This is an article written by creditlock. If you are analytically minded, I think you will find this interesting. If not, feel free to watch one of my ski movies 😉
Also, in addition to this article, remember to better protect yourself from the effect of ID Theft, have a 3-part approach: Monitor, Protection, and Restoration (not resolution or insurance). The best service I have found The combination of Legal and Restoration service can protect the member from the effects in the video below.
Remember: credit monitoring doesn’t protect you from Criminal Identity Theft:
Enjoy the article from CreditLock.
Identity Theft Protection is undoubtedly important. However, many consumers have wondered whether Credit Monitoring services offered by Third Parties are worth the cost. Most times, such cost varies anywhere between $8 and $15 per month, depending on provider, and type of service. One-Bureau Credit Monitoring is typically under $10 per month, while Three-Bureau Credit Monitoring is typically between $12 and $15.
Consumers often decide that the odds of becoming an Identity Theft victim are too small (such assumption is wrong as there is a likelihood of as much as 3% or more of becoming an Identity Theft victim in a given year), and do not justify the cost. Others decide that examining one free annual Credit Report suffices. In this article, we attempt to calculate the risk-adjusted cost of becoming an Identity Theft victim, and compare such cost to the cost of Credit Monitoring.
According to an article published by the Boston Globe on February 2, 2007, Javelin Strategy & Research estimates that consumers spend on average about $535 in out-of-pocket expenses to clear up fraud. Multiplying such figure by the 3% likelihood of becoming a victim, the risk-adjusted annual cost is $16.05, or $1.34 per month. Such cost is substantially lower than the cost of Credit Monitoring, however such analysis is incomplete.
Getting a credit monitoring service:
It is also reported that Identity Theft victims spend an average of at least 40 hours to clear their name. What is the risk-adjusted cost of such time spent? The U.S. average GDP per capita for 2006 is about $43,500. Assuming a 52-week year, that translates to $837 per week. Assuming 40 hour workweek, that translates to a risk-adjusted cost of 3% x $837 = $25.10 per year, or $2.10 per week. Hence, total cost for out-of-pocket expenses, as well as cost of time spent is $3.44 per month, still substantially less than the cost of Credit Monitoring. However, such analysis is still incomplete.
Victims of Identity Theft incur at least two additional costs: A- Emotional Cost and B- Opportunity Cost. Such costs are hard to calculate, but we will try to devise a logical methodology for such calculation. Emotional cost can vary, depending on the resulting experience from becoming an Identity Theft victim. We will allocate such experience under three different categories: A- emotional stress from privacy violation, B- emotional stress for being shortly mistaken for a criminal, C- emotional stress for being severly mistaken for a criminal.
All Identity Theft victims will suffer from privacy violation emotional stress. Let’s assume that a victim’s mind is pre-occupied with such stress for an entire year, for an average of 2 hours per week. Using weekly GDP per capita data, the risk-adjusted cost of such stress would be (3%)x(2/40) x 52 x $837 = $65.29 or $5.44 per month.
In addition, let’s assume that 0.1% of Identity Theft victims are shortly mistaken for a criminal, possibly facing questioning by police, or even being wrongly handcuffed. How much are you willing to pay in order not to be falsely placed in handcuffs? Let’s assume a generous compensation for such trauma is $100,000 The risk-adjusted cost for this category becomes:
(0.1%)x(3%)x$100,000= $3 per year, or $0.25 per month.
Emotional stress for being severely mistaken for a criminal is extremely costly. As a matter of a fact, there are reports of individuals committing suicide after being falsely accused of pedophile crimes committed by someone who had stolen their identity. Let’s assume the likelihood of such event is .001%. Let’s assume the cost of such trauma is $10,000,000 . The risk adjusted cost of such event would become:
(3%) x (0.001%) x $10,000,000 = $3.00 or $0.25 per month.
The above analysis for all three types of emotional costs yields a net risk-adjusted total emotional cost of ($0.25 + $0.25 + $5.44) = $5.94 . Hence. the summation of risk-adjusted out-of-pocket expenses, value of time, and emotional costs adds up to
$5.94 + $3.44 = $9.38 per month.
Finally, we must incorporate the opportunity cost. Unlike value of time, we are defining opportunity cost as the cost incurred for denied credit, lost transactions, lost utility/pleasure due to denied purchases, lost/delayed job appointment, etc… Such cost is again difficult to calculate. Let’s assume that on average, it is equivalent to 2 weeks of GDP per Capita. The risk adjusted cost would be:
(3%)x($837)x2 = $50.22 or $4.19 per month
Summing it all up, total risk-adjusted out-of-pocket expenses, value of time, emotional cost, and opportunity cost add up to ($9.38 + $4.19) = $13.57 . Strangely enough, such risk-adjusted cost seems be within the range of the cost of Credit Monitoring, which typically is between $8 and $15 per month. The analysis assumes that Credit Monitoring eliminates the possibility of Identity Theft, which is not the case. Credit Monitoring simply alerts the consumer to its existence. However, early detection through Credit Monitoring would certainly allow for easier resolution of the problem, and a limitation to additional losses through defensive measures, such as a Credit Freeze.
In conclusion, for ease of mind, it does seems that paying between $8 and $15 per month for Credit Monitoring may be worth it. This is especially true for individuals whose income is higher than the U.S. average. In fact, victims of Identity Theft often tend to be individuals of higher income. Consumers who are extremely concerned about both Identity Theft and cost can place a credit Freeze on their report, which can be a lot less costly, and in some cases almost free. Substantial information about Credit Freeze can be found at http://www.creditlock.com/creditlockdownpro.html. Consumers can also be more protected by utilizing both Credit monitoring and Credit Freeze.
Such extensive evaluations are often futile. Is a lottery ticket worth $1.00? The answer on a risk-adjusted basis is a definite no. The jack-pot would probably have to be a multiple 9 figure for a lottery ticket to be worth $1.00 . The reasons are simple. Your dollar is not tax deductible, while your winnings are taxable. The jackpot is not expressed in its discounted present value, but merely adds up your winnings over many years to come, without taking into consideration the depreciating value of money. The state will keep a good portion of the sales proceeds for various expenditures; hence the jackpot is always smaller than the collections. You may have to share the Jackpot with another winner. Worst yet, (and on the lighter side of things) your spouse may sue you for your half, keep her/his half, dump you and marry someone else….as in the Nicholas Cage movie, “It Could happen To You (1994).” Still, millions of people buy lottery tickets…
At the least, the above analysis shows those paying for Identity Theft Protection are getting at least their money’s worth, if not more, depending on their income and value of their time.
CHECK WASHING – use gel ink when writing on your checks