Carbon credits for individuals

I just learned about an interesting idea for combating global warming: carbon credits for individuals. As you probably know, companies that fail to meet carbon emissions standards can meet their obligations by buying carbon credits, and companies that do better than the requirement can make money by selling them. But now, the somewhat unfortunately named website myemissionsexchange.com allows individuals to get a piece of this action as well. You start by submitting copies of your own utility bills for the past year, and then if you significantly reduce your energy use over the next year, you can sell a Voluntary Emissions Reduction (VER) and earn anywhere from $10 to $25. (Presumably, the site itself makes its money by taking a cut of this.)

This is an intriguing idea, but I can't help wondering how much good it will really do. True, the site gives people a sold financial incentive to reduce their carbon footprint, but in most cases, people already have such an incentive: lower utility bills. In fact, the site itself, to encourage people to sign up, talks about how much they can save rather than how much they can earn—suggesting that the potential savings from lower energy use are much a much bigger prize than the potential earnings from selling the carbon credits. So it seems hard to believe that people who weren't motivated to save energy already are going to be motivated by the lure of carbon credits. And even if this site does encourage more households to start cutting their energy use, by selling the carbon credits, it just makes it easier for big companies to avoid doing the same. So it doesn't actually promote energy savings across the board: it just shuffles the savings around, giving one person credit for another's work. (Of course, this is a problem of the cap-and-trade system as a whole, not the site itself. To be honest, the sale of carbon credits reminds me a bit of the sale of indulgences in the Middle Ages: "Go ahead and sin if you want; just pay some money up front and we can make it go away.")

On the other hand, since the carbon credit market exists anyway, there seems no reason why individual households shouldn't get their own little piece of it. My only real gripe with this site is that it's of no personal use to me. It would be great for someone who's been meaning to take more steps to conserve, but keeps putting it off: the credits would provide a bonus for taking action. But in our case, there just isn't that much left to cut. We've already taken most of the steps the site suggests ("Switch to Compact Fluorescent Lightbulbs," "Install a Low-Flow Shower Head," "Hang your clothes out to dry once a week"), and I'm not sure how much more we could reasonably save. True, there are some steps we haven't taken in the past because I found, after crunching the numbers, that they wouldn't be cost-effective, and perhaps with the added bonus from the carbon credits they would be. For example, we chose to replace our old water heater with an efficient tank heater, rather than a super-efficient tankless heater, and maybe the carbon credits would have been enough to make the tankless heater a reasonable choice. But given that we've already replaced the old heater, it's a bit late for that now. Similarly, it's too late to get any credit for adding more insulation to the attic, which we did two years ago. In other words, as far as energy savings go in our house, we've already harvested all the low-hanging fruit—and the steps we haven't taken yet (like upgrading all our windows) would certainly be costly enough to dwarf the potential benefits of a $15 credit.

However, if you should happen to be in a different situation yourself—for instance, if you've just moved into a new home and haven't yet made any energy upgrades—then by all means, try the site and let me know how it works out for you.

Who saves the most?

Today, while cruising the Dollar Stretcher forums, I ran across a link to an interesting article: "How to Save a Third of Your Income." It's an interview with Kimberly Palmer, the author of a book called “Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back.” She says that she saved a third of her income throughout her twenties, mostly because she and her husband "continued living like college students" throughout that period. Now that they have a house and a baby, she says they're only saving about half as much, though she hopes to return to saving a third of their income when their child is older.

One response to the article said, "I think it's an interesting realization that it it is so much easier to save when you are young and don't have liabilities." I'd heard this argument before: Amy Dacyczyn, author of the Tightwad Gazette newsletter and books, claims that of all the money she and her husband managed to save up for a down payment on a house, the largest portion was saved during the first year of their marriage, before they had kids.

I thought this over, and my reaction was "It is an interesting argument...but I'm not sure I buy it." I know for a fact that my husband and I save a much larger percentage of our joint income now than I did when I was young and single, and the reason is obvious: I was making barely enough to live on. After college, it took me 6 months to land my first job, and my starting salary was around $18,000. It took me another six months just to find an apartment that I could afford on that. Once I was out on my own (with two roommates), I always managed to make ends meet, but I didn't save anywhere close to a third of my income. I actually thought I was doing quite well to be saving anything at all.

But today, my husband and I have two incomes, and our expenses, while they're certainly higher than one single person's, are nowhere near as much as two single people would spend living separately. Despite my unpredictable freelance income (a couple of years, I've actually made less money than I did at that first job), we've always been able to live comfortably and still save well over one-third of our combined income. Even with a mortgage and a house to maintain, we still have much more slack in our budget than I had during those early years.

Of course, I had to admit that our situation might not be typical. Our combined income is probably above average, and unlike many couples, we have no kids. (Not as many as you might think, though; as of the 2000 Census, there were more married couples without children than with them. On the other hand, this refers only to children under 18, so the figure also includes empty-nesters whose kids have moved out. Still, it's clear that couples without children are not as rare as some people imagine. But I digress.) So I decided to try and dig up some statistics to answer the question: how do the income and expenses of the average single 20-something compare to those of the average married 30-something with children?

After a little poking around, I found what I wanted at the Bureau of Labor Statistics. These statistics are all from the 2009 Consumer Expenditure Survey, Table 3: "Age of reference person: Average annual expenditures and characteristics." This table compares the expenses of "consumer units" (which translates roughly to "households") based on the age of a "reference person" (that is, one of the heads of the household). In households where the "reference person" is under 25 years old, the average number of children under 18 is 0.4. Since you can't have a fraction of a child, this means that most of the young folks in this group are childless. In these households, the average annual income is $25,695 ($25,522 after taxes), but the average annual expenditures are $28,119. So the average savings for this group is actually negative; the average person in this group lives beyond his/her income.

Contrast this with the average household of 25-to-34-year-olds. These folks have, on average, 1.1 children, and their expenditures are naturally higher: $46,494 a year, on average. But their average income is also much higher: $58,946 before taxes, or $57,239 after taxes. So this household can save an average of $10,745 a year—about 19 percent of their after-tax income. Move up to the 35-to-44-year-old age group, and things look even brighter. The average household in this group has 1.3 children, and their expenditures have gone up to $57,301. But their income is now $77,005 before taxes, or $74,900 after taxes. So they are saving $17,599 a year, or 23 percent of after-tax income.

Now, I'm not trying to argue that any of these "average" households is representative of how much it's possible to save. My own experience, as well as Kimberly Palmer's, shows that some people are able to save much more than these averages, both in their youth and into middle age. But if we look to these statistics for an idea of what's typical, I would have to conclude that while it may be possible to save money as a single person in your early 20s, it's definitely easier when you're older and part of a two-income household—kids or no kids.

Thrift Week, day seven: Lust

And so we come to the end of our Thrift Week celebration, which concludes with the always interesting topic of lust. There's no shortage of examples in which lust, in its most literal sense, can be costly: we can see plenty of cases in the news of men in high places being brought down by sex scandals, but even among ordinary folk it's clear that the inability to control sexual impulses can lead to costly affairs, costly divorces, and in some cases, costly habits such as prostitution or pornography. For young women, the consequences can be even more serious, since they're the ones who generally bear the financial burden of unintended pregnancy. Early childbirth can mean abandoning college—perhaps even not finishing high school—and being stuck on welfare or in dead-end jobs. It's hard to think of any other mistake a girl could make that's so likely to trap her in poverty. And, of course, people of both sexes can be financially harmed by lust—or even love—when it leads them into an imprudent marriage with a partner who has expensive tastes or wasteful habits.

To me, however, it's still more intriguing to consider a less literal interpretation of the word lust. As I noted in the first post of this series, the sin now known as lust or lechery was identified in the original Latin as luxuria, a term more literally translated as "extravagance." The author of the TipHero piece on the seven deadly sins also took this angle on lust, talking about how often people "fall in love" with some luxury item and just have to have it, regardless of the cost. This figurative form of lechery—what we might call "consumer lust"—bears a strong similarity to the more literal kind. Think about how often people talk about "falling in love" with a house, for instance, so that they're willing to go completely out of their price range to satisfy their longing. Or consider how cars, another big-ticket item, are often discussed in sexual terms. The fabled "new-car smell," in particular, seems to be a more potent aphrodisiac than any perfume. (In fact, if they could find a way of bottling that elusive scent, a woman could probably make herself more irresistible to men with it than with any fragrance now on the market.)

Though this form of lust is often treated as an exclusively female affliction, a moment's consideration makes it obvious that it isn't really anything of the kind. Women may be most vulnerable to the attractions of clothing, footwear, and furniture, but page through any electronics catalogue and you'll see in a minute that the newest and priciest items are being marketed as toys for boys (of the grown-up variety). In fact, according to this article, a five-year-old study done at Stanford shows that shopping addiction (which is now recognized as a genuine mental disorder), is nearly as prevalent among men as it is among women. And even when shopping isn't actually pathological, men are by no means immune to temptation. Another survey dating from around the same time shows that while women may spend more time shopping, men actually spend more money, at least during holiday sales.

And here's another, less obvious point: according to this article, referenced by Doug in response to Thursday's entry, sometimes consumer spending actually is linked to lust in its more literal form. According to this 2009 article, "men in the mating condition" are more inclined to spend money on "conspicuous luxuries" than men who aren't looking for a mate. The article went on to note that men seemed likely to spend in order to impress women only "when the potential mating situation is a short-term hook-up rather than a long-term relationship"—in other words, when lust rather than anything that might be called love is the driving factor. (Women, interestingly, don't seem as inclined to spend in order to attract a mate; they're more likely instead to engage in "conspicuous pro-social volunteering." In other words, men show off for women by spending money, while women show off for men by being active in the community. The article didn't say how well these strategies actually work; personally, I can't help wondering if trying to attract a mate through volunteerism is likely to do much good, especially with men who are looking mainly for "a short-term hook-up.")

So, to sum up, lust can drive spending in three ways:

1. spending money on people we're attracted to;
2. spending money on stuff we're attracted to; and
3. spending money on stuff in order to attract people.

And which of these is the most destructive? That will obviously depend on the people involved—as well as the stuff.

And with that, we conclude our Thrift Week series. Talking about sin all week, I have to say, hasn't been nearly as entertaining as I'd hoped. Maybe next year I'll come up with a juicer topic, like tax strategies.

Thrift week, day six: Sloth

And so we come at last to sloth, the sin that gave me the idea for this whole series in the first place. What inspired it was this comment from my friend Laura on my "Canventory" entry, in which she commented on the absurdity of buying pre-peeled onions for $2.49 apiece when a whole bag of plain white or yellow onions costs much less than that. She thought the people buying these must be "ignorant" about onions, but I suggested that perhaps they were just too lazy to peel an onion themselves (or perhaps too lazy to do the math and figure out just how much extra they're paying someone to peel that onion for them). And I pointed out that there are all sorts of other convenience foods that basically charge you a premium for the right to be lazy, some of them healthful (e.g., pre-washed salad greens) and some not (e.g., Tater Tots). And of course, the ultimate example of this is the complete meal prepared by someone else in a restaurant—for which, as I pointed out in yesterday's entry, you'll pay 2.5 to 4 times as much (not counting the tip) as you would to make the identical meal at home.

Of course, the ways in which laziness can cost you money aren't limited to food. Any time you pay someone to do a job you could do yourself—cleaning your house, painting your living room, changing the oil in your car—you're likely to pay a lot more for it than you would by doing the same job yourself. (Of course, there are exceptions to this rule. If it's a job that requires special skills you don't have, you'll quite likely spend less overall by hiring someone to do it right the first time then by tackling it yourself and making a mess that you'll have to pay someone else to clean up.)

Laziness can also cost you money when it leads you to put off a job that you do intend to do yourself—later. To take an example that we heard on "Car Talk" this morning, if you put off going to the gas station until the fuel gauge is on empty, you risk running out of gas and having to a) trek to the gas station to pick up a can, or b) make an embarrassing call to the auto club for help. (Assuming you've paid your auto club dues, this shouldn't cost you any extra money, but it will cost you plenty in lost time and lost dignity.) Or, to take an example inspired by yesterday's mail, which contained several tax forms: if you put off doing your taxes until the last minute, you risk missing the deadline and having to pay a penalty. And if you put off doing regular maintenance on your car, you could end up paying a lot more to fix some crucial part than you would have paid to replace a much smaller part.

Of course, the most obvious example of losing money through sloth is being unwilling to work to earn a living. Benjamin Franklin, in whose honor Thrift Week is observed, was particularly fond of pointing out the perils of idleness:

Remember that time is money. He that can earn ten shillings a day by his labor, and goes abroad or sits idle one-half that day, though he spend but sixpence during his diversion or idleness, ought not to reckon that the only expense; he has really spent, or rather thrown away, five shillings besides.

But on this point I don't entirely agree with old Ben. Suppose I have an assignment to complete that will pay me $600. Say that if I work at a nice, easy pace, it will take me six days to get the job done. I'll make only $100 a day, but I'll also have plenty of time to do other things: run errands, cook meals, get some exercise, visit with friends, and just relax. Say, by contrast, that if I absolutely knock myself out, I can get the job done in four days. I'll make $150 a day, but my house will be a mess, I'll be short on sleep, and the stress will have me constantly on the verge of tears. When I compare those two options, I have to conclude that to me, the extra $50 a day isn't worth it. And that's one reason I care so much about being frugal in the first place: because the less money I spend, the less I need to worry about how much I make. Through frugality, I can buy myself a luxury that only the wealthiest can normally enjoy: the freedom to work no more than I want to. Paradoxically, the harder I work at pinching my pennies, the less I have to worry about money.

Thrift Week, day five: Gluttony

So, where were we? Oh yes, gluttony. This is an interesting one, because according to Wikipedia, gluttony—at least as defined by the theologians of the Middle Ages—doesn't simply refer to eating too much. Instead, it can involve any kind of unreasonable obsession with food. Thomas Aquinas identified six distinct forms of gluttony:

• Praepropere - eating too soon.
• Laute - eating too expensively.
• Nimis - eating too much.
• Ardenter - eating too eagerly (burningly).
• Studiose - eating too daintily (keenly).
• Forente - eating wildly (boringly).

Obviously, the one that's most likely to hit your wallet hard is laute—being a gourmet rather than a gourmand. Of course, eating too much will also have some effect on your grocery bills, but how much you spend depends a lot more on what you eat than on how much. (In fact, it's possible to spend less on a high-calorie diet than on a healthful diet, because lots of fattening foods are relatively cheap to buy.)

However, if you happen to have a taste for fine cuisine, there are ways to gratify it without spending an unreasonable amount of money—which means you won't be "eating too expensively," and Thomas Aquinas will have no reason to get annoyed. For example, you can cook your own gourmet meals at home, rather than eating out. Yes, you'll still have to shell out for the fancy ingredients, but you won't have to pay for the service and the atmosphere, which accounts for the lion's share of the cost. (According to this 2007 article from Forbes, aimed at people who are thinking of starting up a restaurant, only 25 to 40 percent of the cost of a restaurant meal is for the food.)

As for those fancy ingredients, there are ways to trim costs there, too. Here are just a few we've stumbled on over the years:

• Shop around. We've found that no single supermarket in our area has the best prices on everything, but there are several stores that offer great bargains on a few specific things. The Whole Earth Center in Princeton sells mushrooms in its bulk bins for $2.29 a pound, much less than the packaged shrooms at our local Stop & Shop. But its prices on fresh herbs are exorbitant—as much as $3 for a tiny package. So now we get our parsley and cilantro (when we're not growing them in the garden) for a dollar a bunch at the H-Mart down the road, and we get so much for that dollar that some of it's likely to end up in the stock bag.
• Use substitutes. We have a recipe for a wild mushroom soup that's absolutely delicious, but it calls for two cups (!) of dried porcini mushrooms and half a pound of "fresh wild mushrooms." If we followed the recipe to the letter, it would cost something like four dollars a bowlful. So we compromise by using a combination of plain white button mushrooms from Whole Earth, as mentioned above, and flavorful shiitake mushrooms, which we can get reasonably cheap by buying them dried at the aforementioned H-Mart and reconstituting them. The soup admittedly has a rather different flavor with these changes to the recipe, but it's still mighty tasty.
• Grow your own. When choosing crops for our garden, we devote extra space to the ones that are expensive to buy at the store (arugula, snow peas) and skip the ones we can buy relatively cheaply (potatoes, onions). Yes, I have heard that home-grown potatoes really don't compare to the supermarket variety, but when you've only got 100 square feet of garden space to work with, you have to make the most of it.
• Go veggie. Or at least partially veggie. Meat is the priciest part of most meals, so leaving it out—or choosing recipes to make a little meat go a long way—will give you more bang for your grocery buck, and leave you with extra cash to spend on all those other delicacies.

And of course, avoiding the more common form of gluttony and taking smaller portions will help you get more meals out of one recipe.

(Hmm...I seem to have a lot more personal experience to draw on when talking about food than when talking about more abstract concepts like envy and pride. Why is that, I wonder? :-))

Thrift Week, day four: Wrath

This entry is going to be a rather short one, I think, because it's late and right now I'm feeling more in tune with sloth than with wrath, my allotted subject for today. It was kind of poor planning on my part to schedule wrath for a day when I would have less time than usual, because it's probably the hardest of the seven sins on the list to link to finances. The only way I can really think of to make the connection is to think about it in terms of negotiation. One of the key rules of negotiation is to stay calm, because you're more likely to get what you want if you ask for it in a polite, reasonable way. (Side note: actually, there are exceptions to this rule. Miss Manners, in her Guide for the Turn-of-the-Millennium, relates an incident in which she called up a newspaper office several times to complain that her paper wasn't being delivered, without result. An employee finally explained to her that it was the company's policy not to take any action unless the complainant "could be characterized as irate." Miss Manners reports that she "asked timidly if he would be so kind as to put her down as having been loud and obscene, and he gallantly promised to do this.")

But in general, being polite gets you better results than being rude. If you're dealing with customer service, for instance, if you lose your temper and start yelling insults, they're not going to want to deal with you; they'll just hang up, and you'll be no closer to solving the problem. By contrast, if you stay calm but determined, they'll be more willing to hear you out. (They still may not fix your problem, but at least it won't be your own fault.) Or if you're trying to persuade your neighbor not to use power tools in his yard in the wee hours of the morning (and you're defining the wee hours as anything earlier than 10 am on a weekend), he's more likely to agree, or at least consider a compromise, if you ask him politely than if you barge up to him shaking your finger in his face and threatening to call the cops on him for disturbing the peace. In any negotiation—financial or otherwise—keeping your cool is a better way to get what you want than going in hot (which is likely to get the other party heated up as well, causing the whole situation to boil over).

I'm sure there must be more to say on this subject, but I can't think of anything at the moment, and anyhow, it's bedtime. Tomorrow we can have fun with gluttony.

Thrift Week, day three: Avarice

Continuing our ongoing Thrift Week parade of sins, today we come to the topic of avarice. This one may seem a little counterintuitive: sure, being too fond of money can hurt you in a variety of ways, but how exactly can it hurt you financially? Won't piling up your money invariably make you richer? Well, no, not necessarily. There are actually lots of ways in which being too attached to your money can actually hurt you. Let's look at a few examples, which we'll illustrate with a character we'll call...let's see...Bill.

• Bill's car starts making a funny squealing noise. He hesitates to take it to the mechanic, because he doesn't want to spend the money to have it looked at when it might be nothing. (Deep down, he's even more reluctant to have it looked at and find out it really is something—something that's going to cost a bundle to fix.) So he just ignores it and hopes it goes away, and one day it does—only to be replaced by a horrible grinding noise that turns out to be the scraping of the metal plates in his brakes, forming the percussion line to the tune of hundreds of dollars in repairs. If he'd attended to the problem early on, he could have just replaced the brake pads; now he'll have to repair the rotors as well.
• Bill has a huge old dinosaur of a refrigerator that positively guzzles electricity. He's thought about replacing it, but when he looks at the price of a new one, he turns pale at the thought of shelling out seven or eight hundred dollars all at once. So instead, he just keeps shelling out 15 extra dollars each month on his electricity bill, even though the energy savings on a new fridge would be enough to pay for it in just a few years.
• Bill hears about a hot new stock that's sure to take off. He promptly puts every penny he's got into it and loses his shirt when the stock tanks.
  

These are just a few examples; once you start thinking about it, you can come up with lots more. Bill's problem is that his eagerness to make as much money as possible, and his unwillingness to part with what he's got, isn't tempered by rational judgment. There's nothing wrong with wanting not to spend money when you don't have to; it's only a problem if you blindly hold on to your cash without stopping to think about whether it's really in your interest to do so. Sometimes, refusing to spend money now will just cost you more later; in other cases, spending the money will bring you other benefits that are really worthwhile, even if they can't be measured in dollars and cents. (Giving to charity is one example; spending money on something you truly love to do could be another.) To put it another way: the difference between being financially savvy and being greedy is whether you're controlling your money or it's controlling you.

Am I just stating the obvious here? Well, perhaps. But the obvious can be worth stating sometimes, I think. Anyhow, tomorrow I'll see if I can come up with any more interesting observations on the subject of wrath.