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How to destroy the economy with common sense.
- Thread starter nobbie48
- Start date
Card locking if you had an outstanding balance exceeding xxx would be an interesting concept. I dont see why a financial services company would do that without regulation and dont see government pushing in that direction. It could have an unintended downside too. If people are using their cards to survive, cards can be far cheaper than payday loans with effective rates an order of magnitude worse (use fees plus short terms to dodge yearly usury regulations).
The destruction would come from a collapsing economy as people cut back on dining out and frills.
The payday loan thing is unreal. 5% a week when you can't get 5% a year from the bank. It sounds easy to borrow $200 and it only costs $20 interest in two weeks. Work that out over a year, compounding.
It's not just credit cards. Financing *anything and everything* becomes a death of a thousand cuts. And from what I'm seeing, *EVERYTHING* is being financed: cellphones, gym equipment, powersports, vacations, etc.
Vendors are figuring out that it's just as profitable, if not more in some cases, to make money on the financing portion than the actual product they sell, so instead of giving away that revenue stream to banks and credit cards, they've set up their own in-house financing.
So many things at play here: instant gratification/poor impulse-control, feeling entitled to a lifestyle that far exceeds your income, keeping up appearances...
Whatever it is, you can't blame the financing companies for capitalizing on human weakness. Somebody's gonna do it, why not them?
Vendors are figuring out that it's just as profitable, if not more in some cases, to make money on the financing portion than the actual product they sell, so instead of giving away that revenue stream to banks and credit cards, they've set up their own in-house financing.
So many things at play here: instant gratification/poor impulse-control, feeling entitled to a lifestyle that far exceeds your income, keeping up appearances...
Whatever it is, you can't blame the financing companies for capitalizing on human weakness. Somebody's gonna do it, why not them?
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AllistonGT
Well-known member
I remember walking through Home Depot many years ago and seeing a Dewalt drill. Tag on the shelf had the price and also a monthly cost. First time I ever saw that. I knew then we were F**KED!
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Lot of things moving to a subscription model rather than own. You pay for use rather than a "thing".
If the monthly cost is without a finance cost ...why argue.? It is a marketing tool.
For fast moving tech basing on montly cost versus on ownership is a valid approach.
If the monthly cost is without a finance cost ...why argue.? It is a marketing tool.
For fast moving tech basing on montly cost versus on ownership is a valid approach.
I agree with Lightcycle, cap it on everything. Limit debt to xx% of a person's monthly salary. If a company exceeds that percentage, there would be no recourse if the debt isn't repaid.
Today you can buy two cars, furnish your house, and outfit the garage with tools without spending any money. If you can't afford it today with cash, you sure as ship can't afford it tomorrow with interest.
The short term would definitely be a hit to the economy, but there would be a huge long term gain. Government spending should be done the same way. No deficits, taxes would be adjusted every year to account for the previous years spending. I'm guessing there would have never been a reelected Trudeau if that was the case.
Today you can buy two cars, furnish your house, and outfit the garage with tools without spending any money. If you can't afford it today with cash, you sure as ship can't afford it tomorrow with interest.
The short term would definitely be a hit to the economy, but there would be a huge long term gain. Government spending should be done the same way. No deficits, taxes would be adjusted every year to account for the previous years spending. I'm guessing there would have never been a reelected Trudeau if that was the case.
You are dreaming. Better for society to limit housing cost to 33% of verified income.
Debt is a tool, nothing more, can be used to even out cash flow issues - especially with so many on the gig economy.
Simplistic nostrums are a non-starter in this economy.
Who the hell earns a "salary" these days of labour mobility, startups starting and closing, job hopping....it aint the 50s.
Debt is a tool, nothing more, can be used to even out cash flow issues - especially with so many on the gig economy.
Simplistic nostrums are a non-starter in this economy.
Who the hell earns a "salary" these days of labour mobility, startups starting and closing, job hopping....it aint the 50s.
How do you limit housing cost to 33 percent unless you are talking max mortgage amount.
Sent from the future
Agree that debt is a tool. Can be used wisely or foolishly.
You can come out a lot further ahead if you finance appreciating assets or things that will help increase your income/revenue: Equities, real estate, education.
Where it gets murkier are things like cars. Yes, it helps get you to work. But can you take public transportation instead? If a car gets you to work faster, what do you do with the free time that you save? Sit on the couch and play video games? If you do productive things with that time, do you really need a BMW or will a Kia do?
Yes, a cellphone helps you communicate with potential employers and customers. But do you really need a brand new $2000 smartphone every 12-18 months, or will a $100 flip phone that lasts you several years make do?
It's not that people cannot distinguish between necessities and luxuries. It's that they perform all sorts of mental gymnastics to rationalize why a luxury item is really a necessity.
You can come out a lot further ahead if you finance appreciating assets or things that will help increase your income/revenue: Equities, real estate, education.
Where it gets murkier are things like cars. Yes, it helps get you to work. But can you take public transportation instead? If a car gets you to work faster, what do you do with the free time that you save? Sit on the couch and play video games? If you do productive things with that time, do you really need a BMW or will a Kia do?
Yes, a cellphone helps you communicate with potential employers and customers. But do you really need a brand new $2000 smartphone every 12-18 months, or will a $100 flip phone that lasts you several years make do?
It's not that people cannot distinguish between necessities and luxuries. It's that they perform all sorts of mental gymnastics to rationalize why a luxury item is really a necessity.
When insurance payments (whether it be house or vehicle) went monthly, rather than annually, I scratched my head.
I still use the old system.......one lump payment, every May.
" do you really need a BMW or will a Kia do?"
There was a heart warming story going around a few years back that started with someone noticing a person walking to work early in the morning. It turned out that the walker had a three hour walk to work and three back home. The observer recognized the walker's dedication and raised funds to get him a car, a noble gesture.
But why not a bicycle? It was the southern states. No gas tank to fill, no insurance, cheaper to buy, maintenance is a pittance. The three hour walk becomes a 45 minute bike ride instead of a 20 minute car ride. The 25 minutes spent exercising is IMO a good trade off.
My daughter bought me a smart phone when I was still working. I continued to use my Hershey bar one because when I was charging a client a couple of grand to fix their problem I didn't want to be seen spending large amounts of their time and money communicating on other jobs.
A slight diversion, I get really p***** when I'm teaching someone a technique, their phone rings and it's "I've got to take this..." and they walk away for 20 minutes as the epoxy continues to cure...
Well, if the cost is exactly the same, I'd rather stretch out the payments and put the capital to use in the meantime. Free money is free money.
But if there's a finance component, then I'd have to break out the calculator and see if I could potentially earn a better return by borrowing against the financing company.
0% financing is only smart if you invest the capital. Otherwise, the finance company gets you conditioned to paying a monthly fee for a car, cordless drill, whatever. Most people go shopping for a new car the minute their old car is paid off and become stuck in a perpetual payment cycle. Also, they're more susceptible to getting upsold the next time they enter the store or dealership: "Well, the 5-series is only another $100 a month more than what you've been currently paying..." And no guarantee the finance rate will remain 0% on the next go-around.
And also, if they're not forced to park their cash in a depreciating asset, that money inevitably ends up as a down payment for yet another non-essential luxury item.
Some people really do need to be saved from themselves.
Same here no monthly payments I can avoid also makes you think a bit more about paying 600 year vs 50 mo.
Sent from the future
Really good point. More expensive items usually come with a higher cost of ownership/maintenance that not many people factor in. Whether they willfully turn a blind eye to this, or they are genuinely unaware of the higher ongoing costs? I have my suspicions.
I absolutely believe debt is a tool, but it isn't used in such a manner. Debt is how governments buy votes, and social idiots buy friends/likes. A large portion of Canada's older population likes Pierre Trudeau because their wages went up and HATED Mulrooney because of GST. Go to the debt clock website and you can see for yourself how much the national debt went up during Pierre's notorious reign. Mulroney was given a destitute country and tasked to fix it. Pierre and his offspring (legitimate or otherwise) were unquestionably Canada's biggest financial disasters. I wouldn't piss on either if they were on fire.
Depends if you work for money or your money works for you.
If it's the latter, then not having your capital tied up unnecessarily is a good thing.
Also, most people in the second camp have a good handle on the true cost of things, whether it's calculated monthly or annually.
One could argue that the monthly payments allow you to invest the money at a decent return.
However too many people fail to recognize the impact of things that only cost pennies per day, less than a dollar a day, less than the price of a coffee a day, borrow $200 for only $20 etc.
The coffee a day adds up to around $700 a year (Plus the 10-20 minute waste of time in a lineup). Brown bag your lunch and save another couple of grand. Invest the savings.
I got some good advice from a decent car salesman years ago. Ford had a really good 24 month lease deal but the rep explained there was an up front payment of a couple of grand or you could trade in your old vehicle. HOWEVER when the lease came due you would have to cough up again and your didn't have a used vehicle to trade in.
When I was financing cars I had a special bank account for the car. Any allowance I got from the company went into it and the bills and payments came out of it. When the car was paid off the allowances still went into the account for the next car. Two or three cycles later I was paying cash.
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