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Would you borrow money at 72% interest? If you are like most Americans,
you already do. Here's the typical scenario.
Suzy buys John a "Christmas gift" and John buys Suzy a "Christmas
gift." This exchanging of "gifts" indicates a problem. They aren't
buying gifts; there is a difference between giving something to
another person and conducting an obligatory exchange of merchandise
with that person. So the whole concept of "exchanging Christmas gifts"
is, by definition, flawed from the outset.
But it's also extremely expensive. Let's do the math.
Each bought a "surprise" "gift," not knowing what the other wanted.
The typical "Christmas gift" either goes in a closet or gets returned to
the merchant.
Typically, the purchase is by credit card. The merchant pays fixed
and variable fees to the credit card company for each credit card
transaction. The cost to the merchant is between 2.5% and 4%, depending
on the card. For simplicity, let's assume a conservative 3%.
In January, Suzy spends 90 minutes of her 60 hour workweek standing
in line to return the item John "gave" her in exchange for the item John
didn't want. For simplicity, we can assume that neither John nor Suzy
value their limited time on earth and thus assign a value of $0 to their
time. You may assign a different value to your time, as I do myself. But
let's just set that aside for now.
The merchant pays an employee to process a refund to Suzy. Let's
assume this retail employee is so well off that she simply donates time
in January to do the refunds. Again, this isn't reality but it
simplifies the calculations.
The merchant, who paid 3% for John to buy this item, now pays 3% to
take it back. Only a month has passed. That 6% per month works out to
72% per year (6 x 12). When a business pays 72% on a loan, where do you
think that money comes from? It has to come from somewhere. Consider:
1. The typical retail business is on thin margins, so if it makes 5%
after tax profit on a sale it will have to sell 15 more of the item Suzy
is returning just to break even.
2. Remember that time-donating employee? On our planet, this doesn't
happen. What does happen is that employee works for a lower wage or
fewer benefits or in some other way helps make up the difference.
3. The store has to raise its prices to consumers for other products
to help cover this 72% loss, or it goes out of business.
So when you buy "surprise Christmas gifts," you are creating a cost
that you and others will pay off all year long. What's the solution?
There are several, including:
1. Opt out. This is my personal favorite, but it may not be for
you.
2. Just send each other checks in the mail. Each of you can simply
shred the received check, rather than taking unwanted merchandise back
to the store so that you and others pay nearly the full cost of the item
all year long and have nothing to show for it anyhow. Something about
this just doesn't inspire me.
3. Instead of trying to prove how clever you are and then failing at
it, tell the other person, "I want to buy you something to celebrate
Saturnalia/Christmas/Holiday X." Then ask that person to pick out the
item personally. This kills the romance of the tradition, but then it's
not very romantic to stand in line for 90 minutes with a bunch of people
who are still producing turkey farts. Probably the best option if you
don't want to opt out entirely.
4. Think through several options, and come up with one that doesn't
force the recipient to lie about how wonderful your unwanted "gift" is
and that doesn't result in the high costs previously mentioned.
Requires creativity, and is a great option if you are creative.
On that last item, here's a real-life example.
Many years ago, I had a stepdaughter who wanted a new bicycle. Badly.
I talked it over with her mother, who said the girl could have one
for Christmas. But that was 7 months away, and she'd have to ride the
old crappy bike during the summer. So I told her to watch for a sale on
bikes, and when there was one we'd go to the store and she could pick
out whatever bike she wanted.
She decided on a 12-speed that wasn't on sale. I told her that's
fine, as we wouldn't be saving any money if we bought a bike she didn't
want. Then I asked her to choose between getting the bike now as her
Christmas present or getting it at Christmas. She said, "I can't ride a
bike in the winter, so I should either get it now or in the spring. Why
don't you decide?"
Smart kid. I chose "now," and she had a new bike for summer.
Unfortunately, her mother was fixated on the Christmas thing and at
first argued to take it back to the store and then buy it again at
Christmas. That didn't happen, but my (then) wife had no flexibility on
this whole Christmas thing.
My philosophy is that the point of getting a gift is to make the
other person happy. If that also fits with a predetermined schedule,
fine. But I can't understand sticking to a schedule in a way that just
makes someone else miserable so that you can check off the box that you
"gave" someone something for Christmas.
Some people will argue that "everyone gives gifts at Christmas," but
the reality is that most of the world does not honor this particular
holiday and many who do honor it do not also do obligatory purchases as
a part of the celebration.
When engaging in this costs 72% interest, it's time to interject some
common sense and come up with a better, less costly way of doing things. |
