Frugaling

Save more, live well, give generously

  • Home
  • Start Here
  • Popular
    • Archives
  • Recommended
  • Contact
  • Save Money
    • Lifestyle Downgrade
    • Save Money with Mindfulness
    • Save at Starbucks
    • Psychological Trick To Reduce Your Online Shopping
    • Best Freebies
  • Minimalism
    • 8 TED Talks To Become A Minimalist
    • We Rent This Life
    • Everything Must Go
    • Lifestyle Downgrade
    • The Purchase Paradox: Wanting, Until You Own It
    • Nothing In My Pockets
  • Social Justice
    • Destroy The 40-Hour Workweek
    • Too Poor To Protest: Income Inequality
    • The New Rich: How $250k A Year Became Middle Class
    • Hunter Gatherers vs. 21st Century Desk-sitters
  • Make Money
    • Make $10k in 10 Months
    • Monetize Your Blog
    • Side Hustle for Serious Cash
  • Loans
    • 5 Rules To Follow Before Accepting Student Loans
    • Would You Marry Me?
    • Should I Have a Credit Card If I’m In Debt?
    • $50k in Scholarships in 70 Minutes

Think You Can Trust Credit Card Reviews? Think Again.

By Frugaling 10 Comments

Share This:

Advertising in New York City. Flickr photo by Pascal Subtil

These ads are everywhere!

The multinational, multibillion-dollar bank, JP Morgan & Chase, spent about $1.9 billion on advertising in 2013. That was down from a peak of $2.35 billion in 2011, but still one of the largest amounts by any bank. With that kind of money, you should be curious what they get in return.

Advertisements for companies like Chase, Citigroup, Barclays, and others are plastered over billboards, magazines, newspapers, and websites. You’ve likely passed by one of their ads today if you live in a modest size city. Heck, there could be one next to this article, due to the Google ads running on Frugaling!

That money is spent to attract new “customers” of credit. Their hope is to entice people with signup bonus offers, and keep them for life. After they click an ad, sign up online, and begin to swipe, the banks begin to profit. From credit card transaction fees to late payment fees to cash advance fees to interest rate fees, companies enjoy lucrative profits. For every new customer, banks trust they’ll make hundreds of dollars over the next few years – if not more.

Personal finance writers are easily influenced

Those advertising pressures and interests can trickle down. Websites that aim to address personal finance concerns and offer advice might succumb to the fire hose of potential profit available to them. With my hat in hand, I must admit I was one of them.

I made thousands of dollars in about 1.5 years by marketing credit cards. By placing links to select offers, I was able to make $50, $75, and even $150 per person who signed up. The affiliate money helped me radically change my life and pay off my debt. But as it helped me pay off my debt, I began to see how I had been duped.

In financially unsound and uncertain situations, people do things they’d rather not do. Frankly, society sometimes encourages us to put our heads down and work through the pain and ethical dilemmas – ignore your internal compass for the good of the company, profit, and revenue. I had become one of those people.

When reviews are really advertisements

Reviews aim to feature both the pros and cons of certain products. Readers want honest feedback and advice from authors, but they weren’t getting it. Visitors to my site were coming droves to see my “reviews.” But that’s not what they were really getting.

Unfortunately, moneyed interests in banking have a tremendous sway on the rating of products. Look through many websites that market credit and banking products, and you’ll begin to notice an overwhelming pattern of 4- and 5-star reviews – across the board. With this positivity, you’d expect credit cards to wash your dishes, clean your laundry, and chauffeur you to work.

How could any company’s product be rated this highly? There’s a reason for optimism and it all comes down to money. Those advertising dollars – billions from banks – trickle down to the simplest of bloggers, directly influence the content, favorability, and overall reviews.

Visitors who are interested in honest, open advice might be shocked to know that when they click that link to sign up, they are crediting that blogger hundreds of dollars in the process. Even more, that the entire review was fabricated to drive more clicks to the bank’s site. When I wrote these articles, I suppressed the negatives to encourage clicks. I was advertising products, and framing them as reviews.

Credit cards aren’t the devil, but they’re not for everyone

We live in a world where big banks spend billions to get at us. Their money travels onto TV, print, and diverse digital media. Eventually, it even lands into the pockets of personal finance websites. That’s when the magical influence occurs, and people end up following the manipulated “advice” of trusted sources.

With revenue pouring over the Internet from companies, my real advice is simple: be skeptical. My hope is that no one gets tricked into thinking that a writer completely – and out of his or her own volition and without profit motive – decides to write a credit card review.

Here are 9 important questions you should ask yourself before following any credit card review:

  1. Do the reviews link directly to the bank’s sign up forms?
  2. Are there affiliate tags embedded in the links?
  3. What makes the writer optimistic about the company and card?
  4. Do they personally use all of these cards that they recommend?
  5. What income bracket is the reviewer in?
  6. What’s their credit score?
  7. What was their experience with customer service representatives?
  8. How long has the reviewer been providing advice?
  9. What makes them an expert in credit cards?
  10. How might incentives influence the quality of this review?

Credit cards aren’t the devil, and they don’t tend to be the sole contributor to debt. Usually, it’s a lifestyle of spending more than you can afford, with little income to pay the bills. That doesn’t mean excessive purchases at Burberry and Hermes; rather, that any amount over what you take in will lead to debt (groceries included). Credit cards just facilitate that process – faster – as the fees quickly compound.

When personal finance writers begin to weigh in, it’s vital that their advice be accurate, fair, and balanced. Unfortunately, it’s frequently manipulated by advertising revenue potential. I learned how the money could influence what I ultimately write, and I no longer want to lobby for an industry that sometimes preys off of people that genuinely need help. If you see a review article from me, it’s my hope to be as analytical as possible.

Filed Under: Social Justice Tagged With: ads, advertising, Banks, Barclays, Chase, Citigroup, credit, credit cards, dollars, Google, Marketing, money, Personal Finance, writers

Rich Kids, Plutonomy, and Income Inequality in the 21st Century

By Frugaling 16 Comments

Share This:

Rich Kids of Instagram Plutocracy
Photos: Rich Kids of Instagram

The spoils of income inequality

On July 13, 2012, a Tumblr blog by the name of “Rich Kids of Instagram” started sharing public Instagram photos from the rich and sometimes famous. Every picture showed how the wealthiest enjoyed spending their money and the many adventures brought on by the good ol’ American dream. The site’s popularity spawned a reality TV show called, “Rich Kids of Beverly Hills.”

When I first saw photos from “Rich Kids” — driving in their brand new Ferraris and drinking Dom Perignon through glass AK-47s — I got mad.

“Look at how much money they spend on themselves, when there’s poverty, starvation, and war,” I thought.

We are talking about kids that grow up with American Express Centurion (“Black”) Cards and know that their parents have a total net worth in the hundreds of millions or billions of dollars. They spend money without care — because they needn’t have one. Their money is safe for many generations to come. This excess and desire for luxury goods and travel is nothing more than a symptom of years of compounded income inequality. And a select group are getting really rich in the process.

The takeaways:

  1. Buy a fast car
  2. Drink expensive liquor
  3. Make sure everyone around you is beautiful and knows you’re rich

Your stock portfolio and plutocracy

In 2005, I was in the middle of high school — loathing every minute of it. I never read. I didn’t get along with most of my teachers. I was mister average. I don’t think most of my teachers would remember me. The only thing that seemed to set me apart was a fervent inclination towards the stock market.

My interest developed after my late grandfather had bestowed a couple classic stocks to our family. I tracked these stocks religiously and would constantly check the newspaper for stock market updates. I remember depositing money into an investment account. I needed my parent’s custodial permission. Underage, I wasn’t supposed to trade alone, but I did. I constantly had to lie to brokers for trades to go through (“Yes, I’m Mr. Adult Lustgarten, and I’m the owner of this account…”). Commissions ate up my profits, but I loved every minute of it.

Citigroup Plutonomy Buying Luxury Income Inequality
Part 1 of Citigroup’s Plutonomy papers, which explained why investors should look to luxury brands for future profits.

Later that year I was exposed to the single-greatest financial paper I’d ever read. It was authored by three Citigroup employees: Ajay Kapur, Niall Macleod, and Narendra Singh. Only 16 years old, you couldn’t pay me to read The Odyssey or my European History textbook, but here I was passionately reading a paper entitled, Plutonomy: Buying Luxury, Explaining Global Imbalances. I was a total weirdo.

Basically, plutonomy is a fancy word for saying that a select few wield a disproportionate amount of influence and power over the economy. As the authors pointed out, “Plutonomies have occurred before in the sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S.” They posited that this was happening again.

“We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization [emphasis added].”

The authors argued that, “The World is dividing into two blocs — the Plutonomy and the rest.” They stated that the rich were getting richer and that had deep consequences to consumption. Effectively, the rich would make up “a disproportionate chunk of the economy.”

The authors’ premise was that investors could predict profitable companies based on their target audiences. For example, a wise investor — when accounting for greater plutocracy and income inequality — would be able to make more money in companies that catered to the rich.

The takeaways:

  1. Accept that income inequality exists and is growing — do nothing
  2. Learn how to make money from it
  3. Invest in companies that cater to the wealthy (i.e., Citizen, Coach, LVMH, etc.), while the middle class disappears

Thomas Piketty and a desire for systemic change

In late April, I started reading Thomas Piketty’s masterpiece. The book title, Capital in the Twenty-First Century, is a nod to Karl Marx’s Das Kapital (in case you haven’t had the time to read the near-700-page text, check out my 5-minute guide to Capital). Piketty was nicknamed “Marx 2.0” by Time Magazine.

Economists have long created mathematical formulas to predict financial events, but Piketty found that these methods were inherently flawed. Piketty explained that much of economics deals in a hyper-theoretical world, which is removed from history and doesn’t account for individual actors. For him, this was an opportunity to make economics a truer social science — blending sociology, psychology, history, and economics into one tome.

“For far too long, economists have neglected the distribution of wealth, partly because of Kuznets’s optimistic conclusions and partly because of the profession’s undue enthusiasm for simplistic mathematical models based on so-called representative agents.”
–Thomas Piketty

Capital is just another exclamation point in a long list of those calling for income inequality action — across political parties and professions. As noted, even financial analysts acknowledge plutocracy and income inequality when the differences can be exploited for extra profit.

Now that Piketty’s book is atop much of the world’s bestseller lists, it is attracting a growing number of critics.

With patronizing polarity, Forbes’s Avik Roy wrote, “The American Left has worked itself into another one of its frenzies about income inequality.” After a cursory glance at Piketty’s Capital principles, Roy taunted readers by saying, “Is it really so great to live in a country where everyone is equally poor?” Unfortunately, this appeal to consequences is but a mere distraction from the content and character of the book’s concerns. Of course we don’t want to live a world that’s equally poor — Piketty never advocated for this dystopian, communist world.

Roy’s argument is partisan and illogical, but more evidence-based concerns have risen since then. The Financial Times issued a scathing critique of the book. The author, Chris Giles, says,

I discovered that his estimates of wealth inequality – the centrepiece of Capital in the 21st Century – are undercut by a series of problems and errors. Some issues concern sourcing and definitional problems. Some numbers appear simply to be constructed out of thin air.

These discrepancies between what Giles calculated from Piketty’s data led him to report that Capital’s biggest fault is in reporting greater than expected income inequality in Britain. Giles contends that Piketty “cherry-picked data” to make it seem worse.

As any ethical professor and scholar would do, Piketty tailored a response to these claims. His rebuke suggests that he made adjustments to data because statistics and economics is highly variable and interpretable. Essentially, The Financial Times calculated differences in their models because they chose different measures of estimation; even then, there was still growing income inequality.

The takeaways:

  1. There is growing income inequality, globally
  2. In many places, we have returned to near-Gilded Age and pre-Great Depression times for inequality
  3. Piketty’s statistics hold up upon closer inspection

Now, will we do anything to change this?

Filed Under: Social Justice Tagged With: Capital, Citigroup, distribution, Income, Income Inequality, Instagram, Luxury, Plutocracy, plutonomy, Rich Kids, Thomas Piketty, Wealth

Follow

  • Facebook
  • Google+
  • Pinterest
  • RSS
  • Twitter

Subscribe

Best Of

  • The New Rich: How $250k A Year Became Middle Class
    The New Rich: How $250k A Year Became Middle Class
  • 8 TED Talks That Will Inspire You To Become A Minimalist
    8 TED Talks That Will Inspire You To Become A Minimalist
  • Debt Is The Illusion Of Success
    Debt Is The Illusion Of Success
  • Who Are Your Financial Role Models?
    Who Are Your Financial Role Models?
  • This Statistic On Greed Will Shock You: Have Less? You'll Give More.
    This Statistic On Greed Will Shock You: Have Less? You'll Give More.
  • Is Frozen Juice Cheaper?
    Is Frozen Juice Cheaper?

Recent Posts

  • How to Pay Off Medical Debt
  • 5 Ways to Save Money Before a New Baby
  • 4 Ways to Save Money on Streaming Services
  • 5 Ways to Save Thousands in Mortgage Interest
  • Why Professional Maintenance on Your Vehicle Saves You Money in the Long Run

Search

Archives

  • January 2023 (1)
  • March 2022 (3)
  • February 2022 (2)
  • November 2021 (1)
  • October 2021 (2)
  • August 2021 (4)
  • July 2021 (5)
  • June 2021 (3)
  • May 2021 (2)
  • January 2021 (2)
  • December 2020 (2)
  • October 2020 (2)
  • September 2020 (1)
  • August 2020 (3)
  • June 2020 (1)
  • May 2020 (2)
  • April 2020 (1)
  • February 2020 (2)
  • January 2020 (1)
  • December 2019 (1)
  • November 2019 (5)
  • September 2019 (4)
  • August 2019 (1)
  • June 2019 (1)
  • May 2019 (1)
  • April 2019 (1)
  • March 2019 (3)
  • February 2019 (1)
  • January 2019 (3)
  • December 2018 (1)
  • September 2018 (2)
  • July 2018 (1)
  • June 2018 (2)
  • May 2018 (1)
  • April 2018 (5)
  • March 2018 (6)
  • February 2018 (4)
  • January 2018 (1)
  • December 2017 (10)
  • November 2017 (3)
  • July 2017 (2)
  • June 2017 (5)
  • May 2017 (2)
  • April 2017 (8)
  • March 2017 (4)
  • February 2017 (3)
  • January 2017 (2)
  • December 2016 (2)
  • November 2016 (4)
  • October 2016 (2)
  • September 2016 (1)
  • August 2016 (4)
  • July 2016 (1)
  • June 2016 (3)
  • May 2016 (3)
  • April 2016 (4)
  • March 2016 (5)
  • February 2016 (2)
  • January 2016 (2)
  • December 2015 (3)
  • November 2015 (5)
  • October 2015 (5)
  • September 2015 (4)
  • August 2015 (6)
  • July 2015 (8)
  • June 2015 (6)
  • May 2015 (14)
  • April 2015 (14)
  • March 2015 (13)
  • February 2015 (12)
  • January 2015 (15)
  • December 2014 (10)
  • November 2014 (5)
  • October 2014 (6)
  • September 2014 (7)
  • August 2014 (12)
  • July 2014 (11)
  • June 2014 (12)
  • May 2014 (16)
  • April 2014 (13)
  • March 2014 (13)
  • February 2014 (9)
  • January 2014 (20)
  • December 2013 (9)
  • November 2013 (18)
  • October 2013 (15)
  • September 2013 (11)
  • August 2013 (11)
  • July 2013 (27)
  • June 2013 (18)
  • May 2013 (16)

Best Of

  • The New Rich: How $250k A Year Became Middle Class
  • 8 TED Talks That Will Inspire You To Become A Minimalist
  • Debt Is The Illusion Of Success

Recent Posts

  • How to Pay Off Medical Debt
  • 5 Ways to Save Money Before a New Baby
  • 4 Ways to Save Money on Streaming Services

Follow

  • Facebook
  • Google+
  • RSS
  • Twitter

Copyright © 2023 · Modern Studio Pro Theme on Genesis Framework · WordPress · Log in