Walk With Money » Debts

The Simple Dollar Reading Guide: Prison Made of Plastic

admin — Sun, 25 Jul 2010 17:20:03 +0000

Every Sunday morning for the next few months, I’m going to “riff” on a chapter from my book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams by reflecting on particular pieces of it that I’ve had further reflections on or particularly excite me, including some elements that were removed from the final draft. You can find out more about the book by reading some of the life-changing experiences the book has given readers or reading the Amazon reviews.

The book opens with a chapter on debt repayment. In my original draft, this chapter was in the middle of the book and the book actually started with the second chapter, What’s Missing?, which focuses on the fact that we all have problems in our lives and that success comes not from laying blame on those problems but from accomplishing what we can in spite of those difficulties.

Why talk about debt first, then? The real reason is that overwhelming debt is incredibly scary. It’s the most challenging and frightful topic I discuss in the book. My book is largely optimistic and forward-looking – debt, on the other hand, causes people to feel fear and hopelessness. I know – I’ve been there. I open the book with this little anecdote from my own life:

I began to quickly realize that the pile of bills I just received not only wouldn’t be covered by the current balance of my checking account, but that my next paycheck would not cover them either – and that was if I spent absolutely nothing on food, gasoline, or anything else. I sat there completely stunned for a moment; then I got up and went into my son’s room, closed the door behind me, and sat down in the rocking chair across from his crib. He was so tiny lying there, less than six months old, and sleeping so peacefully there without a worry in the world. As I watched him lie there, gently breathing, emotions poured through me. Guilt. Shame. Embarrassment. Pain. I was failing this wonderful little boy, this child who had already brought incalculable joy into my life. He relied on me for everything, and because of my poor decision-making and my selfishness, I was letting him down.

That’s an incredibly hard thing to write even in your own journal, let alone in a book that hundreds …

The Simple Dollar Is in Bookstores Today… And Here’s Some Free Bonuses for Buyers!

admin — Thu, 08 Jul 2010 01:20:03 +0000

My new book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams, is now available in bookstores (I just saw it at a Barnes and Noble in the Des Moines, Iowa area and at the Borders in Ames, Iowa)! You can also buy it right now at Amazon.com or order it from Barnes and Noble.

I’ve already shared a big collection of reader stories from people who have already read the book and made positive changes in their lives because of it.

Now I want to add a little bit more value to those people who have already purchased the book – and those who are on the fence about it.

If you buy the book before July 14, I’ll give you all of the Simple Dollar downloadables… free.

You’ll get 31 Days to Fix Your Finances, The One Hour Project, Twenty Big Ideas, and Building a Better Blog all for free. Each one of them is like a small book, delivered electronically for you to print and …

Ready To Close on Your Mortgage? Better Keep Your Credit in Check

admin — Sat, 03 Jul 2010 12:20:07 +0000

As the closing of my home loan draws nearer, I have been diligent about making sure my personal finances have stayed in order. While it has been a long process, it has gone relatively smoothly. We are set to close in just two weeks. Unknowingly, we could have delayed our closing by doing a number of pretty common things over the last few months that could have jeopardized our loan. Unfortunately many other soon-to-be homeowners will make mistakes that cause a delay in their closing.

Photo by respres via Flickr

As the mortgage industry continues to recover, lenders are still laying down the law and requiring strict measures before approving mortgages. Throughout the entire process, from the loan application to loan closing, homebuyers need to ensure their financial matters are kept stable. If not, lenders can delay the purchase of a home or even refuse mortgage approval. Any changes in financial status can negatively affect the home buying process.

3 Things You Shouldn’t Do Before Your Closing

Here is the list of ‘Financial Don’ts’ when you are approaching a loan closing:

Maxing Out the Credit Cards

If you apply for a home loan and proceed to charge your credit cards to the limit, you can stop your closing. The mortgage approval process involves analyzing a buyer’s debt-to-income ratio. If you went through the application process with a good ratio but later change the ratio by acquiring more debt, the numbers change. If your debts exceed your income, you are putting yourself at risk for being denied a loan.

Potential homebuyers can easily make this mistake in preparation of moving into a new home. They purchase big ticket items they will need after the move such as appliances or new furniture. Wait until after the loan has closed before buying on credit and always make sure you can afford what you are purchasing or you’ll likely jeopardize your ability to make your first few mortgage payments.

Applying for Other Loans

Even …

Living “The Simple Dollar”

admin — Fri, 18 Jun 2010 06:20:02 +0000

As many of you know, my new book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams is due to be released at the end of this month and should be available in bookstores all over the United States in early July. If you’d like, you can preorder the book at Amazon.com or preorder it from Barnes and Noble.

To put it simply, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams tells the story of how I got into financial trouble and how I escaped from it. Intertwined with that story are the details on how exactly I did it, along with some really fascinating research into the deeper causes of my mistakes and how others make similar mistakes. Each chapter ends with five specific steps you can take to move forward in your own journey in line with the focus of that specific chapter – getting your debt under control, reassessing your career, figuring out what life you’d like to have and setting tangible goals to reach it, and so on.

Rather than just tell you all about how wonderful I think the book is, I decided instead to share the book with some readers of The Simple Dollar and let them tell you about their experience with the book. A few months ago, I sent an email to all of the friends of The Simple Dollar asking for twenty five volunteers to get a free early copy of the book. All I asked is that they read it, they tried out the ideas at the end of one of the chapters of their choice, and after a couple of months, they let me know their thoughts on the book and how the tactics worked in their own life.

So far, I’ve received 12 stories – a nearly 50% success rate, which is unheard of considering the effort I asked of the readers. I was hoping for three stories, not twelve, to tell the truth – that was the response rate that my publisher seemed to think that I would get in response to such an effort.

The variety of the stories really inspired me, too. Most of the people chose different chapters and came at things from entirely different angles, with all of them getting something out of the book. The stories peeked into such a wide variety of lives – different ethnicities, different stations in life (from fresh out of college to retirement age), different ambitions, different life goals, and different beliefs. Yet they all were able to find value from stepping back and re-evaluating where they were heading – and perhaps looking at it through a new light.

I have done no editing (with one minor language exception and one misnumbering of a chapter from the book in the middle of a paragraph) to any of these stories aside from editing a few personal greetings and other such notes from the beginning and end of them.

Here are the stories I’ve received. I hope you find some of them as powerful (and often poignant and sometimes humorous) as I did. Click on the name to jump down to their story.

Natasha discusses playing the “why’s” game from Chapter 17 which helped her effortlessly trim money from her food spending.
Sheila rethought her shopping experiences based on Chapter 8 and started planning more carefully for them, saving hundreds of dollars.
Rafal used five different tips from five different chapters to reinvigorate his career and build a personally valuable community of people around him.
Jaclyn used the advice in Chapter 8 to not only re-evaluate her money, but to minimize some negative relationships in her life.
Tonyre-establish a much deeper relationship with his wife using the advice in Chapter 13, starting with a intimate discussion about personal finance.
Christina, a married blogger, used Chapter 17 to seek out positive motivators in her own life instead of the negative ones which were sapping her energy and spirit.
Paul, a recent divorcee, used some of the ideas in Chapter 8 to add freedom to his life, including stepping up to the plate and tackling a triathlon.
Jess used the ideas in Chapter 17 of the book to address the personal, psychological, financial, and physical clutter in her life.
Mary used Chapter 13 as motivation to sit down with her boyfriend, only to discover they’d both been “secretly” lending money to the same person!
Brenda used Chapter 3 to get control over the chaos in her life – along with a realization that not everyone else has their life figured out, either.
Jessica used Chapter 14 to help her get a grip on the idea that retirement is coming, but that it doesn’t have to be doomsday for her life.
Michael used Chapter 10 to launch himself into an entirely new career path once he realized what the common thread between his passions was.

Natasha
… on Chapter 17, “Holding You Back”

My husband and I are in graduate school (and therefore aren’t earning much money while racking up student loan debt) but our goal is to buy a house when we’re all done, so we need to pay down our student loans and also save up for a down payment.

We’ve kind of kept a budget but not really done much other than track our spending and shrug when we go over. But we started to cull everything we could from our budget. No more cable television, no Netflix, no video game subscriptions, nothing superfluous. And from there, we started seeing where we could save money elsewhere, starting with our cell phones. We dropped our expensive plan (and phones) for a pay-as-you-go option, and are saving $60 a month that way, which I’m auto-depositing into our savings account. Taking Trent’s advice from this chapter to declutter, we’ve gathered together piles of books to sell online, which is on track to earn us about $250, which will go right into our savings. The biggest problem for us is food, not only for the money, but for the time and energy it costs. As I mentioned earlier, we have a budget, but food is where we consistently go over. And when we go over, we just…keep going over. So to address this barrier, I played the “Why’s?” game Trent mentions in his book.

Why do we spend so much on food?
Because we like to eat out.
Why?
Because cooking is hard.
Why?
Because picking recipes and getting all the ingredients together takes too long.

And this is where I had my A-ha! moment. We did make a huge production out of meals and grocery shopping, and had built our own barriers to make eating out much more attractive. So, we established a meal plan. I’ve planned a menu that we’ll recycle every week (same thing every Monday, etc.), with the proviso that we’ll refresh the menu when we get sick of it. This works in a couple of ways. #1: We always know what we’re going to eat, and there’s always something planned with all the ingredients in the pantry so there’s less temptation to eat out. #2: Shopping is way faster because it’s just the same list each time and we don’t have to worry about cobbling together whatever we have to make dinner; it’s all there and ready (utilzing the second tip in this chapter to establish a passive barrier). So, now that I’ve addressed the food budget barrier, we’re putting it into practice, and will at least hopefully stay on budget (saving us an average of $100 a month) or maybe even save money if we can streamline errant shopping trips and frequent meals out (saving potentially $400 a month).

Sheila
… on Chapter 8, “Frugality as Framework”

For my “test drive” of The Simple Dollar, I chose to work on Chapter 8, “Frugality as framework.” It seemed like a natural place to start, since frugality has become necessity for my husband Steve and I. I lost my job in June 2009, just three months after we married and some months before my husband would earn his provisional green card. With neither of us able to find work and having fallen victim to a (hopefully temporary) glitch that has caused me to lose my unemployment benefits, we find that we are having to rely on savings and need to stretch every dollar we can.

The first action step in this chapter is “Don’t give up the things you love.” Sadly, I’ve failed miserably at this one — we’ve had to give up nearly everything that we have enjoyed. My husband has had to sell most of his trap shooting and reloading equipment and I have stopped horseback riding, unable to afford the dressage lessons and fearful of hurting myself and generating additional medical bills. My husband is a real foodie, so we have tried to maintain quality of life in that department. After all, eating good food will keep us healthy and will help to keep Steve happy.

The second action step Trent suggests is “Find inexpensive ways to enjoy the things important to you.” We have had a bit more success in this area. Although Steve can no longer afford ammunition and shooting fees, he has been spending more time coaching the son of a friend. Our friend is more than willing to provide a huge back yard for a range, some ammunition, and boxes of clay birds in exchange for expert coaching for his son, who has been struggling academically and is finding better focus in his studies since he has been doing trap shooting. Steve also loves movies, and rather than going to the theater (too costly even for matinees), we have begun in the last month to borrow movies from friends and from our public library. We enjoy snuggling with our dog on the bed and watching a good film. We both enjoy the outdoors, and we take more frequent trips to area parks for hikes and to stroll through the botanical garden. Steve is getting better about suggesting free and cheap dates, since I planned the first few, and we’ve had a really good time.

Trent’s next action step for this chapter is to “cut back hard on the things that matter less.” When all my jeans ended up being more holey than godly, I re-read this chapter for Trent’s suggestions. I went to the thrift store to look for replacements, but I didn’t find any that fit me, so I found inexpensive carpenter jeans ($15/pair) at Target, and later I found a pair of imperfect jeans at another store for about the same amount. Steve and I began making our own laundry soap last year, using instructions provided by Trent on the Simple Dollar website, and it works just as well as the Seventh Generation detergent we had been using. As an added bonus, we’ve started to make batches or laundry detergent more frequently, swapping bottles of it with friends in exchange for homemade breads, gourmet dog treats, and other things.

Action step #4, “Never go shopping without knowing exactly what you want,” has been a lifesaver. My husband has always had a difficult time restraining himself at the grocery store, sometimes spending up to $500/month for the two of us. I started using a slow cooker and the book Fresh from the Vegetarian Slow Cooker this past month, and I began to plan meals for the week and build a shopping list accordingly. I am good at sticking to a list, and so I do nearly all the grocery shopping now, and we’re down to about $300/month in grocery expenses. There is still some room for improvement, as Steve did pick up some snacks and protein drinks that put the total up a bit. But we are doing much better, and Steve has loved nearly all the dishes I have prepared.

I laughed at Action step #5: “Use the thirty-day rule for any unplanned purchase.” Being unemployed, we have to put nearly everything on a wish list for when one of us is employed, not a 30-day list. That means parking the second car that now needs repairs, since we can certainly make do with one. I put off buying new clothes and getting a haircut (I trimmed it myself) for over 12 months. If there is anything that isn’t an absolute necessity at this point in my life, I have just given up on having it at all. If and when one of us finds a job, I will appreciate the income so much more, and it will be so much easier to say “no” to impulse buying — not only because of having been through a tight spot, but also from the great practical tips in this chapter.

Rafal
… on five tips from five different chapters

It was extremely difficult to take 5 action steps from one chapter. So I did not. You will ask – why? You have sent me that book in the very special time for me. It is my second job – I’m here for 3 months – after 4 months unemployment. I had to quit my last job due to economical breakdown. However I am living alone, debt free, trying to implement life hacking & personal finances tricks for a while. While I had my first job for little over year – I was keeping track on my income and expenses using Buxfer. As long as I was earning good money for my hard work it was a pleasure to take care about finances. Then it got complicated – and I’ve lost the track – some of the actions you’ve suggested were already taken and I had a lot of them in mind all the time – but I made some decisions which from financial point of view were terrible – I’ve moved again to the another flat with bigger rent – but I don’t regret It. Still… there were 5 actions to be taken.

The first thing that looked like something I always wanted to do was “unwinding” 5th point of 5th chapter . After I come back I try to do the laundry and dishes. It’s terrible thing to start, but as soon as you get your hands wet – it’s mechanical activity. It was also connected with one of the New Year Resolutions – simple sticky note attached to my kitchen with “Keep counters clean” reminder. Every night before the sleep I used to prepare counters for the next day.

Next chapter – about communities – I think that I’ve made my homework long ago – in Poland we’ve got Blip.pl – very similar to Twitter – but the local community in my city is really strong. We meet for a beer once in a month or so, we also travel to other cities to meet other members – it’s a great network of people having fun and helping each other. That’s how I’ve found this month my next flat. I’m moving out from the expensive one ( I’ve also got the place from a friend from that network) to cut back costs to the flat with a friend of mine who is moving to my city – pretty good deal as it will be twice cheaper. To be honest major part of my friends I hang out with were met on Blip during last two years –we are having a good time, and if there is a need – we support each other. Countrywide.

Chapter 7th “Minding the gap” is something I think was doing for a long time – maybe not exactly that –but still I was doing my budgeting in 60%’s style. Now I’ve decided to get back to Buxfer. I’ve imported statements from accounts ( pretty messy thing, as I was not writing down expenses for about half a year) – but after weekend spent on it – It was clear what I was spending money on. Mostly bills, food and investment vehicles I’ve signed up during my first job. I’ve swept dust away from several banking accounts ( I’ve got my own System for keeping separate money for current month and rest of them) and got back to use it as I used to. Good thing is that after short analysis of my bills I’ve found out that I got used to being frugal and there were only small amount for cost that could be reduced. The biggest one is my flat that I’m changing right now. That decision was clear for a long time for me, that it has to be taken, but now I was even more motivated. When I’ve jumped back into fixing and changing – It was logical next step.

And now for something completely different – what was my System? I had several accounts – one for Income, two for Current month – main account (only this was supposed to be used with debit card and ATMs), backup money for that month, and savings accounts (goals dedicated and “regular savings”). It was working well as long as I had …

Read Your Financial Statements Like a Banker

admin — Mon, 10 May 2010 12:20:11 +0000

Link:

http://www.openforum.com/idea-hub/topics/money/article/read-your-financial-state…

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Let’s face it — financial statements aren’t the most fascinating things to read. Unless, that is, you’re a banker.

Your balance sheet and income statement tell a banker more about your business than you may think. Whether you’re applying for a new loan, renewing a line of credit, or submitting your financials because your loan agreement requires it, you need to know what goes on in your banker’s head when reading your financial statements.

Fundamentally, a lender cares about three things:

Performance (including profitability and good management practices)
Liquidity
Leverage

A history of strong>profitability together with evidence of sound management practices and good financial controls assure your banker that you’re likely to continue successfully in the years to come. But even profitable businesses find themselves in trouble when their cash flow turns to a trickle, so your liquidity is another of their concerns. As you might guess, your ability to pay your debts, particularly the money you owe them, is also high on their list of worries.

While your banker may eyeball your financial statements when they receive them, they won’t really role up their shirtsleeves until the credit department crunches the numbers. What they’re really waiting for is the ratio analysis. When compared to your historical performance and to that of your peers, ratios tell a lender, at a glance, whether yours is a company they want to do business with. So if you want to read your financial statement like a banker, you need to know which ratios they care about, what they mean, and what values make them happy.

Performance Ratios

These ratios tell the lender how well you use the assets in your business to generate profits and cash flow. Historical trends and comparisons to your peers will help them evaluate the likelihood of your continued success. Be sure to supply your lender with the correct industry code (NAICS) and point out any significant differences between your company and those of your peers.

There are seven primary performance ratios.

Net Profit as a Percent of Revenue (a.k.a. Net Profit Margin)

(Revenue – Pretax Expenses) ÷ Sales

This percentage should be stable or increasing from year to year. Since it’s the primary measure of your firm’s profitability, any decline will concern your lender.

Gross Profit as a Percent of Sales (a.k.a. Gross Profit Margin)

(Sales – Cost of Goods Sold) ÷ Sales

This ratio should be stable or increasing from year to year. If it starts to head south, your lender will suspect falling prices or increased expenses.

Operating …

Going Up?

admin — Thu, 06 May 2010 07:20:04 +0000

Today, Seth Godin (one of my favorite bloggers who usually talks about marketing) posted a great piece about consumer debt. Two great excerpts:

Here’s a simple MBA lesson: borrow money to buy things that go up in value. Borrow money if it improves your productivity and makes you more money. Leverage multiplies the power of your business because with leverage, every dollar you make in profit is multiplied.

That’s very different from the consumer version of this lesson: borrow money to buy things that go down in value. This is wrongheaded, short-term and irrational.

It takes discipline to forego pleasure now to avoid a lifetime of pain and fees. Many people, especially when confronted with a blizzard of debt marketing, can’t resist.

Resist. Smart people work at keeping their monthly consumer debt burden to zero. Borrow only for things that go up in value. Easy to say, hard to do. Worth it.

The general point of the article is that any time you go into debt for something that decreases in value, you’re making a bad move. This is a pretty clear take on “good debt versus bad debt” philosophy and using that perspective as a central rule of thumb helps you to make much better choices about your money.

Virtually anything you put on a credit card is bad debt. The stuff you buy with a credit card is either consumed (like food, for example) or decreases rapidly in value after you buy it (like a DVD, for example). Once you own food, you eat it and it no longer has any value. Once you own a DVD, you open the shrink wrap, turning it into a used DVD, which has much less value.

Student loan debt is (usually) good debt. Provided that you finish a degree program, student loans are usually good debts because the value of the degree you bought with that loan is much more than the face value of the loan. As we discussed yesterday, an education has such …

Book Review: Your Money—The Missing Manual

admin — Wed, 21 Apr 2010 17:20:07 +0000

Your Money: The Missing Manual by J.D. Roth.

Books about managing your money succeed or fail at the point when the author chooses what to present as unbreakable rules versus what to present as hints, tips, suggestions, or examples. Happily, J.D. Roth’s new book succeeds admirably.

In some areas of personal finance, there really is only one right answer. You need to spend less than you earn — and what you spend needs to cover all of your needs and at least some of your wants. If you can’t do that, you’re going to fail.

In other areas of personal finance, there are many choices that can lead equally well to success. You can make a budget that paints in broad strokes or one that goes into considerable detail. You can budget by the month or by the year. You can do it with a piece of paper, a few envelopes, a spreadsheet, special budgeting software, or a web-based tool. Roth lays out the options clearly and talks plainly about the pros and cons. You’ll finish the section on budgeting and tracking with a clear set of options and enough information to make an informed decision about what to try first. And, if whatever you try doesn’t work, you’ll also have the information to analyze the likely cause of your failure and some guidance on what to try next.

What Roth does especially well is nail down the relationship between those points. Tracking and budgeting are tools for taking control of your finances. Taking control of your finances is what personal financial management is.

Here’s another small example. The book describes the classic "debt snowball" strategy for getting out of debt. The standard advice is to attack your debt in order by interest rate, paying down the high-rate debt first — that’s the cheapest option. Many people, including Roth, find it more encouraging start with the lowest-balance debts. Those debts can be extinguished reasonably quickly, producing an early success that can help with motivation. Plus, each minimum payment eliminated makes the household’s finances a bit less fragile (because it adds some daylight between your take-home pay and your expenses). Either way can work fine, and Roth does a good job of laying out the pros and cons of each alternative.

Roth’s general …

Announcing My Upcoming Book – The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams

admin — Thu, 15 Apr 2010 11:20:34 +0000

As many of you know, over the last year, I’ve been writing a book outlining the specific details of how exactly I went from being tens of thousands of dollars in debt and working at a job that caused me to miss my family and made me long for the career I wanted to doing exactly what I wanted to do: writing, spending a ton of time with my children, and living without the anvil of debt hanging around my neck.

That book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams, is now largely finished (I’m in the process of checking over the galleys to make sure that it’s ready to go) and will be available in bookstores on June 28, 2010!

Here’s the “back of the book” blurb:

The Simple Dollar can change your life.

Trent Hamm found himself drowning in consumer debt, working in a job he couldn’t stand… and figured out how to escape that debt and build the fulfilling career he’d always dreamt about, all at the same time.

Hamm shared his experiences at TheSimpleDollar.com–and built it into one of America’s top personal finance websites. Now, The Simple Dollar is a book: packed with practical tips, tools, and lessons you can use to transform your life, too.

This isn’t just “another” personal finance book: it’s profoundly motivating, empowering, practical, and 100% grounded in today’s American realities. Trent Hamm will show you how to rewrite the rules, creating healthier relationships with money… and with your loved ones, too. With his help, you can get out of debt, start moving forward, and build the strong personal community that offers true happiness–no matter what happens to the economy.

· Escape the plastic prison, and stop running to stand still
5 simple steps to eliminate credit card debt… and 5 more to start moving forward

· Shift your life’s balance towards more positive, stronger relationships
Learn how to put the golden rule to work for you

· Discover the power of goals in a random world
Then, …

I’ve Had Enough

admin — Sat, 20 Mar 2010 11:20:25 +0000

If you’re unhappy with some significant portion of your life, at some point you have to wake up in the morning and simply say that you’ve had enough.

That key decision often leads to some further difficult ones. It will probably lead to some personal challenges. It will require you to make some changes in your life.

On the other hand, that key decision gets the monkey off your back. You know, the thing that keeps you wondering what your life might be like if you weren’t saddled with this thing holding you back? That monkey. Get rid of him.

What have you had enough of?

I’ve had enough of all of this debt. Set up a debt repayment plan, and that starts with consolidating and minimizing your debts. Cut your spending hard, sell off the junk in your closet, and get rid of the debts. Most of all, don’t rack up any more debt along the way.

I’ve had enough of being sad. You’ve got to make a fundamental choice of whether you’re happy because of the good things in your life or you’re sad because of the bad things. Tossing out some of the bad things can help, but we all have bad things in our lives – every single one of us. You have to choose which parts of your life you’re going to dwell on, and I’d encourage you not to dwell on the sad elements. Sometimes, professional counseling can really help with this.

I’ve had enough of this job. Right now, throw all of your energy towards the career you really want. Look at your current job as merely an exchange of your energy for money and try to maximize …

Kwedit: Training Wheels For A Real World Debt Ridden Lifestyle?

admin — Thu, 18 Mar 2010 09:20:07 +0000

Back in the 80s I walked to the YMCA with my weekly video game allowance of two quarters. That bought me one game of Asteroid and one game of Pac-man. Any idea what the difference is between Pac-man in the 80s and FooPets today? You had to pay cash up front in order to play Pac-man. Now, thanks to Kwedit, you can play games online with a credit line!

A recent article by Randall Stross, “Buy Now, Pay Later (Maybe With Your Allowance)” details the growing use of a virtual credit line offered through Kwedit, a company that is facilitating the exchange of money for virtual goods used in online gaming.

Children, over the age of 13, can buy virtual goods, through their Kwedit account, and choose to pay later. The arguments promoting the “virtues of virtual” are surely coming soon. Why? While there is currently no real life penalty for not paying your Kwedit debts you are still required to pay with a debit or credit card or real cash via your local 7-11 store. If you don’t your virtual Kwedit credit score could be low thus warning other sellers of virtual goods not to sell to you. Sounds like real life, right?

Training Wheels for a Real World Debt Ridden Lifestyle

As we all mature there are pathways that form in our brains. Stimuli such as nicotine, alcohol, and sugar have a pathway burning effect. From there we can become addicted to the sensations we receive from those stimuli. So do particular emotions that are associated with stimuli. An example could be the euphoric feeling I get from the pride my dad shows in me when I win a foot race. That pathway in my brain feels satisfied when my dad expresses pride in me. Since this particular “father’s pride” pathway screams for satisfaction I push myself even harder to win more races.

Has anyone considered this process of using virtual credit to be the equivalent of training wheels on a real world debt ridden lifestyle? This ties instant gratification to fun entertainment with no exertion, save clicking a button, on the child’s part! The child then forms a pathway that says “Using credit is easy. By using it I get immediate access …