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More than half of all holiday shoppers this year will purchase gift cards, with the typical buyer getting four cards with an average value of $45 each. It will add up to more than $27.6 billion in spending, according to the National Retail Federation.

I won’t be one of those statistics, because I care enough to do my very best and that’s not the message I typically believe is sent by gift cards.

Thus, for the third straight year, I am swearing off gift cards, and encouraging others to do the same.

It’s not that I want to be a humbug, or even that I hate getting or using gift cards. It’s that the lack of thought that goes into the shopping process suggests that the entire gift-giving exercise should be overhauled; backing away from gift cards is a first step.

The NRF says that overall holiday spending in America is expected to increase by 6 percent this year, rising to an average of $1,189 per person. That average may be a bit skewed by wealthier individuals busting loose – a PwC study showed that people earning from $100,000 to $150,000 expect to spend $1,609 per person this year – but by any measure the spending is out of control in a country where the median household income stood at less than $60,000 in 2016 and the median retirement savings of families between the ages of 38 and 43 is less than $4,500.

For the record, let me make it clear that I certainly can find times when gift cards are both justifiable and appropriate. Over the last few years, I’ve heard from many people who hate my gift-card boycott, who trot out reasoning like gift cards aren’t returned for being the wrong size, they are always opened warmly and received with a smile, and more.

In the last decade, gift cards have shown up in most holiday studies as the most-requested gift, although that’s not a surprise because they are a catch-all for anyone who hasn’t given much thought to what, specifically, they would enjoy receiving.

And, yes, if I get a gift card I certainly do spend it.

But expedience is accompanied by a loss of civility.

Gift cards have become a form of cash. If you wouldn’t give someone cash as a gift — and I recognize that some cultures do exactly that, but most Americans still consider cash gifts tacky — then giving something viewed as “the same as cash” is equally tasteless.

Yes, Grandma, the little ones love getting exactly what they want with your money, but everyone would be better off spending some time chatting, learning what a child truly wants and why they want it, swapping e-mails with links to the items they want, discussing appropriate gifts with their parents and deciding thereafter how to get them what works best for the child, the family and your budget.

It’s not like the choice here is between a gift card and an ugly, improperly sized sweater. There are ways to bridge that gap, and families that are far apart by distance can “shop together” online.

The holidays should be personal, and gift cards are inherently impersonal.

Even if you get “the right” gift card, the gift itself carries all the emotion and sentiment that can be mustered between “from” and “to” lines on a cardholder. Worse, it might be all of the lasting warmth and feeling generated by a text or e-mail with no physical card exchanged at all.

Studies have shown that gift cards are popular for five basic reasons: They’re practical, timesaving, reduce holiday-shopping headaches/gift returns, offer kids lessons in money management and “it’s the thought that counts.”

The first three of those reasons are about the giver, not the recipient.

Considering the beneficiary first — which is what my parents taught me — means that convenience and ease of purchase shouldn’t be a factor.

If the thought is what counts, then the purchase decision should be more about the recipient than about the hassles of buying them something.

Likewise, if you want to teach kids about money management, give them cash; it’s at least as good a teacher as a gift card.

And don’t assume every gift card “fits perfectly,” because there are plenty of places where cards are exchanged or swapped for something the recipient would rather have. Moreover, studies indicate that over $1 billion per year in gift card purchases goes unused; presumably, those cards didn’t prove to be “the perfect gift.”

In the two years that I have sworn off gift cards, putting “the thought” back into holiday purchases hasn’t been hard. I’ve had no problem coming up with acceptable substitutes, as well as convincing friends and family that we should simply save the effort of giving presents rather than passing around gift cards to say we did it.

I’ve heard from plenty of readers too, who found friends and family members willing to mutually scale back the holiday craziness. In cases where gift-giving felt like a burden rather than a labor of love, cutting down on or eliminating presents was its own form of holiday gift.

No one you love enough to give a gift really wants you inconvenienced on their behalf; if you are buying gift cards to fulfill what feels like an obligation, take pause.

Plenty of friends and loved ones would appreciate a long holiday conversation, a visit, or a meal more than a certificate or card given mostly to fulfill a duty.

Holiday giving traditions trace back to ancient times, when gifts reminded us of the blessings of the season, the events that created the various holidays.

Keeping your gift-giving in that spirit requires more than a few bucks on some card.

So give the gift-card boycott a try this year. Avoiding them does take more time, effort, forethought, and planning, but it also will improve communication with family and friends, which is a gift unto itself. You’ll come away from the holidays pleased with your efforts — rather than simply relieved to check names off a list — and that makes it all worthwhile.

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   Chuck Jaffe is editor at RagingBull.com; he a nationally syndicated financial columnist and the host  of “MoneyLife with Chuck Jaffe” (moneylifeshow.com). He is a long-term investor and does no short-term trading of stocks, options or ETFs. You can reach him at chuck@ragingbull.com.

Author: Chuck Jaffe

The joke for years in my house has been that everything bad financial has to happen to me or my family, just so that I can write about it.

Over the years, that has played out with stolen credit cards, identity theft, lost wallets, improper electronic funds transfers, family members buying famously troubled investments and more.

About the one thing I never experienced was dealing with a deadbeat, either an individual or a company that owed me money and simply refused to pay it. What I have learned over the course of this year – while Consumers Digest magazine has refused to pay for work it published in 2017 – is that trying to collect a debt is more frustrating than those other problems because it is nearly impossible to fix if the debtor won’t do the right thing.

To see why that is – and to decide what you will do if you wind up dealing with a problem debtor – let’s delve into my case (which has evolved from a “situation” into Chuck Jaffe vs. Consumers Digest Publications, Docket #: 1756CV1149 at the Quincy [Mass.] District Court), and the issues individuals face trying to collect from deadbeats.

I started freelance writing as a teenager; over the years it has always been a skill-specific side gig. Freelance work isn’t much different from any situation where you expect a wage in return for your effort.

Every case where payment isn’t made – even those involving loans individuals make to friends or relatives — becomes similar once the problem is that payments aren’t forthcoming. You are out your time and effort — or the dollars put into the deal — and your ability to collect is limited.

Banks and credit-card issuers can afford collection lawyers and eventually can resort to financial thugs to badger leeches and deadbeats, individuals don’t have much leeway.

In cases with small debts, lawyers, agents and collectors don’t jump at one-time cases where the juice isn’t worth the squeeze. The amount a worker or saver will pay hoping to collect can be prohibitive; I know another writer suing Consumers Digest who expects to spend 40 percent of what she is owed on her case.

Fees paid to attorneys are guaranteed; the eventual payoff of the debt isn’t.

Clear contracts help, specifying the terms and conditions that apply, but having a written agreement only helps if the case goes to court. Debtors can ignore written contracts as easily as verbal ones.

Court is the last place I want to be.

I wrote for Consumers Digest in the past; payment wasn’t always prompt, but it always arrived. So I took on one story last fall for the January issue, and then a second story due in the spring; normally, I don’t accept second assignments until the first is been paid, but the work was timely and Consumers Digests’ editors said there was no reason to believe my missing payment was anything but late.

I promised to deliver, and did; I was taught that good journalists don’t accept assignments and leave editors hanging, no matter the reason.

[You can find the stories on the ConsumersDigest.com web site here and here.]

Consumers Digest publisher Randy Weber tried to convince me that payment was coming; in e-mails he acknowledged the debt, promised payment, and volunteered to pay interest at a clip of 1 percent per month. He said in phone calls that this was a temporary cash-flow situation, and promised a plan for partial payments.

The magazine owes me $7,400 for the two pieces, without interest. More than half of that money was owed, contractually, as of last January; the rest was due in mid-July.

I paid roughly 10 percent of what I am owed to hire an attorney and file suit; Consumers Digest has not responded to the court paperwork, and my lawyer expects us to have a default judgment soon.

Having that in my pocket won’t get me paid.

“The biggest surprise for people is that you can be 100 percent in the right, have an easy case to win, sue someone successfully and get your judgment, but you still have to collect and there is no guarantee that will happen,” said credit expert Gerri Detweiler, who believes that Consumers Digest is the one publication that stood her up for payment on a story from over a decade ago. “There is a difference between winning your case and getting paid.”

Linda Sherry, director of national priorities for Consumer Action, added that there are “lots of ways for people and companies that owe money to renege and to hide, or to simply file for bankruptcy, change names, go out of business, move across state lines and more. … You have to be willing to take things to the mat, but you have to be prepared to be frustrated.”

Indeed, that’s where things stand now. Winning a default judgment won’t get me paid. If Weber cared about the reputation of his publication, he never would have allowed it to go this far; there is no reason to believe he simply will settle up, a feeling exacerbated by the knowledge that other writers have filed or threatened cases against Consumers Digest recently.

In a dream world, I get court permission to collect by showing up at the magazine’s office and walking out with computers, office furniture and whatever else I can find that can be sold on eBay to satisfy the debt. In the real world, that’s a lot of effort, halfway across the country, that involves more costs.

Standing on principle is costly and time-consuming, and may not be worth it.

In the real world, this may be the bitter financial jam that I have to choke down, leaving a bad taste in my mouth and a hole in my wallet where payment was supposed to go.

Said Sherry, “What everyone wants in these situations is to get what they are due. What most people get in these cases is something that they can’t really win; they may get a moral victory in court, but they mostly wind up having to choke it down and move on.”

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   Chuck Jaffe is editor at RagingBull.com; he a nationally syndicated financial columnist and the host  of “MoneyLife with Chuck Jaffe” (moneylifeshow.com). He is a long-term investor and does no short-term trading of stocks, options or ETFs. You can reach him at chuck@ragingbull.com.

Author: Chuck Jaffe

The battle between Morningstar Inc. and the Wall Street Journal over the most influential force in the mutual fund business isn’t new and isn’t news, but it has been the talk of the mutual fund industry over the last few weeks.

It started when the Journal published a long “investigative” piece on Oct. 25 about “The Morningstar Mirage,” which claimed that a high percentage of funds that get a top, five-star rating from the Chicago-based research firm don’t maintain their top standing going forward. Meanwhile, those top-rated funds attract the bulk of money flowing into new funds.

The implication was that investors are somehow misled by the system. The reality is far less nefarious.

Morningstar responded with articles from three of its top executives; they repeated the company’s long-held mantra on its famous system, namely that star ratings are a backwards-looking analysis of a fund’s data that should be little more than a “first step” for investors hoping to find a fund with the potential to do moderately well in the future.

For background, it’s important to understand that the star system is a quantitative measure of risk-adjusted fund performance that Morningstar started using in 1985. It tries to determine how a fund’s returns – relative to the risks it takes – measure up. Stars themselves are awarded on a bell curve, with the top 10 percent of funds in a category receiving a five-star rating and the next 22.5 percent getting four stars. The middle 35 percent earns three stars as the curve reverses down to where the bottom 10 percent earns just a single star.

Over the years – as the science of evaluating both funds and data in general has evolved — Morningstar has increasingly discounted stars, typically as it has acknowledged and fixed shortcomings in the system. It first created category ratings in 1996, then de-emphasized stars altogether as it created analyst ratings; those gold-silver-bronze awards – plus neutral and negative ratings – are meant to be predictive, and there are many cases where the star rating and analysts medal disagree, so that a five-star fund might get a bronze from researchers.

   Moreover, Morningstar always has fought against any suggestion that high star ratings were the equivalent of a buy recommendation.

Still, there is no denying where investors put their money.

A wide range of industry studies show that somewhere over 90 percent of money flowing into mutual funds is put into issues graded four- or five-star at the time of purchase. Fund companies pay Morningstar boatloads of money in order to trumpet their high-star funds in advertisements and promotional documents knowing that the ratings system – despite its flaws – is seen as an equivalent to the Good Housekeeping Seal of Approval

The Journal, for its part, either did not know or simply failed to acknowledge that plethora of studies discussing how the performance of top-rated funds generally degrades or regresses to the mean. Those studies date back to at least 1999, and the subject came up over and over before mostly dying out – or being rendered moot – when Morningstar implemented analyst ratings in 2011.

   The Journal report found that five-star funds maintained higher ratings than four-star funds over time, and that four-star funds were able to sustain higher ratings than three-star funds, and so on. Technically, this means that choosing a higher-rated fund did give investors an edge.

It’s not much of an advantage, and there’s no arguing with the idea that the importance of ratings has been overblown by a public that barely understands how they work.

And there is the rub.

It is clear that relying on star ratings as the primary or best way to evaluate funds is wrong-headed. In more than two decades of covering the company, I have never heard anyone from Morningstar suggest anything else. Morningstar’s information page on ratings notes that “A high rating alone is not a sufficient basis for investment decisions.”

That doesn’t stop some investors from wishing – or at least putting too much weight – on stars. (The Journal article suggested that many advisers rely on stars, and are disappointed with the outcome; the vast majority of financial planners I talk with long ago discounted the star system.)

What investors need to know is that divining a way to identify active managers who will outperform the market in the next cycle is virtually impossible. There are studies – most recently work done for the Journal story — suggesting that Morningstar’s analyst ratings have little predictive power; it might be a fair criticism, but since the analyst measures debuted during the current bull market, they haven’t even run a full market cycle yet, so it’s still a bit early to judge them.

Ultimately, the Journal story stirred the pot and got investors talking, but didn’t bring out anything new.

For investors, meanwhile, it’s important to keep star ratings – and any valuation system – in context.

Ratings spurred 1980s and ‘90s investors to diversify; prior to ratings and rankings, fund investors bought a fund or two and left all decisions to the manager. Stars allowed investors to see what funds had done, how they enhanced or overlapped each other, and improved how portfolios were built.

But the fund-selection process starts with the individual asking “What kind of fund(s) do I need?” It proceeds with finding funds that meet those needs plus personal criteria (low-cost, active or passive, available on the fund platform you use, etc.), and only then should independent analysis be factored in to determine which funds can inspire your confidence so that you can buy and hold them long-term, because one thing that kills performance more than picking a mediocre fund is routinely jumping between funds, typically at the worst possible times for the transactions.

If you still can’t decide what to buy at that point, ditch the analysis and let low costs be your guide. That tends to pay off over time more than any selection system, proving again, that the focus in picking funds should be on the fund itself rather than on ratings.

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   Chuck Jaffe is editor at RagingBull.com; he a nationally syndicated financial columnist and the host  of “MoneyLife with Chuck Jaffe” (moneylifeshow.com). He is a long-term investor and does no short-term trading of stocks, options or ETFs. You can reach him at chuck@ragingbull.com.

Author: Chuck Jaffe

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