Monday, July 25, 2011

Compulsive Buying Disorder

“Compulsive buying disorder is characterized by an obsession with shopping and buying behavior that causes adverse consequences.” It is found in approximately 5.8% of American citizens; of that 80% are female[i].


While you may not suffer from a compulsive buying disorder to the point that it has adverse consequences in your life, most of us are guilty of spending money we don’t have for things we don’t really need, whether it is that magazine that catches our eye while checking out or that new movie on the flashing display when you walk in the store.


I myself am guilty of it, my personal enemy; Bass Pro. It has such an effect on me that I feel guilty leaving the store with nothing. Let’s get one fact straight – products are placed purposely in stores and packaging and displays are meant to catch your eye. Companies spend millions of dollars each year preying on our inability to say no. So how do we counteract these urges of ours? How do we train ourselves not to pick up that shiny item we all know we must have?  There are many ways to combat this but here are a few strategies that I personally use.


·         Making a list ….and sticking to it

·         Leaving your credit cards in the car and only taking in the cash you need

·         Setting a time limit to how long you will stay

·         Taking a friend, preferably one who does not share your enthusiasm

·         Only go when you absolutely need something, not just to browse

Making a list and sticking to it! Making a list before going anywhere is easy and practical. Whether it is a list of things to do that day or a list for the grocery store, it will help you stay on track and be productive. Doing it is one thing but sticking to it is a whole new ball game, because if you can’t do that the list was a waste of your time. A good strategy is to know where you’re going and head straight there because you might need milk, but it’s not going to help if you walk through four isles to get there.


Leaving your credit cards in the car and only taking in the cash you need. This personally is my biggest helper. Often I find myself spending more money then I should with the justification of putting it on my credit card. So make it easier on yourself and don’t even bring it in, trust me it will make your life a whole lot easier.


Setting a time limit on how long you stay. This may seem a bit rudimentary but I really think it does work. By setting a time limit on how long you stay it helps you from browsing and finding that one item you can’t live without. Make it something practical like 20 minutes in the grocery store. It obviously applies to different situations so just use your best judgment.


Taking a friend, preferably one who does not share your enthusiasm. I myself find it a lot easier to stay on track when I’m not alone in the store, they too know what you came there to get and for the most part add a second opinion on any purchases. Don’t take in a friend who enjoys the same thing you do. When I go to Bass Pro with my brother I know it won’t end well because we both love to hunt. However, put me in bass pro with my girlfriend and I’ll bet you my bottom dollar she won’t let me leave with something I don’t absolutely need.


Only go when you absolutely need something, not just to browse. Going to a store just to “have a look” is a set up for failure. Only go when you absolutely need something. And even then use the other strategies we discussed before, make a list, only bring in the money you need, and bring a friend who will keep you on track.

Like I said before these are by no means the only strategies to prevent compulsive buying, but they are a good start. Try some of these the next time you go out and see how they work.


by Robert Self, Personal Financial Planning student
(with edits by Ryan Law)





Ryan H. Law, M.S., AFC

Department of Personal Financial Planning

Office for Financial Success Director

University of Missouri Center on Economic Education Director


239E Stanley Hall

University of Missouri

Columbia, MO 65211


573.882.9211 (office)

573.884.8389 (fax)


Thursday, July 21, 2011

A Tax Break on the Table?

There is a lot of talk going on about taxes and budget reductions, as our elected representatives take their stance and lean toward the inevitable compromises.  When you look at Europe and the changing landscape of our world, in the context of our history and our current national debt – to say nothing about our personal debt – there is much to be confused about and no shortage of actions that need to be taken.  The trouble is, of course, the politicians can’t agree with each other on the actions and my personal opinion is that they seem to be more concerned about their personal beliefs and re-election than they are about those of us who sent them to Washington.  Yet, I digress.  I need to write an educational piece for the week….


When I was driving back from a meeting in Kansas City, on Wednesday, I heard a report on National Public Radio about the mortgage interest tax deduction.  It is, in some form, on the table to be reduced, if not eliminated, as a means to increase federal revenue.   As the Tip is designed as an educational tool, let’s see if we can use this debate to educate.


First, what is a tax deduction?  A tax deduction is an expenditure that is subsidized by the federal government.  A tax deduction reduces the income that is subject to taxation dollar for dollar.  Assuming other tax deductions exceed the standard deduction, $1,000 in additional mortgage interest will cost you the after tax amounts in the following table.  Notice how the cost varies with your marginal tax bracket.  As can be seen, higher income consumers (i.e., higher tax bracket consumers) receive the greatest subsidy from a tax deduction.  From the lowest to the highest, the highest marginal tax bracket households pay $296 less, or a 32.89% lower price, for the same $1,000 of interest paid by both marginal tax bracket households. 


Marginal Tax Bracket

Single Income

Married Filing Jointly Income

After-tax cost of additional $1,000 in mortgage interest

Percentage reduction as move to each higher tax bracket

10% Bracket

$0 – $8,425

$0 – $16,850




15% Bracket

$8,426 – $34,200

$16,851 – $68,400





25% Bracket

$34,201 – $82,850

$68,401 – $138,050





28% Bracket

$82,851 – $192,000

$138,051 – $232,950





36% Bracket

$192,001 – $375,700

$232,951 – $375,700





39.6% Bracket








Homes are good for the economy and homeownership is generally considered to be a positive for communities.  High income households have higher rates of homeownership, with 89.3% of the top income quintile being homeowners, compared to 32.6% of the lowest income quintile being homeowners.  High income households also purchase larger houses and borrow more money to purchase those homes.  We, as a country, support this by providing the largest subsidy to them to purchase their home.  James Poterba and Todd Sinai report the following (paper available at: ):


Household Income






Average Tax Savings from the mortgage interest deduction

















Thus, the greatest subsidy is given to the higher income households, both in percentage terms and dollar terms.  So, what is the talk coming out of Washington?  Current law allows homeowners to deduct the interest they pay on homes mortgages of up to $1 million in principal borrowed.  One proposal calls for this to be reduced to $500,000 and for the interest on mortgages to purchase second-homes to be eliminated as a tax deduction.  Professor Wheaton of MIT predicts that what will eventually come out of the Senate Committee is a similar proposal, except the tax deductibility of mortgage interest will be changed to a constant percentage tax credit for all households, regardless of taxable income, perhaps 10%, 12%, or 15% of the interest paid.  (His radio interview is here:


If an indicator of financial success is the house we own, we should consider the question of the effect of the tax deduction.  Does the United States’ tax deductibility of mortgage interest change homeownership rates and average house size, when compared to a country with a different system of taxes?  Fortunately, we have a good example.  We can compare the United States, where mortgage interest is tax deductible, to Canada, where mortgage interest is not directly tax deductible.  I will summarize in a table:




United States

Percentage Homeowners [1]



World rank in house size [2]



%Equity in owned home [3]








It appears that homeownership rates are relatively similar between the two countries.  It is a little surprising that the average house size is, in fact, greater in Canada than the United States.  One might conjecture, however, that the lack of mortgage interest deductibility seems to have depressed the percentage loan-to-value ratio in Canada to 30% compared to 55% in the United States.  Stated another way, Americans have more debt in their home than their neighbors to the north.  Perhaps this is due to the upside-down subsidy from the tax deductibility of mortgage interest.


There is, of course, much more to this story than what I’ve written.  The main point is that we have choices to make.  This is but one.  Each one of us has deeply held beliefs about policies and some of these beliefs are based on facts, some are based on political philosophy, and some based on emotions.  I am a bit affected by all three, most of the time.   I do encourage you to be informed and make up your own mind.  Let your congressional representatives know how you feel about this topic or others, as is required by a successful democracy. 


Other parts of the NPR radio show that spurred my thinking on this topic:


National Association for Realtors: 

From the Associated Press:

Center for American Progress:

Corporation for Enterprise Development:


Thursday, July 14, 2011

Financial Recovery and Risk Management

Brenda Procter, M.S., State Specialist & Instructor, Personal Financial Planning, University of Missouri Extension


Someone attempting to restore their life and home after a storm will face difficult decisions at a time when stress can cloud their thought process. In many cases, the decisions will involve large investments. Naturally, people want to recover as much as possible through their homeowner’s insurance policy. Where insurance falls short of needs, other types of assistance may be available, especially where the President has declared a disaster area. Claims that aren't covered by insurance or other reimbursements are tax-deductible if they exceed 10 percent of adjusted gross income.  Here are some tips for recovering if it happens to you.


Documenting Losses and Claims
Whether you’re filing for insurance, seeking assistance or claiming a casualty tax deduction, you will need proof of your losses. Before you start cleanup, take pictures. If you can’t take pictures, describe the situation accurately, listing the specific items that have been lost or damaged. Keep damaged materials for proof of loss until your insurance adjuster authorizes their disposal. It’s okay to remove the damaged articles from their original location to prevent further damage to the building, but do not throw them away without insurance company approval.

Remember to also document the losses in your landscape and garden. In addition, document the amount of debris you will have to remove, and whether it came from your property or elsewhere. Some homeowner's insurance policies cover debris removal.

·         Save all receipts for your temporary lodging and food if your home is not fit to live in. Some policies pay the difference between normal living expenses and the cost of living elsewhere.

·         Save receipts for temporary repairs you made to protect your property from further damage.

·         Save receipts for any materials you bought and for other items you needed to protect your building or its contents from further damage. You may be able to claim these on your homeowner's insurance policy.

·         Keep a copy of all letters and receipts that you send to insurance companies or relief agencies.

·         Keep a record of all phone calls you made to get reimbursements or aid.

Filing for Insurance
These tips are offered to guide you in filing insurance claims for damage to your home and loss of personal property:

·         Call your insurance adjuster immediately, and provide a phone number where you can be reached. If phone service is not available, work through disaster assistance workers from the Federal Emergency Management Agency (FEMA) or the Red Cross for assistance in reaching your insurance adjuster.

·         If possible, wait for an adjuster to survey damage. Meanwhile, carefully document losses and begin cleanup and salvage to prevent further damage to your home. Keep damaged materials in an isolated spot as far from the building as possible.

·         Follow up on your insurance call with a letter detailing your problems. Keep a copy of the letter.

·         Leave phone numbers where you can be reached when the adjuster arrives.

·         Ask the adjuster to assess damages. Sign the proof of loss statement. Report additional damage as it is found.

·         Provide any other information the adjuster requests.

Be sure to file your insurance claim within the policy's imposed time limits. For homeowner’s policies, it varies. Review the settlement steps outlined in your policy. If you’re dissatisfied with the proposed settlement offer, explain your position in writing.

The Missouri Department of Insurance (MDI) can help if you feel you’re being unfairly treated by your insurer. For example, if the company didn't contact you within 48 hours after the claim was reported, or if the company refuses coverage that is specified in your policy.

For more information about MDI, call 1-800-726-7390 or review the "Consumers" section on their website at 

For information and tips to help you work through the recovery process effectively, as well as information about homeowner’s and flood insurance; credit and other sources of release; contracting for repairs and rebuilding; and federal disaster assistance, read further at:


Thursday, July 7, 2011

Nothing left to lose

Oh, how I love the songs of the sixties! Me and Bobby McGee was written by Kris Kristofferson and Fred Foster and originally recorded by Roger Miller in 1969. The version I remember dancing to and singing with the "windows rolled down" hit the top of the charts in 1971 and was recorded by Janis Joplin, shortly before her death in 1970. It contained the lines:

Freedom's just another word for nothing left to lose
Nothing, I mean nothing honey, if it ain't free

These lines haunt me. I always wonder if the writers were trying to say that we are only free, if we don't have possessions to worry about. Yet, many people want more possessions, money, or whatever. I am not immune to these motivations but I do think about these lines during this time of year, when we celebrate our freedom on Independence Day.

On Independence Day, one of my high school friends posted the following question on Facebook: How do you define freedom?

These were some of the responses:
A fellow classmate, alumnus from Liberty High School: "Liberty"
An older alumnus of LHS, a doctor: "Liberty and Property"
Female:<> "The ability/right to jump in the car and travel where one wishes, to speak one's mind and live one's live (sic) without hindrence (sic) from the government. Bearing in mind, of course, the rights of others."
Brother of the questioner: "As (our) forefathers said, "Life, liberty and the pursuit of happiness and I would add a good round of golf!"
Me: "Ability to act to make a difference in one's life or the lives of others."

This got me to thinking about the relationship between money and freedom and the effect they have on our happiness. Fortunately, my Google search led me to an academic article published in May 2011 by two professors from Victoria University of Wellington, published in the Journal of Personality and Social Psychology (Volume 101:1), a publication of the American Psychological Association. Professors Fischer and Boer concluded the following from their study of sixty-three countries spanning nearly forty years of information.
When wealth and individualism are traits used to separately predict anxiety, without controlling for the other trait:

· Greater wealth is, indeed, associated with lower levels of anxiety, until the greatest levels of wealth - where anxiety begins to increase. These increases in anxiety were lesser in the wealthiest societies.

· Greater individualism (i.e., freedom) showed an overall decrease in levels of anxiety, while the highest levels of autonomy were observed to have a slight increase in anxiety.
When wealth and individualism are controlled to see the independent effect of both, while controlling for the other:

· Only greater individualism continued to be significantly associated with reduced anxiety, while the effect of greater wealth seems to be "mediated by individualism".

· Among the poorest countries, there was no "discernible relationship between wealth and trait anxiety". While among the wealthiest countries, increases in average incomes were associated with less anxiety.
So, what is the take-away message? It is clear that freedom is very important to life satisfaction and lowered levels of anxiety - more important than the effect of wealth. It is interesting that they found, for wealthier countries, greater life satisfaction for those with higher incomes. Since greater income is a pretty good proxy for work effort and economic productivity, the result could be taken to mean that those who are working hard to make a difference in their lives are happier, as well as making a larger contribution to the product of the country. Freedom, therefore, is more than just "nothing left to lose". Freedom is the most important ingredient for happiness. Working for financial success just makes it that much better and, if you care, you can even afford a good round of golf!

If you have questions or ideas to share post them on our blog: .

ps: My computer is on the fritz, so I'm writing this from a spare one. I can't seem to find the delay-delivery option. Thus, you will be receiving this shortly, rather than the customary 5:00am! I'd rather my computer not be on the fritz!