Worth of Stuff, Part II: What Really is the "Best"?

Countless number of times I hear people go on and on to justify why they buy only brand-name "XXX," or go to this or that restaurant. Most of the reasons revolve around the "best." People buy certain brands of cars because they are "safer" or "more reliable." They buy certain types of brand-name foods because they "taste better," without even venturing out to try the store brands or private labels. Sometimes such decisions are worth it, but many times they are not—this week we will focus on the "they are not" portion.

To illustrate our point this week, take a moment and watch this short video. Be warned, there is some strong language placed here and there, but overall the main point takes a look at how people interpret the expense of items (and a marketing department's power of suggestion).

If you decided to skip the video it basically analyzed consumer's perceptions of what is considered to be the best, which is often in the mind. Confounding evidence in the video could have shown that people didn't want to look uncultured in such a "cultured" restaurant, but that's not a reason to overpay for crap concentrate.

When I was a student at Georgia Tech, we ran an investment club and I performed an experiment where people were given name brand soda, and cookies compared to the Kroger store brand version and had them rate the products based on taste. (Our budget was somewhat low, so we worked with what we had). Most chose the private label (store) brand over the national brand or had no preference toward the name brand. Yet, few could be convinced that buying private labels is worth the financial savings.

Now don't get me wrong—some brand names deserve their respect. Take cookouts for instance. I can definitely tell the difference on something like aluminum foil—Reynolds's Wrap tends to be a more superior product versus er.."Wrap-It" Foil. You can usually tell when you get to the grill and the integrity of the foil fails under heat. However, there is no real difference between condiments, relish, plastic utensils and cups, etc. Buying brand names for such products when having a large event can definitively dent your budget if you're not careful. The purpose is not to be "cheap," but to know a quality product when you see it and to know if it's worth your money.

Next week, we conclude our analysis of the "Worth of Stuff" by analyzing why people think that store brands are usually better, and we suggest ways to choose store brands and private labels designed to save you money without losing quality. See you next week.

Worth of Stuff Part 1: Government "Bling"

So before you think that only entertainers, rappers, and the immature members of the class of nouveau riche are the only ones who know how to ball out of control, have I got news for you! These guys have nothing on that ultimate King of Bling, the US Government. For most of you, this should come at no surprise--the government collects your money through taxation, and spend it on various things they think you "need," usually without your input. This week we get a special taxpayer report on the US Department of Justice:

An internal Justice audit,(pdf) released Friday, showed the department spent nearly $7 million to plan, host or send employees to 10 conferences over the last two years. This included paying $4 per meatball at one lavish dinner and spreading an average of $25 worth of snacks around to each participant at a movie-themed party.

The prices above include an 18% service charge, but its beside the point.

First, let me congratulate the US DOJ for putting the audit out there for all to see. What's frustrating is that though the government spending of your tax money its evident that they need some leadership in selecting vendors properly. Think about it--how many of you out there can truly tell the difference in the taste of a $1 meatball and a $4 meatball? This is an important point, because most people can't. And in most cases, there isn't a difference--it's all in marketing (we'll cover this more in a later article).

You can get the report here, (if you're that big of a nerd). The point of reference mentioned above starts on page 76. Under the table of out-of-control spending detail, we find the the costs"...were so expensive that they may not be considered reasonable uses of appropriated funds..."

I bet.

Point being, if the government cannot control its spending with any reasonableness, and won't even try, they're probably not the folks you want to look to for help with your financial future. Now if they're looking to help out with the receptions at the MTV Video Music Awards next year, let them handle it. They've gotten the overspending down.

Next week, we put ourselves on the firing squad. How good at we at determining the true cost of "stuff"? Cars? Houses? Food? We'll take a look at it.

Vacation this Week.. Read the Hotbox!

Readers,

I will be taking a short vacation this week, so I won't have an in-depth post this week. However, I encourage you to take a look at the posts in the Hot-Box to the right, which updates with new articles from around the financial blogosphere every day. I'll try to get a post up a good post later this week, but today I leave you with a quote from Sidney Poitier's Autobiography The Measure of a Man on his approach to money even after making his millions:

"I still watch money, having learned the hard way, and I spend it with a certain mindfulness. I try to be reasoned in my dealings with money, because somewhere inside myself I've always been afriad that I'll be judged unworthy of it..."

Renters Not Escaping the Mortgage Meltdown

From USA Today, there's word that the mortgage meltdown (correction) isn't just affecting the homeowners, but those who are in the rental market are feeling the pain as well:

Already, one in four renters are paying more than half their income on rent — the highest level in at least two decades — according to a study being released Thursday by the Center for Housing Policy. That's up from one in five renters in 1997.

As a renter, all I can say is "Yay, just great.." I personally have locked in my rental rate for the next two years, but I can definitely see it happening. My rent went up about 15% over last year, which did put a significant dent in my budgeting. "Well," you make ask yourself, "How would it affect me, in the future?"

Rents are projected to rise about 4% this year and next. In part, that's because of a shortfall in apartment construction. At the same time, more renters are renewing their leases because they can't qualify for a mortgage. And rising foreclosures are turning some homeowners back into tenants.

I think this 4% number is a bit low. As the mortgage industry continues to shake out those who made a poor choice by buying homes too soon, people will move into rental units in larger numbers. I've also spoken against a bailouts for Wall Street, lenders, and homeowners alike--and actually in support of foreclosed homeowners downgrading to rental units until they can get back on their feet.

I know there are those who may disagree, but I think it definitely will go a long way in preventing this debacle again. What happened is Wall Street took sub-prime mortgage lender debt which are comprised of and sold it on the world markets--often with AAA ratings (meaning that the loans were guaranteed on the same level as the US Treasury). Then, they were astonished when the borrowers, many who weren't saving and overusing credit couldn't pay the lenders, and of course the lenders bombed (and so did Wall Street, at least until they got their bailout).

Long story short--unless you locked in a fixed rate as a homeowner, you may feel the burn of the sub-prime correction until it shakes out. Renters should brace for impact--it won't hurt as much as homeowners feel, but you'll feel it nevertheless.