Brain Research: Stash Credit & Debit Cards, Use Cash
Sharon Begley in Newsweek has wonderful articles on science how they relate to how we live our lives.
The Dec 15, 2008 issue reveals research that points out that we buy less when we pay with cash because the insula in our brain registers the tangible loss of coins and currency but the same thing doesn’t happen with cards – I know the feeling as I confidently buy my latte on my debit card then hesitate to decide what cash tip to leave.
Credit cards numb us to the pain of parting with money and we are also willing to pay more for the same item on credit than with cash. When we are depressed we both overshop and overpay because we think less of ourselves and try to overcompensate by acquiring stuff.
Certain neurons in the ventral caudate do complex reasoning that affect such things as tracking previous sale prices which make it harder to pay full price later on and stock purchase and sale decisions.
To read the entire article see Inside the Shopping Brain
Economics, Simple living | Comment (0)Refinancing & credit card debt
Homeowners might be offered a “opportunity” to extend the length of the loan meanwhile building up less equity and paying more interest over the lifetime of the loan. Many were steered into sub-prime variable loans when they would have qualified for a fixed rate loan anyway; the federal plan would give a slap on the wrist to lenders and have them restructure the loan back to the fixed rate that they should have qualified for in the first place. The plan doesn’t help those who never should have qualified in the first place and were given loans with a wink from the mortgage broker who stood to make a tidy sum from the loan points.
Voluntary rate freezes suggested by the administration have little support from mortgage investors who are not thinking about the future consequences of being inflexible. Mortgage brokers, handlers, banks & investors are blaming everyone except themselves; each group is as greedy as the next and each built their expectations on a house of cards. (Sigh…two of my bank stocks have not done very well lately, fortunately they are well diversified banks). Only 12% of subprime borrowers & 5% of minorities would be helped by rate freezes says the Greenlining Institute .
The plan floated by the administration covers almost no loans in California because of the size of the mortgages – guess where most of the bad loans are? California Assembly
The California Assembly is proposing steps that would both prohibit certain types of mortgage rate structures and fees in the future as well as require lenders to work with the state to reach out to distressed borrowers
What does it mean to you with perfectly fine credit records? You are being solicited to extend their term length so mortgage companies can feed their habit with dependable suppliers. See Footnoted.
What can you do? Be aware of mortgage solicitations and what they will cost you over the long term. Pay your credit cards on time – consider an automatic online bill-pay if you are just plain forgetful so you don’t get hit with late fees and subsequent rate hikes based on late payments.
If you don’t pay off your credit cards each month, don’t charge ANYTHING you would expect to not have at least 3 years later: never use credit for food & toiletries, fashion clothes & accessories, tuition, day-to-day medical, etc.
Best is to save so you may purchase what you truly need with cash. An item is not truly a bargain if you add in the costs of paying 10-20% interest on it over several years.
If you must use credit, use it for truly long term and match the credit term to how long you’ll have the item or less. If you buy cars every 5 years don’t pay for them with a 30 year home equity loan; don’t even get a 7 year auto loan. If you can’t afford a 5 year auto loan, look at a less expensive car or reconsider if this is a “need” or just a “want”.
Holiday time is around the bend. How many unwanted gifts have you recieved in the past? How many gifts that you have given have you actually seen the recipient use or talk about since you gave it? Give gifts of your time or talents and don’t go into debt that you’ll still be paying off next year. Give your children the gift of teaching them fiscal responsibility.