identity stolen. If something like this happens to you signing up for a credit monitoring site would be useful because it would allow you to see if individuals found enough of your information to open up new lines of credit under your name or use existing lines you already have. While this is good to know it does not stop this from affecting your credit relationship with lenders. If you have a strong reason to believe someone is going to use your information to abuse your credit then why not go a step further and prevent them from hurting your credit? Services such as TrustedID will freeze your credit for a small fee, usually $20 to $40. This prevents anyone from seeing your credit reports if someone is manipulating your credit through identity theft. TrustedID’s services even include a $1,000,000 warranty for further peace of mind.

Another reason an individual might be interested in credit monitoring is if they have a large upcoming expense they are planning on, such as purchasing a house or car. This is because an individual’s credit score can have a real significant effect on the amount of interest he or she pays over the course of the loan for such a large purchase. Therefore it is important for an individual preparing to make such a purchase to understand how other financial choices will affect their credit score, so that they are most prepared for what is coming their way financially.

While credit monitoring does not make sense for the average American over the course of an average year there are circumstances that may make such services more useful and valuable. Every individual’s situation is different, especially when it comes to their credit score and security of their identity. If you believe you have reason to subscribe to a credit monitoring service be sure to do your research. Make sure you identify ahead of time what you want to get out of credit monitoring because many of these companies will attempt to “upsell” you on unnecessary services and programs once you enroll.

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Sources: FreeCreditReport.com, trustedid.com

By Stephen Padgett on March 11, 2013

If someone gave you a brand new powerboat would you rather live Florida or New York? Most of us would say Florida because we would get to enjoy it more often. The months of use in Florida would make the boat more “valuable” to us than the month or two the boat would be useful in NY. When you think of getting a “good deal” what are the first things to come to mind? To me I think of getting as much “value” out of a purchase as possible. This includes things such as how often I will use it, the price I paid for the product, and how long lasting the item is expected to be. The more use I will get out of the purchase and more long lasting it is, combined with as low of a price as possible, creates as much “value” as possible. Obviously other things such as sentimental value, resale value, or other factors come into play as well, but the general idea is the more valuable to me a purchase is the happier I expect to be with it. This, according to some researches, may not be the case however, due to a phenomenon known as the hedonic treadmill.

According to dictionary.com the concept of the hedonic treadmill refers to the nature of humans to adapt to bad and good circumstances, eventually returning to a relatively neutral state. In other words, if we are around a situation for a prolonged period of time we will become numb to it, returning to a steady state of more neutral emotions. Obviously the length of time over which this occurs depends on the circumstances and the people involved in them, but the general principle largely holds true for all humans. This trait can actually be a very useful tool in tough situations, such as when people are in war or extreme poverty. It helps us deal and cope with the situations we find ourselves in when they are extremely negative. Facing these harsh conditions is much easier with a neutral mindset because we become used to them and they do not seem as negative anymore. Instead, they are typical circumstances that we adapted to. In other words, the idea of the hedonic treadmill points towards that idea that we are destined to always relatively have the same level of happiness.

This is also applicable when it comes to more superficial circumstances: such as our stuff. Somewhat counterintuitive, the principle of the hedonic treadmill argues that it should actually be the things that we do not enjoy as often which bring us the most happiness. Those items that we do not use as often, such as boats, seasonal equipment, even vacations, should be more enjoyable for us because we do not enjoy them as often. They are breaks from our normalcy, making them stand out and bringing us more joy and happiness. While this is very different than the “value” mindset discussed earlier, this idea may hold some water. Think about it, if you had to pick a vacation for example that stands out as one of the most enjoyable vacations you took it is often the one that is most different from any other vacations you and your family usually take. For example, a trip to another country will likely stand out in your mind as a vacation that brought you immense happiness when the usual vacation your family takes is going to a beach a couple hours away. The same is true for our physical stuff claims behavioral finance expert Dan Ariely. He points out that we do not get more enjoyment out of the things we own because we get used to the increased standard of living that they bring into our lives. Ariely gives a great in his article in Money Magazine; something he purchased that brought him a lot of happiness was his convertible because he lived in Boston. While someone in South Beach Miami or Los Angeles quickly gets used to driving around with the top down, Boston, MA only provides a few windows of opportunity to really enjoy that feature.

The takeaway from the hedonic treadmill is actually quite simple. While it is important to make purchases that make “value” for the future, we should occasionally allow ourselves to make a purchase that is not something we will get to use every day. Keeping a smart budget and savings plan is important, but it may end up being one of these nonsense purchases that becomes of the most enjoyable decisions you make in a long time. So before you pay for the slightly larger TV or model phone that is one year newer, take a hard look at some other things you could spend your money on that might bring a little more happiness into your life.

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Sources: dictionary.com, Money Magazine June 2010

By Stephen Padgett on March 8, 2013

When someone losses their job it is usually a pretty traumatic experience. Not only is it tough emotionally, but the financial ramifications go far beyond the loss of income for day to day living expenses. Without a job it becomes nearly impossible to keep up with mortgage payments – which is why foreclosure is such a common side effect of being laid off. One bank in the Midwest, Fifth Third Bank, is taking a unique approach to help customers avoid foreclosure by thinking outside the box.

In general, while many aid programs do hard work day in and day out to make life better for individuals around the world; these efforts often fall short of really solving any meaningful problems. Many attempts to better the world do help people in the short term and makes those who provide the aid feel good, but often the situation returns to the status quo once aid workers leave, money runs out, or some other pressing issue becomes the popular problem to address. The federal foreclosure aid program of 2011 is an example of this. The program essentially gave forgivable loans to individuals in danger of foreclosing on their house. While the program did most likely produce some sustainable relief where individuals could use the loan to give them some time to find a new job, there were probably just as many or more cases of individuals who took the loan and at the end of the loan period still had no job and still faced foreclosure. Programs like this have limited success because they do not focus on solving the root of a problem but rather focus on temporary “Band-Aid” solutions.

That is what is so exciting about the foreclosure relief program that Fifth Third Bank is providing its customers. The program goes beyond even the root cause of foreclosures to the root cause of prolonged unemployment. Many of the individuals who have lost jobs over the past few years are not poor employees. They are often career workers who happen to work in an industry or with a company who was hit hard by the recession. Many were individuals who have not been unemployed, and therefore looking for a job, in years – if ever. Many do not know how to even begin the process of preparing themselves for a job search, which further continues their prolonged unemployment. If laid off workers do not know how to present themselves to and find new jobs, then they will be overlooked by open positions, even ones that are perfect for them. Fifth Third Bank’s program provides webinars, individual coaching, and online lessons to prepare customers to find a new career. They partnered with “It’s A Wonderful Life” and NextJob to better provide these resources to customers. Through this training individuals are taught how to find jobs and better prepare them for a job in a new industry. This delivers individuals the resources and support needed for the tough process of finding a new job.

You may be asking yourself – how does this make business sense, or cents, for Fifth Third Bank? There must be a cost for providing these services free to customers. There is – the program costs around $1,500 per customer. This may seem like a hefty amount of money to “give away” to customers until you realize the substantial costs that hit banks when their customers foreclose on their homes. In this Midwest area Fifth Third Bank estimated that it can lose anywhere from $40-$60k on a foreclosure. $1,500 to save $40,000-$60,000 seems like a pretty good deal if the program works. It turns out it works pretty well. In a trial period almost half (11/28) of participants found new jobs and completely avoided foreclosure proceedings. This is an estimated savings of over $530,000 for Fifth Third Bank and helped several families stay in their homes.

Overall this is a win-win for everyone involved. It helps save the bank money, provides necessary skills to the workforce for society, helps individuals avoid foreclosure, and it even helps give the banking industry a bit of a better image. It is good to see a company thinking outside the box to come up with a mutually beneficial solution to a problem that first and foremost helps customers.

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Sources:
USA Today, 2011; AOLjobs.com