Review: Stop Getting Ripped Off

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Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

rippedA long while back, I reviewed Bob Sullivan’s excellent book on consumer issues, Gotcha Capitalism. In that book, Bob focused mainly on how companies try to “sneak” surprise fees and costs into their products.

I took away a lot of good material from that book, but what I also took away is that Bob Sullivan is a really good writer about consumer issues. His MSNBC blog, The Red Tape Chronicles, is similarly well written. Thus, when I saw that he had written a follow-up book, again focused on consumer issues, I had to pick it up.

Stop Getting Ripped Off focuses on the same types of issues that Gotcha Capitalism did, but instead of focusing on the specific “rip-offs,” Sullivan instead looks at some of the reasons of why these ripoffs are even possible. Why are we even in a position to be taken advantage of to begin with?

Let’s dig in and see what he has to say.

Part I | Why Consumers Get Screwed
I covered a bit of what Sullivan has to say in this section in my earlier article on money and basic math. To put it bluntly, Sullivan’s argument here (and I think he’s spot-on in some ways) is that companies get away with giving customers raw deals because they have a pretty good profile of many of the foibles and flaws of their customers.

For example, many customers are math-phobic and afraid to or don’t know how to figure out for themselves if it’s really a good deal or not. The companies also deeply understand behavioral economics and psychology and have a pretty good grip on how people react in certain situations – and try to create those situations to get a gut reaction that’s good for their business. Sullivan also looks at the “Stuart Smalley effect” – in other words, people just accept some degree of being ripped off because they don’t think it’s really that big of a deal. Another painful element is that quite often people are willing to believe in things that simply are too good to be true.

What causes companies to take advantage of such things? Greed. A lack of regulations or laws preventing it.

What can we do to fight back? Get good at basic math skills. Focus on the numbers above all else and don’t worry about the ads or the sales techniques. In other words, keep our eyes on the ball.

Part II | Stop Getting Ripped Off – One Deal at a Time
In this section, Bob covers a wide range of specific areas where the principles he talks about in the first section are at work: checking accounts, credit cards, car buying, home buying, cell phones, cable and satellite television, student loans, insurance, and even workplace compensation.

For each of those topics, he works through how companies use the tactics from Part I to give you a worse deal. For example, he talks about how no-fee checking accounts stick tons of potential fees on the account, then make it very easy for people to overdraft and make other such mistakes by giving them a debit card and not encouraging people to manage their own register. The bank makes their money back and more on the average customer who, because they’re not strong on math, overdrafts their account or bounces a check. The penalties are strong but not enormous, so many people just shrug it off due to the “Stuart Smalley effect” from the previous chapter.

Bob applies similar logic to each of the areas mentioned above and offers a few solutions for each. So, for example, he recommends not using your checking account for every purchase and instead focus on trying to use cash as much as possible. You should also try to pay all of your bills in one batch after payday so you clearly know what you have to spend on your bills and what you have left.

Part III | How to Pitfall-Proof Your Finanaces, Past, Present, and Future
This is the section of the book that I feel sets Stop Getting Ripped Off apart from Sullivan’s earlier book. Here, he sets the foundation for how to protect yourself from such things over the long term with a five step plan that takes a person from paycheck to paycheck to a secure financial future.

His first step is to build a small emergency fund and start a bit of retirement savings. In truth, he almost has a zero-th step – you’ve got to cut your spending, period. If you’re spending what you earn, you will never, ever get ahead and you will always be very prone to anything at all going wrong in your life. The first move to make when you do that is to just start socking away cash in a savings account so that when an emergency happens, you can deal with it. Any emergency fund is better than no emergency fund, but if you can start getting a month or two of living expenses built up, you’ll be much more secure.

His second step is to save for retirement and, with the remaining money, start paying down debt. He suggests just making sure you’re in your 401(k) (or equivalent) plan at work and that you’re getting whatever money your employer offers as a match – and if they don’t offer such a thing, opening your own Roth IRA (I have mine through Vanguard). He also strongly encourages coming up with a debt repayment plan.

His third step is to keep rolling on your plans: an emergency fund, retirement, and debt repayment. You should shoot to build an emergency fund that will sustain you for six months, with about six weeks of it in cash and the rest in a broad stock market index fund. He also recommends building your retirement savings with strongly conservative investments – don’t put it at risk with stuff like international stocks.

His fourth step is to start saving for major purchases, like cars and so on, once you’re debt free. You do not want to just continue a debt cycle, especially when you’ve eliminated all of that debt and have a huge monthly cash flow. This is also the perfect time to start investing for yourself with the aim of eventually living off the income from those investments.

His final step is to not escalate your lifestyle. When you get a raise, don’t start buying stuff – instead, channel that raise into your wealth building. Keep saving for your big purchases.

I’d say I’m basically in the fourth step. I’m saving for everything I buy in the future and I’m nearly debt-free (just my mortgage at this point).

Is Stop Getting Ripped Off Worth Reading?
If you’re earning a good income, but you often feel like you’re just being nickel-and-dimed to death and you’re struggling to get anywhere, Stop Getting Ripped Off will be an absolute home run of a read for you.

Sullivan’s advice, though, seems to assume a fairly good income to begin with, so if you’re struggling to earn much more than minimum wage, this might not be the book for you.

The strength of this book is how Sullivan transitions escaping from the nickel-and-diming to a lifetime of financial security. It really is a journey, and Sullivan captures that very well in this book.

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20 thoughts on “Review: Stop Getting Ripped Off

  1. I was totally getting ripped off to the tune of $130 a month with AT&T when it came to my cell phone bill. I sucked up the cancellation fees and finally broke ties and went with NET10 prepaid. It turns out you can still have decent phone and service and save money – it is totally possible. I’m now saving $110 a month and still on a ajor calling network – $130 a month is a thing in the past.

  2. Not trying to be rude or snarky, just genuinely curions, here. Your book reviews are quite long and detailed. I don’t often see chapter-by-chapter reviews. Do the authors ever contact you, and are they ever upset that you’ve given everything away?

  3. Bingo and lotto players take note:

    ” … if you’re struggling to earn much more than minimum wage, this might not be the book for you.”

  4. “His third step is to keep rolling on your plans: an emergency fund, retirement, and debt repayment. You should shoot to build an emergency fund that will sustain you for six months, with about six weeks of it in cash and the rest in a broad stock market index fund.”

    I disagree with placing emergency funds in anything other than cash or equivalents. Equities are among the most extreme last places I would ever place an emergency fund, especially 4.5 months of a 6 month fund.

  5. As you said, this looks like a plan that assumes a good income. Good income or not, improving one’s credit score can make a big cumulative difference, allowing one to renegotiate interest rates to a lower level on existing debt, and getting a better deal on new debt if it is necessary to take it on.

  6. Wait. When did being irresponsible with your money and having to pay an overdraft charge because you overdrew your account become a “rip-off”? There was this post I read a few days ago by this personal finance blogger I frequent about taking personal responsibility for your actions instead of blaming others…

  7. In regards to companies using strategies to sucker consumers… that is just the way the world works. Should there be laws preventing this? Look, grocery stores use “loss leader” items to lure us into their stores, hoping we will buy all our groceries there. Is this unfair, and should there be a law against this… because obviously many people are not smart enough to catch on to this tactic. Same goes for coupons which fool us into believing we are saving money, when in fact very often we end up spending more.

    Smart consumers turn the tables on these companies and use it to their own advantage. I stock up on loss-leader items, while buying nothing else at these stores. Many people combine sales with double coupons to get items free, which was not the intent of the manufacturer.

    Leah W. I have also wondered how book authors feel when books are reviewed so thoroughly, one wonders if there is any point to further buying the book. If I want to know the content of some self-help book, I read consumer reviews at Amazon.com. Invariably some consumer so thoroughly reviews a book, I get the main points, and do not feel the need to buy it. But then, I don’t feel the need to buy many books. I almost never buy books new. Extremely few books are worth the retail price.

  8. Putting 4.5 months of a 6 month emergency fund in a stock market fund is unusually risky. If one want a better return one could put it in a high quality short term bond fund, and add 10% extra in case the bond fund tanks.

    There is higher costs with investing internationally, but one should do it for better diversification. But the most important diversification is the allocation between bond and stock mutual funds.

  9. I nearly tune out when someone starts talking about “greed” as the motivation for business activity, as if that were evil. For someone who advocates investing in stocks as one element of a complete financial plan, Trent, this is bizarre. Why would you advocate people consider stock investing (and presumably do it yourself), if you believe that businesses should aim to avoid profits?

    What many call “rip-offs” are really ways of maximizing margin without losing volume. Shopper A, who is truly price sensitive, will know what the “right” price is, and will only buy when the product is so priced, using whatever devices the store makes available – coupons, sales, shopper cards, etc. To get Shopper A’s business and boost volume, the store has to sacrifice margin on sales to Shopper A. Shopper B, who will not be bothered to learn the “right” price, allows the store to make up some of its margin and earn a reasonable profit.

    Believe it or not, EVERYBODY benefits from this, the store and BOTH types of consumers. The company can’t make enough money on Shopper A to make it worth producing the product, but adding Shopper A’s low margin purchases to Shopper B’s high margin purchases allows the product to be offered and a profit to be made. This is not a “raw deal” but a win-win.

    The same is true for credit cards that offer different rates for different qualities of customers, car insurance premiums that are pegged to how accident-prone the driver it, etc. As regulations become stricter these pricing devices will become ‘illegal.’ The benefit some customers get from that will come at a cost to other customers, because some businesses will fold or cease offering certain products, removing their products from the market. (Already, health insurance companies are responding to the mandate to accept children with pre-existing conditions into their individual plans with an elminination of coverage for ALL children from such plans. Since children generally have relatively low claims, not only will children lose coverage that used to be available, but the covered pool of adults will soon pay higher premiums. The Law of Unintended Consequences at work.)

    A lot of people are happy that credit cards and banks will be more heavily regulated. They are foolish. These regulations will cost the responsible customers more money and make credit less available to the less responsible. It was ignorant customers who ended up in the deep end of the pool with limp waterwings, and they will be ‘protected’ by not being allowed in the pool at all, when what they need is to be taught to swim or made to stay in the shallow end.

  10. Amen AnnJo. That was what I was trying to say, but you said it way better.

    I am tired of everyone talking about evil corporate profits. Who are corporations? We all are. All of us who own stocks and mutual funds. If corporations don’t make profits, older folks who have retirement plans invested in corporate stocks etc. will not have enough to live on.

  11. Who owns a corporation is irrelevant to the question of whether its practices are ethical.

    And I’m sure that Nicole will come along to correct me if I’m wrong, but it seems to me that AnnJo’s capitalist argument depends on everyone involved being fully informed and fully able to deduce the consequences of that information. If you don’t know what the best deal is – either because you’re not good enough at math to figure it out, or because one of the companies involved has misled you, made the crucial information hard to find, or maybe even flat-out lied to you – then you don’t get to decide whether you’re a price-sensitive consumer or not. That, I think, is what this is about.

  12. This is the first time I’ve commented here, but I wanted to make two quick points.

    1.) Keeping 4.5 months of your emergency fund in equities is absolutely ridiculous. The market tends to tank just about the same time that you’re seriously going to need all of the money in that emergency fund (e.g. see the last two years). This advice is just irresponsible.

    2.) Johanna, I definitely have to sympathize with where you’re coming from, and agree that the Platonic Capitalistic market is, indeed, one where people are fully informed and able to make rational decisions. Where companies have willfully lied to you, I agree that they should be held responsible.

    That being said, in my experience, many people are either a.) not smart enough to obtain price information and make rational decisions, OR b.) simply do not care about that information/have a very short, entertainment-focused mindset.

    Although there are some spectacularly dense people out there in the world, I really think that the average person has the ability to measure prices and make rational decisions — they just choose not to. For instance, I recently taught at a for-profit 2-year college where one of my students wrote an essay about buying a $1,000 designer purse. I knew from previous discussions with the student that her source of incomes were a part-time job at Wendy’s and student loans. Now, although this student was not “bright” she was surely capable of rational thought and understanding the outcome of her decision. However, the decision to purchase that item is so antithetical to rational thought (at least in my mind) that I have to assume she simply doesn’t have a healthy appreciation for actions and future consequences.

    I think that this is a terribly troubling situation, and that we (as a country/society/world) should be concerned about this, and try to implement policies to rectify it. However, I ultimately think that, as a matter of human dignity, people should have the right to make decisions that other people consider foolish, and, because of that, companies will exist that cater to these desires — whether they be high-rate loan “sharks” or simply companies that sell non-essential, non-productive assets on credit.

    Sorry, this is awfully rambling for a first post, but, I haven’t finished my coffee yet, and really need to get to work.

  13. @Johanna – should corporations begin testing people before allowing them to be customers? “Sorry, you can’t balance a checkbook – no account for you.” “You can’t figure out price per unit – no groceries for you.”

    Guessing that would go over well.

    I don’t expect Ford to teach me to drive. I don’t expect WalMart to teach me to shop.

    The fact that we’re all here reading this sort of indicates that the knowledge is out there, somewhere, freely available. If consumers can’t be bothered, who gets the blame for that decision?

  14. It is not the corporation’s fault if you are a legal adult and choose to sign on the contract for a checking account, but didn’t bother reading that there is a fee if you overdraft, or are too lazy/uneducated to balance your checkbook. You are a legal adult who signed a contract, that then assumes you are “fully informed and fully able to deduce the consequences.” Corporations don’t advertise their fees on slick looking commericals or promotional material, but they do on the most part provide them, and this is not “misleading” you.

    AnnJo’s argument wasn’t necessarily capitalist, it was basic laws of economics regarding pricing, true even in monopolies or government regualted pricing. And you do decide whether you are a price sensitive customer or not every time you decide to pay money for something. If you are a price sensitive customer, you won’t buy something if its price is more than what you value the product at. So, don’t blame just the corporation for charging the fees, you chose to pay them, so consumers are also to blame for costs.

  15. The easiest way to avoid being ripped off as a consumer is to consume less. Second easiest is to make informed purchasing decisions.

  16. Johanna, our legal system provides for people who are incompetent to look after themselves, in the form of limited or full guardianships. This allows their contracting decisions to be made by others. If someone enters into a contract with them without the approval of the guardian, it will be void.

    For the rest of us, there are more resources today than ever before in human history for a person to learn what is needed to make informed decisions, via free Internet, free public libraries, free advocacy groups, etc. Most consumers have received at least $100,000 worth of free public education, giving them the opportunity to learn how to read and how to do the necessary math. A little time and effort is all that is necessary. Shopper A who spends that time is adding that cost (the time) to the nominal price of the product. Shopper B, who doesn’t spend the time, pays the nominal price alone. Stands to reason the nominal price would be higher for B than for A.

    Moreover, there are very few consumer decisions that are downright mandatory, so if you try to read the fine print on a credit card and find you don’t understand it, you don’t have to sign up; you can use cash.

    Please understand – I don’t advocate NO regulation, but some of it is counterproductive and a lot of it deprives the majority of consumers of options in order to protect a minority who often simply WILL not take responsibiity for their own actions and prefer to believe that the government will make it all OK.

    And Kat is correct, my argument is not a capitalist one (much as I admire the ability of that system to improve life for most people) but an economic one. No matter what style of architecture you favor, it had better respect the laws of gravity. Similarly, no matter what economic system you prefer, some laws of economics are about as immutable as the laws of gravity. One of those is that all regulations raise prices, limit supply, or both.

  17. I think it comes down to whether or not the corporation / business is being honest and complete in its information disclosures. If they are then it’s my fault as a consumer for having fallen for it. I still think a book like this would be helpful in helping me not fall for things but I wouldn’t blame the business if I did.

    Now if they’re being dishonest or misleading, that’s something else, and there already are laws against most such behavior.

  18. In life you tend to be taken for a ride once or twice, thats the only way to learn. Untill you burn your hands and have hands off experience you would not get experinced to handle crooks, scams, etc. But the whole point is that its has be once or twice and you don’t tend to allow it more than that otherwise whats the use of learning.

  19. I just want to add a comment I heard a long time ago. If you have a debt of fifty thousand dollars to the bank, then bank owns you. If you own 500 millions dollars from a bank then you own the bank. The same happened in this depression and will continue to happen. It is not corporate greed or regulation but when an institution gets too big then the stakes always gets skewed towards them. I know its not fair but then that is life. However too much deregulation causes rich to get richer and poor to get poorer. That is what I think is happening with this country right now.

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