31
May
Posted in holidays by Roger, the Amateur Financier |
Ah, Memorial Day. That time of year when we gather our extended family, circle around the bar-be-que pit and gorge ourselves on food. (Well, one of the times of year, anyway; that sounds like the description of most American holidays during the spring and summer, at least, as my family likes to celebrate them.) I hope that everyone is having (or had) an impressive and fun little shin-dig.
Here’s also hoping that as you had such fun with family and friends, you also gave a thought or two to the men and women who have fought and died to protect our freedoms. If you know a veteran, be sure to thank him or her today (or any day, really; why limit your thanks to a few days out of the year?) Especially now, in this age of a purely voluntary service, honoring those who choose to risk life and limb to defend us, our country and our way of life just seems like the right thing to do. Not to sound too jingoistic, but well, it’s true. So, next time you see a veteran, be sure to give them a heart-felt thanks, and possibly buy them a beer (or whatever drink they prefer); they deserve it!
To all who serve, we thank you.
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24
May
Posted in Deep Thoughts by Roger, the Amateur Financier |
I’ve given some thoughts to tipping as of late, since taking my fiancee out to dinner to celebrate my new (if less than ideal) job raised an obvious tipping situation. It’s always a bit of a conundrum; how much do you tip? Do you tip fifteen percent, ten percent, twenty, or some other value? How much should the level of service influence the amount you leave, and what scale do you use? Is it ever okay to not leave a tip at all?
All these questions come to mind when I sit down and think about tipping. (I have a tendency to just add a tip to my bill upon paying it, without really dwelling too much on the philosophy of tipping. I also tend to use one of my mental tip tricks to determine a good tip amount.) It’s a major part of our corporate culture, particularly when it comes to dining out. What advice can we find to guide our tipping decisions?
Tipping Philosophy
In the United States, at least, the current tipping standard is about 15-20% for good service from wait staff, with ten percent being reserved for poor service (and less than that for truly horrendous service). Of course, while restaurants are the most commonly encountered situations where tipping is ‘required’, it’s far from the only one; it seems there’s a large (and ever increasing) number of service providers for whom tips are suggested. A complete list, courtesy of J.D. Roth of Get Rich Slowly, should give you a good idea of just when tipping is needed, as well as the appropriate amounts.
Let's not even get into the troubles of tipping in a foreign country
But why do we tip in the first place? The most commonly cited reason is that tips serve as reward for good service; rising to meet a standard level of service merits a good tip, while going above and beyond deserves a great tip. It’s similar to a bonus for salaried workers, motivating fast and professional service.
Except that it doesn’t. Apparently the biggest motivator in how much we tip is fear of social disapproval. We tip not because we think that the service is great, but because we don’t want to be seen as cheap. The performance level affects how much we tip about as much as the weather; neither one has much of effect on how much the average person tips.
There’s another twist to the whole tipping issue, as well: for all the talk of tipping as ‘optional’ or a reward for good service, it’s really not. Tipping is not only considered a near requirement when dining out (or again, in many other situations), but tipping amounts are actually incorporated into the law. Yes, the minimum wage of tipped workers is significantly less than that of workers who don’t receive tips ($2.13 vs $7.25; workers who receive tips can be paid less than one third the wages of non-tipped employees). Without receiving tips, workers like waitresses and waiters would be making well below a living wage ($2.13 per hour for 40 hours a week, 50 weeks a year yields an income of $4260, well below the poverty line).
Another strike against the ‘tipping as good work incentive’ theory is that wait staff aren’t the only ones who depend on tips. Frequently, the tip money that waiters and waitresses collect is distributed to busboys, bartenders, and host/esses or pooled among the wait staff and divided up at the end of the shift. This means lower motivation from individual tips (if your coworkers’ actions can have as much, if not more, effect on your take home pay as your own actions, why stress yourself to try your hardest?)
It also points out a fact about waiting on tables that might not be apparent while you’re sitting there, deciding on a tip amount: it’s not a one person job. Perhaps your dinner takes a long time to be served because the waiter is lagging, but it could be a kitchen problem. Lowering the tip you leave might end up punishing the waiter for something out of his control.
My Thoughts on Tipping
So, with all these explanations about why we don’t tip to encourage good behavior, why do we tip? Well, as mentioned, we tip to avoid feeling guilty, and to make ourselves look better in front of our acquaintances. We also tip to keep restaurant prices down (if restaurants paid their employees more to compensate for a lack of tips, it would end up making food more expensive). Although we make not want to admit, we will tip to avoid having vengeance enacted upon us; unless you are a world-traveler (or about to join a monastery), there’s a good chance that you will go to the same restaurant again, and most of us don’t want to give the staff a reason to spit in our food.
Where do I stand on tipping? I tend to view it as a necessary evil. Our current economic environment and the expectation of tips by employees, employers, customers and even the government mean that situations where tipping is expected, if not all but required, will not decrease any time soon (and it seems, will continue their pattern of increasing as we move forward). Given that, as well as the fact that many of those who are being tipped count on that money (and might be earning a lower amount in hourly wages as a result), my advice is: just do it. Tip, and tip well (particularly if you are in a group; there are few things that will annoy your dining companions more than you tossing in an inadequate amount and requiring them to make up the difference).
“But,” you ask, anticipating my response, “what if the service is bad? Aren’t tips supposed to reward good service, with low or no tips encouraging the wait staff to work harder?” Well, as we discussed, not everything about your meal is under the waiters’ control, so you may be punishing them for something they cannot help. Also, there’s a good chance that, without any other information to help guide them, the wait staff will misunderstand your intentions. Imagine that you are a waiter, and you get a tip that is rather meager; will you think that you were less professional while waiting on that table, or that it was simply a table of cheapskates?
If you are in a restaurant and receive poor service, a better response is the one recommended by Find A Link: leave a tip and talk to the management about the service you received. You’ll be sure that the issue is addressed and don’t have to worry about appearing cheap, stiffing the waiter (and possibly some other waitstaff or customers) or inciting a lifelong vendetta against you. (Again, a reminder when dining out: the current standard for a ‘decent’ tip is fifteen percent; don’t stiff the wait staff, or force your dining companions to cover for your cheapness.)
It’s time for your views. Has tipping gotten to be too important when dining out? Do you feel that fifteen percent is too much, too little, or just right? Does it bother the heck out of you when your dining companions don’t chip in enough for the tip? (It’s a pet peeve of mine, as you may have guessed.)
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21
May
Posted in books by Roger, the Amateur Financier |
Ah, the FairTax. It seems I just can’t get away from writing about it in one form or another. If you’ve never heard of it, I’ve already covered many of the most salient points when I first wrote about it. Lately, I’ve gotten more jaded about the whole concept, and wrote about several of the flaws with the FairTax, at least in its current form.
Perhaps it’s fate, then, that I stumbled across FairTax: The Truth
. With a subtitle of ‘Answering the Critics’, it seems practically designed to quell the growing suspicions I have about the FairTax. Will it leave me ready to take up the cause again, or leave me flat? Let’s find out!
Summary
FairTax: The Truth starts, appropriately enough, with the history of the FairTax. The preface details its genesis as an attempt by three Texas businessmen to find a way to improve the nation, focusing on improving the horrendous tax code we currently have in place, and growing into a mass movement. The introduction continues on the theme of building support and the impact of the FairTax, as well as presenting several of the broad details of the Fair Tax plan.
The first chapter, entitled ‘The Ball is Rolling,’ provides a short summary of some of the many people who support changing the tax code to a FairTax system, from the various television personalities who support the change to anecdotes of ordinary citizens going far out of their way to support the tax. The second chapter attempts to explain the authors’ devotion to the cause, providing some of the positive results expected from adopting the FairTax as well as why they personally feel so strongly about it (mainly having to do with the expansion of the role of the federal government, as well as the larger amount of taxes required to fund it).
The third chapter covers some of the economic reasons to support the FairTax, in particular the positive effects it would have on businesses in the United States. According to the many studies cited, the FairTax would increase the number of jobs in the US (as companies would relocate their workers here), increase the amount the government takes in via taxes (by increasing the tax base and encouraging economic growth) and help solve any Social Security shortfalls (by changing the method of funding). The fourth chapter provides evidence of the growing trend around the world of lowering tax rates (particularly corporate tax rates) and switching from taxing income to taxing consumption (mostly via a VAT, value-added tax), and imploring the US to take the lead via the FairTax.
The fifth chapter covers some of the advantages of the FairTax. It frames the advantages in terms of some of the most contentious issues currently facing the country, like immigration, and provides ways in which the FairTax would improve the situation. For immigration, it notes that much resentment is based on immigrants not contributing to the system, which would change under the FairTax system (since every purchase would send taxes off to the federal government).
Chapter six attempts to debunk some of the myths about the FairTax. It notes that such a tax would add transparency to the tax system, decrease the chances of further tax increases, and likely boost employee earnings and/or decrease prices (depending on whether companies affected choose to pass their savings onto workers or consumers).
Chapter seven looks at how to view some of the criticisms of the FairTax, particularly through the ideals of simplicity and fairness. Chapter eight covers some of the critics of the FairTax, and divides them into two categories: those who have a vested interest in the current tax system (from Realtors to insurance companies) and those who have a different political agenda (particularly those who think the tax code should be used for more than just raising funds for the government). Chapter nine covers some of the criticisms that are barely worth mentioning, such as the FairTax not reducing government spending, not reducing the average American’s tax burden, and being a front for Scientologist’s attempts to eliminate the IRS (yes, that is actually in the book).
The tenth chapter is the real meat of the book, the worthwhile criticisms. It starts with over six pages on that most frequent criticism of the FairTax, whether it’s 23% or 30%, and goes on to address issues such as whether the tax would provide enough funds for the government to work (the answer provided: yes), whether taxing services (as required under the FairTax for the provided rates to work) could be successful (answer: yes) and whether taxing the government for the goods and services it provides could actually work. (Arguing that it’s needed to keep the government from having an unfair advantage over private industry; although, as businesses are exempt from the tax, it seems like it’s going to give private industry an unfair advantage, as well as increasing the amount the government needs to spend, increasing the taxes that are required, and thus defeating one of the main points of the Fair Tax.) There’s quite a few other issues addressed, from mortgage interest deductions to charities to progressive taxation, all of which are addressed with multi-page responses (which I don’t have the space to reiterate here).
Chapter eleven discusses many of the people who have led the grassroots campaign to bring the FairTax to national attention. Chapter twelve is a bit of a thought experiment, asking you to imagine yourself having lived under the FairTax system your whole life (which functions exactly as its supporters claim), and then being asked by a politician to consider switching over to the current system of taxes that exists in the United States, and wonders whether anyone would actually do so. The book ends with an appendix discussing the Presidential Advisory Panel on Tax Reform, and particularly its (mostly negative) comments on the FairTax (and consumption taxes in general).
Pros
-Easy to Read: As the authors commented in their first chapter, most books on taxes and tax reform tend to be dense, nearly unreadable tomes. FairTax: The Truth is very conversationally written, in a fairly easy to understand manner. You can get a good idea of what the FairTax is all about, and have many of your potential questions answered.
-Well-Cited: One thing that always convinces me of a particular position is having facts, figures, and studies to back up that position. This book has those in spades, citing dozens of studies done by various groups and individuals about the impact of the FairTax on many aspects of life. It all adds up to a very compelling argument in favor of the FairTax.
-Fairly Persuasive: As you might guess, the overall effect of the book is to make the reader much more enthusiastic about the FairTax. Most critics should find reasonable answers to their qualms, supporters should find more data to back up their position, and politicians can find justification for supporting the FairTax, all within the confines of this book.
Cons
-Not Every Criticism Addressed: As thorough as the book attempts to be in silencing critics of the FairTax, there are still criticisms that go unanswered. Many of the issues I brought up in my own post about the flaws are not addressed, from handling the distinction between new goods, used goods, and business goods to how foreign countries will react to the FairTax. That last point seems especially inexplicable, given that one of the major advantages of the FairTax, according to its supporters, is how much stronger it will make the US in terms of drawing foreign jobs to its shores; it seems hard to imagine that foreign countries will not react in some way that will likely nullify that advantage, at least. (One caveat: I haven’t read The FairTax Book yet, so perhaps all my qualms have already been addressed in such detail that Mssrs Boortz and Linder did not feel it was necessary to reiterate. If so, my apologies; although, posting the answers to these criticisms prominently on the FairTax website would help to silence myself and other critics.)
-Some Mistaken Arguments: There are several arguments made in the course of the book that upon closely inspection, fail to hold water. Some are merely overtaken by events; claiming that the Bush tax cuts caused the economy to boom was a reasonable argument back in late 2007, for example. Other mistakes are less easily waved away; one in particular is claiming conflating the average and marginal tax rates in the current tax system. Given the amount of time and effort spent defending the FairTax rate as accurate, it seems like a double standard to then claim that the ‘average’ American in the 25% tax bracket pays 25% of his income toward income taxes (then adding the pay roll taxes, both the individual and corporate shares, onto that amount).
-Decided Conservative Bent: It’s hard not to notice while reading this book that the authors are a Libertarian radio talk show host and a Republican Congressman. From minor points (the occasional joke at a Democratic lawmaker’s expense) to major ones (implying that the Democrats (and anyone who would support a progressive tax system) are communists), the book is definitely not meant for those on the left side of the aisle. (Full Disclosure: I’m a registered Democrat, and I was less inclined to support the FairTax after reading this book.)
Overall
FairTax: The Truth is a mixed bag. If you are generally supportive of the FairTax, have some questions about it you’d like to learn answers to, and are conservative leaning, it makes a decent read. If you’re more liberal-leaning and support a progressive tax system (particularly if you’re thin skinned), it’s probably better to avoid this book; it definitely isn’t for you.
(Note to the Authors: if you happen to read this review, don’t take it that I’m opposed to the FairTax; I actually think it could be a good idea. A little less venom toward the left (if you’re hoping to change a decades old approach to taxation, you could use all the help you can get, particularly if you also want to repeal the Sixteenth Amendment) and answers to a few more criticisms (both mine and those of other organizations like FactCheck.org) and the third FairTax book would make a lot more converts.)
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19
May
Posted in Your Mind and Your Money by Roger, the Amateur Financier |
I am a big fan of philosophy, as you might well be aware, particularly as it relates to money. Goodness knows, there are plenty of ways that our mental wiring affects how we use (or more frequently, misuse) money. From misunderstanding sunk costs to greatly overvaluing current funds to those available in the future (hyperbolic discounting).
Today, since I like this subject, we’re going to cover a few more ways that your mind might be messing with you. There are plenty of common logic mistakes that we all fall into from time to time, and knowing them will hopefully help us to avoid spending or investing money unwisely. Since we’re on the subject of ways our minds mess us up, let’s consider one of the ones that get most people into trouble…
Failure to Understand Statistics
The Problem: Too many people don’t have a good grasp on statistics. Particularly when the odds and the rewards start to get very big, there is a tendency to conflate them in your mind; 1 in 200,000,000 odds seem pretty reasonable with a prize of $200,000,000 on the line. Too few people reason out just how extreme those odds are; fewer still, it seems, actually let the odds guide their actions.
Examples: Pretty much anytime gambling comes up, there will be people misunderstanding statistics. Also, any situation where people devote more time and money to preventing high-impact, low frequency occurrences (like plane crashes) compared to more common but less ‘news-worthy’ disasters (like car crashes).
The Solution: Well, nation (and possibly world-wide) remedial education in statistics is one option. On the personal level, gaining an understanding of probabilities and a general sense of how likely various events are to occur will help you to prepare for the ones most likely to affect you in a reasonable manner. (As for gambling, just remind yourself that all the money needed to make those opulent casinos and employ all those workers (or run those nifty programs, for government sponsored lotteries) comes from people who don’t win; they can offer those huge cash prices AFTER paying all those costs because of all the money they take in.)
This is why the only game I play is Dungeons and Dragons
Blaming the Tool
The Problem: When something doesn’t go according to our plans, we usually try to protect our egos by finding something to take the blame. That’s why there’s a tendency to blame the tools we use (or quite frequently, don’t use) for our failures. It’s even an common English expression: ‘Bad Workers Always Blame Their Tools‘.
Examples: Weight loss videos don’t magically make you loss weight. Books don’t automatically make you smart. Most relevantly for our purposes, investment news letters and other sources of information don’t cause you to develop good money management skills by osmosis.
The Solution: With any tool, the key is that it has to be used, properly and often repeatedly. Understand that you need to put effort into using your tools if you want any success. Hard as it can be to face, your lack of success will more likely be your fault, rather than the fault of the tool. (Although, this is not to say that every tool you will use is a good, high-quality one; there are some faulty tools out there, of all types. But if most other people are having success with the tool you’re using, there’s a good chance that the problem is with you, not the tool.)
Faulty Pattern Recognition
The Problem: Not everything falls into neat, organized and predictable patterns. That said, sometimes, there are patterns in the events that make up our lives, and being able to recognize those patterns and respond to them in a reasonable manner is part of the whole ‘learning’ process.
Examples: Making the same bad investment decisions time after time. Making bad spending decisions repeatedly. Basically, every time you fail to learn from the past and continue to do the same actions.
The Solution: There isn’t really too much to say other than to learn from your experiences. Try to reflect on your experiences, both good and bad, to see if there are any lessons you can apply to the situation if you find yourself in it again. Better yet, try to learn from other people’s experiences; why should you do the same bone-headed thing as dozens of other people if you can possibly avoid it? In either event, the important thing is to be able to recognize similar situations so you can apply the lessons that you’ve learned.
Over-Application of Occam’s Razor
The Problem: Occam’s Razor is a powerful philosophical tool, stating that the simplest explanation is most often correct. The problem comes when you take it too far; reducing every situation to its simplest explanation can leave out valuable information. Not every single situation has the simplest explanation as the one and only cause, and attempting to reduce them leaves out valuable information.
Examples: The simplest explanation for crime is that people are evil. The simplest explanation for the moon landing is that it was a hoax. The simplest explanation for most everything is that ‘A Wizard Did It’.
The Solution: Remember that not every simplest explanation is correct; sometimes complexity is needed to explain the world correctly. Don’t automatically discount every theory that requires a sizable amount of explanation, and try to keep an open mind, to avoid falling into this logical trap.
There you have it, four more ways people tend to be illogical. Now, all you have to do is potentially change your brain to purge it of these flawed mental processes, and you’ll be fine, although that’s easier said than done, most of the time.
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