TIME Saving & Spending

Here’s Exactly How You Waste $1,700 Every Year

Money in jeans pocket
Image Source—Getty Images

If you do this, you might as well be lighting a pile of money on fire

Traffic congestion isn’t just a frustrating part of commuter life; it’s expensive. A new report finds that every household with a car-commuting member loses $1,700 a year in time and gas burned thanks to bumper-to-bumper traffic.

If you think that’s bad, it’s going to get worse: Researchers predict that annual cost will soar to $2,300 by 2030. Between now and then, the total tab adds up to $2.8 trillion.

The Centre for Economics and Business Research found that last year alone, wasted time and gas from sitting in traffic cost us $78 billion, and it warns that we’ll face greater congestion in the future because our population is growing and we’ll buy more cars, adding to the rush-hour standstill. (The study was commissioned by INRIX, a company that makes traffic-navigation software.)

Researchers say traffic jams also generate indirect costs. The group estimates that $45 billion worth of costs incurred by freight stuck in traffic gets passed along to consumers, and the carbon from the gas we burn has an annual cost of $300 million.

An expanding population and economy are the main culprits, says INRIX CEO and cofounder Bryan Mistele. More people and a higher GDP make car ownership more ubiquitous and more affordable.

And while you might think recent decreases in the price of gas might help, researchers say this actually hurts our traffic prospects in the long run: Cheaper gas means people are more willing to plunk down the money for a car and more likely to get behind the wheel, rather than considering alternatives like consolidating trips or carpooling. This, of course, means more vehicles clogging our roads at any given time.

According to the American Automobile Association, idling burns about a gallon of gas an hour even if you don’t go anywhere. So, what can the average commuter do?

Unfortunately, the answer for many right now is “not much.” Mistele suggests that in-car software or smartphone apps can help by giving drivers real-time congestion information and suggesting alternate routes. (That’s true, but sometimes even an alternate route will leave you staring at brake lights as the clock ticks.) Workarounds like alternative work hours are telecommuting can help, if you’re one of the lucky few who has that kind of job flexibility, but many of us don’t. Alternatives like public transportation, walking or biking will work for some, but will be inconvenient for anybody trying to haul a little league team or a warehouse club-sized package of paper towels across town.

Along with trying to consolidate trips and carpooling, the AAA recommends resisting the temptation to speed up as soon as there’s a bit of a break, then jamming on your brakes again a minute later. “It takes much more fuel to get a vehicle moving than it does to keep it moving,” the group advises, so try to keep a slow and steady pace if you can. Get the junk out of your trunk and remove unused third-row seating to lighten your load and improve your mileage.

TIME Retirement

The Last Will and Testament of a Millennial

Portrait of woman writing letter at desk
Portrait of woman writing letter at desk, circa 1950 George Marks—Getty Images

It started with leaving my boyfriend my share of the rent — then things got complicated

I’m going to die, I reminded my boyfriend. My eventual death was something I’d been mentioning to lots of people, on Facebook and at engagement parties and at my high-school reunion.

It wasn’t that I thought death was going to come any time soon or in any special way, it’s just that, as they say on Game of Thrones, all men must die. So I was writing a will. I’d downloaded a template. I’d filled it out. I just hadn’t signed it yet, and in the mean time it had become my favorite topic of conversation: I’m going to die, we’re all going to die, I’m filling out paperwork about it, what’s new with you?

I asked my boyfriend: Is there anything else you want me to leave you? Besides my share of the rent. Besides the fish tank and the fish. Besides the coffee table, the pots and pans, the things that I call ours that are legally mine.

He said: Yes, but don’t tell me what it is. Make it something special.

That was a good answer, which wasn’t surprising. He takes deep questions seriously, and we’re well past the point where you have to act like it’s awkward to imply that your relationship will exist more than a few years in the future. So of course he had a good answer — but it was also a difficult one. What object that I owned could possibly say what I needed it to? There was, it must be said, not too much to choose from.

That’s a big part of the reason why young unmarried people with no children — that’s me: 28, legally unattached, childless — don’t usually bother with a will. Unlike a medical directive, which everyone should have, wills are something we can do without. The law of intestacy, the statutes that cover what happens when you die without said last testament, should take care of you just fine unless you’re very wealthy, whereas I fall into the It’s A Wonderful Life category: worth more dead than alive. I’m living comfortably, but my life-insurance policy is my most valuable asset.

Plus, most young people don’t need a will for an even more basic reason. Most of them don’t die.

However, even if death is a constant, life has changed. Last year, the U.S. Department of Health and Human Services released a report finding that nearly half of American women 15–44 cohabitated with a partner prior to marriage, using data from 2006–2010. That was a major increase from past studies, and by now the numbers may well be even higher. A cohabitating partner is entitled to nothing when the other dies. Marriage and children are also coming later in life, which means that people are acquiring more wealth before the laws regarding spousal inheritance kick in and before they have to choose a guardian for their child. So for people like me, without a will, there’s no way to say give this thing to my friend, give this thing to my brother, donate this thing to charity.

Hence, my will obsession. If all goes according to plan, it will be the umbrella that keeps the rain from falling, rendered obsolete within a few years. Marriage and children and my inevitable Powerball victory will change my priorities, and I’ll have to write a new one. But, as anyone who’s ever thought about a will must have realized, not everything goes according to plan.

***

Given changing social norms, estate planning ought to be a mainstay for millennial trend-watchers, except that there’s no way to know how many of us are actually out there thinking about the topic. There’s no way to know how many wills there are, period. Lawrence Friedman, a professor at Stanford Law and the author of Dead Hands: A Social History of Wills, Trusts and Inheritance Law estimates that — though there’s no way to track them — wills may be getting more common as popular awareness increases. A century ago, even counting the super-wealthy, he thinks probably half of the population gave it a thought. But, he says, the role of wills is also changing, as people live longer and are more likely to give their children money while everyone is still alive.

What’s not changing is that wills are fascinating to think about. Whether it’s the buzzy economist Thomas Piketty discussing the way inherited wealth affects society or a historian analyzing Shakespeare’s bequeathing his “second-best bed” to his wife, people who look at wills see more than what the dead person wants to do with his stuff. “I used to say to my class that what DNA is to the body this branch of law is to the social structure,” Friedman puts it.

Though it may seem obvious today that each adult has the right to leave his property to whomever he chooses, that privilege isn’t necessarily a foregone conclusion. Historically, there have been two competing theories behind inheritance law. One side holds that having a will is an inalienable right; the 17th century scholar Hugo Grotius wrote that, even though wills can be defined by law, they’re actually part of “the law of nature” that gives humans the ability to own things. John Locke agreed: if we believe property can be owned, it follows that we must believe that ownership includes the right to pass that property to whomever the owner chooses.

On the other hand, there’s just as long a tradition of the idea that wills are a right established by government and not by nature, because, not to put too fine a point on it, you can’t take it with you. If ownership ends at death, the state should get to decide how inheritance works, for example by saying that all property must always go to the eldest son, or by allowing children written out of a will to appeal to the state. Perhaps due to colonial American distaste for the trappings of aristocracy, the U.S. ended up with the former system — and Daniel Rubin, an estates lawyer and vice president of the Estate Planning Council of New York City, says it’s a right worth exercising. “For most young people, it’s not going to be relevant. But it’s a safeguard. People should appreciate the opportunity to do what they want with their stuff,” he says. “We’ve got a concept in the United States of free disposition of your wealth. You can choose to do with it whatever you want.”

Most wills written by young people won’t be read — except maybe by our future selves, nostalgic for the time when a $20 ukulele was a prized possession — and the ones that will be seen will be sad. If I die tomorrow, that will be what’s known as an unnatural order of death, the child going before the parents. Inheritance is not meant to flow upward. On that, tax law and the heart agree. It’s one area where millennials’ will-writing and older generations’ diverge: usually, estate law is a happier field than one might expect, something I’ve been trying to keep in mind. Rubin says he cannot imagine practicing any other area of law and finding it so rewarding.

“It’s never sad. Sometimes people are reluctant to deal with these issues. Perhaps they feel it brings bad luck although they rarely express it that way. It’s probably that they just don’t see the need to do it because they don’t think they’re going to die soon,” he says. “It’s almost uniform that even the most reluctant clients will sign their wills and then leave my office and feel great.”

***

Of course, it’s not as if “what if I die” is a rare thought, even for people under 30. Tom Sawyer took it to extremes; Freud thought we’re all itching to find out. People will be sad, we hope. Maybe we care about funeral arrangements, like the tragic Love, Actually character whose pallbearers march to the sound of the Bay City Rollers. Maybe we think we know what comes next; maybe we think nothing does. Maybe we’ve thought about who gets the heirlooms, the things that always carry a whiff of death about them.

What happens to the ordinary stuff that fills our homes is less likely to cross our minds. And lot of what we have, or at least what I have, is just crap on some level, mostly. That used starter-level Ikea, left behind by an old roommate who moved to California, isn’t exactly something I’d pass down. My most valuable possessions are mostly Bat Mitzvah gift jewelry. And my favorite possessions aren’t necessarily valuable. And if I did give these things away, how would they be received?

Once, I got a gift from a family friend days before she died. It was a beautiful silk scarf. The death was not unexpected, but I didn’t write a thank-you note in time. The envelope meant for that task was on my desk for years. It was hers, though she never got it, so I couldn’t send it to someone else. Nor could I bring myself throw it away. So I put it aside, indefinitely, until I moved apartments and it was lost in the shuffle, quite literally, in a box marked “stationery.” I didn’t want my crap to become that envelope, useless and painful and eventually lost. Potential candidates: an Altoids tin full of spare buttons, my half-filled journals, decade-old mix tapes; pens and pencils, giveaway tote bags, decks of cards, reference books; nice things like a painting, a laptop, that scarf; the stuff that goes unnamed in the will, under the clause that includes the words “all the rest of my estate.”

The things we leave behind can be heavy. Perhaps the most special something I could leave my boyfriend would be the freedom not to carry me with him. I was reminded of a poem that the rabbi always reads during the memorial portion of the Yom Kippur service. “When all that’s left of me / is love, / give me away,” it ends. I’d never really thought I was paying attention during that part, but it was there, in my brain, waiting for such a moment. (I looked it up; it’s called “Epitaph,” by Merrit Malloy).

That’s the other option — and, for a while, despite having spent so much time thinking about my will, I was tempted. I could write a simpler will, with only the instruction to give everything to charity, or I could follow the long-standing young person’s tradition and just scrap the whole endeavor.

Except stuff is the only language left to speak. Even Rubin, who says his work is 97% concerned with money rather than objects, knows the feeling: he has a samovar that came to America with his family when they left Eastern Europe with almost nothing. It’s worth little but referred to throughout his life by his mother as his yerushe, Yiddish for inheritance. And “leave me something special” wasn’t all that my boyfriend said. It’s sad to think about, he said, but I like the idea of being named in your will. It’s a privilege to hear someone speaking to you when you thought the chance was gone, he said. No matter what it says in the will, he said, I’ll be happy to hear your voice. He has a point. After all, the verb “bequeath” is from an Old English word meaning “to speak.”

So I decided not to give up on the will. I’ll give my junk and my money to the people I love — though I did end up adding two more clauses before I felt finished. First, I added a few sentences in my own words to the legalese of the template I’d found online: don’t feel bad if you have to get rid of something, I told my heirs. Legally enforceable? No. Worth saying? Yes. Second, I found that something special, something not too heavy.

I printed the will. I found some witnesses and we signed the paper. I folded it up and put it in an envelope and put that envelope somewhere safe. And then I went back to my life.

TIME Money

See How Tech CEOs Spend Their Money

Facebook CEO and founder Mark Zuckerberg and his wife Priscilla Chan pledged $25 million to help fight Ebola this week. Here are some of the ways other tech CEOs spend their money.

TIME Shopping

The Very Costly Mistake Almost All Shoppers Make

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John Nordell—Getty Images

It's costing us billions every year

Buying store-brand items to save money seems like a no-brainer, but many of us still don’t — even though buying generics could save American shoppers $44 billion a year. Wonder why we’re willing to pay double or triple for virtually identical products that carry a name brand? A new research paper explores why we do it and gives us hints how to stop it.

Matthew Gentzkow, a professor of economics at the University of Chicago Booth School of Business and one of the authors of the study, says research shows that people who are experts in areas like food or medicine tend to buy more generics in those categories. Pharmacists, for instance, are much more likely to buy generic over-the-counter headache medicine. Chefs have a greater tendency to buy store-brand pantry staples like sugar, salt and baking mixes.

This observation leads Gentzkow and his team to theorize that the rest of us pay more for name brands because we lack the knowledge base these culinary or medical professionals have. Pharmacists know that CVS-brand ibuprofen is literally the exact same medication as Advil, so they’re less susceptible to the marketing message that the name-brand pills carry an advantage that justifies their higher price.

The rest of us? Not so much. We default to the marketing machine that tells us name brands are somehow inherently better. To be fair, that’s because there is a difference in many cases. In many categories of stuff we buy, you get what you pay for — but marketers have highjacked that and pushed on us the belief that name brands are better all the time, which just isn’t true.

“Brands exist for a reason, which is in part to help people distinguish poducts that really are higher quality,” Gentzkow says. “What firms do is exploit that to sell products in other contexts and the problem is that people can’t tell when brands are really better.”

Even if people know a generic contains the same ingredients — even if the package specifically says “compare to” the name brand equivalent — we still don’t believe they’re the same thing without a fairly deep base of professional knowledge. People especially are intimidated by purchases that involve a medical question, unless they’re in that profession themselves. It doesn’t even have to do with educational level overall, Gentzkow says. Registered nurses are more likely to buy store-brand medications than lawyers, even though lawyers have a lot more schooling under their belts.

“We’re looking at people who have a lot of information not only about the active ingredients but other information that’s relevant,” Gentzkow says. “I think the gap here is about more than just there are facts that people don’t know. It’s that making the correct decision requires quite a lot of information and sophistication.”

But this doesn’t mean you have to get a pharmacy degree or go to culinary school to avoid overpaying for name brands, Gentzkow says. There are ways you can train yourself to think like an expert when you’re weighing store- versus name-brand purchases.

“Ask yourself, how hard would it be for another company to make something that’s the same?” he says. “Where am I finding that the store brand stuff is just as good? Are there other places I might apply that same knowledge?”

We tend to learn which generic items work or taste as well as their branded counterparts by trial and error, so build on that, Gentzkow recommends. “People have a really hard time extrapolating knowledge from one context to another, but it’s really valuable to figure it out.”

TIME Careers & Workplace

Why ‘You’re Getting a Bonus’ Is Actually Horrible News

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Joel Sartore—Getty Images/National Geographic RF

Sounds good. Often isn't

So your boss just said, instead of a raise this year, you’ll be eligible for a bonus. Great, right?

Not so fast. Companies today are increasingly turning to bonuses instead of raises, and while it might seem like pretty much the same thing, there are some big potential drawbacks for workers.

According to HR consulting firm Aon Hewitt’s annual Salary Increase Survey, more than 90% of companies now have what’s called, in HR jargon, “variable pay,” a category that can include signing bonuses, awards for individual or team performance, profit-sharing and the like. Nearly 13% of companies’ payroll budget, on average, is going to variable pay this year. This is a significant increase from Aon Hewitt’s pre-recession data and the trend is expected not only to continue, but to grow larger.

In the meantime, companies are still doling out raises with a relative eyedropper; last year, the average was below three percent for white-collar professional workers — a little better than the puny 1.8% it hit in 2009, but not by much.

“Based on historical trends and based on the indicators that we see — both economic and HR indicators — we think the level of spending on salaries will continue to be flat for the foreseeable future, and the level of spending on variable pay will continue to rise,” says Ken Abosch, compensation, strategy and market development leader at Aon Hewitt.

While bonuses have always been a part of the pay structure for certain jobs, like those in sales, Abosch says this trend is across the board. “We’re seeing it in pretty much every sector, including higher education and not-for-profits,” he says. So if you haven’t had your raise replaced with a bonus yet, that could be coming.

For businesses, there are a few advantages to giving bonuses instead of raises in today’s lackluster recovery. The biggest is that it’s not a permanent commitment. They dole out the money once, and they only have to repeat it if certain performance benchmarks — benchmarks which can and do change regularly — are met. Since bonuses and similar performance incentives are often viewed by workers as a sort of add-on perk, they can also be used as a “carrot” to motivate workers, and they can give workers a perception that they’re more in control of how much they earn.

That perception isn’t really based in reality, though: Performance metrics often include company-wide targets. You might be the best help-desk associate or accountant in the building, but if somebody in the corner office makes a bad decision, the company’s bottom line could tank and you can kiss that bonus goodbye.

That’s only one of the problems that switching raises with bonuses has for workers. “It impacts pensions and retirements,” Abosch says. Certain benefits calculations are based on your salary, so even if you’re getting the money in the form of a bonus, it’s not counting towards these important ancillary calculations. And if you lose that job, your unemployment benefits are calculated based on — you guessed it — your salary.

That’s not all. If you’re looking to take out a mortgage, buy a car or obtain any other kind of financing, the lender is going to look at how much you make. Depending on their underwriting practices, bonuses may or may not get the same weight as a fixed salary. The result? You could wind up paying higher interest on your loan, or even be denied outright.

TIME Money

Why Raising Minimum Wage Means Less Money in Your Pocket

Cash in pocket
Getty Images

$15 per hour looks more like a way to shrink the government than an effective strategy to improve the financial position of low-income workers

Will you actually be richer when your pay is raised to $15 per hour?

Perhaps the question seems ludicrous. Of course you’re better off making $15 an hour than you were at $9 per hour, right? But the answer is, unfortunately, not as obvious as you might think. And the question itself—will workers getting a raise be better off?—has been missing from debates in cities from New York to Los Angeles over whether to establish $15 per hour minimum wages for some workers.

Instead, we’re seeing the same old arguments — from San Francisco, where voters must decide on a November ballot measure proposing a new $15 per hour wage floor, to Seattle, which will begin phasing in $15 per hour next year — over whether the minimum wage hurts business and jobs, or whether it boosts local economies by giving workers more money to spend. For the record, I think a higher minimum wage makes sense; $15 per hour isn’t much anymore in our most expensive major cities. But I’m troubled by our failure to consider the real-world impact of minimum-wage hikes on those who are supposed to benefit directly—the workers getting them.

It’s a hard question because of a hard fact. Many workers who get a boost in pay will see their gains offset by a reduction in the government assistance they are currently receiving.

Why? Eligibility for many public programs—and the amount of support people receive—is need-based. Whether we’re talking about tax credits, healthcare subsidies, affordable housing subsidies, or food stamps, those with lower incomes tend to get more in benefits. So a boost in your income means a corresponding reduction in benefits.

It is hard to generalize and measure the “cost” of someone’s raise to $15 per hour because each person’s situation is different. Program eligibility depends not only on incomes but also on factors such as whether you have children, the number of people you live with, where you live, and other household members’ income. (Having to do the complicated math around such benefits is another burden of being poor in this country.) But for the most part, the working poor face what can be thought of as high marginal taxes (north of 60 percent, in many cases) on every additional dollar they earn. For example, a recent Congressional Budget Office report found that a single parent with one child who makes between $5,000 and $20,000 a year gets only $15 of every additional $100 he makes.

Taken together, the income rules for various programs create cliffs that a big raise can push you off. (Such cliffs are also sometimes called “welfare traps,” and economists argue about whether they discourage work.) Eligibility for food stamps is based on two different tests to demonstrate that your household has a low income. For Section 8 housing, your household income cannot surpass 50 percent of your area’s median income. And the earned income tax credit, one of the most important sources of cash for low-income working families, phases out as income rises.

The Affordable Care Act demonstrates the phenomenon. This landmark piece of social legislation extended free or highly subsidized health insurance to millions of additional Americans. But it also, therefore, increases the loss of benefits to low-income workers after a raise. Take a single person in California making $10 per hour (or $20,000 a year) who gets a raise to $15 ($30,000 a year). According to Micah Weinberg, a healthcare policy advisor with the Bay Area Council, her health insurance premium under Obamacare would be capped at 5.1 percent of her income at $20,000—$1,021. But at her new income of $30,000 a year, the premium would be capped at 8.4 percent—or $2,511. So a higher minimum wage buys her a premium hike of $1,500 a year. And that doesn’t account for cost-sharing subsidies that are also tied to income, financial assistance that is lost entirely at $15 per hour.

Given this context, you might ask: What are leaders who campaign for higher minimum wages—from Los Angeles Mayor Eric Garcetti, who is working on a hike with his city council, to President Obama—doing to make sure that low-income workers don’t pay all these new costs of a higher minimum wage? Just about nothing.

Some advocates of a higher minimum wage, like the conservative Ron Unz, who sponsored an ill-fated minimum wage initiative in California, have made the case that by forcing businesses to pay people more, the government will save money on public programs. In this light, $15 per hour looks more like a way to shrink the government than an effective strategy to improve the financial position of low-income workers.

What to do? For their part, low-wage workers would be rational economic actors if they embraced the increase in the minimum wage by reducing their hours. That way, their incomes won’t go up enough to threaten benefits, and the wage increase could offer the benefit of more time—to spend with parents and kids, to enhance education, or to rest and get healthier. But it’s not easy to say no to more pay, even if it doesn’t leave you better off.

The better path would for our political leaders to go beyond popular public appeals for a higher minimum wage—and instead recalibrate and expand social programs so that low-wage workers get the full benefit of their raises. (Warren Buffett has suggested just such a course, via an expansion of the earned income tax credit). Of course, doing this would require two things that are in short supply: thoughtful political action and money.

But if American cities are going to raise the minimum wage, their goal should be to put more money in people’s pockets—and not just enact a policy that makes us feel good about ourselves.

Joe Mathews is California and innovation editor for Zocalo Public Square, for which he writes the Connecting California column.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Money

This is What Norway’s Money Will Look Like in 2017

Norges Bank held a nationwide design competition

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This article originally appeared on Lost at E Minor.

Nope, you are not seeing a pixelated image of Norway’s new currency. That is the real deal right there! Last spring, the central bank of Norway, Norges Bank, held a nationwide design competition to replace their look of their currency. Their theme: ‘The Sea.’

Instead of choosing just one winner, they chose two – one design for each side. The front side features a series of artworks from design studio The Metric System, called ‘Norwegian Living Space.’ Beautiful and timeless this front design might be, it doesn’t hold a candle to the attention the back design is getting. The back side features an abstract motif of pixels called ‘Ripple Effects’ by Enzo Finger.

“The obverses from The Metric System are very well suited to the incorporation of necessary security elements. The expression is open, light and typically Nordic,” says Norges Bank. “Using the pixel motifs from Snøhetta Design as the reverse will give the notes both a traditional and a modern expression.”

The bank notes are set to be released in 2017.

(via Visual News)

MONEY Bitcoin

Why Bitcoin Fans Don’t Believe in Bad News

People attend a Bitcoin conference on at the Javits Center April 7, 2014 in New York City.
Andrew Burton—Getty Images

Bitcoin might be doing poorly, but for the currency's online proponents, it's always time to buy. Here's the reason behind their optimism.

Updated—Friday, October 10

Last weekend, Bitcoin crashed. The dollar value of a single Bitcoin began to decline on electronic markets starting on Friday and by Sunday afternoon had fallen 14%, to $290.

It recovered a bit in the days that followed, but the slide appears to part of a broader trend: At the Thursday price of about $350, the digital currency has lost almost 70% of its value since its all-time high of $1,147 in December 2013. At the New York Times, Paul Krugman used the roller coaster weekend as an occasion to once again call Bitcoin a long con.

But among the Bitcoin faithful, the sun never stopped shining. On Reddit’s Bitcoin discussion board, for example, home to almost 140,000 enthusiasts of the electronic currency, the price drop was framed as good news. “The good old days are back! Massive walls, manipulation and a true financial wild west – I love it” chirped one of Monday’s most popular posts.

“Who else is enjoying the firesale?” asked another popular participant who claimed to be “picking up tons of cheap bit coin.”

How to explain the eternal optimism? Is it possible that Bitcoin’s most dedicated fans are simply more tuned in to the currency’s long-term potential than the broader market and therefore have a more favorable view of its true value?

Sure, it’s possible — but Meir Statman, a professor at Santa Clara University specializing in behavioral finance, has a more plausible explanation for the findings: Confirmation bias. In short, he says, Bitcoin communities tend to be echo chambers of optimism, giving their members a false impression of the currency’s true value. “What you hear, really, is what you want to hear; what is easy for you to believe: That bitcoin is going to take over and banks are a thing of the past,” explains Statman. “And when you have people who reinforce it, people are not looking for the truth, they are looking for views that are going to support their prior beliefs driven by ideology and self interest and so-on.”

This explanation would seem to be supported by a recent study of Bitcoin users by researchers at the University of Illinois, who found that those who participated in online Bitcoin communities were far more bullish about the currency’s future price than other Bitcoin holders. When asked about the long term value of Bitcoin (which the survey defined as the coin’s price in early 2019), users who talked about Bitcoin on various online platforms produced estimates 68% higher than those who did not.

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An r/Bitcoin user asks (and receives) reassurance following a December, 2013 price crash.

Of course, that’s not a phenomenon unique to Bitcoin or online forums. “There is a similar finding about communities where people describe their investment success more generally, because people tend to brag about their success and not brag about their losses” the professor warns. “If you are not careful, all you hear is that people are making tons of money.”

Statman suggests yet another psychological explanation for the behavior of the Bitcoin community, noting that many people who invest in Bitcoin — and other alternative assets like gold — do so in part because it fits their broader global outlook and ideology. “It is fair to say that lots of the people who invest in gold invest in a view of the world: That the United States is going down, bad things are going to happen, inflation is going to rise,” Statman says.

That makes hard truths particularly difficult to accept, he says. After all, divesting from a stock is easy. Divesting from a world view, well, that’s a lot more painful.

Statman advises investors of all types to avoid confirmation bias and “ideological” investing by talking to people with different perspectives. For example, he jokes, Bitcoin buyers should have asked his opinion of the currency before last weekend. His take: “I think it’s a scam.”

After being contacted by Bitcoin advocates, Statman clarified his position to MONEY. “My initial thought when I heard about Bitcoin from my students is that is a scam. I know now that the technology of Bitcoin might prove useful but I am puzzled by the rush to it.”

TIME Money

Lending Club Besting P2P Borrowing Peers Ahead of IPO

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Couple signing contract Rob Daly—Getty Images/OJO Images RF

With an initial goal of $500 million, Lending Club intends to go public in 2014. Here’s how the three major U.S. peer-to-peer lenders compare.

Corrected Monday, Oct. 13

Call it a shot across the bow of the traditional banking system.

Having formally announced its intention in August to go public, major U.S.-based peer-to-peer (P2P) lender Lending Club is looking to take its growth to a new level.

The point of P2P—or marketplace lending—is to deliver better rates for both investor and borrower by realizing efficiencies through technology.

Let’s say you have $100 you’d like to invest in three projects you’ve found on a P2P marketplace. These can be anything—a new fence, perhaps, or money to pay down debt. The projects have varying degrees of risk because of the borrower’s relative risk of default. Say you bundle your three investments in a medium-risk portfolio and invest. Depending on the lending platform and holding all else constant, you could be looking at getting roughly an $8 return on your investment each year for three to five years. Longer term means less liquidity, but allowing for risk, that sure beats the going interest rate for a traditional savings account these days. The borrower walks away happy having acquired needed capital at a comparatively better interest rate. And the lending platform takes a cut for facilitating, or originating, the loan.

It’s a reaction against how traditional banking has met demand for smaller lines of credit like personal and small business loans: largely with more easily underwritten, higher-interest credit cards.

Lending Club’s announcement—widely reported in August—comes at a time when the demand potential for securing smaller personal loans is soaring.

In July, outstanding consumer credit in the U.S. inched up to a seasonally adjusted $3.24 trillion, which included roughly $880 million in revolving credit, a perennial refinancing option for consumers according to Lending Club’s S-1 filing. In the second quarter of 2014 alone, Lending Club facilitated more than $1 billion in loans, or roughly one-fifth of its $5.04 billion worth of loans to date.

Digging into the data on P2P lenders to look at the industry as a whole and to try to gain a deeper understanding of each specific lender, we focused on the three principal U.S. players—Lending Club, Prosper and Peerform—to determine the strengths and weaknesses of each company.

Looking at How the Major U.S. P2P Players Compare

Here’s how the major U.S. P2P lenders compare (Peerform did not provide comparable data):

While Lending Club is the clear leader in terms of total loans funded ($5.04 billion), there are nuances to each of the three major U.S. lenders. It’s important to evaluate all three—Lending Club, Prosper, and Peerform—from the perspectives of both a borrower and a lender to understand how these P2P lenders stack up.

Peerform

Founded by Mikael Rapaport in 2010, New York-based Peerform is the relative newcomer in the group. Its average interest rate of 15.85 percent falls right between the average interest rates of Lending Club (14.4 percent) and Prosper (17 percent), while its reported return of 9.88 percent actually puts it above both major competitors in that category.

Lender states include all states except for Alabama, while borrower states number 23 in total. Peerform has an annual percentage rate (APR) range that tops out at around 28 percent. Keep in mind that the actual cost of borrowing is better represented by the APR, which considers fees and charges in addition to the interest rate.

While Lending Club and Prosper are fairly open to participation (a minimum investment amount of $25 and a minimum age of 18 with certain credit requirements), Peerform sets its minimum investment amount at $50,000 and stipulates that only accredited investors over the age of 18 may invest.

As it turns out, later this month the Securities and Exchange Commission (SEC) may further restrict its definition of who qualifies as an accredited investor. Although Prosper and Lending Club don’t share Peerform’s accredited investor requirement, each of the three is regulated by the SEC.

Even though Peerform offers many of the same types of loans as its two major competitors, its loans only range from $1,000 to $15,000 (Lending Club’s range, by comparison, goes up to $35,000). And although its average origination fee is par for the course, its minimum credit score of 600 is by far the lowest among the three.

While we were unable to determine Peerform’s default rate (and subsequently the net yield at each loan grade), we did find that the effective yield (the average interest rate minus the service charge not accounting for late fees, recoveries, or charge-offs) for Peerform is the lowest of the three at each loan grade.

Based on the effective yield alone, Peerform is the least profitable of the three major U.S. P2P lenders.

We should also mention that it’s the most limited in terms of features and lender accounts, with a clear focus on individual investment accounts (Prosper has a similar focus, though it also offers a range of retirement accounts).

Average Interest Rate: 15.85%
APR Range: 7.1%-28.1%
Loan Terms: Not provided
Default Rate: Not provided
Reported Return: 9.88%
Conclusion: Its focus on accredited investors leaves it a step removed from the peer aspect of peer-to-peer lending. When it comes to how it fares against both Prosper and Lending Club, we’re left with a somewhat-incomplete picture.

Prosper

San Francisco-based P2P lender Prosper was founded in 2005 by Chris Larsen and has facilitated roughly $1.61 billion in total loans to date. Lending Club, by comparison, has facilitated roughly three times as many loans ($5.04 billion).

Its average interest rate of 17 percent and reported return of 9 percent puts it above Lending Club in both categories, making it an even costlier choice for borrowers and an even more profitable choice for lenders, holding all else constant.

With that said, Prosper reports a slightly higher default rate of 7.29 percent. Using numbers we calculated based on lender information available, Prosper is the most profitable of all three. After accounting for its higher default rate, however, Lending Club actually delivers an average net yield that bests Prosper’s by 0.08%.

You can see in the visual that Prosper’s riskier loan grades (A being relatively lower-risk, lower-reward loans, and so on) have default rates that actually exceed their net yields.

Along with an average interest rate that is well above its two major U.S. competitors (17 percent), Prosper also has the largest APR range (6.7 to 35.4 percent). It posts a 3 percent origination fee, which is actually 0.05 percent lower than Lending Club’s, while its average loan of $7,840 is just over half of what Lending Club averages ($14,056).

Yields for Prosper’s example low-, medium- and high-risk portfolios are an average of 0.5 percent above representative risk portfolios with Lending Club. From just the standpoint of maximizing yield at each of the three risk classes, Prosper is the better choice for investors.

Although Prosper focuses on many of the same loan types that Lending Club does, it only requires a minimum credit score of 640, slightly below Lending Club’s requirement of 660, and it doesn’t offer nearly as many account types to its users.

With Prosper, lenders can lend in 31 states and borrowers can borrow everywhere except in North Dakota, Iowa, and Maine.

Average Interest Rate: 17%
APR Range: 6.7%-35.4%
Loan Terms: 36 or 60 months
Default Rate: 7.29%
Reported Return: 9%
Conclusion: Prosper outperforms Lending Club in certain areas (e.g., borrowing and lending coverage, higher yields on average than Lending Club using example portfolios with varying amounts of risk). But its higher default rate is something to consider.

Lending Club

Founded by Renaud Laplanche in San Francisco in 2006, Lending Club is an established platform with an average interest rate of 14.4 percent, 4.1 percent higher than the average interest rate across all competing platforms (10.3 percent).

Lending Club claims a reported return of 8.30 percent and a 6.04 percent default rate. That’s a lower reported return than Prosper’s (9 percent), but it’s also a lower default rate (1.25 percent lower to be exact).

Lending Club’s APR ranges from 6.8 percent to 28.7 percent. Its higher-than-average origination fee of 3.05 percent means it can be a costlier option for borrowers.

Yet, Lending Club maintains the most extensive offering of account and loan types. For lenders, it operates in 26 states, and services are available to borrowers in every state except Alabama. Borrowers must have a minimum credit score of 660, three years of credit history, and a satisfactory debt-to-income ratio.

Across Lending Club’s primary loan grades, net yields are higher than default rates:

Although Prosper delivers yields that are on average 0.5 percent higher than Lending Club’s using example low-, medium- and high-risk portfolios, risk-seekers investing with Prosper might hesitate to give more weight to loan grades beyond C in their portfolios (recall that in our calculations, Prosper’s default rates exceed its net yields for its riskier loan grades).

While it may not be available in as many states as Prosper is, Lending Club comes out ahead when you consider that it offers its customers an unparalleled level of account and platform flexibility. It also has the highest credit score requirement and the lowest average interest rate of the three biggest U.S. P2P lenders.

It may be true that Lending Club faces various financing challenges—an over-reliance on credit score and the inability to securitize loans—that traditional banks can better mitigate. With a fairly tight margin last year and growing marketing and expansion costs that have erased its profits, it may also be called on to defend its valuation, currently privately estimated at $3.8 billion.

Even so, with more than $5 billion loaned and roughly $494 million in interest paid out to investors, it has provided borrowers and investors alike a comparatively consistent product for the exchange of capital.

In a space in which consistency is valued, Lending Club still has the upper hand on its two major competitors. For capital market investors who are interested, it’s the P2P lending service to keep an eye on.

Average Interest Rate: 14.4%
APR Range: 6.8%-28.7%
Loan Terms: 36 or 60 months
Default Rate: 6.04%
Reported Return: 8.3%
Conclusion: Lending club secures its leading place with the consistency and flexibility of its platform. With more account and loan types than either Peerform or Prosper, it has facilitated the highest amount in loans according to currently available information. While its reported return is lower than Prosper’s, so too is its default rate.

Correction: The original version of this story misidentified the founder of Prosper. It was Chris Larsen. The original version of this story also uncorrected stated the number of states in which lenders can invest with Prospect. It is 31. The original version of this story also did not indicate the date range of data that was reviewed to each lender.

In building its peer-to-peer lending topic, FindTheBest relied on historical data in the form of seasoned returns (“seasoned” meaning multiple years). For Prosper, we used seasoned returns as of June 30, 2014 for loans originated from July 2009 to August 2013 available here on Prosper’s website. For Lending Club, we evaluated seasoned information for 2007 to 2014, which can be found here on Lending Club’s website. As originally stated in the article, Peerform did not provide comparable data.

FindTheBest believes using historical data for comparison purposes is a more accurate reflection of a lender’s performance for financial products that are inherently longer term. As with any investment decision, prospective investors and borrowers are encouraged to conduct their own research and to take into account that historical data are neither an indication of the current state of the market nor a predictor of future performance.

FindTheBest is a research website that’s collected all the data on Lending Club and Prosper and put it all in one place so you don’t have to go searching for it. Join FindTheBest to get all the information about peer-to-peer lending, personal finance and thousands of other topics.

TIME

How Bitcoin Could Save Journalism and the Arts

The Innovators

Walter Isaacson is the author of The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution, out this week.

Micropayment systems have the potential to reward creativity and exceptional content—on a realistic scale

The rise of Bitcoin, the digital cryptocurrency, has resurrected the hope of facilitating easy micropayments for content online. “Using Bitcoin micropayments to allow for payment of a penny or a few cents to read articles on websites enables reasonable compensation of authors without depending totally on the advertising model,” writes Sandy Ressler in Bitcoin Magazine.

This could lead to a whole new era of creativity, just like the economy that was launched 400 years ago by the Statute of Anne, which gave people who wrote books, plays or songs the right to make a royalty when they were copied. An easy micropayment system would permit today’s content creators, from major media companies to basement bloggers, to be able to sell digital copies of their articles, songs, games, and art by the piece. In addition to allowing them to pay the rent, it would have the worthy benefit of encouraging people to produce content valued by users rather than merely seek to aggregate eyeballs for advertisers.

This is something I advocated in a 2009 cover story for Time about ways to save journalism. “The key to attracting online revenue, I think, is to come up with an iTunes-easy method of micropayment,” I wrote. “We need something like digital coins or an E-ZPass digital wallet–a one-click system with a really simple interface that will permit impulse purchases of a newspaper, magazine, article, blog or video for a penny, nickel, dime or whatever the creator chooses to charge.”

TIME, February 16, 2009

That was not technically feasible back then. But Bitcoin has now spawned services such as ChangeTip, BitWall, BitPay and Coinbase that enable small payments to be made simply, with minimal mental friction or transaction costs. Unlike clunky PayPal, impulse purchases can be made without a pause or leaving a trace.

When reporting my new book, The Innovators, I discovered that most pioneers of the Web believed in enabling micropayments. In the mid-1960s, Ted Nelson coined the term hypertext and envisioned a web with two-way links, which would require the approval of the person whose page was being linked to.

Had Nelson’s system prevailed, it would have been possible for small payments to accrue to those who produced the content. The entire business of journalism and blogging would have turned out differently. Instead the Web became a realm where aggregators could make more money than content producers.

Tim Berners-Lee, the English computer engineer who created the protocols of the Web in the early 1990s, considered including some form of rights management and payments. But he realized that would have required central coordination and made it hard for the Web to spread wildly. So he rejected the idea.

As the Web was taking off in 1994, I was the editor of new media for Time Inc. Initially we were paid by the dial-up online services, such as AOL and Compuserve, to supply content, market their services, and moderate bulletin boards that built up communities of members.

When the open Internet became an alternative to these proprietary online services, it seemed to offer an opportunity to take control of our own destiny and subscribers. Initially we planned to charge a small fee or subscription, but ad agencies were so enthralled by the new medium that they flocked to buy the banner ads we had developed for our sites. Thus we decided to make our content free and build audiences for advertisers.

It turned out not to be a sustainable business model. It was also not healthy; it encouraged clickbait rather than stories that were so valuable that readers would pay for them. Consumers were conditioned to believe that content should be free. It took two decades to put that genie back in the bottle.

In the late 1990s, Berners-Lee tried to create new Web protocols that could embed on a page the information needed to handle a small payment, which would allow electronic wallet services to be created by banks or entrepreneurs. It was never implemented, partly because of the complexity of banking regulations. He revived the effort in 2013. “We are looking at micropayment protocols again,” he said. “The ability to pay for a good article or song could support more people who write things or make music.”

These micropayment protocols still have not been written. But Bitcoin may be making that unnecessary. One of the greatest advocates of using Bitcoin for micropayments is the venture capitalist Marc Andreessen, who as a student at the University of Illinois in 1993 created the first popular Web browser, Mosaic.

Originally, Andreessen had hoped to put a digital currency into his browser. “When we started, the first thing we tried to do was enable small payments to people who posted content,” he explained. “But we didn’t have the resources to implement that. The credit card systems and banking system made it impossible. It was so painful to deal with those guys. It was cosmically painful.”

Now Andreessen has become a major investor in companies that are creating Bitcoin transaction systems. “If I had a time machine and could go back to 1993, one thing I’d do for sure would be to build in Bitcoin or some similar form of cryptocurrency.”

Walter Isaacson, a former managing editor of Time, is the author of The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution, out this week.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

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