Why so many credit card offers?

I get a lot of credit card offers. That doesn’t surprise me. However, it’s the frequency and format that I don’t understand.

Yesterday I got one from Capital One, for their “Go Miles Ultra” card. Today I got one from Capital One, for their “Go Miles” card. Last week it was for “Go Miles” and for “Go Miles Visa Platinum”. The four offers look completely different. They are using different size paper, have a different format, different interest rates, and the cards look different. Do they really have multiple marketing departments working independently? It sure seems that way. I get an average of three offers a week from Capital One. Or maybe they are trying out lots of different things to see which one gets the best response rate.

I occasionally get offers from companies whose cards I already have. That seems silly. Are they wanting me to get a new card and transfer the balance from the old one? The new card offers certainly look to have better terms than the card I have.

I also get offers from companies whose cards I have cancelled. Discover Card really annoyed me and I am not going to sign up with them again. In complete contrast, American Express was very nice to me when I cancelled; I may someday get an American Express card again.

One amusing thing I see these days is that the credit card companies send me a piece of plastic or cardboard that looks like a credit card. I’m collecting these and will soon post pictures of them to flickr.

Rational giving

Over the last few days we’ve seen lots of calls for giving to organizations that will help the tsunami victims. After you do that (I’m giving to the American Red Cross), step back and think about other forms of giving.

Disasters like the South Asian earthquake/tsunami get a lot of attention because they are easily identified events. Longer term, slower problems like famine and poverty aren’t as easy to identify with, and need help too. Car crashes kill a lot more people than airplane crashes, but there are lots of car crashes, and each one is small, whereas there are just a few big airplane crashes. Airplane crashes make the news, so airplane crashes are what people remember. This is also why special interests get laws passed in their favor. It’s easier to identify with the thousands of milk producers who will benefit from higher prices than with the millions of families who will benefit from lower prices (either directly, at the store, or indirectly, with lower taxes).

We’re going to see a lot of people asking why there wasn’t a tsunami warning system in the Indian Ocean. There will be a host of reasons, like the infrequency of tsunamis, the lack of funding, the poverty in the area, stinginess of Americans, etc. But I think the real question is why is there a tsunami warning network in the Pacific? Solving individual problems like a tsunami detection network will make us feel good. They are something you can point to easily and say something was done. But they’re not necessarily the best use of money, and may even be taking attention, effort, and resources away from other projects that could help more. If the economies around the Indian Ocean were as strong as those around the Pacific Ocean, I think we would have had those tsunami detection networks. We need social, economic, and political development to help solve millions of problems instead of solving only those that have gotten widespread press.

So after you’ve helped the short term relief efforts, think about investing for the long term. What organizations are helping the social, economic, and political development in these impoverished nations? I think money spent there will be a better investment than money spent on the relief efforts. I want people not to have to worry about their next meal, not because I’ve sent food their way, but because they can support themselves. I want people not to have to worry about their health, not because I’ve sent them vaccines, but because they can take care of themselves. I want people everywhere to have the luxury of being friendly to the environment, being prepared for disasters, and being able to help others in need. But I don’t know how to get to that world.

Hierarchies everywhere

I recently started reading Jeff Hawkins’s On Intelligence, and it reminded me of how computer folk like hierarchies. Hawkins’s premise is that the neocortex of the human brain learns with hierarchies. Hierarchies are used for memory and for prediction. I really like this book. However, I think the description of the neocortex in terms of hierarchies is misleading. He writes:

What do I mean by a nested or hierarchical structure? Think about music. Notes are combined to form intervals. Intervals are combined to form melodic phrases. Phrases are combined to form melodies or songs. Songs are combined into albums. Think about written language. Letters are combined to form syllables. Syllables are combined to form words. Words are combined to form clauses and sentences.

I agree that there is hierarchical structure, but it is in the individual occurrences of those notes, words, and phrases—not in the general classes of them. I think it is unlikely that the brain separately learns the letter “h” in the word hotel and the word home. Instead, a single part of the brain learns the concept for h, and it feeds into both the concept for hotel and the concept for home. This structure would have multiple levels, just as a hierarchy has, and it would represent small features at the bottom and large objects at the top, just like a hierarchy, but each node would not feed only (or primarily) into one parent node:

Hawkins in fact writes that lower levels are used by multiple high level objects:

In a complementary bit of efficiency, representations of simple objects at the bottom of the hierarchy can be reused over and over for different high-level sequences. For instance, we don’t have to learn one set of words for the Gettysburg Address and a completely different set for Martin Luther King’s “I Have a Dream” speech, even though the two orations contain some of the same words.

and he writes that there are a lot of connections from outside the main hiearchical pathway:

On close inspection, we see that at least 90 percent of the synapses on cells within each column come from places outside the column itself. Some connections arrive from neighboring columns. Others come from halfway across the brain.

So Hawkins does see something other than a hierarchy. I thought perhaps that he was using the term “hierarchy” differently than the usual meaning, but the diagrams in the book reinforce the tree structure: every node has a parent; every parent has multiple children.

How this “sharing” occurs, I think, is a key element of generalizing to learn abstractions. It’s not just an efficiency trick. I think it is likely that the brain learns specific instances (which form a hierarchy) first, but then generalizes that to classes of objects. The specific instances might be forgotten later (perhaps this is the role of sleep). Once generalized into classes, the relationships no longer form a hierarchy. Instead it’s probably a partially acyclic graph structure, where there are cycles within each layer, but no cycles between layers. I’m really just guessing here though.

I’m really enjoying this book. Viewing the brain as a prediction machine explains many things I’ve wondered about. For example, take a look at the blurry word on this page, and then take a look at it in context. In context, you can tell what the word is. That makes sense if the brain is predicting things.

My only complaint about this book is that the diagrams in the book and the use of the word “hiearchy” suggest a tree structure, but I think it would be more realistic to look at it as a graph. Yes, graphs are messy, and trees are beautiful, but just because we computer scientists like playing with them doesn’t mean they’re there.

Secret to becoming a millionaire

In the U.S., many people think being a “millionaire” means you’re wealthy. This post is a guide to becoming a millionaire. It is primarily aimed at young people (high school / college age) in the U.S. If you start at age 20 and make minimum wage, you should be able to be a millionaire.

Patience

You can be rich through crime, luck, or time. Crime is risky; I haven’t any experience in the area so I have no recommendations if you want to go that route. Luck isn’t something you can directly control, although there is the saying Luck favors the prepared. I think there is indeed something to that saying. Keep the big picture in mind, and you are more likely to see opportunities. However what I’m going to focus on here is using time to become rich.

Compounding

The key to having lots of money is compound interest. The second key is to take advantage of government incentives.

Let’s set as a goal I want to be a millionaire when I retire. What will it take to achieve that goal? What it takes depends on your current age. I will start out assuming you are 20 years old. That gives you 47 years before the age of 67, which is considered “full retirement age”. Next, let’s assume laziness. I want to save for 4 years and never save again. This is not an unreasonable goal—when you are young (if you have a job) you will likely be able to save quite a bit, but once you start a family, it will be much harder to save.

Let’s assume I save $X per week (for four years), and I am going to save it for 47 years. I can invest this in index funds in a Roth IRA. The S&P 500 has returned an average of 10.7% per year over the last 70 years, but if I index in Vanguard’s index fund, I have a 0.2% fee, so that comes to 10.5%. If I assume that continues, then I can compute how much I have after 47 years: 1.10547*X*52. Since I am saving over 4 years, and I want to have a million dollars, I need to solve for X: 1.10547*X*52 + 1.10546*X*52 + 1.10545*X*52 + 1.10544*X*52 >= 1000000. When I do that, I find that X is around $51.

Saving $51 per week for 4 years will make me a millionaire.

Caveats

It’s certainly possible (and likely) the stock market won’t behave like it has in the past. Tax laws may change. The government may collapse. The biggest issue is that a million dollars 47 years from now will be worth less due to inflation, and may even be commonplace. Even today, a million dollars isn’t quite enough to retire comfortably.

Still, $51/week doesn’t seem too bad ... to be a millionaire.

Note that you have to put this into an IRA to avoid the capital gains taxes. If you save outside an IRA (or 401(k)), you will lose 1/2 of that in capital gains (2/3rds if you live in California), plus another 1/3rd (estimated) in income taxes. Combined, that means saving in an IRA gives you three times as much as saving outside an IRA (four times as much if you live in California).

Saving works much better when you are young. If you wait until you are 30, you have to save $127/week to get the same effect. If you wait until you are 40, you have to save $344/week.

Perspective

If you have trouble saving, you might think about it this way: if you do nothing (no spending), your $15,000 income (just in one year) will be worth $1,500,000 at retirement. Working a full time job at minimum wage, you’re getting over a million dollars a year added to your retirement. If you buy something worth $50 today (at age 20), it is taking $5,000 out of your retirement. But you have to do something to avoid becoming a millionaire—you have to spend most everything you earn.

Thinking this way, you might think you should never spend anything. Not so. There are a few things to keep in mind:

  1. Once you reach the government limit to IRA contributions ($3,500 I believe), you no longer are saving inside the IRA. The $50 item is not costing $5,000 anymore; it is costing $2,500 ($1,650 in California). Spending money becomes cheaper once you have contributed to your IRA.
  2. As you get older, you get less of a benefit from compounding. The $50 item is taking $5,000 from your retirement when you are 20, but it is taking “only” $2,000 when you are 30; $740 when you are 40. So as you get older, it makes less and less sense to save (assuming you have saved when you are young).
  3. There are other investments you can make when young that are worth more than what you can get from index funds. For example, investing in your health and education and happiness may pay off more than the S&P 500 returns. But be careful with that happiness thing. Make sure that the $50 you spend today on happiness will brign you more happiness than $5,000 will bring later in life. Be careful with the education thing too. Calculate what a four year university is costing you at retirement (add up room&board, tuition, fees, and lost wages). It’s awfully expensive (up to $15,000,000!).
  4. The value of money goes down the more you have. Having ten million dollars isn’t ten times as good as having a million dollars. You need to find balance between spending when you are young and spending when you are old.

When you are young, contribute the max to your IRA or 401(k). It’s not that hard to become a millionaire. It just takes time.

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Weekend reading, and thoughts about organization

Sometimes on the weekend I’ll post to my blog some of the interesting things I’ve read. One of the problems is that it takes a lot of effort to do this. (Why is Blogger so slow? I waited over 15 minutes after I clicked “Publish Post”, and then gave up... but the next time I tried, it was fast.) I just signed up for del.icio.us today. It makes it easier to keep a collection of links. You can see more of my weekend (and weekday) reading on my del.icio.us page. (Unfortunately, del.icio.us is slow too, but nowhere near as slow as Blogger.)

While signing up, I thought more about how computer folk like hierarchies. Gmail labels, del.icio.us bookmark tags, Reiser groups, and flickr tags all break out of hierarchies (mail folders, bookmark folders, photo folders, filesystem folders) and instead use some sort of label/tagging system. In del.icio.us you can assign any number of tags to an entry. A filename or URL path a/b/c is ordered. Tags in contrast are unordered: a b c and c b a are equivalent. Paths are structured: the b/c part of a/b/c makes sense only within the context of a. You can specify a by itself but not b or c. Tags are unstructured: you can specify any one or many of them in any order. With paths I put something in one “place”. With tags I can put something in multiple “places”. The downside is that with paths I can put places inside of places, whereas with tags I have no containment structure. Once I overcome my own love of hierarchies, I think I will like using tags/labels.

Next I need to sign up for flickr.