How We Pay Matters

I’m starting to think how we pay people for work done matters.

Cash feels like we’re handing something tangible to another person.  It’s real.  It’s limited in our pockets and wallets, even if we can go to an ATM and replenish our supply.  Psychologically, I treat cash in my wallet differently than I treat plastic, even when I use my debit card, and as a result, I tend to make more careful and considered choices.

Checks are the next level of payment.  They require us to write out the number, consider the balance in our account, and otherwise take stock of what the numbers and payment mean in a larger context.  While it separates us a degree from the cash transaction, it still requires a more intensive action than other forms of payment.

Payments by debit and credit card are more elusive.  We can get stuff by flashing this little piece of plastic for goods, but the day of reckoning is not immediate.  We can easily overextend the amount we intended to spend, and even exceed our limit, with little or no consequences until some point in the future. (Unless of course, you are in enough debt to warrant a phone call about exceeding your limit while in the store.)  This postponing of accountability for money spent tends to make the expenditure itself feel somewhat artificial, and the bill at the end of the month has caught more than one consumer by surprise.

Banks know this, of course.  The more people that spend through plastic and the fewer that pay through cash, the more they are likely to spend and the more fees and interest are generated for the company.  This is why people are given debit cards almost automatically for every bank account, with the hopes that you will spend your money, rather than make the bank hold on to it for you.  Your deposit is an asset for you, but a liability in the big picture to the bank, who then “owes” you that money on demand.

It’s also why new forms of transactions- electronic, the wave of a pass at a gas station or card machine, or payment through a cell phone or text message are equally attractive to people wanting your money, but more dangerous for you, as the exchange seems less and less real, less memorable, and the only reminder is the bill at the end of the month.  Even that ugly physical reminder of your spending and psychological prompt to be more judicious in your spending is becoming removed to the digital realm, where every company is encouraging you to pay bills electronically, saving them the cost of mail and of processing your check.  It also removes any and all excuses for “But the check’s in the mail” or “I never got my statement”.

As this recession drags on and people continue to have money troubles of one form or another, maybe one place to consider making changes is in the form of payment you choose.  Cash will keep you more accountable by far.

However, even I succumb to the lure of electronic payment of debt.  I put my kids on a plan where I direct deposit their allowances into their account, eliminating every debate about allowance, but likewise complicating and making the threat of suspending allowance all the more distant and vague.  They love feeling like grownups and having more control over how they spend their allowance, including using a debit card.  I’m hoping this will teach them how to manage money, even virtually, while they’re young, rather than having their first credit and debit experience closer to college.

Virtual payments and management of money and credit are skills we all need to have.  Build these skills into your kids as soon as you can, because these payments are not just in the future, but they are the now.  And the more divorced we becoming from the tangible forms of payment, the less direct accountability and more mistakes we’re all prone to make.

Tags: economics, money, social media

Book Review: Switch by Chip & Dan Heath

I’m just finishing “Switch: How to change things when change is hard” by Chip and Dan Heath.  As I’m sure everyone who knows me knows, Chip & Dan Heath wrote one of my all time favorite “business” books, “Made to Stick” which talks about how to express ideas so they’re memorable and make an impact.  When I found out they had a new book coming out, I immediately placed a pre-order with Amazon.  Shortly before the release, when I got an email from one of their assistants asking me if I’d like a copy sent to me, I said “Of course!”  I was flattered that they knew I was a fan of their work and reached out, and I was excited to be able to read the new book.

I’ve ended up with two copies of Switch now (my pre-order and the promotional copy) and I am thrilled to have two, since it’s a book my husband is now starting as well, and this will eliminate any book battles at bed time, akin to our competition to read the last Harry Potter, when the first one to bed got to read the book and the other had to wait until the next night for a crack at it.

I love books that seem to get to the fundamental nature of problems and conflict, boiling things down into their essence and parts, so you have a new lens or template through which to view the world.  Made to Stick did this very well, condensing disparate parts and pieces of what makes stories, ideas, and messages of any sort memorable into a template of sort that helps me every day when I look at how to present ideas to others in a compelling way.

Switch takes on the huge problem of why change seems so almost physically painful, whether that change is personal or professional.  When we look at a big problem, like education or healthcare, it can seem impossible to tackle.  The problem seems too big.  There seems to be no good place to dig in and start making a change, and there seems to be too many external restraints that need to be overcome to make the problem seem remotely doable.  It may be written off as a “cultural problem” or a “system”problem or even a “few bad apples” problem, but in the end, a few small changes can often lead to cascading change, much like Malcolm Gladwell talked about in The Tipping Point.

Switch starts out with an analogy that change can be like a rider on an elephant on a path.  The rider is analytical by nature, the elephant is big and emotional, and the path is the things that need to be done to move forward to get to the destination that we all aspire to by creating change.  While I was initially not in love with this analogy, but it works in the book as a tool to frame out the different parts of creating successful change or innovation in any group or situation.

For change to be successful, all three of these components need to work together- the facts and numbers analytical portion must be happy; the moody and resistant portion of the group must be reasonably happy and convinced that they’ll give change a try, and the pathway needs to be clear enough and short enough to motivate the riders and elephants to choose it as an option or alternative to the status quo.

Let’s take a personal situation and apply this formula. (It’s easier than solving healthcare in a blog post.)

I just walk/ran my second half marathon.  For someone who just really started a concerted fitness program seven months ago, this would have seemed like a silly and crazy thing to even consider a year ago.  My elephant knew I needed to get in shape and get healthier, but there always seemed to be a reasonable excuse to avoid the gym- the pathway to health and fitness seemed foggy and the goal was noble but not specific and defined.  My “rider” knew what I needed to do, but we needed to construct a path to get there.

One of the steps was finding a personal trainer.  This way, I get to work out privately, and I’m coached so I pushed myself more than I would on my own- I have someone to impress.  I have an appointment to keep, and I’m not discouraged by the extra-fit others that are already at my destination, but just show me how much farther I have to go, causing a distraction from the smaller steps I need to take every day.

Another huge step was to find big external goals to work for, like these half-marathon events.  The distance events are like the end of a semester exam, as much as measurements of strength or pounds or inches lost are.  They are a test of strength, endurance and preparation, and show me what I can accomplish, as well as providing a comparison point for past performance.

By creating a pathway with many little goals along the way and big tests, the goal of better health becomes more achievable and more doable.  Every day behavior like skipping workouts or eating too much crap has its own built in penalties- for any endurance event, you pay the price for everything you did right or wrong along the training path.  This then makes the daily changes a bit easier to do as well, knowing the big wall is coming up fast as the race approaches.

I need the numbers- the analysis of the progress to satisfy my rider.  I need to feel good about myself and the changes that are occurring to satisfy the elephant, who might rather be eating girl scout cookies and watching Project Runway.  And all of this is easier when the path is much more specific, clear, and the change looks doable in its chunked-out parts.  It makes even thinking about doing another half-marathon possible, because I know the change is possible and the next goal is attainable, because I’ve done it before.

The brilliance of Switch is that this formula is tied into Maslow’s heirarchy of needs and one that applies to almost any situation.  For example, most of the strategies suggested to help kids with ADHD succeed in school involve not trying to fundamentally change the child, but change the environment to help the child do what’s needed.  Checklists of chores takes the amorphous “Do your chores” and breaks it down into specific, doable tasks, itemized and specific.  Showing a child how to be a bit more organized, and giving them tools that help ensure that they can keep the system up, with frequent checks, develops new, more constructive habits.  Getting rid of the daily speedbumps that turn a child off course- whether that’s always having things ready the night before to avoid morning panics, or smoothing the homework path by putting all their tools in one box and having a set place and time for work, or even putting hooks by the door so everything is available and convenient are small changes that can lead to big results.  Change can occur even in kids known to struggle in school, but they need those small successes to satisfy the elephant who needs to feel good, and they need “stuff to do” to satisfy the rider, but the pathway and environment are just as critical to success.

IDEO, the legendary design firm, works so well because their template works to make change of systems or design of new products integrate almost seamlessly into the way things are done.  they start out with understanding the problems or issues at hand- really getting to know what’s going on and how the situation isn’t working.  They then observe people using current products, or working with a customer, to understand how things are done now, and to start to get ideas about where a system or process might eb breaking down. Then they start the brainstorming and visualizing possible solutions ot the problem.  They rapidly put together prototypes, and then evaluate and refine what worked or didn’t work with the inital attempts, to tweek and further diagnose what will work in the end.  Then, they take their final product and implement it- what Seth Godin calls “shipping”- because all the greatest ideas in the world are worth nothing if they aren’t actually put into use.  Success means shipping- you’ve got to get the ideas out the door and into the real world- where the rubber meets the road.

While I’m still thinking a lot about Switch, it’s a book that helps me tie together all the separate ideas discussed above:

- how personal change and cultural change aren’t really so different;

-how many people problems can be solved by tweeking external environments and expectations;

-how good design and understanding problems are both key to making change successful,

and how in the end, it’s all measured by the implementation, and satusfying both the numbers people and the emotional folks as well- it’s a good change if people can see the difference and that how they feel about the change may be as critical to the outcome as any other part.   Never short-change the power of dedication, passion and enthusiasm- they will carry you pretty far down even a murky path, provided the obstacles aren’t too big at first.

I would definitely recommend Switch, another excellent book by Chip & Dan Heath- and don’t worry if you don’t love the metaphor of the rider and the elephant.  Like all good mysteries, it makes more sense in the end than in the beginning.

Tags: books, change, chip & dan heath, culture, economics, education, elephant, path, rider, switch

Social Media + Business = Tupperware Party

I just read an interesting post over at Chris Brogan’s site about the Tricky Path of Brand Relationships.  And while commenting, it hit me like a ton of bricks- Social Media is A Tupperware Party.

In the “mommy world”, women are often invited to “parties” where the main purpose of the event is some sort of sales pitch.  This could be one of at least fifty different women-sales-from-home oriented businesses, including Tupperware, Mary Kay, Avon, Southern Living at Home, Pampered Chef, PartyLite Candles,  Discovery Toys, a couple of jewelry parties and the like.  (You could also add Girl Scout Cookies, school sales for magazines, wrapping paper and candy, and Scholastic Books to this list without much problem).

The main thrust of these events is Woman A is a sales rep for the Company.  Her friend, B, is asked to hold a “party” for her.  In return, B gets a hostess gift and a credit towards purchases of her own, based on what the people who attend the party buy.  Woman B is then obligated to throw a little get-together, imposing on her friends and her friend’s friends to attend said event some evening or weekend.  Everyone knows that it’s a great time to get together and see friends, but it’s also pretty clear that you are obligated to buy “something”.  There’s often a few door prizes or little give aways with the pitch and “demonstrations” of how wonderful  each of these products are.

Now, I will say up front, that I have been to many of these events for friends.  And I’ve bought a lot of stuff, too.  I still have and really love most of my tupperware; my favorite serving pieces are from Pampered Chef, and my favorite wine glasses are from Southern Living at Home.   I have only once ever hosted one of these parties, and I just could never be a “consultant” myself, because I just couldn’t bear constantly imposing on my friendships with everyone I knew to host parties for me.

As happy as I am with most of the stuff I’ve bought on the whole, there’s that sense of obligation to buy that always bothers me.  The hostess often seems to invite people by saying “Hey, come on over- I am trying to help out Woman A, but I just really want to see everyone and it will be fun.”  All of us who are invited desperately try to figure out if we have a polite excuse to avoid the party, yet want to go and get together with our friends at the same time, putting us into a social bind that ends up with- “Fine, I’ll go, but I am not spending more than X this time, I swear.”

I always end up finding something I do like or think I can use.  Some of the stuff has been really fantastic.  The tupperware mixing bowls and kid cups I got have lasted us for years- they are terrific, and I would not be able to get them anywhere else.  The Pampered Chef square bowls and dishes get constant use, and my husband, who usually rolls his eyes at whatever stuff I bring home from these events actually counts those as among his favorites.  So this sense of obligation and social has led to a lasting good feeling from those particular events.  But I will be honest-note to all my friends- Please do not ever invite me to a candle party again- I will not buy and I just won’t come, kthanxbai.

This applies to social media in the same way.  We have friends who are approaches by Brands to do something with their product and pitch it to us.  Or, we work for a company that wants its brand out before our friends.  Our friends care only if the brand/product/service is relevant to them.  They will only buy if they need to.  And if we try to pitch too frequently, or impose on the friendship too much by asking for spread/retweet/blog posts/word of mouth, our friends will stop helping us out, and start avoiding us as a result.

How do we avoid this?  One response is to get lots and lots of friends, that way, you aren’t imposing on the same group of people all the time.

One response is to pitch less frequently, so you aren’t asking your social media neighbors to hold a tupperware party for you every week.

And every once in a while, we get a product in that everyone wants, and it doesn’t matter if you pitch, because the relevance and delight is high enough, the demand is high enough, no one cares.  The product is then selling itself, and you are no longer “pitching”- you are just a distributor.

Where do you fit on this progression?  Are you the “Sales Associate” for the affiliate marketing program for a Company?  Are you the Party Hostess?  Is the product relevant to your audience or is it an imposition?

Is this a good analogy?  What do you think?

Tags: business, economics, friends, papmpered chef, partylite, social media, southern living at home, tupperware

Be Prepared

Everyone has heard this age-old Boy Scout motto. Our mothers preached it, and I preach it to me kids. Whether we say “An ounce of prevention is worth a pound of cure” or the more eloquent spin from Paul Newman that says “You can do anything, as long as you are prepared to deal with the consequences, ” it all comes down to Be Prepared.

There’s a lot of uncertainty around, now. More and more friends are finding themselves laid off and are searching for work. Few have back up plans or sufficient reserves to let them weather a severe storm, whether it’s a natural disaster or a personal or professional one.

Perhaps it’s having been raised by a parent who was raised by an immigrant grandmother, but I was always told I needed a Plan B, I needed to be independent and I needed a sense of security. As a result, it’s sometimes caused me to be a bit fearful and overly cautious about things, but as it turns out, this has been a pretty good strategy to weather the rockier seas. I thought I would pass along some of these rules of thumb, as prosaic as they may be, just in case no one else had immigrant-depression era thinking drilled into them growing up, even second-hand….

1. Your rent/mortgage payment should not exceed more than one week’s salary. In big cities, rent is really expensive, and this is a very hard rule to live by. But it’s one that will allow you to accumulate enough cash for living and cash reserves to see you through a rough patch or two without living your life vicariously through credit cards.

2. Pay yourself first. We need to become savers, and investing in your 401K alone is not enough.  From your take home pay, you should really set aside five to ten percent for long-term savings.  I do this with our on-line banking- I have automatic transfers from our checking to savings account set up, to do this automatically.  I used to do it by making a transfer from checking to savings whenever I went to an ATM, but online is more efficient.  This makes it an automatic process, just like a 401K for cash on hand.  Likewise, this cushion provides overdraft protection, should there ever be  a short-fall in the checking account.

3. If at all possible, have a goal of saving up 3 months (or longer) cash reserves. This is tough for a lot of people.  But if you follow Rule #2, you’ll be surprised how your cushion grows over time.  Cash on hand helps you long term, and will help you deal with all sorts of emergencies, without having to rely on high-interest credit cards you may not be able to pay off right away.  Using credit cards for emergencies like a broken water heater , especially if you can’t pay it off in the same month is the equivalent of a 20% increase in costs to money you had to spend in an emergency- who needs that??  Get yourself a cushion and nest egg

4. If things are bad- triage your finances and expenses. One of my first jobs after college and before going to law school was working in a small law firm that did collections, foreclosures and trust & estate work.  You find out very quickly how much trouble people get themselves into when they can’t manage their finances well.  But you also learn that there are certain “floats” built into the system.  For example, getting behind on your credit cards may damage your credit rating, but getting behind in your rent or mortgage means you won’t have a place to live.  If there’s not enough money to go around in a month, you need to figure out who to pay first.  Here’s a hierarchy of who I think you should pay and in what order:

• Rent/Mortgage- this is usually a significant expense, and it’s one of the hardest ones to ‘make up’ if you get behind.  Plus keep in mind that it doesn’t matter if you paid the heat and water bill if you don’t have the place where the heat and water are.
• Utilities-while you can get a month or so behind with electric, heat and water before they come and turn it all off.  there are also rules public utilities have to follow before they turn it all off, so this expense, while absolutely necessary has a short-term flex compared to rent/mortgage payments.
• Cable, Internet, and cell phone, however, should be considered extras and luxuries. Even for the wired community who feel a day without wifi is like day without sunshine, consider that you can still access the internet from many public spaces for free, or you can use the computers at your local library.  We’ve come to consider these monthly expenses as necessary as having a roof over our heads, but again, without a roof, your cable does you no good whatsoever.

• Food – cutting out any undo expenses, such as eating out, cappuccinos and the like also should be some of the first expenses to be trimmed out of your budget.  You might consider you daily breakfast muffin as a necessity, but an english muffin at home is probably better for you and less expensive.  Pack your own lunch.  Buy in bulk.  Check Unit prices- sometimes the smaller one can be cheaper rather than the larger one- pay attention to those tags on the grocery shelves.

We all know what we should do, but we fall into patterns where our habits are very hard to change.  But changing those habits into ones that help us secure our home, our future and our assets is really important, and will make the difference between weathering hard times and swamping your boat for now and into the future

5. Plan Ahead and Have a Plan B. I think it always makes sense to have a back up plan.  What would you do if you lost your job tomorrow?  What would happen if your spouse lost his/her job tomorrow?  What’s your back up plan?  How long would it take you to implement it?  For example, if you need training before re-entering the workforce, how long will that take?  If you get a new job, they may not pay you your first paycheck for two weeks, or even a month.  Do you have enough reserves to cover that time?  Do you have cash equivalent to “first, last and security” if you had to move to a new or cheaper apartment?

This stuff is incredibly boring, mundane, maternal lecture stuff- but your Mom always wants you to be safe, be happy, and be prepared against all the crazy and unpredictable things that can happen in the world. Be prepared for anything, and then it’s so much easier to take risks, because you always have a back-up plan ready to go.  Even for those who are not particularly entrepreneurial in spirit, I would recommend reading a book like The Knack by Norm Brodsky.  While he talks about understanding the cash flow of a business and how to understand the finances, I would argue every household in the US is like a small business, and we’ve gone too long trying to kid ourselves that we don’t all need to understand how money works and operates.

Don’t get into trouble by not understanding finances, money and triage of expenses.  Otherwise, you will be left vulnerable to the quite harsh winds of economic change blowing through right now, and risk being capsized in the process.

Tags: economics, finance, triage

Supply, Demand and Higher Ed

For a few years, I’ve been part of an Alumni interview committee for my undergraduate university.  The kids often seem like they have built an impressive resume and seem much more qualified than I think I was at that age.  It always made me wonder- did I just get lucky to get into my school?  Are college admissions as much about external factors like tuition costs, where you live and where you went to high school, factored into the kids applying in your year, or is there a more objective measure of “worthiness” that stays relatively constant over time?

A recent article in the New York Times discusses the drop by as much as 30% in applications to private colleges and universities, and my friend, Christopher S. Penn, over at the Financial Aid Podcast, has been talking openly for some time about how the credit crisis has eviscerated the amount of money available for students in the form of student loans.  The New York Times also reported recently that some traditional “commuter schools” and community colleges were building dorms just like 4 year schools.

This made me start thinking about whether supply and demand, as they teach it in economics, applies to Higher Ed, and if so, is there a lag?

I do think your chances on getting into a school depends a lot on who else is applying.  Number one, the number of applicants in the pool affects your chances of admission purely as a percentile before they even look at your application.  If they have 1000 spots, and there are 10,000 applicants, you have, on average, a 1 in 10 shot at getting in, 10%.  If there are 30,000 applicants, your chance drops down from 1 in 10 to 1 in 30.   You now have to be in the top 3% of qualified applicants instead of the top 10% to get admitted.  That’s now at least two standard deviations above the mean or average applicant.  So it makes sense, that clearly on a numbers game, not even discussing quality factors, that as the applicant pool shrinks, you have a better chance of getting in, than in years when the applicant pool was bigger.

Secondarily, if application fees themselves are high and money is tight, people will apply to fewer schools than in other years.  This will shrink the application pool.  If tuition at the school is high, and money from parents or loans is less available, people will have a tendancy to only apply to schools they think they have the best chance of getting admitted to, and those they will actually be able to afford to attend.  This will further shrink the application pool based on economics alone, before we get to factors regarding quality of education and quality of the applicant pool.  Other students may consider doing the two year/four year shuffle- spend two years at a lower cost community college, and try to transfer to a four year school later, to save money on the whole cost of education.  This means there’s a further cut of kids that might otherwise be in the application pool at a four year school for freshman year.

I would guess then that Adam Smith is probably right on the money- the old supply and demand curves probably do apply, at least to the application pool, in any given college admissions cycle.  In a year like this one, you may then have a slightly better chance at getting admitted to your “dream school”, assuming you will be able to pay for it if you are admitted.

The quality or perceived quality of an education at an Ivy-league or other high-cost first or second tier school probably hasn’t changed.  Professors will keep their jobs and keep teaching. The education delivered will remain relatively constant, presumably.  However, the strength and paper qualifications of the students may decrease a bit, while prestige of the school remains the same.  After all, we determine the quality of a school by its alumni in part, its reputation and research, and many other collective factors.  Even if a college has a slightly lower standard of admission for a year or two, the overall quality of the school and education will remain fairly constant and dependable.

So it’s my best guess that it may be slightly easier for the next few years, as tuition money is tight, and applications low, to get into a slightly more competitive school than ever before.  Whether Universities will start looking at drastic measures like lowering tuition, fees or application costs in order to preserve the quality of the applicant pool and balance the pressures of supply and demand are less certain.  Given what schools are charging and their past performance, I think it’s going to take some time before they start considering these sort of options to balance supply and demand.  In the meantime- if you have always dreamed of the Harvard acceptance, you may have a better shot this year than ever before.

Tags: college admissions, economics, education, finance, financial aid, supply and demand