Archive for the ‘Saving Money’ Category

Service of Smart Frugality

Thursday, February 25th, 2016

pinching pennies

I was drawn to Sendhil Mullainathan’s Wall Street Journal article “Pinching Pennies in the Right Places,” because according to this Harvard professor of economics, my thinking, while intuitive, is wrong. Not surprised: I almost failed economics in college. I ended up passing the course by figuring out the answer and writing the opposite. On the other hand, what he wrote makes sense. Maybe I’d have aced his class.

He shared two instances where you’re at a store and the salesperson tells you that another branch 30 minutes away has what you want for less. One item costs $50 and would be $40 for the same model. The other item costs $400 and you could get it for $385.

20 percent off“Research by Daniel Kahneman and Amos Tversky the psychologists whose work helped spawn behavioral economics, suggests that people are more likely to make the trip for the $40 headphones than for the $385 speakers,” wrote Mullainathan. That would be a mistake. “In each case it will take 30 minutes to save some money. But with the headphones, you save $10; with the speakers, you save $15.” He continued: “It’s as if you had two identical job offers, but one paid $20 an hour and the other $30. Yet you consistently chose the lower-paying job.”

He observed that people spend chunks of time finding the best deal on a pair of jeans and none on the fees charged by mutual funds for example. “Do Consumers Make Too Much Effort to Save on Cheap Items and Too Little to Save on Expensive Items?” is the title of the paper of Ben-Gurion University economist Ofer H. Azar. Mullainathan’s answer is “Yes.”

piggy bankThere is an exception according to Anuj K. Shah from the University of Chicago who conducted research with Mullainathan and Princeton psychology professor Eldar Shafir. “Poorer people tend to value a dollar more consistently, irrespective of the context. It is not simply that those with less money pinch more pennies; it is that they are compelled to value those pennies in absolute rather than relative terms…A dollar saved is a dollar to be spent elsewhere, not merely a piece of token accounting.”

Mullainathan advises: “When it comes to money, stop looking at relative values and start looking at absolutes. Dollars, not percentages, matter. In this case, the well-off can learn something about money management from the poor.”

How much would you have to save to travel for 30 minutes? Are you, like most, driven more by the percentage of a discount—which was 20 percent off the $50 headphones and 3.75 percent off the $400 speakers–than by the amount of money saved?

Driving in traffic

Service of Saving Money

Thursday, July 26th, 2012

savingmoney

Who doesn’t want to save money, especially these days?

My friend Clotilde, [she asked me to use this pseudonym], told me about how some in one industry are approaching this objective although she didn’t cotton to the approach. Clotilde heard the story on NPR. I read David Folkenflik’s coverage in “Fake Bylines Reveal Hidden Costs Of Local News” on wbur.org.

oldfashionednewsroomFolkenflik wrote that major newspapers in Chicago, Houston and San Francisco admitted that they published print and/or online items under fake bylines.

That’s the least of it. According to Folkenflik, “As was first disclosed by the public radio program ‘This American Life,’ the items in question were not written by reporters on the staffs of the papers at all but by employees of what is effectively a news outsourcing firm called Journatic.

“‘How do you get police blotters from 90 towns? It’s not easy. But that’s what we do,’ says Brian Timpone, a former television reporter and small-town newspaper owner who created what became Journatic six years ago.”

strapped-for-cashFolkenflik continued, “Journatic has dozens of clients, many of them strapped for cash but all hungry to serve up local news for their readers.”

Worth repeating: I’ve found that daily newspapers are turning to syndicated stories to fill their pages rather than to spend money for reporters to cover local business news.

Back toFolkenflik:  “‘It’s a short-term cost-cutting measure, and that’s all it is,’ says Tim McGuire, the former editor-in-chief of the Minneapolis Star Tribune, who now teaches media business and journalism ethics at Arizona State University’s Cronkite School of Journalism and Mass Communication. ‘It’s not a long-term solution to providing local news to people who want it.'”

Journatic has 60 employees and 200 freelancers but what most caught my friend’s attention was that the company hires 100+ people from abroad to write copy. One employee who rewrites the foreigners’  material told Folkenflik that these writers are paid “a pittance.”

Since I began to write this post, the Chicago Tribune, a Journatic client, suspended its relationship when it learned that “the company had published stories with fake bylines and that a writer there had plagiarized a story on TribLocal, the network of suburban papers and hyperlocal websites Journatic published on behalf of Tribune,” according to Julie Moos on pointer.org. The Tribune has brought in a former editor as a consultant to help “the outsourcing company on its processes and standards.”

Are cut-rate solutions like this better than nothing? Do you think such cost-cutting measures will help save newspapers? 

costcutting

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