CHAPTER
2
Think Before You Click
Commercialism is more a mirror than a lamp. In demonizing it, in seeing ourselves as helpless and innocent victims of its overpowering force…we reveal far more about our own eagerness to be passive in the face of complexity than about the thing itself.
—JAMES TWITCHELL, PROFESSOR OF ENGLISH, UNIVERSITY OF FLORIDA1
THE CONSUMER MADHOUSE
Human beings must exchange money for food, shelter, and clothing to survive. Beyond that, we innately enjoy owning things that can provide us with satisfaction, pleasure and, of course, entertainment. We fervently, urgently enjoy getting those things we desire. We even—and I mean this in the nicest way, really—lose our minds a little bit when we are in hot pursuit. Neuroscientists have actually mapped how we’re programmed from our evolutionary past to get things we want pronto and not to “waste time” considering the better outcome that might be achieved by waiting.2
We modern-day humans must fight hard and smart to focus on our fiscal health. Every type of marketplace we enter—from farmers’ markets to shopping malls to online click-and-buy—presents a superabundance of choices, marketed with clever schemes designed to work on our psychosocial trigger points. The online abundance we experience today simply did not exist 100 years ago. It has been building steadily in my lifetime, from what I have seen, and we’ve reached a peak. In the online marketplace, scientists have determined our emotional responses to the attractive presentation of merchandise, and “calm, friendly, knowledgeable” ad copy is even quicker to trigger impulse spending than are regular retail shops.3 We know that many of these digital ads, replete with video and graphics, present delightful consumer experiences and promises of endless adventures, posing unprecedented challenges to people’s ability to focus on long-term financial security.
“We are wired, for now, to be impulsive,” said Dr. Phil Harris in describing a 2017 study he did on the topic of spending habits.4 Harris found that test subjects were better able to control their spending urges after looking at digitally aged photos of themselves and visualizing their lives 20 years on. Perhaps there’s a quick tip in that methodology: try thinking about gray hair and crows’ feet the next time you are browsing online. It could help, I suppose. But in this chapter I will suggest many more defined and strategic ways to build self-control over spending.
Only 40 or 50 years ago—less than a lifetime—people had no choice but to save for what they wanted before they could buy it. Stashing away money weekly for a vacation or putting it in a Christmas Club bank account meant that people had time to think about how much they wanted to spend—or didn’t—on a particular purchase. It was part of the culture back then to care about every dollar.
I’m certainly not proselytizing against the joys of spontaneous shopping. I take pleasure in buying well-made clothes, having a celebratory dinner out with family, and buying gifts for my kids on their birthdays. I relish acquiring a great suit for work or a couple of pairs of snazzy shorts when I visit the beach. But I have also devoted my attention for many years to learning how not to overspend and how to live within my family’s means. About those things, I do proselytize a little, especially at home. I work with my kids so that they will grasp how to be prudent with their own money as they achieve adulthood. I believe that a fundamental component of true adulthood is the ability to be self-sufficient.
When I say self-sufficient, I’m not talking about being Captain Fantastic, teaching my kids how to live off the land (Viggo Mortensen starred in the movie, if you haven’t seen it), but I want them to appreciate the value of what they have and how to resist the psychology of impulse spending. We can all be so easily parted from our money in this twenty-first-century consumer madhouse. It really is a jungle out there in many respects, a jungle thick with exotic market schemes that prey on our most basic human instincts.
In this chapter I will show you how we get manipulated into excessive spending and recount the techniques you need to know to avoid being ripped off. Out-of-control consumerism isn’t just an issue for shopaholics anymore. In the current realm of click-and-get online shopping, smartphone apps, and so on, you can spend so quickly that automatic renewals and monthly subscriptions are picking your pocket before you realize what’s happening. There’s no governor. Marketers know how to make those “cancel your subscription prompts” invisible and how difficult it can be for us to turn off what’s been switched on in our brains—and our bank accounts. Home mortgages, car loans, and notoriously unthrifty and risky borrowing behaviors such as taking out a home equity line of credit (HELOC) or using a second mortgage to redo your kitchen or put in a swimming pool will be addressed in Chapter 4.
CHECK OUT ANY TIME YOU LIKE
Even in simpler times, back when everyone’s consciousness was not pecked at every second by a million provocations and distractions emanating from phone and computer screens, it was easy to get people salivating over the latest new product with a well-placed ad in the newspaper or on TV. Even rural American settlers in the late nineteenth century could be seduced by the offerings of the Sears catalog delivered by the U.S. Post Office horse and buggy. People can be conveniently lulled into forgetting about fees and monthly commitments when they dream about bringing those products home. It has always been easy to distract us humans with something pretty or sexy, and it always will be. Marketing schemes aimed at taking advantage of this tendency are inevitably successful at grabbing bits and chunks of our money.
Back in the 1990s, it was the siren song of music (and a “join-the-club” hook) that first lured so many young people, including me, into the land of recurring fees and obligations that seemed too difficult to remember to cancel. You thought you’d struck musical gold when you scored a pile of tapes or CDs for a penny—simply for agreeing to buy a few more at the regular price over time. It was the deal of a (youngish) lifetime. Alas, those “regular price” CDs turned out to be much more expensive than the average retail store price, even if that wasn’t clear in the promotional material. And many of us music lovers eventually came to feel that music club membership bore a certain resemblance to The Eagles’ “Hotel California,” where you wander right on in but never leave. Technically, you could leave, of course, but it was kind of a bureaucratic hassle. More to the point, you’d have to pay up on all the more-than-regular-price albums you’d agreed to buy when you became a club member. So, what the heck, why not let it slide for another month? Oops.
Okay, one more month.
Oops, etc., etc.5
LONG-PLAYING SCHEME
That was the mentality marketing agents keyed into when the Columbia record label began selling vinyl records via mail order way back in 1955 and, as formats morphed over the years, eight-tracks, cassettes, and then CDs by the 1980s. The essence of the subscription deal Columbia House offered never changed through the decades: get a bunch of albums for 1 cent, and agree to buy a few more at regular prices over time. As teenagers have been wont to say through the ages, “Everyone’s doing it!” It was practically irresistible to music lovers on tight budgets (or parental allowances) who craved a personal collection. For those residing at the far end of one of John Denver’s “Country Roads,” or lacking a store they could walk to, Columbia House membership presented a convenient option.
The problem that developed for many customers, though, was that they failed to take the option of saying “no”—or at least “no more”—after the original commitment was made. (Note that Columbia House is now dead and moldering like a box of old cassette tapes in a trash pile. But the DNA behind its marketing scheme is still alive and kicking consumers in the pocketbook. So read on, and caveat emptor, forevermore.)
Piotr Orlov, a former marketing director for Columbia House, discussed in a National Public Radio (NPR) commentary in 2015 how the company had hornswoggled millions of young people into signing contracts, knowing that many would neglect to cancel. This was the key: if a record club subscriber did nothing, the obligation was still legally binding. Orlov worked at Columbia House in the late 1990s. By then, he said, it had become almost a rite of passage for young people to take their first shot at “ruining their credit rating” by ignoring further notices after getting free music.6
Our government regulators are often slow to pick up on rules that need to be enforced—or toughened. But in 2009, the Federal Trade Commission (FTC) did explicitly warn consumers to beware of subscription-based marketing, issuing a special report on the subject. The regulatory commission used a “jargon-y” term, negative-options marketing, which it explained this way: “[t]he FTC uses the phrase to refer to transactions in which sellers interpret a customer’s failure to take an ‘affirmative action’—either to reject an offer or cancel an agreement—as permission to charge them for goods or services. Negative option marketing can pose serious financial risks to consumers if appropriate disclosures are not made and consumers are billed for goods or services without their consent” [emphasis added]. Another way of saying this: if you don’t opt-out, you’re paying up. I will share some good news in Chapter 8: some wise organizations are using negative option to encourage tax-protected savings.
In plain English, the message to consumers was (and is) don’t subscribe unless you are going to remember to unsubscribe, because companies can hold you liable until you officially do that. You will end up paying more than you intended to spend. Like many messages from regulatory agencies that are supposed to be protecting our financial interests, though, it was pretty obscure to the average consumer. And it came late, way late.
By the time the FTC threw down the red flag on the negative-options game, digital media and online marketing had already transformed the global marketplace. The use of negative-option techniques remained as pervasive as ever, though: “You’re a winner!!! FREE $1,000 at Amazon, Walmart, Sam’s Club!!!” in flashing lights, with ringing bells and a trill of triumphant music, followed by the message: “You need only fulfill five of these available offers [in teeny, tiny print] within a limited number of days, and then you will be eligible to win!”
I have to ask, is there anyone reading this today who has not ever been declared a winner online? If so, you might actually be the lucky winner in the crowd. You have not been led into temptation or tried to fulfill all the offers within the correct time frame, found yourself obligated to a variety of recurring automatic purchases, and been ensnared just as securely as any music-loving teen ever was in those analog days of yore.
An authoritative report by McKinsey Global Research confirms the obvious: subscriptions are an increasingly common way to buy products and services online.7 The most popular services are Amazon Subscribe & Save (consumer packaged goods) and Dollar Shave Club (razors). The advent of subscription digital media services—including Netflix, Hulu, Spotify, and Apple Music—helped fuel near-steroidal growth in the e-commerce market. Between 2011 and 2015, subscription e-commerce swelled from $57 million in $2.5 billion. By early 2018, McKinsey Global Research reported that nearly half of consumers surveyed subscribed to an online streaming-media service such as Netflix. McKinsey also found that more than a third of consumers hold three or more online subscriptions. The churn rate is high; people get dissatisfied and cancel, but as the market researchers noted, often people just switch to another subscription media service and restart the cycle.
GIVE-AND-GRAB DIGITAL-STYLE
Many online memberships offer a free or highly discounted trial period, followed by automatic billing. This applies to media offerings and also consumer products, such as Dollar Shave Club or Blue Apron meal kits. I enjoy Spotify and Netflix like many of you. However, I try to keep it just to those. Even if you are initially attracted by introductory rates and offers, even when it comes to specialty items that one savors and receives with anticipation each week or month, it’s critical to develop savoir faire about canceling and “discount bonus items.” Sometimes products can appear on your doorstep without being ordered. How difficult is it to return a bottle of fine Italian red wine when you are already holding it in your hand? How hard is it to send back a pizza lacking pepperoni when the smell has already got your mouth watering? It takes near superhuman strength. Minnesota Attorney General Lori Swanson, who has an impressive record of consumer advocacy, has produced a helpful guide to this, ahem, borderline fraud. “Under state and federal law,” Swanson writes, “recipients of unordered merchandise may keep the goods and are under no obligation to pay for or return them. The recipient may treat the merchandise as an unconditional gift—and may use or dispose of the merchandise as he or she sees fit. The recipient also may refuse to accept delivery. Federal law states that the sender cannot send you a bill or collection notice for unordered merchandise.”8
So maybe we should talk about building up your strength. Uh-oh. Who would have thought? This turns out to be where many people’s best intentions can hit a wall. You want to get physically stronger, so you join a gym and summon mental strength to commit to it. You quite logically assume that you are investing in something that deserves a serious commitment: your health. The postcards that filled your mailbox and come-ons that flooded your screen appealed to you with deals that were easy on the wallet—“as low as $10 a month!”—and they inspired a feeling that the company is on your side in this exercise. The company wants you to be fit! Just show up and use its facility for the cost of several cups of coffee and make a healthier person of yourself.
Of course, once inside the gym door, you will inevitably face the hard sell on “offers” to sign up for pricey personal training. The trainer will keep you personally engaged, if you go for it, but that will require a much bigger commitment of your time, not to mention your money. Whether or not you do add the cost of training to your low introductory fee, you may at some point realize that you are not really getting your money’s worth from your gym membership. And then a vicious cycle can ensue.
I’ll never forget joining a gym in St. Louis one summer when I was home from college. My friend and I signed up and went there to lift weights. Almost instantly a trainer began trying to persuade me to buy a workout belt to brace my back during lifting. While my friend is a guy who can lift serious weight, I don’t think I’ve ever benched more than 120 pounds or so at my peak. In those college days, I had no money for an expensive leather workout belt, so I kept putting the guy off. Although the sales pitch started making me think I did need a belt, I just couldn’t afford it. After repeatedly being rebuffed, the aggressive trainer finally looked at me and said, “No belt, no progress!,” and stormed away. I never did buy a lifting belt, but I often think back to the line, “No belt, no progress!,” when someone is trying to sell me something I don’t need.
You will likely feel guilty if you want to quit because it was your choice to join the gym and get fit in the first place. You may very well—and trust me, the marketers are counting on this possibility—dawdle about canceling your membership. After all, it’s your own “fault” you have not morphed into The Incredible Hulk or Wonder Woman or managed to shave at least an inch of belly fat. Maybe it is, and maybe it isn’t. What I can assure you of absolutely is that you have gotten tangled up in a sophisticated marketing scheme specifically designed to forestall or, at least, delay the day you cancel your membership.
In a New York Times “Your Money” column, Planet Fitness was listed as one of the most-canceled subscription memberships of any type. The article used statistics gathered by Trim, a computer app that tracks recurring charges. Trim’s data showed that more than 30 percent of those who sign up with Planet Fitness wind up canceling—and that they often get a real workout trying to do it, according to Trim’s cofounder Thomas Smyth.9 He was quoted in the article as saying that his company assesses the cancellation process for health clubs in general to be “particularly noxious.” Because it is designed to assist users in canceling unwanted subscriptions, Trim continually updates its information about the requirements to quit each company. Planet Fitness and other fitness clubs usually do not let you cancel online or with a quick text message. No, it may require sending registered mail to the corporate parent to break up with these muscle factories.
WAIT, WHAT ARE THE RULES?
Some subscription services use a sort of shell game to thwart easy cancellation, switching around the procedures so frequently—I am talking about you, Experian—that the process becomes an endurance contest. In the Times article mentioned earlier, Smyth described how companies employ basic principles of psychology and behavioral economics to pick pocketbooks. Or get you to pick your own, if you want to put it that way. He said that companies such as Experian rely on people’s natural tendency toward inertia and their impatience with “fine print” to get them off track in defending their personal fiscal fitness.
Smyth also cited the example of Gogo, the digital media service that allows users to connect to Wi-Fi in-flight and become a subscriber. “The per-month rate is often not that much more than the per-day or per-flight rate,” Smyth said. “So you look at it and say, ‘I’m going to be a winner. I’m smarter than these guys!’ And then you forget to cancel. For months.”
Please do not feel insulted by this observation. You may actually be smarter than the marketers who wind up feeding off your forgetfulness, but you have fallen prey to their tricks. You were not attentive enough, or aggressive enough, to keep your fiscal wits about you.
By the way, should you want to give the Trim app a try—or another one such as Truebill or Prosper Daily—you can do it for free. You must, however, be willing to submit credit and debit login information or else mail in hard copies of your bills so that the app can scan your statements and identify hidden charges. Ron Lieber, the “Your Money” columnist for the Times, submitted his own information when investigating Trim. He said that the app found nine monthly fees—not including those for utilities—totaling more than $100 on his accounts. He used Trim to instantly cancel two of them.
WHAT ARE THE STAKES?
At Truebill, a typical user has 11 recurring charges—mostly services that users know about and want, said Truebill founder and chief executive Yahya Mokhtarzada. (Netflix is most common, followed by Spotify, Amazon Prime, AT&T, and GoDaddy.) Among the 17 percent of site users who cancel a membership, however, the average savings is $512 per year.
Perhaps that’s peanuts to you. Perhaps you feel that marketing schemes are not real crookery, only small-time scams not warranting a lot of agita. In that case, please consider the following: the exact same mechanisms are at work in major and undeniable scams, the ones you read about in screaming newspaper headlines or see on TV exposés. There is a direct line connecting petty thieving through subscription fees and notorious swindle operations such as the payday loans scandal documented in the recent Netflix series “Dirty Money” (see the second episode on payday loans mogul Scott Tucker, https://www.netflix.com/title/80118100). Tucker, a millionaire racecar driver, was able to rob people of modest means using a predatory payday loan scheme that carried undisclosed fees. Some borrowers wound up owing as much as three times their initial loans, with Tucker’s company charging interest rates as high as 700 percent. More than 1.5 million folks were duped into paying these ridiculous charges. They couldn’t all have been stupid and irresponsible; they were human beings manipulated with common tricks into confusion about the true cost of something they needed (most people who take these loans are in desperate need of money). The documentary recounts how well-meaning, frightened customers were led to believe that they were paying back the loan when they were only paying back additional hidden fees that triggered even more fees.
The unscrupulous Mr. Tucker is now serving a term of 16 years and 8 months in federal prison (plus having to pay a $1.26 billion judgment). His business manager and partner in crime is also in prison and forfeited $49 million. The AMG Services company they ran was exposed by federal prosecutors in open court as having lied to consumers and regulators about where it was based and having falsely claimed it was run by a Native American tribe. This only occurred after enough alarmed customers complained to state regulators and consumer protection groups that the feds finally got involved. As noted by the U.S. Department of Justice announcement, “SCOTT TUCKER was sentenced to 200 months in prison for operating a nationwide internet payday lending enterprise that systematically evaded state laws for more than 15 years in order to charge illegal interest rates as high as 1,000 percent on loans. TUCKER’s co-defendant, TIMOTHY MUIR, an attorney, was also sentenced, to 84 months in prison, for his participation in the scheme. In addition to their willful violation of state usury laws across the country, TUCKER and MUIR lied to millions of customers regarding the true cost of their loans to defraud them out of hundreds, and in some cases, thousands of dollars” [emphasis added].10
It is a jungle out there—and you have to stay alert, be disciplined, and be aware of the traps.
AUDIT YOURSELF
Just as Ron Lieber did with the Trim app to uncover monthly fees he’d forgotten he was paying, it’s always good to perform regular self-checks on your spending habits. There’s that governor again.
Here is a short checklist of things to make sure you remember:
Read the fine print before subscribing to any service.
When a business asks for a credit card number (even if you’re signing up for a free trial), assume that
• The business plans on billing you.
• The business is likely to bill you without advance warning.
Keep an eagle eye on monthly statements to identify charges you may have forgotten about. (Even small ones add up over time.)
Set calendar reminders for when free trials expire so that you aren’t unexpectedly charged for a service you no longer want.
Pay for subscriptions with a credit card to get stronger consumer protection than you would by paying directly through your bank account.
Consider setting up a separate checking account or credit-card account to keep all your digital purchases in one place (just remember to pay the balance in full each month).
If you prefer to farm out tedious tasks, consider using Trim or Truebill or some other service to ferret out unwanted fees and kill “zombie” subscriptions that live on despite efforts to cancel.
Okay, we’ve started our financial fitness regime with a light workout of eliminating nuisance and hidden costs and spur-of-the-moment shopping. Now let’s get ready for some heavier lifting.