There were virtually no new listings last week, and it’s still too early to a have an identifiable “market” just yet. So this week, I want to take the time to talk about debt, and tie this into a conversation about the new mortgage regulations.
Over the Christmas holidays, I thought a lot about the new rules, and I just couldn’t figure out why the government was going after this “kind” of debt, when other, far worse debt, still reigns supreme.
Today, I’m going to tell you two stories this week about simple, every-day interactions I had over the break, both which highlight how many people in society approach debt, and how people refuse to gain a better understanding of the value of a dollar, and interest rates…
One late-December day during my every-day-blends-together “break” from work, I found myself in Canadian Tire, diligently shopping for a snow brush. I know, right? What a life!
Out of the corner of my eye, I could see “that guy” approaching. You know the one. He’s got a clipboard, and a smile, and he wants you to sign up for some low-end credit card that very few people possess.
As he approached, he launched into character and said, “Nice! That’s a great brush! And you’re going to pay for that today on your Canadian Tire Mastercard?”
He was good. That was a decent opening, and you can take this from a guy who used to approach girls in bars and say, “I just hate conforming to accepted social norms, don’t you?”
I looked up, and he was just a kid! Barely old enough to grow stubble on his chin, but it didn’t stop him from trying.
“I’m not your guy,” I told him plainly, hoping he’d tell me to have a great day and back off.
“Oh I certainly don’t want to intrude on your holiday shopping” he said, perhaps thinking that once you’re married, a snow-brush is the most coveted of Christmas gifts. “But I just wanted to know, if you don’t already have a Canadian Tire Mastercard, then what’s stopping you from signing up today?”
So I answered.
“Well, I came here to buy a snow-brush, not apply for a credit card. I have a credit card already, from my bank. If I needed more credit, I’d increase the limit on my existing card.”
He nodded, and motioned his clipboard toward me.
“But you can have a second card today to supplement your existing card,” he said, and with a smile, added, “And I just know from looking at you, you’ll qualify.”
Not a bad sales pitch, I suppose. Telling me I’d “qualify” for something that I don’t want, don’t need, and that everybody on the planet would “qualify” for. I get it; act like I won something, and maybe I’ll feel special.
“I don’t want to sound repetitive,” I told him. “But I’m not in the market for a credit card. You could tell me I ‘qualify’ for a deal on a truck being sold in the parking lot, but if I’m not in the market for a truck, then what good is it to me?”
I turned my attention back to two particular snow-brushes that had made my short-list; a grey one, and a red one.
“Okay, okay,” the young man told me. “I’ll tell you what – I know you’re not going to sign up for one of these cards today, but can I tell you why you should?”
I explained, “There’s no reason why a person “should” impulsively sign up for a credit card that two minutes ago, they had no idea existed, which will lower their FICO score, and put a massive red mark on their credit report, when they could walk into any of the Big-5 banks and get recognized credit card. But sure, what the hell, go for it.”
He smiled, and proudly said, “Because if you sign up now, you get eight percent cash back of the value of the goods you purchase, today.”
“I don’t follow,” I told him.
“Whatever you buy today, you get eight percent back!” he reiterated.
“No, I get that,” I told him, “But you said that there’s a reason to sign up for this card.”
“Yeah,” he replied, “Eight percent, cash back!”
I held up the snow-brush I was settling on – the grey one, and said, “This costs twenty dollars. What’s eight percent of twenty dollars?”
I didn’t give him a chance to crunch the numbers; “A dollar, sixty,” I told him.
He wasn’t smiling anymore.
“A dollar and sixty cents. That’s what I’d get, today, for signing up for a credit card, that I don’t want, which would lower my credit rating. Is it worth it?”
He tried to come up with another ‘reason,’ but since we were just two guys, having fun, I said, “How about this: what if I purchased, say, $1,000 worth of goods today. Would I get 8% of that in cash back?”
He smiled, and said, “Yes! You would!”
I said, “Okay. So in order to get eight percent, $80 back, I’d need to purchase $1,000 worth of stuff that, only five minutes ago, I didn’t really need. I would find it hard to believe that I could actually find a thousand dollars worth of wares, in here, today, that I would value at the sticker price, and actually utilize.”
At this point, I actually felt bad. I didn’t know if he realized I was trying to be helpful, or if he just thought I was an asshole – the way some of you, reading this, might assume.
I asked him how old he was, and he said he was nineteen.
I asked him where he went to school, and he said Seneca College.
“What’s the interest rate on that credit card,” I asked him.
He said he didn’t know, but he could ask a manager and find out.
“Have you ever looked up your credit score before?” I asked him.
He said he didn’t know what that was.
“Equifax, Trans Union – have you heard of these?” I asked him.
He shook his head.
So I thought, since he was still standing there listening to me, I’d give him a few thoughts he could take home with him. I explained the basics of “credit” and “debt.” I explained what interest rates were, and then went on to describe how credit scores work, and how they affect what an individual can borrow.
“Go home, go to www.equifax.ca, pay the thirty bucks,” I told him, “And find out what your credit score is.”
“Thirty dollars?” he exclaimed. “Just to find out your score?”
I asked him if that was a lot, and he said, “Hell yeah!”
“Says the guy that just wanted me to sign up for a credit card with a $10,000 limit and a 30% interest rate so I could save $1.60 on my snow-brush…”
He threw his head back in laughter.
“You got me!” he said.
“I want you to go home, and download a movie called ‘Maxed Out,'” I told him. “It’s from 07-08, or somewhere around then.”
“07-08?” he asked. “Where’s that?”
“The year,” I told him.
“Oh, right. 2007-2008! That’s what you mean! Okay. Right. Well, I was like ten-years-old, he told me.”
“Okay, just download the movie,” I told him. “Whatever torrent, Pirate-Bay, rip, MPEG, Napster-thingee you kids are using today,” I said, channelling my inner old-man. “The movie is about predatory lending practices in the United States, and the impact it can have on a person’s life. It also showcases, I’m sorry to say, how naive, uninformed, and stupid the average borrower is. Watch that movie. You’ll learn more than you learned in school.”
“They’ve never mentioned any of this in school,” he told me.
And I just about puked in Aisle 7 as I thought, once again, about how the public school system has been bastardized and watered-down, but I digress…
“You know what I’m gonna do tonight?” the young man asked me.
“Go home and watch videos of other people playing video games in this insane thing your generation calls E-Sports?” I asked, as matter-of-fact as possible.
“No,” he said, “I play Call of Duty,” he said, to which I nodded in agreement.
“I’m gonna watch that movie, man. Seriously, I will. But like, I still have to sell these cards.”
He had a job to do, and that, I understood. “How many have you sold today?” I asked him.
He suddenly regained his confidence, smiled and said, “Three, man. Three of ’em. And nobody asked about the, what did you say, the rate?”
“The interest rate,” I told him.
“Yeah. So whatever. They got their 8% cash-back, right?”
Good for him. A hard-working kid, paying his way through college.
A fool and their money are soon parted. His job is to sell those cards, not to educate people about the associated interest rates and credit risks.
But who’s job, if anybody, is that?
As many of the long-time readers know, my mother lives in Scarborough, and has since around 2000 when she moved out of ‘the big house’ in Leaside.
Over the Christmas holidays, our family gathered there for a very informal dinner, as she likes to call it. I swear, I could wear a tank-top at the dinner table, and she would just smile.
Upon arriving at the house, my wife informed me that we forgot our daughter’s bag – the one with the diapers, baby-wipes, creams, sippie-cup, et al.
My solution, being a typical man, was to “just wing it.” Deal with problems as they arise. But with the entire family looking at me, and with my 7-year-old brainiac niece saying, “You need to go get some diapers,” I got back in the car, and headed out to Shoppers Drug Mart.
At Kingston Road & Midland, I found a Shoppers, and although it goes against my frugality, I paid the sticker price for small packs of everything we have at home in bulk.
I got to the cashier, and the woman in front of me was checking out.
The cashier said to the woman, “That’s $80.72, in total.”
And then she added something that drew my attention: “If you spend $100 today, you get 300 bonus Shoppers Optimum Points.”
Now I’m paraphrasing here, because I don’t know how many points it was, or what they were called – but I believe it’s “Optimum.”
So in my mind, I’m thinking, “There’s no way somebody is going to spend another $20 here to “achieve” a bunch of virtual points. This isn’t exactly Bitcoin they’re getting.”
But the woman in front of me said, “Oh, awesome, okay,” and then looked around her.
Looked around, where?
At the cash. You know, where they keep all the items referred to as impulse buys.
Rather than walking through the store and picking up a 36-pack of toilet paper that’s on sale, she merely looked around, and grabbed the first thing she saw.
“Pot of Gold,” she said, as she placed a box on the counter.
The cashier rang it through, looked at her screen, and said, “$88.15, I think it’s on sale.”
The woman laughed. “Damn sale! Ha! Okay, what else, what else,” and began looking around.
She grabbed about 3-4 small bags of Doritos, placed them on the counter, and said, “Somebody in the house will eat these!”
“We’re up to…..let’s see,” the cashier said, as she waited for a new total. “$94.84.”
“Oh Lord,” the woman said.
She picked up three packs of gum, placed them on the counter, and the cashier rang them through.
“$98.55,” the cashier said. “Almost there!”
Exhausted, the woman then picked up a high-end lip-balm, and smacked it on the counter. “This oughta do!” she said.
The cashier rang the item through, and smiled. “$106.22,” she said. “We made it!”
I couldn’t believe what I had witnessed.
I don’t know how many “points” this woman scored, or what their cash value is.
But I’m willing to bet those points aren’t more than $1-2 of cash value, and my mother – a frequent Shopper’s customer, tells me that’s being optimistic. On $100, you’re not getting more than 1-2% from Shoppers, even with their “bonus-days” or other promotions. The banks pay you less than one-percent on your savings. The best VISA’s out there offer 1.5% in cash-back, travel, etc. So what was this woman really getting back via the Optimum points?
She just spent $26.22 on crap she didn’t need.
Pot of Gold chocolates, Doritos, Trident gum, and lip balm. She didn’t want any of that stuff when she went inside, and yet she exited the store with it – much like those who sign up for credit cards when promoted at Home Depot or Canadian Tire.
And at no point was this woman able to do the math: that she spent $26.22 to achieve maybe $1.00 in redemption points.
Allow me to jump to a conclusion here and suggest that maybe this woman couldn’t do the math, because she didn’t understand it.
Maybe she can’t figure out that $26.22 in after-tax dollars takes her $34 in gross income to generate, which could be two hours of work for her.
And not everybody does understand this. Not everybody’s strong suit is math, taxation, interest rates, or personal finance.
So the take-away from these two stories then, is what?
That I’m a jerk for writing them?
Or I’m pointing out that (gasp!) some people in society don’t possess the education or understanding to make decisions regarding their own personal finances, especially when it comes to debt.
A government’s role is to serve and protect the people.
And often they enact legislation to protect people from themselves, like making it the law to wear a seatbelt in a car.
But while credit card companies offer frisbees and hackey-sacks on college campuses to kids who sign up for MBNA Mastercards, and the Money Marts, Payday Loans, and Cash Moneys of the world are allowed to prey on the most susceptible members of society, the government has done……what?
They’ve made it more difficult for people who have scrimped and saved a 20% down payment to purchase a home?
It makes no sense to me.
Not when there are so many other areas of the lending world that are predatory, and where annualized interest rates top 7,000% (that’s not an exaggeration – we’ll talk about that on Wednesday).
So while today’s two stories merely demonstrate what goes on in the world of lending/borrowing, debt, and interest on a daily basis, on Wednesday, I’d like to come back to this theme and differentiate between “good debt” and “bad debt,” and discuss how and where the government should focus their efforts…