"The 12 Biggest Consumer Goofs..."
The Proof Revealed!
July 24, 2007
This page lays out the proof for all the facts mentioned in the
Special Report "The Twelve Biggest Consumer Goofs"
from the Consumer Freedom
Alliance. You can request a copy of this report at http://www.smartconsumertips.com/12tips.htm. Some of the wording quoted
on this page may vary from the words used in the report because
it's been edited a few times. Now let's begin with
Consumer Mistake #1:
1. Settling for low interest rates.
Fact: "Astonishingly, Americans have over one
trillion dollars in outmoded accounts that pay little or no
2. Buying a home you can barely afford.
Proof: We found this statistic at a web page titled
Introduction to Banking.
Financial authors Tom
and David Gardner ("the Motley Fools") have published eight
books and now offer nine different financial newsletters.
Fact: "You can earn about 5% interest in a money
Proof: BankRate.com's Money Market Account Search page lets you find
accounts that pay about 5%.
Comment: If Americans are losing out on approximately
of 4% per year on one trillion dollars, that adds up to $40 billion per year.
Fact: "Nearly 1.3 million Americans had their
homes foreclosed in 2006..."
3. Running up a high credit card debt.
Proof: The 1.3 million is an average of estimates
that range from 1 million to 1.5 million, as you can see by these
Google search results.
Fact: "...at an average loss of
Proof: Foreclosures in the Subprime Market and Their Cost to Homeowners (PDF) by the Center for Responsible
Lending states that " 2.2 million borrowers will lose their
homes and up to $164 billion of wealth in the process," averaging
about $75,000 per household.
Fact: "...that's about $97 billion dollars down
Proof: We multiplied 1.3 million foreclosures by an
average loss of $75,000 to arrive at the $97 billion
Fact: "...most of America's 75 million
homeowners... would go through foreclosure at least once in
Proof: Browsing Google
search results will find thousands of pages confirming that
there are 75 million American homeowners. We don't have a
figure for how many years of their lives homeowners own a home,
so please excuse our fuzzy math. Guessing that most
Americans spend 30 years owning homes (including all the homes
they own in their lives, not just one home), then multiplying by
1.3 million would make 39 million foreclosures -- a majority of
Fact: "Lenders too usually lose tens of thousands
of dollars when a home is foreclosed."
Proof: Estimates vary, but this MSN Money
home foreclosure starts with picking up phone quotes Duke
Olrich, president of DRI Management Systems (a maker of software
for lenders) as estimating that the average loss is
Fact: "About 15% of Americans are on course to
declare bankruptcy at some point in their lives..."
4. Letting safety slip your mind.
Proof: An article 2006
Bankruptcy Filings Down to a Third of Last Year's Totals
quotes government statistics showing that "443,750 personal and
business bankruptcies" were filed from January to September of
2006. Adjusting this figure for the full year, we arrive
at about 600,000 bankruptcies. Multiplying by a 75-year
lifespan, we arrive at 45 million bankruptcies, which is 15% of
America's current population of 300 million.
Fact: "...often at least partly because of high
credit card debt."
Proof: We cite Credit
Card Borrowing, Delinquency, and Personal Bankruptcy -
Statistical Data Included by Joanna Stavins, first posted in
New England Economic Review, July-August, 2000.
Fact: "Americans owe an astounding $876 billion
in revolving credit..."
Proof: See the Economic Outlook report for February 2007 from the U. S. Chamber of Commerce.
Fact: "...paying about $127 billion in credit
card interest in just one year..."
Proof: The credit card industry reports an average
interest rate of 14.54% (Credit
Card Industry Facts and Personal Debt Statistics.)
Multiplying $876 billion by that percentage, we arrive at $127
Fact: "An average American cardholder pays $668
interest per year on $4,611 in debt."
Proof: Robert D. Manning's book Credit Card
Nation: The Consequences of America's Addiction to Credit
awakened a nation to America's credit card problem. Manning
recently estimated in testimony before congress that there were 190
million cardholders in the United States in early 2006.
Dividing by 190 million we arrive at the quoted statistics.
Fact: "The total cost of traffic accidents is
nearly $300 billion per year..."
5. Tolerating high fuel bills.
Proof: The NHTSA (National Highway Traffic Safety
Administration) report The
Economic Impact of Motor Vehicle Crashes 2000 The Economic Impact
of Motor Vehicle Crashes 2000 estimates the total economic
cost of motor vehicle crashes in 2000 at $230.6 billion.
Adjusting for population and economic growth, that number would
be close to $300 billion in 2007.
Fact: "...current rate of 2.8 million traffic
injuries in a year..."
Proof: This statistic is from the NHTSA 2004 Annual Assessment.
Fact: "...half of all Americans will suffer a
painful traffic injury at some point in their lives."
Proof: Multiplying 2.8 million injuries by an
average 75-year lifespan equals 210 million injuries, which is
far more than half the American population of 300 millon.
Fact: "If you're an average driver, your chance
of a fatal or incapacitating crash in your lifetime is a sobering
Proof: The 2004 NHTSA Report states
that there were 42,636 traffic fatalities and 308,000
incapacitating traffic injuries in 2004. Multiplying the
total by a 75-year lifespan, we arrive at a figure of
26,297,700. That's about 8.8% of America's population -- we
took the liberty of rounding it up to 10%.
Note: The word "incapacitate" in the field of
traffic safety isn't strictly defined, but often it means that
the crash victim was evacuated from the crash scene to a
Fact: "Crashes put most habitual drunk drivers in
wheelchairs or graveyards." (actually this is more of a
probability than a fact.)
Proof: A study Drinking
histories of fatally injured drivers states that about 30% of
drivers killed in crashes have high blood alcohol concentrations,
and 68% of these drivers are habitual "problem drinkers".
It's reasonable to assume that the rate of incapacitating
injuries among drunk drivers is similar to the fatal crash
rate. The approximate number of drunk drivers who are
killed or incapacitated in traffic crashes is therefore (350,636
x 30% x 68%) = 71,530 in a year.
Estimates vary, but there are approximately 15 million alcoholics
in America. A February 2007 study
in Alcoholism: Clinical & Experimental Research journal
states that 17 percent of alcoholics had driven drunk in the past
month. We can therefore estimate that there are about (17%
x 15 million) = 2.55 million drunk drivers in America.
Dividing by 71,530, we conclude that an average drunk driver has
a 1 in 35 chance each year of experiencing a fatal or
incapacitating traffic accident. If he makes drunk driving
a lifelong habit, and considering that most people drive for 50
or more years, it's an unavoidable conclusion that a majority of
habitual drunk drivers will probably experience a fatal or
incapacitating traffic accident.
Fact: "The average American could save at least
$150 per year by adopting more energy-efficient driving
6. Money-draining investments.
Proof: We have personally tested the energy-saving
tips listed at GasConserver.com and found
them to be that effective.
Fact: "reducing our fuel consumption by just 5%
would actually halve the price of gas."
Proof: The Department of Energy publishes an oil production spreadsheet
that lists world oil production at 84,284,000 million barrels per day, 5% more than world oil production of
80,127,000 mbpd in September of 2003 when the price of oil was about $25 per barrel -- less than half of the past year's average price
of approximately $60 per barrel. According to the law of supply and demand, reducing world oil demand by 5% would force a return to 2003 price levels. Admittedly there are some unknown variables, but this is our best approximation.
Fact: "We would spend billions less on oil imports."
Proof: The DOE Basic
Petroleum Statistics page states that America imports 10,126,000 barrels/day, which at $60 per barrel would
cost $222 billion. Cutting consumption 5%, we would import 9,086,000 barrels/day which would cost $99 billion, so America
could cut oil imports by about $123 billion.
Fact: "Americans would save over $200 billion dollars per year..."
Proof: The same DOE stat page
lists USA oil consumption as 20,802,000 barrels/day. Cutting the price of oil by $30 would
save ($30 x $20,802,000 x 365 days) = $228 billion dollars per year, and the 5% consumption reduction would
save another $11 billion.
Fact: "...that's about $700 per man, woman and
Proof: Divide $228 billion among 300 million
Americans calculates out to $760 per American.
Fact: "Each year, American investors spend
hundreds of billions of dollars trying to 'outperform the
7. Not being careful about your spending.
Proof: See this irreverent Fool.com
article by analyst Rich
Smith, for which he gives credit to investing guru John
Bogle, (who was named one of the investment industry’s four
"Giants of the 20th Century" by Fortune magazine.) Any
estimate must be approximate, but we would be very surprised if the
cost of this mistake was less than $250 billion per year.
Fact: "They often end up chasing "hot tips",
paying excessive commissions, or getting burned by risky stocks.
Those who follow unverified advice usually wind up with the short
end of the stick. Most people are better off minimizing costs
and risks by investing in a diverse, mostly buy-and-hold
Proof: Read this CNN Money article Build
Wealth in Any Market: What if everything you knew about stocks...
Fact: "It all adds up to hundreds, even thousands
of wasted dollars each year for the average family."
8. Poor nutrition.
Proof: You can read about various ways that people
overspend in these online articles: Top
10 Money Goofs New Families Make by American Baby
Magazine, Investopedia's Seven Common Financial Goofs and
money mistakes to avoid repeating. It is difficult to quantify this
type of consumer mistake because buyer's remorse is very subjective.
Two thirds of America's $11 trillion economy is consumer spending (http://www.allbusiness.com/retail-trade/apparel-accessory-stores-womens-specialty/4159629-1.html
and approximately forty percent of consumer spending is discretionary (http://bus.safaribooksonline.com/0793186021?tocview=true.) If consumers regret just 10% of their purchases, they waste
$293 billion per year. Of course, 10% may be too small; if you talk to people of advanced
age, many will tell you that they would do many more things differently if they could just live their lives over again.
Fact: "Junk food makes us feel less vital,
shortens our lives, makes us more vulnerable to disease, and
costs society hundreds of billions of dollars each year in extra
9. Yielding to vice.
Proof: Read the Surgeon General's Report on Nutrition and Health, which links poor nutrition to heart disease, stroke,
high blood pressure, diabetes, obesity, osteoporosis and dental
Fact: "one in three Americans are predicted to
Proof: Read the Center for Disease Control
assessment of diabetes.
Fact: "...costing America over a hundred billion
dollars per year."
Proof: The same publication reports the cost of
diabetes as $132 billion per year. That's the cost for the
7% of Americans who now have diabetes; if that rose to 33%, that
cost would explode.
Fact: "...experts recommend that we (1) take a
daily vitamin, (2) eat lots of fruits and vegetables, (3) eat
"good" fats and avoid bad fats and sugars, and (4) get fiber from
whole grain cereals, and we'll slash our chances of developing
cancer and many other health problems."
Proof: Read the nutritional
recommendations of EveryDayChoices.org, a joint project of
the American Cancer Society, American Diabetes Association and
the American Heart Association.
Comment: In 2001, non-communicable (diet-related)
diseases contributed to about 46 per cent of the global disease
burden... the global burden of diet-related diseases is expected to climb to 57 per cent by 2020
Considering that health care is a $2 trillion industry, an estimate of $400 billion in extra costs
due to poor nutrition seems conservative.
Fact: "Goofs such as smoking, illegal drugs and
alcohol abuse result in health care problems costing a staggering
$500 billion dollars each year."
10. Not being crime-aware.
Proof: A CDC
estimate pegged smoking costs at $167 billion per
year. Another study estimates
alcohol-related problems cost America $175.9 billion a year,
while it costs $114.2 billion for other drug problems and $137
billion for smoking. This study's 1995 figures add up to $427
billion, which if adjusted for growth in population and income
would certainly top $500 billion, not to mention other problems
faced by vice squads.
Fact: "Not being crime-aware."
11. Career drift.
Proof: A study titled The Aggregate
Burden of Crime published in the Journal of Law and Economics
in October 1999 estimates the total cost of crime at $1.7
trillion in a year. Since then, the expanding GDP has certainly increased
this statistic past the $2 trillion mark; a proportional increase would
make the 2007 cost $2.6 trillion. Much of this cost is borne by defrauded
businesses, but such costs normally are passed on to consumers -- and
business executives are consumers too, after all. Incredibly, some have theorized that
the total "pain and suffering" damages due to crime could amount
to as much as $27 trillion dollars annually (see The costs of crime, an article by reporter J.W. Mason for LeftBusinessObserver.com.)
Fact: "The combined yearly cost of fraud in
America approaches a breathtaking trillion dollars..."
12. Drifting away from one's values.
Proof: A 2002 report titled Occupational Fraud: The Audit as Deterrent by the
Association of Certified Fraud Examiners estimates that about 6%
of revenues are lost each year due to occupational fraud and
abuse. In 2002 an estimated $600 billion was lost; if the
loss rate is still 6% in 2007, that loss is closer to $700
billion in a year. Coming in a distant second is health
care fraud, which a Wikipedia article False
insurance claims estimates at $259 billion (citing statistics
from The Coalition Against Insurance Fraud and Medicare.)
Then we have mail fraud, other types of insurance fraud, and
telemarketing fraud which together may push the total over one
Fact: "...that's nearly a crushing $5,000 burden
for the average American household!"
Proof: According to the Census
Bureau an American household averages about 2.5 persons, so
America's population of 300 million people is divided into about
120 million households. Dividing a trillion dollars among
those households actually results in a figure of $8,333 per
household, which we lowered to a more conservative estimate of
Comment: While we don't have any concrete proof that concepts like
"values" and "character" lie at or near the root of personal and
financial results, we think it's so basic and intuitive that no
proof is needed. As just one example, think about the effect of these intangibles on career success:
If 50 million Americans suffer character problems that impinge on their career, and
those problems cost them $20,000 in annual salary, that multiplies out to one
trillion dollars per year.
Quote: "If a person gets his attitude toward
money straight, it will help straighten out almost every other
area in his life."
Source: Billy Graham (1918- ), American
Summary: A $5.7 Trillion Dollar Drain!
Now let's add up the costs:
That's a wrap -- if you have any comments or questions, please visit
our contact page.
If you were to get a dozen professors together in a room, no
doubt they would argue over various additions and exceptions that could
alter this total by a trillion dollars, or perhaps even more. Nevertheless, it's an inescapable
conclusion that consumers are making a mind-boggling number of easily corrected
mistakes in their everyday lives, mistakes that are costing them many trillions of
dollars. There's a definite need for consumer advocates to help consumers overcome
these problems, and that's a big reason why the CFA was formed.
*The quoted crime costs are 1999 figures from the study The Aggregate
Burden of Crime; 2007 costs would be approximately 50% higher.
| Financial Mistakes: $1.0 trillion|
| $50 billion|| ||Low interest rates|
| $97 billion|| ||Foreclosures|
| $127 billion|| ||Credit card interest|
| $200 billion|| ||Excessive fuel costs|
| $250 billion|| ||Investing mistakes|
| $293 billion|| ||Wasteful spending|
| Personal Decisions: $2.2 trillion|
| $300 billion|| ||Traffic accidents|
| $400 billion|| ||Poor nutrition|
| $500 billion|| ||Vice spending|
| $1 trillion|| ||Career/values drift|
| Crime and Fraud: $2.5 trillion|
| $400 billion*|| ||Crimefighting & corrections |
| $574 billion*|| ||Risks to Life and Health|
| $603 billion*|| ||Fraud and unpaid taxes|
| $130 billion*|| ||Opportunity costs|