Credit card companies are looking for new ways to manage consumers’ risk of defaulting on balances.  Apparently, they now plan to review cardholders’ spending patterns, including which merchants they frequent, to determine build their risk model.

Credit card issuers are no strangers to using behavioral analysis to shape much of their business.  Trust me; I used to work for one.  I remember attending a number of meetings with marketing people arguing across the table from risk people about raising late fees from $25 to $29.

Marketing would point out that people may be less likely to sign up for the card, or cancel the card, if fees were increased.  Risk pointed out that the fees may deter people already on the edge from falling behind (assuming if the fee was higher for their card they would keep it current, and let the card charging a lesser late fee go past due.

The compromise reached involved risk-based pricing, a way of separating cardholders into various “buckets,” and each group being be charged different sets of punitive fees, interest rates, etc. But now it seems credit card companies are taking this idea a step further.

Attention Wal-mart Shoppers, Hide Your Credit Cards

Just the other day, Writer’s Coin passed along a story originally appearing on Good Morning America.  From the Writer’s Coin, a brief description of the video:

It featured Kevin Johnson, a responsible credit-card user that had recently seen the limit on his American Express Blue card go down by $7,000. What could possibly cause AmEx to lower his limit when he pays his card in full every month, has a 764 FICO score, and owns his own business?

When Johnson questions American Express to find out why his credit limit was decreased, he received the following response:

The answer: Kevin Johnson had recently visited a Wal-Mart that he doesn’t typically go to, and the reason AmEx gave him was:

“Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express.”

Yikes!  So American Express is now determining credit worthiness based on where you shop?  If people use an American Express card at a Wal-mart where someone else used the same card and subsequently went bankrupt, does that mean Kevin Johnson will go bankrupt?

I don’t like the idea of being lumped in with others, but this bothers me on another level.  I wonder if Amex would do the same thing to a cardholder shopping at a swimming pool supply store?  One could assume that shoppers there are homeowners, and relatively affluent because the have a swimming pool.  Of course, that doesn’t tell the whole story.  They could be two months behind on their mortgage and buying pool supplies to get the water blue in time to show the house for a motivated sale!

The pool supply store example is just as flawed as the Wal-mart example.  Wealthy people may choose to shop at Wal-mart to save money, or search thrift shops because they are frugal.  It is not an indication of financial troubles. The end result of all this analysis by credit card issuers is that they will ultimately lose loyal customers.  The problem is there are hundreds of people ready and willing to take their place.

Over the last year I’ve shared a few ways to create a passive income.  But what about creating passive savings?  That is, ways to save money without much effort.  That’s the idea behind eliminating the pull of dreaded “vampire power” from your household devices.

What Is “Vampire Power?”

The term “Vampire Power” refers to the energy required to power many home electronic devices as long as they are plugged in, even if they are turned “off.”  Unfortunately, that includes just about everything that requires being plugged in.  Here are a few examples of household appliances draining your wallet while you sleep:

• Cable Box
• DVD Player
• Desktop Computer
• Wireless Router
• Computer Speakers
• Inkjet Printers
• Plasma Televisions (these guys seem to be the worst, according The Department of Energy)

How to Stop Vampire Power?

The silver bullet required to kill vampire power is a smart power strip.  These devices monitor electronic appliances and cut power to them when they entire vampire mode.  Or, you can go old school and simply plug all appliances into a simple power strip or surge protector and flip it off when not in use.  Even older school requires you to simply unplug appliances from the wall outlet when not in use.

One drawback to this method is that devices that need to be on for automation or downloading updates (such as a DVR, router, etc.) may not work properly if manually powered down.  Smart strips offer a solution to this problem by setting aside a couple outlets dedicated to an “always on” setting for devices that do need a constant supply or power.

If you don’t want to run every electronic device through a smart power strip, consider picking up an electricity usage monitor such as the Kill-A-Watt EZ. Here’s a portion of the product description from Amazon.com:

Now you can cut your energy costs and find out what appliances are actually worth keeping plugged in. Simply connect these appliances to the Kill A Watt EZ, and it will assess how efficient they really are. Large LCD display will count consumption by the Kilowatt-hour, same as your local utility. Calculate your cumulative electrical expenses and forecast by the day, week, month, even an entire year.

A friend of mine owns one of these and used it to do a power inventory around his house to find the worst culprits pulling “vampire power.” Then he picked up a few smart power strips and placed them around the outlets with devices pulling the most power.  The reduced energy costs should easily pay him back for the investment of the monitor and power strips in less than a year.

Are you a parent interested in helping your child earn a college degree? Are you a student looking to save money on tuition? Having completed a B.A., M.A., and a Ph.D, I have perfected the art of stretching my college dollar. I was fortunate to have assistance from my parents, but I also saved them money by graduating from my undergraduate program in 3 years by following many of these tips.

Here are 10 ways to stretch your college fund:

1. Open a 529 savings account. Instead of putting your child’s college fund in a regular savings account, open a 529 account. A 529 plan is a state-run investment program that helps parents and children save for college. The value of your investment grows tax-free until withdrawn. In the years when withdrawals are made, the growth is taxed to the student not to the investor. This can be financially beneficial because a student’s tax bracket is usually lower. A 529 account can be used to pay for any accredited college and graduate school.

2. Take Advanced Placement (AP) courses. Incoming freshmen can literally shave off an entire term with the appropriate AP courses. Many high schools offer AP English, History, and Calculus. If your high school does not offer AP classes, check out your local community college (these courses are often offered at community college in the evening).

3. Start with community college. So you want a degree from the most prestigious university? Great, you can still start at your local community college! Community college is a great deal – lower tuition, smaller class sizes, and fewer impacted courses. And, students can transfer from community college to even the most prominent universities.

4. Attend a public university. Tax-payer dollars supplement public education for many reasons, among them so you can afford higher education. Public universities tend to be bigger than private institutions, but the education is not necessarily any different. In fact, large universities tend to hire big name faculty and have additional amenities.

5. Submit your FAFSA early. Although the FAFSA deadline is April 1, many people do not realize that the earlier you submit your application the greater your chances of being awarded financial aid. The FAFSA allows you access to loans, grants, scholarships, and work-study.

6. Apply for scholarships. Scholarship search engines such as www.fastweb.com, www.finaid.com, and www.petersons.com can direct you to thousands of internet based scholarships. However, the most fruitful scholarships searches are usually done in your local area or directly through your university. You should never have to pay for a scholarship application.

7. Supplement with online or community college courses. You may be attending an expensive liberal arts college, but you can take online and community college courses that count towards your degree. Check with your academic advisor to find out which courses are transferable towards your major. You can take these courses during the academic year or during the summer.

8. Utilize federal work study. If you submit your FAFSA and are not awarded a grant or loan, you may still qualify for federal work study. When you have a work study job your employer only pays a percentage of your full wage and the federal government picks up the rest. These jobs are typically offered on campus, which makes it easier to work while going to school. If you qualify for work study, you are obviously a more attractive candidate for the job.

9. Consider being a residential advisor. If you plan to attend a campus with on campus housing, you may be interested in becoming a residential advisor. These are students who live in the dorms and oversea the other students. Being a residential advisor also provides valuable life skills, such as mediation, time management, and communication. Typically, residential advisors receive room and board as compensation for their duties.

10. Know your limits. College is a transitional time and involves exploration of personal and educational interests. While you want to enjoy these exciting years, for every term you spend in school you will be paying for tuition, housing, food, textbooks, clothes, and extracurricular activities. Therefore, it’s important to maximize your chance of being successful – and this means knowing your limits. Enroll in as many units as you can realistically complete successfully, join as many clubs and organizations as you can reasonably attend, and enjoy as many social gatherings as you can without compromising your real purpose for being in college.

This guest post was submitted by Joy.  Joy is a new mom living in a small community in California. She blogs about simple living, budgeting, balancing home and work, and finding joy at www.JustPlainJoy.blogspot.com. She recently completed her PhD in Education and works as a Volunteer Coordinator at a state university. Check out Joy’s blog for more tips on Investing in Your Child’s Future.

My fellow Americans, details are emerging for the second economic stimulus plan endorsed by President Obama, and the majority of members of the United States Congress.  From the sounds of it, this economic stimulus plan will dwarf the costs of the first stimulus plan, and the first bailout, combined!

This time around the plan calls for massive government spending–to the tune of $825,000,000,000.  Yes, that is a lot of zeroes–almost one trillion dollars!  In fact, the figure has so many zeroes that it is hard for us to wrap our brains around just how much money that represents. Consider the following example.

If our government spent one million dollars a day, every single day, it would take 2,260 years to spend $825 billion.  That’s right; 2,260 years!  If the bailout reaches $1 trillion it will be more like 2,740 years.  So not only will our children and grandchildren be paying for this so-called stimulus bill, but our future generations will be paying for this bill for decades.  I don’t know about you, but I don’t think it is right to leave our children with the burden of cleaning up our own mess–even if that means our lives will get a little tougher in the near term.

To suggest this new stimulus plan should be scrapped altogether is politically unpopular.  After all, many out there believe we have already suffered enough.  And it is true that many really have suffered in the form of lay offs, foreclosures and other forms of financial hardships.  I get that.

However, at some point I think we need to ask ourselves what the objective is here.  Is it an attempt to spend ourselves out of a recession?  Is it an attempt to nationalize more industry and a good portion of the labor force?  Is it a short-term solution that will cause more long term harm?  Political parties will likely clash over the details of the American Recovery and Reinvestment Bill of 2009.

It is the details that many average citizens are unaware of, and should be more highly publicized.  Whether or not you agree with the cause, I think you will find the obligated amounts staggering.  Here are a few examples:

• Job Corps Facilities: $300 million to upgrade job training facilities serving at-risk youth while improving energy efficiency.

• Education for the 21st Century: $41 billion to local school districts through Title I ($13 billion), IDEA ($13 billion), a new School Modernization and Repair Program ($14 billion), and the Education Technology program ($1 billion).

• Transform our Economy with Science and Technology:  $6 billion to expand broadband internet access so businesses in rural and other underserved areas can link up to the global economy.

• National Treasures: $400 million, including $200 million to address the deterioration of the National Mall, such as repair of the Jefferson Memorial’s collapsing Tidal Basin walls; $150 million to address the repair backlog at the Smithsonian; and $50 million for the National Endowment for the Arts.

• Smart Appliances: $300 million to provide consumers with rebates for buying energy efficient Energy Star products to replace old appliances, which will lower energy bills.

• Clean, Efficient, American Energy: $6 billion to weatherize modest-income homes.

• Pell Grants: $15.6 billion to increase the maximum Pell Grant by $500, from $4,850 to $5,350

• College Work-Study: $490 million to support undergraduate and graduate students who work.

Source:  House.gov

Frightening.  They toss around amounts like “millions” and “billions” as if they are trivial expenditures.  Where will this money come from?  If we raise taxes, what will be the effect on new business and entrepreneurship in this country?  If we don’t raise taxes, and instead continue the trend of deficit spending, what will happen to value of our currency over the long term?  I recognize I am a simple guy, but I don’t get the feeling these things have been properly analyzed in the interest of quickly pushing through a massive spending bill.

I don’t pretend to have all the answers.  Just as none of us are solely responsible for the current recession, none of us could single-handedly solve the economic ills of today.  However, what we can do is demand more fiscal restraint from our elected officials.  If you and I spent money at this same rate when we were already in debt we would go bankrupt.  Unfortunately, those same rules don’t apply to government.  Or, maybe they do.  I guess time will tell.  The problem is, we won’t be the ones to suffer for our national spending spree, that will be left to the generations who come after us.

What was the first job you held as a teenager? I worked a few side hustles as a young teen, but began my first official job just after turning 16 years-old. It was at a Little Caesar’s (”pizza, pizza”) in my hometown, and I worked there my sophomore year of high school until football practice began the next summer. It was a pretty good job for a teenager–making pizzas, answering the phones occasionally, and all the Crazy Bread I could eat! Too bad I spent nearly everything I earned that year.

Today parents and teens have access to one of the best investment vehicles around, the Roth IRA. That’s right; you don’t have to be an adult to contribute to a Roth IRA, you just have to have an earned income. Parents may need to help set up the account by opening it as a custodial account. The only limitation for contributions is that they must not exceed the maximum contribution amount established for Roth IRAs in a given tax year, or the teens earned income, whichever amount is greater.

Make Your Teen a Millionaire

Let’s assume your 13 year-old makes $2,000 mowing lawns, raking leaves and babysitting this year. Assuming he invests that $2,000 in a Roth IRA, and leaves the money alone, it will grow to $284,000 by age 65, also assuming an average 10% return (source: Fool.com). Not too bad! And just imagine what that number could look like if your teenager continued to invest a couple thousand dollars in that Roth IRA throughout high school. He would easily become a millionaire by retirement age. Wish someone had told me that at 13!

The IRS requires proof of earned income to qualify for contributing to a Roth IRA. If your teen works for an established organization she should receive a W-2 at the end of the tax year showing how much she has earned. If she earns money from babysitting and odd jobs, you will need to keep up with the amounts earned and file a tax return, even if the amount is less than the required minimum for filing. This return is your certification that she did earn that money.

Matching Funds From Family

One great gift idea is for family members to match their teenager’s earnings and make the contributions for them. This way all of the teen’s earnings aren’t sent off to the brokerage, and they get to enjoy what they earn.

I actually like some combination of earnings and matching plans for Roth IRA contributions. For example, if a teenager earns $1,000 this year on a paper route, require that $500 be saved for Roth IRA contributions and offer to match the remaining $500 to reach the maximum eligible contribution amount. A matching plan forces the teen to continue to put aside some earnings toward future savings; a skill that is sorely needed from our next generations.

Consider opening your IRA at E*Trade, where you will receive 100 commission-free trades.