Saturday, January 31, 2009

The Job Trap

The Job Trap

Most of us need to have jobs in order to survive. A few lucky people are born into the world with inherited wealth, or perhaps they win the lottery. But the rest of us need to eke out a living.

For most of us, this means working for someone else. And this is not a bad thing in and of itself. Con artists and fraudsters love to prey upon the working man who has dreams of "being his own boss" or "running his own business" but in reality, very few of us are equipped to deal with self-employment.

I have discovered, after nearly 15 years, that running your own business is not an easy thing to do. Moreover, most people, who cannot even balance their own checkbook or manage their own finances, are ill-equipped to deal with the day-to-day issues involved in running a successful business. In addition, most of us do not have the necessary people skills to run a business. And by this, I don't mean "being nice" to people. When you run a business, you end up seeing the seedy side of human nature - employees who steal, customers who do not pay, people who are disingenuous and lazy. The trick to running a business is to be able to deal firmly with such people, while at the same time, coming across as Mr. Nice Guy. It ain't easy, and most of us are ill-equipped for it.

I would like to say that you see the good side of human nature as well, but in this country, we are trained from birth to want a job, expect a job, and hate our job all at once. Very few people really enjoy their jobs and appreciate their jobs. Usually, within a few weeks, days, or even hours of getting a job, the average worker falls into the "Job Trap" both emotionally and financially.

This is a shame, too, as this trap leads directly to depression, and also can severely damage your financial situation.

What do I mean by the "Job Trap?" It is two parts, actually. The first is the emotional component, and the second is the financial.

1. The Emotional Job Trap - Hating your Job

I have touched on aspects of this first part of the Job Trap in other posts. In the many jobs I have had over the years, I have found the greatest difficulty I have encountered is the attitude of the co-workers and my own inability to avoid getting drawn into their world of gripes, complaints, and depression.

Usually, when I get a job somewhere, it is exciting to show up the first day. The pay seems good (more than I was making before) and the work interesting and exciting. Within the first few days - sometimes the first few hours or minutes, some grizzled "old hand" will stop in my office, lab, or workspace, and then bend my ear for an hour about how I am being underpaid and overworked, and how rotten everything is. See my articles "They're BAITING you!" and "Emotional Vampires" for more on this sort of odious behavior.

The problem is, this sort of conversation ends up taking hours of your time. In many organizations, such activities can spread to many employees and take up half the day, easily. For some reason, everyone likes to be drawn into a "bitching session". However, the result of these sessions is rarelyanything constructive, and most participants end up depressed and angry - and feeling bad about themselves for wasting so much of the company's time.

Topics for such discussion range from "The CEO is an overpaid jerk", to "they can't run anything right around here", to "our new product is junk", to "the boss is sleeping with his secretary", to whatever else. As you can imagine, such attitudes leave one devastated, and hardly willing to put in extra effort for an organization that is viewed as substandard.

As a result, many workers end up taking out their frustrations by stealing from work, vandalizing or sabotaging the facilities, or making goofing-off into a full-time avocation. If they can get paid for not working, they argue, they are "getting even" with a corrupt system. Unfortunately, this latter habit is particularly damaging to the psyche and spirit of the individual and group. The goof-off finds that the days tend to drag on forever (doing nothing makes time stand still, try it sometime) and often starts up these sort of conversations as a means of frittering his time away (and that of others). Seeing everyone else working hard only makes him feel more depressed and worthless.

The other problem with the goof-off is that he makes the other employees angry, as they view him as goldbricking, while they are forced to work. As a result, one goof-off can destroy the morale of a dozen people or more.

Unfortunately, modern corporations and organizations are often very poorly managed. Management is cowed and afraid of taking decisive action with regard to employees, for fear of reprisal and lawsuits (the types of employees who run down the company and goof-off, steal, or vandalize are also the most likely to file frivolous lawsuits). As a result, the only way employees are let go is when the company "downsizes" or lays off people - which is often done either by seniority, or by some far-away accountant who is only reading job titles and salaries in making his decisions. In such scenarios, the goof-off often ends up keeping his job.

How do you avoid these sort of emotional job traps? It is not easy to do, as everyone wants to get along with their co-workers and be "part of the gang". It is a scenario we've all had to deal with since high school. You can study hard and get along with the teachers, and be labeled a "nerd" by the "cool kids" and be socially ostracized, or you can play hooky and try to "fit in" and damage your school career.

The upshot of the high school experience, of course, is that the "cool" kids all went on to unskilled labor or sales jobs after high school, while the ostracized "nerds" ended up as highly paid professionals - or should have, anyway, if they did not let the emotional traumas of social interaction destroy their psyche.

Just as in high school, at work it is not easy going against the grain of the group norm. For some jobs, such as assembly-line, hourly, unskilled, or semi-skilled jobs, you can't get away from your co-workers and the peer pressure. Since there is little hope for advancement, trying to do your job effectively does nothing to advance you personally, but subjects you to derision from co-workers. Maintaining good emotional health in such an environment is difficult, at best. During my years in the factory, I would see decent people who were hourly workers "beaten down" by their co-workers in this way. If they tried to do a good job and have a positive outlook on life, they were attacked (sometimes even physically) by others who wanted to "bring them back down" to their level.

I am not sure what advice to give here, other than to say to keep your own counsel about your job, and try not to make it obvious that you are enjoying your work and working effectively. Inept management often exasperates such situations by trying to reward productivity with meaningless and valueless plaques and awards (since by union rules, they are often prohibited from advancing an employee with more pay). Such rewards and incentives only serve to target the recipient for further abuse.

Of course, finding a different job is also another alternative. However, for many people, this is not an option, and a good-paying job with benefits is something you don't want to walk away from.

For salary employees and the like, the scenario can be similar, with the added problem that there may be competition between employees to "get ahead" at the expense of others. In some companies, this quest for advancement is almost laughable. For example, in the Government sector, the most money you can make, even as a manager, is far less than what one could make at an outside law firm. And yet, there are those who would stab their Mother in the back for a grade or step promotion, or a chance for a slightly larger office.

Again, it is difficult to deal with such things and there are no easy solutions. A daily work job is something you have to deal with for most of the waking hours of the day. If you have a co-worker who is trying to "start something" on a daily basis, it can make your life difficult. The most successful people I have seen tend to keep to themselves and do their work and not worry about what others are doing. Keeping your door closed and limiting contact with others to specific meetings can help reduce the tendency to get sucked into the "social" aspect of a workplace environment.

There will always be the office employee who spends his time trying to work the "political" aspect of the system, thinking that his chances of getting a promotion are enhanced, not by performance, but by befriending the boss. In most cases, the boss, if he/she is effective, sees right through these sort of charades.

If not, the best alternative sometimes is to keep your eye out for a lateral transfer within the company, or perhaps to a job with a different company.

However, that is not always an easy solution. Changing jobs often can make your resume look odd, and eventually, make you unemployable. It is hard advice to take, but sometimes the best solution is to grin and bear it - or ignore it. Office Politics are probably as old as the pyramids. Getting caught up in them is never useful or productive to your own life. Ignore them, if you can.


2. The Financial Job Trap -Living from Paycheck to Paycheck

The second trap that employees fall into is the financial trap. A steady paycheck is a good thing, but it tends to force people into thinking about money as a stream of cash flow that comes in every week, rather than as capital that should be carefully managed and spent. Since the employee spends most of their waking hours working, they have little time to contemplate how to invest their money properly and become wealthy on their own accord.

The cash-flow mindset leads to a lot of bad spending habits and decisions. The present housing bubble is a perfect example. In many urban areas, people go looking for housing. When they do, they tend to look at the cost of housing, not in terms of sales price, but in monthly mortgage payments.

If the buyer says "I can afford $3000 a month in mortgage payments" then he tends not to look at things like interest rate, sales price, insurance, and taxes. All he thinks about is the monthly cost.

As a result, if the price of housing drops in his area, he will find himself "upside down" in his house and wonder why he can't sell it. And if that toxic ARM resets, he'll discover that the monthly rate is no longer affordable.

On the other hand, if you look at overall housing prices over time, and see a 20-30% increase in a year, you might be more inclined to think that the market is overheated, particularly when the cost of housing far exceeds its value in terms of rental income or even construction cost.

Car buying and leasing is another area with the employee gets into trouble. They think to themselves "I can afford $500 a month for my car" and they go into a dealer with that in mind (often following an ad with that price touted). The salesman figures out how much you are comfortable spending a month, either by asking you outright, or inferring as much from your inquiries. Then he sells you as little car as he can for the highest price he can manage. If all you look at is the monthly payment, you may not see that you are being ripped off in terms of purchase price or interest rate.

Leasing deals are particularly prone to this effect. The purchase price of the vehicle and the residual value, as well as the effective interest rate (so-called Cost of Money, or COM) are often buried in the documents, despite Federal and State laws mandating such figures be prominently displayed. If you do notice them, the salesman might say something like, "well, those are just nominal figures, as you are not really buying the car".

But the truth is, you are in fact buying the car (trying telling the leasing company to pay the insurance and taxes on the car sometime - you do own it from those perspectives). A lease is just an agreement to sell it back to the dealer at a later date.

And as I have noted before, buying or leasing brand new cars is about the most expensive way to drive a car - by paying for that first 20% depreciation the first year of ownership. The salary slave sees only monthly payment, not overall cost, because he has been trained, by his steady paycheck, only to see money as something that passes through his hands, not something that he owns (see my article "Owning Money").

Credit cards are another area where the salary slave falls down. Since they tend to look at the "monthly bill" rather than the overall amount due, they fail to see how much they are squandering every year on excessive interest charges. They can make the monthly payment on their present salary - that is all that matters to them.

Buying things "on time" becomes the norm to the salary slave, as they never have enough cash to purchase anything outright - but they have the cash FLOW of a steady paycheck. So they spend 50-100% more on items than they should, just so they can pay them off in tiny little chunks.

As a result, the salary slave ends up not saving, but spending. It is not uncommon to hear the refrain "we are living paycheck to paycheck" from the salary slave - even when they are making over $100,000 a year! Many do not fully fund their 401(k) plans, while at the same time squandering tens of thousands (or even hundreds of thousands) of dollars on cars and jet skis and plasma-screen TV's. They cannot "afford" to put money into their retirement plan, because they need $168 a month for the Jet Ski payment. Maybe next year!

One advantage of being self-employed is that you immediately see the fallacy of such thinking. Since your paychecks may be few and far between, you realize quickly that you cannot take on regular monthly obligations such as car payments and the like. You quickly realize that the overall cost of a transaction is far more important than keeping the monthly cash flow to a certain level. For what the salary slave spends leasing a car for three years, the entrepreneur can OWN the same car outright for a decade. That difference in overall cost is, quite literally, money in the bank.

As an entrepreneur, you realize at the end of the tax year that you can pay the IRS an additional $5,000 in taxes, or put another $10,000 into your 401(k) or SEP plan. The choice for the entrepreneur is simple - pay yourself a dollar before giving the IRS 50 cents. But the salary slave sees only an additional "deduction" on his weekly paycheck, and not the added refund at the end of the year (adjusting your withholding can often compensate for this, but most do not even know how this works).

So how do you survive the financial aspect of the Job Trap? Like the emotional one, it helps to stop taking your cues from your co-workers. Just because everyone else at the company buys a new car every three years does not mean it is a sound financial decision. Stop basing your financial decisions based on what everyone else is doing. Think for yourself and act accordingly.

The point of working at a "Job" should be to ACCUMULATE money, not SPEND it. Yet in so many factories and offices, we see employees passively spending every last nickel they make. When the jobs go away (usually due to low productivity because everyone does nothing but sit around and bitch all day) the workers have nothing to show for years of hard work than a mountain of depreciated and worn-out consumer goods.

If you can THINK like an entrepreneur, you might be able to avoid the job trap. Fully participate in your company's 401(k), even if it means driving a second-hand car for 10 years. The goal here is to accumulate wealth, not impress co-workers with what kind of car you drive (why, pray tell, is selecting a car something to be proud of, anyway?). Putting aside after-tax money is also key - whether it be into something as simple as savings bonds, life insurance, stocks, a CD, or whatever. Even paying down your mortgage balance is a better idea than buying junk "on time" and squandering your wealth in interest payments.

There is no need to "live paycheck to paycheck" in most jobs. The idea that you have to "have things" and spend every last dime living a lifestyle that measures up to your monthly income is flawed. Live on less, save more, be wealthy.

And it's a funny thing, too. If you have money in the bank - if you are truly wealthy, then you really don't "need" your job anymore. As a result, when you go to work, you go because you like the job, and you can ignore the nonsense that goes on in the office or in the plant. Since you don't need the work, you can approach it from a different angle.

For example, many retirees go back to work, not because they need the money, but because the want something to do, and want a little extra cash. Oftentimes, these are the happiest employees in the company. They don't need the money or the job. So they don't care whether Joe and Suzy are sleeping together and they don't care what some slug's opinion of management is. They are just here to work and get a check and go home, with no emotional attachment to the place long-term. And often, they are the most effective workers, as well, as they are not caught up in all the nonsense that most workers fall victim to.

So in a way, getting out of the financial Job Trap can also get you our of the emotional Job Trap as well.

Friday, January 30, 2009

Referral Websites - A Total Rip-Off and Waste of Time

Referral Websites - A Total Rip-Off and a Waste of Time.

As I noted in my "Scams" article, the first three hits in Google are basically a waste of time, if not a total rip-off.

Many people are skeptical that the Internet can be a good source of information, services, or goods, and they have plenty of reason to think this. For every decent and honest merchant on the Internet, there are probably 5 that are just horrible, if not criminal.

However, the same could be said to be true for "brick and mortar" stores in your hometown. Undoubtedly you know which mechanic in your town in honest and decent, and which is a con-man. Your local bank may be upright and sound, but the payday loan places on the other side of town are a total con. The local furniture store has quality merchandise and reasonable prices. But the "rent-to-own" place sells particle board furniture to poor people on inflated installments. Just because a business has a physical presence you can feel and touch, does not mean it is legitimate.

On the Internet, you can kind of spot the same sort of things online that tip you off about sleaze artists in person. If someone advertises too heavily, with pop-up ads, targeted ads, and the paid ads in Google, chances are, they are not a good bargain. This is not to say they are fraudulent, just not a good deal or perhaps just a waste of time.

These sites often masquerade as other websites, and oftentimes if you type in one keyword, their site comes up on Google, with the name of the company you were actually looking for.

One such site popped up in the health insurance arena recently, while I was trying to find a company site for a friend who had no computer. The site popped up and it appeared to be the site for that company. "For a health insurance quote, click here!" it said. So we did and we entered all his personal information.

At the end of these pages of data entry, all we got was a page saying "an insurance professional will be contacting you shortly!" So, no quote. Then I realized that the site was just a "harvesting" site that took your personal information and data and then resold this as "leads" to insurance brokers - or others.

Within a day, my friend got a call. Not from an insurance broker or company, but from one of these come-on "medical discount" places that claimed to be "better than insurance!" but of course was not insurance. No REAL insurance company or broker called him.

(Hint: You want insurance? Call an insurance company. Blue Cross or Kaiser, for example. There is no magic bullet here, they are all going to be pretty expensive and provide limited coverage).

I thought I would shop my homeowners policy on my house, and again, tried typing in "cheap homeowners insurance" into Google. What happened was an interesting "spin" on this whole concept. One of the top hits was an "article" about homeowners insurance than recommended a "comparison site" so you could "shop several companies at once." And of course, they had a helpful linky to that site.

Only later did I realize that the "article" was a put-up job for that site, which had many other articles planted on the Internet, and keyed to be "discovered" on Google when you type in "homeowners insurance" or any combination of certain words.

I went onto this website, which promised me "competitive quotes" from a number of different insurance companies. After filling out way too much personal information (they want your social security number? Hmmmm.....) the site then basically gives you the names of a number of agents in your area or links to their websites. I could do this with the yellow pages or online in about 3 minutes.

Of course, if I did that, they would not get referral fees, right?

Then I get a phone call while I am in the shower. "Mr. Bell, how are you today?" he reads from the script.

Anytime someone asks you "how are you today?" in a business call, you are headed for trouble.

I told them I was in the shower and what was the quote, and he said he needed about 20 minutes of my time to discuss the quote. Apparently, I would have to give him all the information I gave the website online - all over again. Dripping wet, I said "later".

Then I get an e-mail saying they have a quote ready for me, but again, no quote, just instructions to call a 1-800 number. If they have "quote" it has to be a dollar amount, not a phone number.

Then "Amber" calls me this morning and says, based on the exhaustive information I provided, that "Acme" is the best insurance company for me, based on their calculations. Acme? "Please hold for an agent" she says.

So I hold and hold, and Amber comes back and says they are having phone problems.

Finally, she sends me to an agent.

Again, "Mr. Bell, how are you today?" and I say "Look, I've spent over an hour now entering data online and talking to people on the phone, do you have a quote for me or not? Because I have other things to do with my time."

And he says "thank you very much" and hangs up. He obviously wanted to "chat".

I am not sure what these types of "comparison" sites do for anyone, other than take all your personal information and then sell it or refer it to local agents and perhaps get a commission. But if they are not going to provide numbers, what is the point?

I enter all this data and all it does is refer me to a local agent. I can do that with an old phone book or yellow pages online.

These sort of sites are not the GEICO of homeowners or health insurance. As far as I can see, it is just an utter waste of time. I can find Nationwide, State Farm, and Safeco in the phone book without their help. All they do is "refer" you to these agencies and collect referral fees. There is no "instant quote" comparison or other data provided.

Too many sites on the Internet these days like this - all they do is take your information and then try to garner referral fees. Where is the savings in that?
Hint: The FIRST THREE HITS in Google are usually rip-offs or utter wastes of time. Just avoid these types of sites and save yourself a lot of hassle. Your local yellow pages has better data.

As with any other financial transaction, you often have to make mistakes to learn. One reason I am posting these tracts (diatribes?) is to help others (and hopefully so others can help me) cut to the chase and avoid wasting time and money on financial mistakes.

Finding good deals on the Internet is possible. However, it does require some digging. When you see a website that misrepresents itself or comes on too strong with heavy advertising, chances are, it is just a come-on.

Sunday, January 25, 2009

Emotional Vampires

An Emotional Vampire can suck the life out of you by draining you emotionally.

This topic is related to my "They're BAITING You!" article, and also relates to the concept of conservation of emotional energy, touched upon in my previous article on Conspiracy Theories.

Emotional Energy is important in dealing with your personal finances. If you are drained of emotional energy, you may find yourself depressed, tired, weakened, and unable to make decisions or look after yourself. In order to take care of yourself (see my article, "The Unwritten Social Contract") you need to conserve your emotional energy for your own life.

Unfortunately, there are people and institutions which are Emotional Vampires - they suck the life out of you. You've heard that phrase before, haven't you - someone who is described as "sucking the life" out of something. Or perhaps the phrase "he sucks all the oxygen out of the room". These are phrases which describe the concept of the Emotional Vampire - someone who takes and takes and takes, but gives little back. As I noted, Emotional Vampires can also be institutions as well. The best example is broadcast television (see my article "Kill Your Television!") which drains viewers of energy while giving little back to the viewer.

The following are some more detailed descriptions of examples of Emotional Vampires, and also the strategies on how to deal with these folks (and institutions). Many of these folks can be our co-workers and friends or family members. While the option of avoidance is always an option, it is not always practical, except as a last resort. Anyway, here is my list, which is by no means exhaustive.

1. The Friend with the Perpetual Problem: We've all had this friend, and probably always will. You go over to visit (or more likely they visit you) and within a few minutes of chit-chat, the topic is (once again) changed to the friend's permanent intransigent problem that can never be solved. It could be work, a spouse, their deadbeat children, an infirm Mother who "needs to go into the home, but won't go!" or some other problem.

Now don't take this the wrong way - everyone has problems once in a while, and sharing them with friends is a good way to put your problems in perspective and find a solution. But that's not what I am talking about here. This is the friend who has the problem forever and refuses to do anything about it. The frustrating thing is, oftentimes the "problem" is of their own making, or the solution is simple and obvious, but the friend has a laundry list of reasons why they "can't" solve the problem.

The real reason they won't solve the problem is that they like having the problem, as it gives them an identity and something to talk about - something that perhaps takes their mind off other problems in their lives, or drowns out the deafening silence in most lives and thus insulates them from having to think about greater issues such as their life and death.

You can talk these issues to death with such friends, and you can suggest alternatives, provide advice, do research, go out of your way to help, and all to no avail. If you can actually do something to help, they will sabotage your efforts. So what do you do?

Other than total avoidance (e.g., tell them to find a new friend) one strategy is not to get drawn into these discussions. If the topic veers off to their "problem", quickly change the subject, and even say, quite frankly, "I don't want to discuss that right now". Limiting your contacts with such friends is also a possible complimentary tactic, as even without "the problem" being discussed, such "friends" can be emotional drags.

You need to save your emotional energy for dealing with your own problems in life. This is not selfish, but self-preservation. Just as you need oxygen to breath, you need this emotional energy to live. You cannot merely give it away, or more correctly, squander it, on emotional vampires, who will then take this energy and waste it on nothing. If you are going to try to "help" someone (a concept that is fraught with peril anyway) make sure they really want to be helped, rather than just want your sympathy.

2. The Conspiracy Theory or Political Junkie: I have written about these before at length, so I will not go into details here. But basically these folks will, after a brief period of chit-chat, launch into a one-sided conversation about conspiracy theories or politics, which will eventually leave you exhausted and drained. Trying to talk politics with them is fruitless, as they are not interested in discussing or debating issues, only polemicizing.

Again, there is nothing wrong with a good spirited debate or discussion - on occasion. And one where each person respects the other's opinions is a true debate. But that is not what I am talking about here. Rather, I am talking about people who rant on about some perceived injustice or political issue, usually characterizing anyone who disagrees with them in insulting terms. And this sort of diatribe goes on every time you meet them. If this is the case, this is not a "dialog" or "discussion" but an emotional drain.

Again, avoidance is probably the most effective way to deal with such people, as they are usually crazy and won't listen to you anyway. You can try to change the subject, but that rarely works. Oftentimes I find that agreeing with someone like this makes it easier to change the subject. However, this forces you to agree or nod to some opinions that are truly odious. Or you can say "Gee, I never thought about it that way before!" But beware, such behavior only gets the Vampire to believe that he is "converting" you to his way of thought, which may encourage him more. Again, limited avoidance (limiting contacts) is a partial solution, or limit contacts to group situations where you can spend time with them, but also avoid a prolonged one-on-one situation.

3. The Trouble making Co-Worker: This is one time-bandit and Emotional Vampire that I have seen far too often, which is one reason I work alone. You've probably seen this before yourself. You've just gotten a job with a company. The pay is OK, the place seems pleasant, and you have some interesting work to do. Within an hour or so, some guy (or gal) comes into your office or workplace and regales you with tales about how bad things are in the company, how you are all being underpaid, how much the management is making, how badly they are managing the company, how superior the competitor's products are, and who is sleeping with who, of course (to get a promotion).

By the time this clown leaves your office, you are drained emotionally and physically. You are depressed and now hate your work, and oh, by the way, his two-hour diatribe has cost you two hours of productivity, so now your boss is on your back, making Mr. Sunshine's prophecies self-fulfilling.

Even worse, you may find yourself being sucked into his little game - becoming a complainer yourself, and drawn into hour-long bitch sessions that do little to make anyone feel better about their work, but drag down every one's productivity and emotional energy.

The really nasty ones try to draw you into office politics games - getting you to "choose sides" in some inane war with the office manager or over who didn't refill the coffee pot or whatever. This latter job I saw firsthand, when an underling once tried to provoke me into a fight with her boss, over increasingly trivial nonsense. What finally sealed the deal for me was the fact that she never did any real work, but spend all her time playing computer solitaire and scheming to get rid of her supervisor. When they decided to fire her, it was a relief.

These people are not only Emotional Vampires and Time Bandits, they can also cause you to lose your job or promotion - as well as causing severe depression and make you hate your job. Avoidance is key, but total avoidance is not always possible. Handling the whining co-worker can also be tricky, particularly if they are waging a political battle in the workplace. You need to brush them off, but in such a way that you do not become a target of their aggression. Limiting contacts and saying "Gee, I'm so sorry to hear about all your troubles, but I have this rush project due today - maybe we can talk about it later" might help, but there are no guarantees.

One reason such people flourish in today's workplace is when there is not enough work to do. If everyone is busy, no one has time to goof off and create trouble. If there are a lot of "bitchers" where you work, chances are, the place is suffering from poor management. A busy workplace is a happy workplace. If the employees have "nothing to do" then it is time to assign more work. If there is still not enough work to do, maybe a layoff is in order - with you-know-who at the top of the list.

But in many cases, this is not your call and thus not an option. Sometimes the only thing you can do is find work elsewhere. But whatever you do, take action. Don't become an Emotional Vampire yourself by becoming the "friend with the perpetual problem."

4. The Guilt-Game Player: You probably know this fellow or gal - and they may be a family member. When you see a friend - a real friend - their first thing they DON'T say is "why haven't you called me lately?" To say such a thing is to imply neglect and foist guilt onto a friendship - and real friends don't do that.

And yet, I've met people who do just that. They claim to be your friend, but if you don't call regularly, they act all huffy and offended. Which of course, makes you less likely to want to be their friend.

There are 330 million people in the United States alone - and over 5 Billion in the world. If someone won't be your friend, chances are there is someone who will. Friendship should be a natural, organic thing that is not an emotional drain, but an emotional booster. The Guilt Friend doesn't get this at all. If you do not attend to their needs on a regular basis, they will blackmail you with guilt.

A real friend - real friendship, is such that you can see each other every day for years, and then maybe not for months or years, and still pick up right where you left off. It is not based on guilt or jealousy of other friends.

And friendships can wax and wane and there is nothing wrong or inorganic about that. It is a natural part of life. When you have different priorities and issues in your life, your lives go different ways. If you go off to college and your friend does not, it is hard to maintain those common interests (not impossible, just harder). If you get married and have children, your priorities are far different from your unmarried friends who are still out partying every night.

There is nothing wrong with drifting apart or perhaps changing the nature of the friendship from a daily type of thing to weekly, monthly, or yearly. If you let the friendship take its own course, rather than trying to force-feed it, it is possible that later in life, when your interests coincide, that you move closer back together. So maybe when your friend gets married and has kids and a minivan, you'll have far more to talk about. Just let it happen.

But, if you end up becoming acquaintances and no longer friends, that is OK, too. Chances are, in your new life circumstances, you'll make new friends, too. And there is nothing wrong with that.

By the way, it is not really emotionally feasible to have a lot of close friends. If you examine most human relationships, you'll see a pattern that most people have a small number of close friends (maybe 1-5), a larger circle of looser friends and friend of friends (maybe 5-20) and then larger circles of acquaintances and hangers on (maybe 20-100) all of which groups may which may include family members.

Of course, some people have far less than these numbers, and that is perfectly fine. But few people are capable of maintaining real emotional relationships with large numbers of people. And there's nothing wrong with that. Thus, when you acquire new friends at different points in your life, it is only natural that some other friends may fade from the scene.

5. Psychotic Girlfriend/Boyfriend: I hope you never have one of these, as not only can they be emotionally draining, but possibly physically threatening. The scenario runs the gamut from the attempted-suicide girlfriend to the stalker boyfriend. They may comprise the "Perpetual Problem" friend, the "Guilt-Game" player and perhaps even the "Conspiracy-Theory Junkie."

They say that breaking up is hard to do, but it is even harder when someone threatens to kill themselves if you leave them (or worse yet, threatens to kill you). I wish I had some sound advice on how to handle this one, but perhaps that is best left for professionals.

Probably the best defense is a good offense. That is to say, try to spot the warning signs early on. This of course, may not work, as some stalkers have been known to go into full-stalk mode after only one date.

What's up with the Psychotic Boyfriend/Girlfriend? Why is it they refuse to commit to a relationship on the one hand, but then go ballistic if you threaten to end it? Again, the answer is probably left to professionals, and if you find yourself in this situation, spending some money consulting with a professional might be the best solution.

Again limiting contact (avoidance) is probably the best solution (in some instances, a court order!). There is not much you can do to "salvage" a relationship with someone with severe emotional problems. Most of us are not equipped to deal with such problems, and they will inevitably lead to our own downfall.

And as we shall see in the next section, sometimes people with such problems don't really want to solve them, anyway.

6. Enamored of the Process: I have touched on this in my Patent blog. In the Patent business, we sometimes get inventors who are so enamored with the process of getting a Patent, that they lose sight of the overall big picture - that getting a Patent is the goal, not getting bogged down in minutiae. And once they get the Patent, they are not interested in licensing, litigating or selling the Patent, but instead drag out the process or even subconsciously sabotage it.

Why does this self-destructive behavior occur? I believe it is because the inventor enjoys the process more than the result. The process is exciting, and they can regale friends and family with stories about "what their lawyer said" and such. But the actual result is fairly boring - even if successful. And of course, there is always the chance that if you push the process forward, it might not BE successful. The hoping and wanting is often better than the having, particularly when the end result is failure.

But aside from this Patent Example, there are others whose behavior fits into this mold. A friend with a long-pending lawsuit or other action, for example, seems almost to enjoy the process more than the result. Or, for example, a friend with a mental illness, who regales you for hours about "what my Psychiatrist says my problem is"or shows you his new medication (and reads to you from the Physicians' Desk Reference about it). This is enjoying the process a little too much, I'm afraid. But the process is sometimes more interesting than the goal, particularly if the goal seems unobtainable.

Also, having a process to latch onto provides an identity to a person - and provides them with a role to play - the victim, the patient, the inventor. Many folks are unsure as to how they are to act in society - and often take their cues from such poor sources as television and movies. So they play out these roles, often to the detriment of their friends and family.

Again, limiting contact is probably the best action you can take. There is not much you can do with the "enamored of the process" Emotional Vampire. Changing the subject when you are around them may help make them bearable to be with. However, inevitably, they change the subject back to their lawsuit, patent, illness, or whatever, like a compass that is predisposed to point North.

7. The Gossip: Everyone loves to gossip, let's face it. One famous quote, variously attributed to Gertrude Stein (unlikely) or Alice Roosevelt (more likely) is "If you can't say something nice about somebody.....come sit next to me!" If someone says they don't like gossip, they are probably lying. It is human nature to "dish the dirt".

But one situation that can leave you drained dry is the perpetual gossip session. I have seen this before, where a group of people gets together and then all talk about a person not in the group. These sessions continue until they reach a point where, when you finally meet that person, it is, to say the least, awkward.

Often this is related to the "Perpetual Problem" person, who has some issue in their life that they cannot (or refuse to) resolve, but wants to inflict on others at every available turn - draining friend's and family's emotional energy as a result. The Gossip takes this one step further by re-hashing these problems in front of other people "Can you believe so-and-so can't figure out their life???" they say, not realizing that they are bootstrapping the whole process to a new group of people, draining what little energy you had left from the original Emotional Vampire.

To some extent, the original "Perpetual Problem" person gets off on this. They love to know that people are talking about THEM and THEIR PROBLEMS. It provides validation to their lives that they are important enough to be talked about behind their backs. In such an instance, not only do they not hate the gossip - the embrace it.

Again, changing the subject helps. I've had to really put my foot down on this one from time to time when "bitch sessions" about a missing member of the group get out of hand. But avoidance is also a viable option.

8. The TELEVISION: See my article "Kill Your Television" to know how I feel about the TeeVee. The Television is probably the single biggest and most dangerous Emotional Vampire in the world today. It is a huge Time Bandit to boot. The average American watches four and half hours of TeeVee a day but since many folks (like myself) don't watch ANY TeeVee, that means a lot of people are watching 6-8 hours a day or more.

It is not hard to do - wake up with the Today Show. Watch Sports at the restaurant at lunch. Come home and "flop down in front of the tube and veg out", Eat dinner in front of the TeeVee. The watch your favorite "prime time shows" and finally, off to bed, nodding off to the "Late, Late Show" after watching the 11:00 news and Leno.

The time TeeVee takes from you is staggering. And the time could be better spend doing things around your house, organizing your finances, learning a new skill, reading a book, repairing your car, fixing a meal, or playing with your child. Instead, by watching TeeVee, you end up watching other people do these things instead.

Once we got Cable TeeVee, we stopped doing home improvement projects, and instead just watched home improvement shows.

The nature of TeeVee is also emotionally draining. The news is designed to depress you. Bad news sells. So if you watch it, you become convinced that everything is bad. Even during "good times" the TeeVee News paints it that the world is about to end.

The programs are no better - usually designed to titillate and convince you to stay tuned through the commercials. Like the news, the programs push an agenda of bad news. Futuristic stories are invariably about future dystopias where everything is bleak and grim. Crime dramas convince us that the world is crime-ridden (not true, actually) and the criminals run roughshod over the legal system (largely not true). Even the comedy shows perpetuate stereotypes that everyone is engaged in promiscuous sex. All the shows pander to the lowest common denominator and are aimed at a 8th grade educational level. When you watch TeeVee, you are doing the ultimate "dumb down".

And the commercials oftentimes load up your mind with the worst sort of normative cues. Most are ads for outright rip-offs if not just bad deals.

The only solution to TeeVee is avoidance. I check out videos from my library or on netflix. If a TeeVee show is any good, you can get it on DVD shortly after it runs. Most are not very good. The acclaimed "best show on television" for the last few years was the HBO series "The Sopranos". After watching every episode, I can say that it was a mildly amusing soap opera, with little or no "story arc", no point, and no moral or theme. It was just a string of incidents - what the executives call "character-driven" drama. It's just a bunch of stuff that happend, with no rhyme or reason. When the show ended with a blank screen, the writers were trying to tell the viewers this, but no one got it.

If that was the "best" of television, I'm glad I didn't waste more time watching more of it. The show "30 Rock" was supposed to be "critically acclaimed" so I went to the NBC website to download a few episodes. It was painful to watch. Not only was the humor inane (and hardly subtle) but the 22-minute format, chopped up into small scenes, made it seem entirely superficial.

Save television for special occasions. The good news is, with the Internet and video on demand becoming the next wave of TeeVee, the idea of sitting and "channel surfing" for hours will be dead soon. You will be able to pick and choose what you want to watch, when you want to watch it, instead of watching old reruns on the History channel along with tons of ads for SUVs.

9. The Friend with Perpetual Problems: This is different than #1 above, in that the friend does not have one unsolvable problem, but rather a series of crises that you have to solve.

I have a friend who comes to me with any and all pieces of paper than cross her path in life. If she gets a letter in the mail from the bank, she wants to know "What does this mean? How do I handle it?" Of course, I try to be helpful, so I call the person or organization involved and investigate for her, or straighten it out, and help her with the paperwork.

I like to help people, but this does get to be a bit much, sometimes, particularly when the friend refuses to learn to fend for herself for these fairly simple matters. There reaches a point where they are not asking you for assistance to learn how to do something, but rather are using you as a personal secretary.

The only way out of this fix, is to just say "Sorry, I can't help you" after you've explained the same thing once or twice before. There is no law saying you have to be a Patsy.


* * * * *

Preserving, conserving, and marshaling your emotional energy is an important part of your financial life as well as emotional and even physical. If you are constantly worrying about things or being dragged down by Emotional Vampires, you can literally make yourself sick. In addition, these folks will drag down your emotional energy to the point where you don't have the time and energy to balance your checkbook or think about your finances.

Be kind to yourself. Very few others will. There is nothing wrong with making sure your own emotional state is sound. If you do so, you may prevent yourself from becoming an Emotional Vampire - feeding off the energy of others. Because once you have been drained of all your emotional energy, then you become the victim, and the only way to replenish yourself is to feed off others.

Tuesday, January 20, 2009

Conspiracy Theories & Other Time-Wasters

 How does believing in a conspiracy theory improve your life?  It doesn't. It just makes you paranoid, unhappy, and unpopular.

You may have noticed a theme in my posts. I don't put up with a lot of nonsense. Take your tax protesting, UFO theories, conspiracy theories and all that other junk elsewhere.

As Jack Nicholson once said, "go sell crazy somewhere else, we're all full up here!"

The problem with these conspiracy theories and the like is not that they are necessarily completely untrue (there is usually a nugget of truth in most of these, but usually it is overwhelmed by a mountain of nonsense, conjecture, and just made-up stuff). No the problem is, they are huge time-bandits - time wasters, and also emotional drains.

Your emotional state is important when it comes to finances. If you are depressed, angry, upset, stoned, or otherwise in an altered state, it is hard to make rational decisions in your life (See my article: "They're BAITING you!" in this blog).

People with serious emotional and mental health problems rarely have their financial house in order, which often compounds their other problems in life. But there are a large number of people out there who are "functional" and yet squander much of their time and energy (and emotional energy) on things that they can little affect.

The pattern I often see is conspiracy theories and political junky-ism. Both can consume a person's life, and both do little to help an individual with their own bottom line. Both take up enormous amount of man-hours in terms of time.

I've had friends regale me with tales of "Area 51 cover ups", "Kennedy Assassination Theories", "Oil Company Conspiracies" and "You Don't Have to Pay Income Taxes" stories. These folks have devoted hours and hours of their lives into getting worked up over these things, often to the detriment of their own mental health and well-being. Since 9/11 the latest addition to this genre is the "9/11 Truther" - who believes that the entire 9/11 incidents were all the result of carefully choreographed mass-deception on a grand scale.

There is also a religious angle to this sort of thing. "End Times" theology can be a huge time-waster and also sap the soul out of a living human being. If you go through life thinking that Armageddon is going to happen any minute now, then why bother saving money for your 401(k)? As a result, many of these folks give all their money to their church, banking on the Rapture as their retirement plan. (End Times theology and the Rapture were not really developed as religious theories until the 1800's, which makes them highly suspect as religious dogma. Of all the hundreds of thousands of verses in the Bible, this "theology" is based on three or four vague verses taken entirely out of context. But that's another story).

The tax protester (or tax denier) merits special mention, as these folks not only waste huge amounts of time and emotional energy, they usually end up in trouble with the IRS, and thus in real serious financial difficulty. However, such legal action serve only to prime the pump on persecution theories, which in turn reinforces the behavior instead of abating it.

The point is, obsessing over some conspiracy theory or whatever does little to add to your own personal bottom line. YOU are not going to "solve" the mystery of the Kennedy Assassination, or expose the mysteries of "Area 51" no matter how hard you blog about it. You can tithe all you want, but if the Rapture doesn't happen in your lifetime, chances are, your retirement is going to be marked by poverty and suffering (and a genuine feeling of being had).

In addition, espousing such theories to others (which the conspiracy theorists love to do) will mark you as a wacko. Do this at work, and you can kiss that promotion goodbye. The first chance they get to lay someone off, I can guarantee it will be you. (Forget about showing up later at work with your gun, that never works out very well, trust me).

"Well, I'm entitled to my opinions!" you shout. True enough, but the rest of us don't want to hear about it. Also, is obsessing about opinions really doing anything for you? Opinions are like assholes. Everyone has one, but no one wants to see yours. You can spend a lot of time and effort writing letters to the editor, protesting, shouting your ideas to the world, but in the end, the only two things that matter in most people's lives are their VOTE and any MONEY they can donate to an election campaign. If you are broke because you are obsessing about conspiracy theories or politics, then you cannot contribute the latter.

Never squander your emotional energy on anything that is not productive to your personal life. What do I mean by this? Well, consider the example of Katherine Hepburn. According to one biography, Ms. Hepburn kept a closet full of identical clothes in her bungalow in California - tan khaki pants, knit shirts, and pairs of loafers. She wore the same outfit to work every day. As she explained it, Most people, when they get up in the morning, waste half their emotional energy of the day just picking out their clothes. Since she was going to go into wardrobe as soon as she reached the movie studio, why obsess over what to wear?

Hepburn's example is interesting. As a former law-firm lawyer, I can attest that one of the least enjoyable aspects of the job was scrambling to find something to wear every day - a suit, clean shirt, tie, and make it all look good, but yet different that what you wore the day before. For women, this task is even 100 times more difficult. By the time one gets up, gets showered and shaved, dressed, and commutes to work, half the energy for the day has been exhausted.

Wasting additional energy getting angry at the trilateral commission or the John Birch society just doesn't make much sense. In addition, one thing I tend to notice is that the obsessive political junkie or conspiracy theorist tends to use these things to cover up other areas of their lives. If you can fill your mind with smoke and noise, perhaps it is easier not to notice your marriage is failing or your finances are going down the tubes. It is alcoholism without the alcohol.

How do you know if you've become a political junkie or conspiracy theorist? Well, if you are spending more than an hour every day on a particular website, you might want to re-think your priorities. If you can't go for a day without visiting some website, then maybe you have a problem.

If you are married to such a person, life can be problematic, and usually ends in divorce. It is hard to raise a family and save for the future if your husband believes that the world will end in 2012. Similarly, it is hard to have friends and acquaintances when your spouse regales them with the latest theories on the Kennedy assassination or 9/11. Such things can be a turn-off to others, including co-workers. So when your spouse gets "laid off" and spends his days in the basement blogging about 9/11 ("Fire can't melt steel") maybe it is time to call it quits.

TIME is one of the most precious assets you have. Most people squander time by watching TeeVee, which tends to educate very little and when it does, in the wrong ways. TeeVee teaches people to consume and to accept bad bargains without question. TeeVee is a time robber, period. If you don't have money, that's bad. If you don't have time, then you'll never have money either. Notice some time how people who are poor or "living paycheck to paycheck" complain they have "no time" or are "too exhausted" at the end of the day. And then look to see how big their TeeVee is. Chances are, it's huge.

Conspiracy theories do about the same thing - they take up hours and hours of time, and also raise the blood pressure and can negatively affect health. The lesson of the conspiracy theory is "don't bother, the system is fixed". There is no point in trying to "get ahead" because the system is stacked against you. To the conspiracy theorist (or political junky) the only way to get ahead is through intrique or revolution - outlets sorely lacking to the common man. So they just give up entirely, and live embittered lives, convinced that "but for" the Warren commission or whatever, they could be much more successful and wealthy, without having to work.

Why does TIME wealth lead to financial wealth? Because if you have time, you can learn new things that help you to save money or make money. If you have time, you can go to the library, check out a book on cooking, and learn to make a meal for a family of four for less than $10. If you don't have time, you buy restaurant take-out or frozen pre-made meals and spend $20 to $50. Time allows you to work on your own life, improve your own condition. Time bandits steal that from you. TeeVee, Drugs, Alcohol, are all commonly known time bandits. Conspiracy theories and political junky-ism is another.

And that's just an example. If you have TIME, you can go to night school (as I did for nearly 14 years) and get a degree and improve your life. If you have TIME, you can properly research the purchase of a used car - and learn how to repair it when it breaks. If you have TIME, you can do your own home repairs - instead of watching other people do them on TeeVee. TIME truly IS money. And Conspiracy theories are a waste of TIME, as there is nothing you can do about the underlying conspiracy, if it existed in the first place.

The problem is, these types of behaviors are not easy to control - and may in fact, be a form of mental illness. It may be helpful to watch early on for signs of such problems - or find other activities as a more useful outlet.

Me? I write this blog.... Perhaps no one reads it, but it helps hone my typing and writing skills.

Or is it just a time badit, too? Hmmmmm.....

P.S. - To all those "true believers" out there, please note that I do live on Jekyll Island, the birthplace of the Federal Reserve.  Just a coincidence?  I don't think so!   ;)

Funny Money

I have mentioned before how the ready availability of Student Loans in the last two decades has caused college tuition to skyrocket.

The theory is simple. If a student can sign some papers and get "free" money, then the cost of college is no longer an issue.

"But," you say, "They have to pay that back!"

True enough, but the problem with students, is that they view the person paying it back as some old guy that isn't them. Since student loans can be deferred for years, many students may not start paying back loans until years after college.

They think "Well, that old fart will have plenty of money. In the mean time, let's have another beer!"

I know this because I saw it firsthand, and also did this myself. I borrowed over $30,000 to help pay for law school, and much of that money I did not "need" but they were more than happy to loan it. In addition, while we all groused about tuition going up, none of us seriously protested the issue, as the loan money always seemed to cover the increases.

Now granted, in my example, my income rose sufficiently after school that I could pay off the loan, and it was a good "investment" in my future. However, I've seen other students borrow $100,000 or more for their education, and later on have trouble paying it back.

In many instances, students live a better life as students, than they do as employees later on (having to pay off all that debt).

The housing crises is an example of the same phenomenon. Free and easy loans meant that housing prices skyrocketed. People bought houses with nothing down, with low monthly payments, balloon notes, toxic ARMs, etc. on the premise that "down the road" they would sell the house before things got out of hand. In other words, that old fart would have to deal with it, but today, let's have another beer.

The problem with this scenario is the same as the student loans - eventually someone has to pay the bill, and that someone is you.

People have this disassociative nature when it comes to themselves over time. They view themselves as a being of the now, and the person of tomorrow, well, that's another person. Perhaps from a metaphysical standpoint, this is true - we all live in the instant, and are constantly re-invented, moment to moment, with only the memories of our prior selves connecting us together.

However you view this philosophically, the fact remains that Joe of Today can really put the screws on Joe of Tomorrow. And similarly, Joe of Today may have already been screwed badly by Joe of a day or a year or a decade ago. The decisions we make now affect our future. This seems like a silly and obvious point, but for many people who fall down our economic ladder, this seems to be the fundamental point they miss.

Payday loans and other high-interest scams that exploit the poor function on this same principle - get money NOW and to hell with the person you will be tomorrow. But you always wake up tomorrow and curse the yourself of yesterday in the process.

Getting rid of "funny money" is one way to eliminate this problem. If student loans were based on NEED and not perceived ability to repay, college tuition might not rise so dramatically. If students had to pay tuition by working, tuition would drop dramatically.

Similarly, if home mortgages were limited to fixed-rate notes with substantial (20%) down payments, the price of homes would drop dramatically, as the number of folks who could save that much would drop. The irony here is that laws designed to make it "easier" for the poor to own a home served only to increase home prices accordingly - often pricing them out of neighborhoods or placing them into toxic loans that they would inevitably default on.

The tightening of "funny money" may be a moot point by now. The tightening credit market is correcting itself in this regard, and as a result, home prices are plummeting - and do not look to skyrocket again in the near future.

THIS IS A GOOD THING. As home prices drop, workers can afford to live for less money. This means their wage demands can be less, and as a result, our country can be more economically competitive in the world.

Unfortunately, it seems the politicians solution to the problem is to "prime the pump" with more "funny money" and start the process all over again. We'll be back where we started in no time.

Friday, January 16, 2009

The DEATH of Retail

Circuit City is liquidating, finally. Linens 'n Things is no more. Retailers are complaining that the market is "down" and look forward to an uptick in sales in the future.

I hate to break it to them, but this shift in retail sales will likely be a permanent thing. Our population is aging, and spending less. The Internet makes price shopping a snap (or a click, anyway). Big-box discount retailers like Wal-Mart and the shopping clubs offer big-ticket items at small-ticket prices. Why go to a Consumer Electronics Store when you can buy the same stuff for cheaper at Wal-Mart?

Electronics, in particular, is one area where prices have changed permanently. We should have seen this when the CD came out - and put audiophile quality sound in the hands of everyman. Suddenly, overnight, analog vinyl recordings become passe and quaint. (Note to so-called audiophiles: Please don't try to convince me that scratches, pops, and static sound better than digital sound, because it just ain't so!).

The downfall of Circuit City is one area where people just don't get it. Folks blame the management for dropping major home appliances, or getting rid of sales commissions or expensive salesmen. These were not the CAUSE of the demise of Circuit City, but merely a symptom of the problems in the overall consumer electronics market. The salesman's commission model, with the "hard sell" of financing and extended warranties just didn't work in an era when you could buy the same (or similar) goods for HALF PRICE at a discounter across the street.

One fellow commented about the former President of Circuit City:

"The people he fired happened to be the ones who knew what they were talking about when it came to electronics and those sales people went to work for the competition, taking their customers with them."

I think that comment misses the mark, completely. What killed off Circuit City was the changing nature of consumer electronics. The electronics sector is changing. He had to fire the highest paid people just to stay alive. Why should I go to Circuit City or any other "big box" store and talk to a "salesman" about an electronics purchase, when I can go to Wal-Mart, Sam's Club, Price Club, or the like and just put these things in my cart and check out? Or buy them on the Internet for cheap?


A 42" flat-screen teevee is now $600 to $800. This is not a 'big ticket' purchase that requires financing, extended warranty, or a "salesman" to "help you choose the right one!"

Circuit City made money by marking up electronics and selling add-ons like financing and extended warranties. When prices fall, these add-ons are no longer necessary.

Car Stereo is another area where the game has changed. Most cars come standard with 8 or 12 speaker stereos, so who needs an aftermarket one? And am I going to let the teenagers at Circuit City cut into the wiring harness of my BMW to install one? I think not. That whole market has shrunk.

Consumer electronics are now CHEAP and DISPOSABLE. Digital processing means that consumer-grade electronics are now on a near-par with what used to be considered "audiophile" electronics.


As for appliances, the big-box lumberterias have this nailed down. Circuit City could not go head-to-head with Lowes or Home Depot, which don't have to pay sales commissions.
The Circuit City model was completely wrong for this market. Electronics are a commodity now - like a bushel of beans. You sell them for as cheaply as possible and in mass quantities. The idea of going to a dimly lit store and spending hours selecting components with a salesperson is outmoded.


Maybe in 1975, we'd go into the "high end" stereo room (with sliding glass doors, natch) in hush awe at the "audiophile" speakers and receivers. But no more.

In addition, an aging population doesn't really care about those sort of things anymore. Heck, half of them are deaf from Rolling Stones concerts.

Yes, the sales people were fired. They probably took jobs at lower pay with other stores. But did customers "follow" them? Do I remember the name of the sales person I last bought a piece of electronics from? I think it was the Internet....

The so-called "downturn" in Retailing is not a momentary pause, but a permanent change in how we do business. When I want to purchase anything these days, I first check the Internet for pricing, and then locally for availability. Much of what I need can be ordered online for less than in a local store. So why would any rational person buy at a store?

The idea that the store provides "service" is ludicrous. Electronics, when they fail, as disposed of. Product returns on the Internet are as easy as at a store. So there is no advantage to buying at a store - and you pay more.

Traditional Brick & Mortar Retail is DEAD, and companies will have to remake themselves to compete.

The last thing I bought at Circuit City was an iPod, and that was after ordering it online and picking it up at the store. Before that, the last thing I bought at Circuit City was a $99 TeeVee in 1987. The experience was so unpleasant, I never went back (bait & switch, pressure to sell extended warranties, etc. BTW, the TeeVee still works, no extended warranty needed. But it is analog, so in the trash it goes. Electronics are DISPOSABLE, folks!).

Circuit City is just the start. Other consumer electronics retailers will feel the heat next. Best Buy is another unpleasant, overpriced buying experience that no one really needs. Maybe the selection is greater, but do I really need to choose from 50 different TeeVees? Just offer six or so, and lower the prices.

My next purchase will probably be a flat-panel TV. But I'll probably buy it online or at a discount store (Wal-Mart), rather than a dedicated consumer electronics store.
Why spend tons of money on a "high-end" screen, when they are basically a disposable commodity? It would be like paying extra for a "gourmet" Big Mac.

While Bed, Bath & Beyond may be relaxing now that their largest competitor, Linens 'N Things is bankrupt, I would caution them not to get too cocky. They already know that for many major ticket items, shoppers can buy online or at a big-box store. The last major purchase I made at Bed, Bath was a KitchenAid mixer. They didn't have it in stock, so the clerk went online and ordered it for me and had it shipped to my home.

Gee, ordering appliances on the Internet. What do I need the store for?

Not surprisingly, Bed. Bath, & Beyond has crowded their aisles with junky trinkets and impulse purchase items. Finding actual kitchen ware or bedding supplies is getting harder to do with the store stocking more gadgets and less real products. They are losing sales on hard items with small margins, so they are shifting to a Spencer Gifts model. At this rate, there won't be a kitchen knife or sheet left in the place in five years. Bed, Bath, & Beyond will be heading for the Great Beyond in no time.

My local town has miles and miles of retail space built in the last 10 years. Most of these storefronts are empty. What is it we need to buy so desperately? Companies are realizing that you can sell more effectively and efficiently on-line than through a "store". Need a cell phone? Go online and they'll mail you one. Why do you need to visit a "store" to do this?

Worse yet, when many folks visit local stores, they do so only to shop or look at products that they later buy online. Since the local stores are all anonymous chains run by faceless corporations, no one feels any guilt about using them merely to demonstrate products later purchased elsewhere.

Personal Services like barbers and the like will always require some storefront (but perhaps not - a mobile barber van could come to your home, no?). But the amount of retail space we have in this country far exceeds demand.

The retail market has changed and I think changed for good. Using traditional retail marketing strategies simply won't work any more. Relying on 100% impulse buying is not the answer either, I'm afraid. How the new retail works in the Internet era will be interesting to see.

Look for more store closings near you!

Saturday, January 10, 2009

Understanding Health Insurance

The Health Insurance system in America is a mess, no doubt about that. But the reasons why Health Insurance is so screwed up is not the reasons you may think. Everyone wants to blame "greedy health insurance companies" or "greedy doctors" or "greedy malpractice attorneys" but no one thinks about the other player in this game - greedy patients.

Patients, unfortunately, bitch and gripe about how high their premiums are, or how unobtainable coverage is, while at the same time moaning and groaning about how their insurance didn't cover their last bottle of aspirin. In order to understand the entire picture, you have to understand where each player has fallen down here - and that includes patients.

Patient - heal thyself!

To understand what went wrong with Health Insurance, we must first understand what insurance is, and then how, when applied to medical treatment, often works at cross-purposes.

1. What is Insurance? To many people, this sounds like a dumb question. And yet, most people in America today have a fundamental misunderstanding about what insurance is, or how it is supposed to work.

Traditionally, insurance was a technique whereby people would pool risk, in order to spread risk out among a large number of people, so that no one person is adversely impacted by catastrophic events

So, for example, in the old days, you bought a "fire" policy for your home, along with a large number of other folks. The odds of your home burning down were very slim, so the premiums were pretty small. If your home burned down, the premiums from all the people whose homes didn't burn down would pay for replacing your house

It was a great idea, and for the most part, it was a system that worked. Actuaries could calculate with extreme precision what the odds of your house burning down were, and then calculate an exact and fair premium, with a reasonable profit for the company built in. Unless everyone's house burned down, there was no risk that the insurance company would go broke.

Somewhere along the way, however, the insurance companies got lost. To begin with, in an effort to generate more business, many insurance companies started offering increased coverage. Instead of just "catastrophic" coverage, homeowners were now covered for such mundane things as a broken window, which formerly would have been paid for out-of-pocket. As a result, the number of small claims increased, and the insurance companies had to hire an army of adjusters and clerks to manage such claims (and prevent fraud). Homeowners became more adept at filing claims and less adept at repairing their homes. The idea of insurance as being more of a "cradle-to-grave" coverage took root.

This illustrates the first problem with traditional insurance: People became too used to insurance covering every little thing, instead of just catastrophic losses.

And as people started building homes in flood plains, hurricane zones, and the like, the number of claims shot up. In some regions, this meant that insurance coverage was nearly impossible to obtain. So State-mandated plans were enacted, along with Federal flood insurance, to allow homeowners to build homes in places that they perhaps shouldn't. Beach homes, which were formerly throwaway shacks meant for occasional summer use, became waterfront estates, all insured with government regulated flood and wind policies - at considerable cost.

This illustrates the second problem with traditional insurance: the risk was no longer being spread.

Hurricane insurance in Florida, for example, is so expensive that many homeowners can barely afford it. For many a homeowner, doing home repairs is a foolish waste of money. If your roof is 20 years old and needs replacing, the last thing you want to do is repair it yourself with your own money. Rather, it makes much more sense to wait for the next hurricane to blow the roof off, and then have the insurance company pay for the repairs.

Insurance in Florida is no longer a matter of spreading risk out among a large number of people, but instead, spreading risk for individuals out over a period of time. You may pay $5000 a year in homeowner's insurance, but over time, you end up collecting about the same amount in claims, as the odds of a hurricane hitting or damaging your home are about even. In Florida, it is not a matter if IF you will get hit, but WHEN.

So your homeowner's policy becomes less of a catastrophic coverage vehicle, and more of a home repair piggy bank that you pay into over time, and then cash out of whenever there is storm damage.

As a result, insurance is now "expensive" for individuals. But considering that most people get out, in terms of claims, a substantial portion of what they pay in, it is really not as costly as one might assume.

The problem with this "everybody gets paid" approach to insurance is that the overhead costs can be quite high. If a homeowner wants to put a new roof on his house, he is motivated to find the best bargain possible. If the insurance company is paying for the roof, the homeowner doesn't care how much it costs. Throw in the overhead of claims adjusters and forms and processing, and a $15,000 roof can easily cost $30,000. So while the homeowner is getting a "free roof" out of the deal, the overall cost to society is much higher than it should be.

2. How does this apply to Health Insurance? Well, OK, there are problems in the homeowner's insurance market, you say. But how does this apply to Health Insurance? Well the same problems afflicting the homeowner's insurance market are also afflicting the Health Insurance industry.

Traditionally (e.g., 1950's and before), one would purchase a "hospitalization" policy to cover the possibility of a catastrophic accident or illness. For most people, the chances of having such an event in their lives was small, so the risk was low and premiums were low. In addition, hospitals were not as expensive as today, and the basic treatments were not as costly. So the payouts were smaller.

Old-school hospitalization insurance was a classic example of spreading risk out over a group of people.

But as the Health Insurance industry expanded, coverage increased, in part to sell more policies, and also as a means for employers to offer a tax-free form of compensation to employees. For example, to appease striking UAW workers back in the 1950's and 1960's, General Motors offered increasingly lucrative health insurance plans. These were attractive to workers, as they were not taxable, like wages, and moreover encouraged workers with families to stay with the company. At the time, costs were relatively low, so it was an easy giveaway for the company. The long-term costs of such plans was a problem for future management. And so long as the company maintained a 60% market share, it was not foreseen as a problem.

So instead of just catastrophic hospitalization coverage, more and more people started demanding coverage of everyday items - doctor's visits, prescription drugs, tests, routine physicals, dental coverage, mental health, outpatient treatment, and the like. At the heyday of the Health Insurance business, if you worked for a major Corporation in America, nearly everything was covered, with no "co-pays" or deductibles. But then things started to unravel.

Just as in the homeowner's example above, costs got out of control. If the roof on your house is being paid for by the insurance company, then there is no incentive to shop around for the best prices. Rather, you'll shop based on what is perceived to be the best roof, period, regardless of cost. And if the insurance company will replace your roof every year, well, you might want to put on a new roof just to change the color, right?

The same thing happened with medical. Once everything was "free", there was no incentive to shop around or reduce costs. When I was younger, it was routine to go to the doctor for a head cold. The cost? Nothing. Insurance covered it. One never even saw the bill.

Since insurance companies were not as astute as individual consumers in scrutinizing costs, doctors and hospitals charged what the market would bear, which turned out to be a lot. Costs started spiraling out of control. In the 1980's, many insurance plans started instituting co-pays and deductibles. Insurance carriers started negotiating flat fee prices with doctors, in order to reduce costs. And lamentably, insurance companies started pressuring doctors to limit costs per patient by offering bonuses and the like to doctors who spent less per patient.

The insurance industry took some wrong steps at that point. One was the idea of positing themselves as "Health Maintenance Organizations" (HMO) rather than a simple insurance company. The very name implied that the company would maintain your health. When HMOs cut costs and refused to pay for certain treatments, they were soundly sued in court when patients died as a result.

This was the fault of the insurance companies themselves, to some extent - by training patients to look at their services not as insurance, but as a "pay for everything" maintenance organization, the insurance companies took themselves out of the insurance business and got into the medical business - a business best left for doctors.

Another problem caused by insurance itself was the standard of medical care. In the old days, there was not much a doctor could do to bring you back to health, other than use antibiotics, some primitive forms of surgery, and bed rest. More esoteric forms of medical care did not exist, and the number of drugs available was pretty small. With insurance money paying for nearly unlimited medical care, the amount of care increased proportionally.

There is no argument that this aspect of the "health care crises" is arguably a good thing. We have treatments and drugs available to us today that were not dreamed of back in the 1950's. To some extent, we have the explosion of insurance-money to thank for this explosion in treatment options. But none of this was free, of course. The MRI is a great diagnostic tool, but a simple scan can run $1500 or more.

Doctors order tests such as these because they can - and to avoid malpractice. In the old days, as they used to say, a Doctor buried his mistakes. Today, a Doctor is not allowed to make any mistakes at all. Medical Malpractice has become such an industry that it has enriched hundreds of thousands of lawyers. The son of a mill worker can now become a multi-millionaire, Senator, and even run for President, thanks to the lucrative nature of Medical Malpractice. It is such a lucrative and powerful industry that they can afford to hire lobbyists and insure that their business remains unregulated. And, as noted, they can even afford to run a candidate for President.

The problem with the Medical Malpractice industry is that it does little to prevent malpractice and it does little to help patients who are victims of malpractice. Lawyers take the lion's share of money from the settlements in these cases, not the victims. And some "victims" are less than real victims. In Washington DC, for example, one "Med/Mal" law firm advertises on television, suggesting to viewers that if their child is not doing well in school, that perhaps they should sue their pediatrician - for some alleged harm from childbirth years ago.

The Med/Mal lawyers will argue that the total amount of damages paid out for their cases amounts to small percentage of the overall cost of medical care in this country. However, what this calculation fails to take into account is the additional costs incurred by Doctors who spend more time covering their potential malpractice liabilities by ordering unnecessary tests than they do treating patients. The "make one mistake and you're dead" mentality of the Med/Mal business increases costs dramatically for the overall industry. Oh, and by the way, even if the cost of malpractice suits is "only" a few percentage points of the overall cost of health care in this country, that is still a staggering amount of money.

3. What's wrong with Health Insurance Then? As illustrated in the Examples above, risk is no longer being spread out, as in traditional "insurance". Each of us pays into a system now, and expects payouts as part of that process. Like a homeowner in Florida, we pay high premiums, but fully expect to be paid back every few years with a new roof.

In fact, the largest gripe most patients have is that they are not "getting back" enough in payouts from their plan, for the amount they put it. This model stands the entire insurance concept on its head - it no longer is spreading an occasional (rare) risk among thousands and thousands of people, but rather is just shifting money from one pile to another, adding administrative costs and a profit margin along the way.

In order to remain "competitive", Insurance Companies have resorted to "cherry picking" their clients to keep rates low. Thus, if you are young, healthy, and male, you can get health insurance at a fairly low rate. However, if you are older, have a history of health problems, and are female, well, you might find yourself insurable.

Again, this stands the entire model of "insurance" on its head, as by cherry picking clients, the risks are being artificially lowered, which in turn lowers premiums. But that leaves other patients out in the cold.

Now, granted, insurance companies have done similar things in other arenas. For example, if you own a brick house with a built-in sprinkler system and fire alarm, your premiums would be a lot lower than if you had a wood-framed house with no sprinkler system. But, rather than cover only the brick houses, the insurance companies cover all homes, but adjust premiums to encourage homeowners to install these systems.

Health is often something that one has no control over. We might be able to quit smoking and lose weight, but cancer hits almost randomly. It is not fair to deny coverage or to jack rates based on health, when it is less in the control of the patient.

As a result of these practices, Health Insurance, like the homeowner's policy in our Florida example, is no longer an example of spreading risk over a large number of people, but a matter of spreading risk for a single person over time. For many people, the cost of health care premiums is equal to their health care costs.

For example, if you are between 60-65 years old, you are not old enough to receive medicare. However, if you don't have insurance through a place of work, you might find your health insurance premiums staggering - $20,000 a year or more, in some instances. The reason the premiums are so high is that the insurance company is betting that you will file a claim in that amount during the time of the policy. Your risk is not being lumped in with the risks of a 20-year-old, but only with yourself. In effect, we are all buying group policies, with everyone in a group of ONE.

Now to be certain, we do desperately need some mechanism to control costs in health care. Patients should be cognizant of costs and try to pick doctors and treatments based on what is the best value and also what is really needed. Health care might initially seem like an inelastic commodity. If you need a heart transplant, you need a heart transplant, and there is no acceptable substitute. However, experience has shown that this is not always the case for other, less dire, conditions. Surgery might help a 40-something with a pinched nerve in their back or neck, at the costs of tens of thousands of dollars (and risk to the patient), but on the other hand, some patients outgrow this condition or find massage and other treatments to be just as effective, if not more so.

Dental coverage is an excellent example of this phenomenon. While visiting my (former) Dentist, she told me I needed to have an extensive treatments for my gums, and that my bite was wrong and I would need my jaw broken and reset. And have I considered braces and teeth whitening? From this description, you'd think I had "British Teeth", wouldn't you? When I asked about the cost of all this, the Dentist said, "well, your insurance will cover most of it!"

When I explained that I did not have Dental insurance, suddenly all these "necessary" treatments were no longer needed. I went to another Dentist for a second opinion, and he said my teeth were fine. Brushing and flossing and regular cleanings were all I needed to have healthy teeth for the rest of my life. The treatments recommended by my other Dentist were mostly cosmetic in nature, and would have been handy should I decide to become a television anchorman. But for me, entirely unnecessary.

The example illustrates, however, how the perception of available money skews recommendations for treatment. One would think that medical treatments would be recommended based on technical need, based on expert opinion. But as in any human endeavor, there is a wide range of variation. Once costs are considered "free", the range of options increases accordingly.

Thus, co-payments, deductables and the like are bound to be permanent part of the landscape. Socialized Medicine, as illustrated by the examples in other countries, may make medical care available to all, but often results in the rationing of medical care, as systems become overwhelmed by patients demanding "free" services.

Experiments in medical savings account plans have largely failed, mostly because insurance companies do not support them. Such plans would have set aside pre-tax money for patients to spend as they chose on medical care. Early plans were draconian - if money was not spent by the end of each year, it was lost. Not only did this discourage participation, it forced patients to spend money on medcial care (eyeglasses, dentists, etc.) or lose it - the opposite of what a rational spending control system should do.

Later medical savings account plans failed as well. Congress limited participation, on groudless fears that such plans would be a "giveaway" to taxpayers. As a result, few insurance companies participated in such plans, and as a result, premiums were higher than in traditional "cradle to grave" health insurance plans. The entire franchise was sandbagged from the get-go.

Given the troubles in the economy, it seems that some sort of Health Care Reform is inevitable in the long run. American corporations cannot compete with their overseas counterparts, largely due to dramatic differences in health care costs. When consumer activists rally for Health Care Reform, Congress can safely ignore them. When General Motors pushes for it, something will get done.

4. So What Can I Do? In the meantime, many of us are "stuck" in the middle, with high health insurance premiums, or unobtainable health insurance. If you are still able to obtain health insurance, however, you should do so, even if the plan covers very little.

Even a high deductible ($5,000 to $10,000) plan has benefits. To begin with, such a plan is more of the traditional "insurance" that we all should be expecting, rather than the "cradle to grave" coverage we all want. If you need a kidney transplant, you'll come up with $10,000, trust me, even if means selling a car. Expecting the Insurance Company to pay for every little thing, while keeping premiums low, is unrealistic.

In addition, another benefit of such a plan is that it provides you with access to pre-negotiated pricing for many health care services. Thus, even though you may have to pay for some services yourself, at least you are getting the lower prices that Health Insurance Companies have negotiated. Paying as a "cash" customer (uninsured) generally means you often have to pay 50%-100% more for any given service. So even a minimal health care plan is better than none.

And of course, a plan like that will give you the coverage you really need - catastrophic coverage for life-changing events. They are far less likely to happen (and let's hope they don't!) but that is where your real risk lies - in a debilitating illness or accident - than in daily health care problems.

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Our Health Insurance industry, like the insurance industry in general, is a mess. This mess, however, is not the fault of any one actor, but something we all share the blame for. So long as patients demand extensive coverage and low premiums at the same time, the insurance companies will continue to "cherry pick" their customers and move further and further away from the insurance model and toward the "health care provider" model.

One sure way to fix this problem is to go back to treating insurance as insurance - something that covers unlikely and catastrophic events. If we keep demanding our insurance pay for our Asprins, the cost of Asprin is sure to contine to rise.