Find Your Place in the Sun Part 1: The Illusion of Autopay

A piggy behind a broken glass.Economy concept
13 Feb 2018

A major bank has recently come under fire because a computer glitch in their autopay system cause them to accidentally double-bill thousands of Americans. One nice woman caught up in the bank error is a singer/songwriter, and mother of three in Los Angeles.  Her debit card wouldn’t work because the bank error caused her bills to automatically double pay on the same day.  In a panic, she spent the next day of her life running around from bank to bank making deposits and withdrawals to make sure she had enough money in her account. The bank made things right by refunding any charges she incurred but, who’s fault is it?

Well obviously it’s the bank’s fault, but do you think she is also partially to blame? Here at PII, we meet two types of people all the time; those who think about money and bills on a daily, weekly, and monthly basis, and those who try not to think about money and bills on a daily, weekly, and monthly basis. My email companion, 2017 Noble Prize winning Professor in Economics Richard Thaler calls the first group mental accountants.  It’s almost like they are running a mini-corporation out of their heads, either using memory, actual spreadsheets, computer apps, or a check book. The second group of people, like to sign up for auto-pay on all their bills, so they don’t have to remember to pay them.

What’s the illusion here?  Professor Thaler claims that many of the companies and organizations we buy from (mortgage companies, car companies, credit card companies, etc.) anchor the smallest possible monthly price in our heads, until it gets stuck there.  Sounds like a Jedi mind trick to me! Thaler, who was once hired as a consultant by a major auto-maker, wrote that when low interest financing first came out, car buyers were running into car lots and “stretching arms and legs over the hoods and roofs of cars, so nobody else would try to buy them!”  Thaler discovered that new car buyers were actually spending more money for the lifetime of the car by financing a low monthly payment versus using the cash rebates that were offered at the same time.  So how do you find your place in the sun when it comes to paying your bills?  Use mental accounting and run your finances like a mini-corporation. Oh and by the way, I pay my bills with a checkbook… what’s a checkbook?

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Jonas Everett

Jonas C. Everett is originally from Cedar Rapids, Iowa, where he still resides with his wife, JoDee, and daughters, Ella and Addison. He graduated from the University of Northern Iowa in 1993 where he majored in Communications. He has 22 years of experience in the investment industry and estate planning business. He is currently a Partner of “Premier Investments of Iowa, Inc.” Jonas is also the founder and creator of “Lighted Tunnel Succession Systems,” which can be found on www.lightedtunnel.com. The last 10 years, he has been in charge of mergers and acquisitions for Premier Investments of Iowa, Inc. In 2011, Jonas founded the National Association of Retired Insurance Agents, to help retiring insurance agents implement their own business succession plans. His main focus is Estate Planning and Investments for Retirees and Pre-Retirees, and he also specializes in Retirement Income. He is a speaker for the Cedar Rapids School Buddies Program for 5th and 6th Graders. In his free time he enjoys golf, reading, and spending time with family and friends.