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January 31, 2008
Gotcha!
This week’s book isn’t directly related to investing for retirement, but it may help you hang on to more of your hard-earned dollars. I’ve mentioned this before, but I think it’s worth mentioning again. Sometimes it isn’t just about how much you’re putting into your 401(k), IRA or savings account every year; it’s what you’re not spending on the little things. The things that eat up your extra cash.
David Bach may have brought as much attention to this idea as anyone. In his book, The Automatic Millionaire, he somewhat famously coined the phrase, “What’s your latte factor?” In other words, what items do you buy day in and day out that you might be able cut back on so that you can save more? Admittedly, I balked at that one since I don’t like giving up anything I really love. Coffee is something I really love. But I took the idea to heart and now there are things I do less of -- like eating out and dry-cleaning every garment I own.
But now I’ve found an idea that I may like even more: not getting ripped off. In his new book, Gotcha Capitalism: How Hidden Fees Rip You Off Every Day and What You can Do About It, Bob Sullivan explains in sometimes hilarious (if it weren’t so annoying) detail about the nasty little ways people pay an average of $1,000.00 a year extra for absolutely nothing.
Here are just a few that Mr. Sullivan discusses: (Warning: You may want to take your blood pressure pills before reading further).
We’ll begin with everyone’s favorite, the ever-cryptic and totally nonsensical cell phone bill: Cell phone companies not only have charges but they have charges for charges. For example, they not only charge you a federal tax but for the cost of collecting that tax as well. Sullivan says to imagine if you went to the deli and they charged you for your sandwich, charged you tax on that sandwich and then charged you for collecting the tax. Cell phone companies also charge a Federal Universal Service Charge. That’s the charge that’s supposedly going to the schools and universities of America so that Internet use is universal. This is a controversial federal program because most schools and libraries already have computers and Internet access. Sullivan discovered that some of that money actually helps resort communities get fiber-optic access in Hawaii rather than the type of thing you might think it goes to, like little kids getting Internet access at school.
He says that cell phone contracts are also terrible because they prevent you from acting like a true consumer in any normal free-market system. Most contracts are now two years long. Inevitably, six or seven months into the contract you find out you’ve been transferred to another city, or let’s say there’s construction near your office and the phone no longer works. Or perhaps you lose the phone. Or there’s a brand new phone that comes out, and you want that new phone. In any of these situations you are going to have a very tough time getting what you want—a new phone. He says that really the only way you can avoid this is by getting a pre-paid phone. Or you can pay for the phone up-front, which for most people is a not the ideal choice. Sullivan recommends that you always get the shortest contract term you can.
The larger problem with these contracts is that when companies have millions of people as guaranteed consumers, they have no incentive to improve their service. He recommends getting the shortest contract possible not only for cell phones, but DSL service and cable TV. His basic rule of thumb is that you take the shortest contract possible for anything where you have no choice but to sign a contract.
Cable and Satellite TV: A lot of these companies have teaser rates. Cable TV rates are particularly egregious. For example, you will see an ad for service that costs $29.99 a month. There’s often an asterisk, but almost never does it say what the price is going to be when that teaser price is up (usually after six months or a year). If you want to keep the rate, you have to keep calling to ask for the original rate every so often. It is practically impossible for any consumer to find out what the real price of the service will be a year from now and compare that against the other choices you may have. Sullivan also recommends that you not rent cable or DSL modem equipment. You can almost always buy equipment like that at a deeply discounted rate online. The problem with renting the equipment is that it is often a barrier to removing yourself from the contract. If you have to actually return the cable box, you might not change your service when the time comes to do so.
Rental Car Trickery: Are you at all familiar with the gas trick? If you even think of not filling that baby up before you drop it off, the gas magically becomes the most expensive gas on the planet. And then there’s this one: To buy the rental car insurance or not to buy? Sullivan says it is not necessary but that you should call your credit card company and make sure you understand what’s really covered. They will often provide you with gap insurance, and you are often already covered by your own personal automobile insurance.
Hotels: Don’t touch the mini bar or the telephone. Not only will you pay $3-$4 for the bottle of water or a bag of chips, but sometimes you don’t even have to consume an item before being charged. Sullivan cites The Wynn Hotel in Las Vegas as an example. If you even take the item out to look at it for more than 60 seconds, you’re charged for that item…no, really. And as for the telephone, some hotels now even charge you just to call the room next door!
Bank Fees: Here’s a scenario we’re all familiar with. Let's say that you're running late and realize you need some cash. The first bank with an ATM you come across is, say, Bank of America. Since you’re not a Bank of America customer, it’ll probably cost you $5 to get $20 of your own money. What’s more, when you ask for the money, the machine won’t really tell you that it’s going to cost you $5.00. It’ll give you half the fee, the Bank of America fee, which is $3. Sullivan jokes, “These ATM's can do all kids of great stuff like figure out what your PIN number is or what your balance is, but somehow it cannot figure out what the true price of trying to get the money is.” Sullivan says bank fees are the worst of all. Banks are probably making a third of their revenues from fees. Some banks make more money from fees than they do from interest…no, really.
Sullivan says that reason that the fee scam has become so common is that a few decades ago, the pricing structure of things began to slowly morph. Companies realized that they could essentially trick us with low teaser prices and then sneak in after-charges. And the reason that people don’t protest more? Sullivan says companies have perfected the amount they can ding us for. It’s usually about $10 a month, and people are just too busy to fight about $10. He also cites the fact that the agency that would deal with fee complaints, The Federal Trade Commission, has about half the staff they once did at a time when the U.S. population has grown to more than 300 million people. This presents a workload of ever-increasing consumer issues that the FTC simply cannot keep up with.
So is there actually anything you can do about these fees? Here’s a link to 10 tips for avoiding some of the worst fee offenders. I, for one, plan to use tip number nine more. "Follow this overriding principle: Just ask. It really is OK to ask for deals that aren’t widely promoted or that initially may not seem to apply to you." Companies count on the fact that most people aren't going to take the time to look more closely but you might just save a bundle if you're willing to.
-Alison Abney
Source: Sullivan, Bob. Gotcha Capitalism: How Hidden Fees Rip You Off Every Day and What You can Do About It. New York: Ballantine Books, 2007.
Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.
