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 working children 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 lesser.

How To Open a Roth IRA for Children

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 child works for an established organization, he or she should receive a W-2 at the end of the tax year showing how much they earned. If one of your children 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, and is eligible for a Roth IRA.

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.

What If They Need the Roth IRA Money Before Retirement?

Roth IRA withdrawal rules allow you to withdraw contributions to a Roth IRA at any time, without penalty. So, if you help one of your children open a Roth IRA, and they need access to that money in their college years, they can always withdraw the contributions, but not the earnings, penalty free. But remember, it’s best to leave the money in your Roth IRA unless children really need it in an emergency.

The following exercise will be enlightening to those deep in credit card debt, entertaining to those not in debt, and a cautionary tale to those too young to have experienced it. If you are in the former category, like me, I encourage you to hunt down your most recent credit card statement, or simply lookup your credit card balance online.

How Much Of Your Debt Can You Itemize?

Now that you know how much you owe, set aside five minutes, grab a sheet of paper, and brainstorm all the things you purchased with that credit card. How much of the outstanding balance can you account for? 50%? 75%? 100%? Your answer is probably indicative of your relationship with credit cards. The lower the amount you can account for spending, the higher the chances your spending is out of control.

A Credit Card Debt Audit

I’m fortunate that I’ve been able to whittle away at my credit card for some time now, and am finally seeing the light at the end of the tunnel. But even as the balances decrease, memory of the purchases made to run up the debts fail me. Well, there was the vacation we took in 2007; back to school clothes for at least a year or two; the occasional car repair; and the new bedroom furniture we just “had to have.” That represented about 70% of my remaining balance, and I’ve paid it down over the last year!

The other credit card charges were mostly forgotten living expenses. Expenses charged because we were living beyond our means. Sure, we had our share of legitimate emergencies, health scares, and educational expenses associated with my dream of completing a degree. But to justify accumulating debt for these reasons is to make excuses for our lack of financial planning. We should have had an emergency fund in place. I should have saved for school and paid cash.

I guess the lesson learned from this exercise is that the things that we “just had to have” probably could have waited, because only a year or two later I can’t even remember what half of them were! Sad. The rest is accumulated interest and probably the occasional fee assessed before I got my act together.

Armed with this information I can do two things: I can sell as much of the stuff I bought as possible and apply proceeds to my remaining debt, and I will no longer charge impulse or lifestyle items on my credit cards. I keep exactly one card in my wallet for emergencies, and I promptly pay it off immediately in the event I have to use it for car repairs, a replacement appliance, etc. Never again will I find myself wondering where half of my credit card debt comes from. Never again!

A couple days ago I performed a highly unscientific poll on the subject of thermostat settings. I asked Twitter followers to share their overnight indoor temperature settings and how cold the outside temperatures were in their neck of the woods. My hypothesis was that people are much more frugal about their temperature settings than we are–and I was right!

Based on the responses received the average thermostat setting was 63 degrees at night, and the average outside temperature was 31 degrees. Several mentioned that they keep their thermostat on 70, or higher, because they have small kids. We are in that category as well.

A few months ago I installed a programmable thermostat. During winter days, particularly when it is mild (above 50 degrees), we set the thermostat to “Off.” However, at night we have it programmed to warm the house to 72 degrees while we go through bath and bedtime routines. Once everyone is hunkered down under blankets, we drop the temperature to 68 degrees overnight, before returning it to 72 about half an hour before we wake up and being our morning routine.

As the kids get older I imagine we will drop this temperature down a bit to shave a little more off or our utility bills. Some of the Twitter responses indicated they set their thermostat as low as 55, and one follower even remarked, “We usually knock our thermostat down to 40 at night (and low was 17). We get under enough covers that I still manage to get hot!” 40 degrees? Yikes!

Tips For Staying Warm

Properly insulate your home. Besides having proper insulation installed in walls and attics, also check out door sweeps and areas around windows. Hold a lit candle in front of doors and windows on a breezy day. If the flame flickers it is a good indication air is seeping in. Replace weatherstripping and sweeps around doors for a better seal, and caulk around window joints.

Double up on the covers. Seems obvious I know. But many people simply sleep under a bedspread or comforter, rather than a blanket made of heavier material. A quality blanket will help insulate you by trapping body heat and allowing you to drop the inside temperature further.

Gather around the fireplace. In the early evenings a fire in the fireplace can replace the need for central heating, assuming everyone gathers in the same room room.

Dress windows to help keep cold air out. We recently hung curtains in one of our bedrooms and felt a noticeable difference. The room felt less drafty at night, and during the day we pull back the curtains to let sunlight warm the room naturally.

Also check out: 29 more tips for preparing your house for winter