SUNDAY, NOVEMBER 14, 2010 PERSONAL FINANCE
Forethought onmental accounting
BY BOB FRICK
out?My wife is sick and needs medicine that I can’t afford. Just two hundred bucks. Please. I’mbegging you.” The high roller says: “That’s
A
some sad story, partner. But how do I know you’re not going to gamble with that two hundred dollars?” The guy says, “Oh, I got
gamblingmoney.” What the guy really has,
aside fromchutzpah, is a bad case ofmental accounting. This is a psychological phenomenon that causes us tomentally separatemoney into different accounts—such asmoney for bills andmoney for vacations. Sometimes that canmake
sense. But it can alsomake us behave irrationally. Behavioral- economics pioneer Richard Thaler, who first described the phenomenon, gives the example of cab drivers who tend to knock off for the day after they’ve reached a certain level of income—in other words, after they’ve filled a certainmental account. On a rainy day, when cab use is highest, they’ll hit theirmark quickly and knock off early. On a slow day, they’ll work longer. Irrationally, they’re working fewer hours whenmaking money is easy andmore hours when it’s hard. Mental accounting leads us
to hoardmoney in a savings account that earns 0.3 percent interest while keeping a high balance on a 15 percent-interest credit card.We like the psychological comfort we get fromhavingmoney in the bank, even though transferring cash fromsavings to pay off a credit- card balance can essentially “earn” us a quick 14.7 percent.
Running the numbers Under the rules of traditional
economics,mental accounting shouldn’t exist, becausemoney is fungible—one dollar is exchangeable with another dollar. But we all know that’s not how it works. For instance, it’s painful to use dollars from your vacation fund to replace a broken furnace. And we regularly suck the
fungibility right out ofmoney. Instead of giving perfectly liquid cash as a present, we buy someone a gift card. That limits themoney’s utility, but it also scores in the recipient’smental “gift” account. On a grand scale, the U.S.
government learned a hard lesson aboutmental accounting in 2008. Remember when it gave us $96 billion in stimulus money so we’d spend it to boost the economy? Instead, we saved most of it, probably because checks fromthe U.S. Treasury don’t go into ourmental spending-spree account. (Uncle
Samshould havemailed us $96 billion in gift cards.)
Make it pay Financial planners recognize
thatmental accounting is a powerful force, and they use it to their clients’ benefit. For example, they know thatmany clients enjoy the thrill of trading securities. “It’s something that’s deeply
rooted in a lot of us, and I don’t try to change it,” says Ara Oghoorian, a planner in Studio City, Calif. Instead, Oghoorian and other wise planners sequester trading in a small account—5 percent of total assets atmost. If you have the itch to trade, scratch it with a mad-money account. It will save you fromtaking unnecessary risks with the lion’s share of your investments. Planners also encourage investors not to view their portfolios as a collection of different accounts. If you do, youmay be tempted to sell a
guy walks up to a high
roller in a casino and asks: “Could you helpme
Social-media scams abound, but they can be avoided
BY CASEY MYSLIWY Social-mediaWeb sites, such
as Facebook, Twitter and LinkedIn, have become fertile hunting grounds for bad guys phishing for your ID, angling for yourmoney or hoping to redirect you tomalicious sites. Be on the lookout for these three scams:
Money transfers You get amessage froma
TIM GRAJEK FOR THE WASHINGTON POST
friend saying that his wallet has been stolen while traveling, and he needs you to wire him money. Because themessage seems to come directly from someone you know, youmight be tempted to help. But if you receive one of thesemessages, get in touch with your friend— offline—to find out what’s really going on. This scamfirst showed up in
specific asset that tanks, or buy more of one that has excelled— in other words, sell low and buy high. Regard your portfolio as one account for a specific goal. One particular quirk of
mental accountingmay be holding investors back from earning higher returns in this low-rate environment. Planner Bill Parsons of Scottsboro, Ala., sees clients who are wedded to the idea of an income account that collects interest payments frombonds and CDs. Often this account acts as a substitute for the paycheck that retirees once received, but with interest rates so low, investors don’t earn much. The key, Parsons says, is to
move clients fromamental account labeled “income” to the idea that “total return is the only thing thatmatters.” He encourages themto holdmore stocks and take gains for income. — Kiplinger’s Personal Finance
e-mails, and the social-media version works in a similar way: A hacker hijacks your social- media identity and then contacts your friends, usually through a privatemessage, status update or chatmessage. Because hackers typically send the samemessage to several friends, you can usually identify the scheme based on the simplicity of the request. “Scammers try to keep their messages generic,” says Chester Wisniewski, of Sophos, a data- protection firm. “They won’t answer any kind of question that is off the beaten path.”
Applications Youmight see an update
froma friend inviting you to take a quiz, view a “shocking” video or sign up for a free offer. Clicking on the link directs you to an application that asks for personal information—phone
6 F
acebook andGooglehave beeninthenews for the wrong reasons lately.
The socialnetwork is inthe
doghouse for themisuse of some users’data by applications it installedontheirpages.TheWeb- services giant earneditself multiple government investigations—including an inquiry launchedby theFederal CommunicationsCommissionon Wednesday—for collectingdata frompeople’swirelessnetworks aspart of its StreetViewmapping project. Bothof these episodes show
thatweneedtoupgradehowwe think aboutprivacy online— startingwiththe vocabularywe use. TheFacebook andGoogle
issueshave bothbeencalled “breaches.”But they’renot.The informationat stake ineachcase was alreadypublic by any meaningfuldefinition. Itwould have remainedpublicnomatter howgoodor evil the two companieshadbeen. InFacebook’s case, thedata
consistedof the basicparameters ofpeople’s accounts:Theirname, picture, gender andnetworks, all ofwhichFacebook alreadymakes public to all of the 500-million- plususers onthe site.Unless you change itsdefault settings or
ROB PEGORARO Fast Forward
you’re younger than18, that informationis also visible to anybody online. Facebook’s ownrulesprohibit
applications fromusing these data for their ownpurposes, and thePaloAlto,Calif., companyhas since crackeddownonapp developers andbannedonedata broker fromdoing business on the site. But if you’re onFacebook, your
basic identity remains as visible to everybody else onthe site as before—inthe sameway the WhitePages broadcast your identity to anybodywho still gets thephone book. If youwant to be angry about
all that,don’t gripe about evil app developers orWeb coding by Facebook thatmade it too easy for themto capture thisdata.You shouldblame the site for its default settings. Unfortunately,without an
effective competitor for Facebook, your only viable
HELP FILE
Q: I’ve had AT&T’s unlimited-data plan since 2007, but the carrier cut offmy service thisweekend.
A: Yes, you’ve read a version of this question before. In a JulyHelp File column, I addressed a query from a reader who was charged an overage fee on an allegedly unlimited, data- only wireless plan. At the time, AT&T said this and other customers had altered their accounts in ways that kept them from continuing their service. This time around,Harold
Hamblet of Savannah,N.Y., hadn’t changed anything since renewing his service in 2009. But he was still met with a demand to sign up for a new, $60 DataConnect plan with a 5- gigabyte cap or close his account. AT&T spokeswoman Jennifer
Clark said that didn’t matter. She wrote that the carrier, having ended support for the unlimited option, no longer lets longtime subcribers keep a grandfathered
status. They need to switch to the same plan as a newsubscriber. The Dallas-based firm didn’t
mention any such impending change in July. Clark’s explanation: “Your inquiry was in July—before we enacted this policy and began proactively communicating to customers in August to educate them of their two options.”
Q: My Mac doesn’t see its Magic Mouse after I change the batteries.
A: Apple’s Bluetooth wireless mouse can fail to pair itself with aMac automatically after a battery change. If flipping the switch on the
bottom of the mouse back and forth to repeat the pairing process doesn’t work, I’ve found that popping out the batteries and then popping them back in will talk it out of its sulk. Apple’s site offers other tips at
support.apple.com/kb/TS3048.
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protest against itsdefaults besides closing your account is to postmisleadingpublic informationinyourprofile. (Disclaimer:PostCo.
ChairmanDonaldE.Grahamsits onFacebook’s boardofdirectors. Youmay also see this itemget promotedonFacebook by the Post, as thepapermarkets itself extensively onthe site.) InGoogle’s case, theproblem
beganwithpeople leaving their wirelessnetworksunencrypted. Peoplehave beenneglecting to take this simple stepsince the arrival of consumer-gradeWiFi routers, either because they’re confusedabout itsnecessity (see thepuzzledquestions about it in this 2004 chat transcript) or becausemost routers’hideous configurationinterfacesmake it toodifficult to activate strong “WPA” encryption. For example, this summer,
Wirednotedthat JaneHarman (D.-Calif.), chairmanof aHouse subcommittee onintelligence, informationsharing and terrorismrisk assessment,had leftherDistrict residence’s wirelessnetworks open. If yourWiFi is open, anybody
canreadyour traffic atwill.That’s whyGoogle itself began encrypting the logins ofGmail users years ago, ameasure that ensures that aneavesdropperwill pickupgibberishinsteadof usernames andpasswords. The StreetViewengineers—
whowantedto buildadatabase of WiFihot spots forGoogle’s location-basedmobile services thatwouldreplace Skyhook Wireless’s comparable service— didn’t showthe same level of foresight asGmail’sdevelopers. AsGoogle explains it, they
simply forgot to scrubdata collectedby theMountainView, Calif., firm’s StreetViewcars of anything beyondwireless networks’names andhardware addresses. That’s adumbmistake,made
dumber byGoogle’s slow realizationof it.The company is right topronounce itself “mortified” by its conduct. But if youthink that your
unsecuredWiFi’sprivacy issues endedwithGoogle’s surrender, youare a fool.Thepeople you needtoworry aboutdon’tdrive aroundneighborhoods incars equippedwithbulky camera rigs,
number, Social Security number, or social-media user name and password—before you can access the content. Don’t take the bait. Providing
information could leave you with a stolen identity, surprise charges on your phone bill or a hacked social-media account. The application could also use your account to send the bogus content to others—which is probably how your friend unintentionally shared it with you. Before you click through,
read user reviews of the application or search theWeb to find out whether an application is legitimate. If a rogue app does access your account, social-media resource
Mashable.comrecommends that you remove it fromyour social-media site’s application settings and then delete any messages itmay have posted fromyour account.
Shortened URLs URL shorteners such as
Bit.ly
or
TinyURL.comare popular ways to share long links on social-media sites. But a shortened URL can hide a link’s true destination, sometimes directing users to amalicious Web site or damaging content. To protect yourself,
Wisniewski suggests installing a URL expander for your browser; Internet Explorer and Firefox both offer options. URL expanders allow you to preview the actual URL of a shortened link before you click. If you do click on a link that takes you to a suspicious site, avoid installing any programs or providing personal information, andmake sure your antivirus software is enabled and up-to- date.
—Kiplinger’s Personal Finance
More from Kiplinger Go to
www.kiplinger.com for more analysis.
It’s not a privacy ‘breach’ when information about you is out there already
andtheywon’t apologize for eavesdropping because they’ll be too busy logging into your accounts. Don’t getmadatGoogle inthat
scenario—save your anger for WiFi vendorswho can’t be botheredtomake it easy and obvious to encrypt yournetwork. Thendirect it towardWeb operatorswhodon’t automatically encrypt your login —or, inthe case of sensitive financial sites, your entire session. I’mnot saying thatnobodyhas
anyprivacy anymore or that I placeunlimitedtrust in Facebook,Google andtheir ilk. I don’t.ButwhenCongress is consideringpossible legislation, weneedto focus onserious problems. Arealprivacy breachdoesn’t
involve a remix or collectionof data that’s already out there for anybody to see—evenifusing the words “hack” or “breach” ina headlinemakes the story that muchjuicier. Areal breachexposesprivate
informationyoutriedto keep confidential, inways that risk the loss ofmoney or security or
otherwise fairly earnthe adjective “Orwellian.” If you, likemywife,have ever
receivedone of those letters from a credit bureauoffering a year of free creditmonitoring tomakeup for a leak of your financialdata, youknowwhat I’mtalking about. At the same time, information
about ourselves is the currency we spendto get free services.You neednot spendmore than$50 a year to get anad-freeWeb-mail service, but fewofus bother— evenif that earnsus extra marketing attentionlater on. That’showthingshappenoff-line aswell:We opencredit-card accounts andjoinstore membershipprograms anddon’t pretendto be surprisedby the additional junkmail that shows upafterward. This is the businesswehave
chosen, andwemight aswell get goodat it.To forgetwhere the foul lines areproperlyplacedis a breachof our ownresponsibility.
robp@washpost.com
Livingwith technology, or trying to? Readmore at voices.
washingtonpost.com/fasterforward.
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