Author Topic: Crazy America - maximize your expenses, and consumer credit is good  (Read 7588 times)

goldfingerette

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I lived in the US for 10 years, now I have moved back to Europe. Here is my story of some strange things that I experienced after moving to California (having won a greencard).

So, the first thing we did after moving to Orange County was to find an apartment, while staying at a motel. I had already found a temp job, so the job part was taken care of, and we had a few years worth of rent in the bank. But, I was dumbfounded to find out that they could not rent us an apartment because we did not have a credit history. Uh, so never having taken out a loan in your life and having a few years worth of rent in the bank is not better than even a super high credit score? Unbelievable. I even offered to prepay a year's worth of rent, for a slight discount - nope, we need credit.

And, of course, you actually need a credit card for a lot of crap, so I got one of those credit cards where you prepay the full credit limit to start a credit history. I never wanted a stupid credit card but it is impossible to get by without one. Later I got a Motley Fool one with a good cash rebate, and paid the entire balance by direct debit each month. I actually paid all the expenses I could via credit card after that, because of the rebate. Not a bad deal after all, a free loan each month, zero interest and a cash rebate too.

Then we got a car, and at the dealer's I picked one that was a few years old, and resisted the salesman's attempts to get us to buy something much more expensive, and gas guzzling. WTH do I need a small tank for.  Then, I told him we would be paying cash. He told me he does not actually have any cash sale forms but only for paying in instalments. WTF? So I told him to get one of the instalment contracts and we would just be doing one single instalment. Also, some of the cars only had the monthly payment quoted, and no overall price...to try and reel in some credit suckers.

Later, after a few promotions at work (over 100k combined salary), we got an apartment closer to work. We asked for a studio, and the manager could not believe it. "But you could afford one of our nice and spacy 3-bedrooms, why would you want a studio?". Uh, nope. That seems to be the mainstream american way, always buy the biggest you can afford.

Then, in the mail, gazillions of offers for credit cards...why would I need more than one, and a credit limit higher than the most I would spend in a month. And no, I will not incur a balance and pay your ridiculous rates. And the offers to withdraw cash, and have it tacked onto your balance... no thanks.

And all these people who kept telling us (at the height of the real estate bubble) how much money they made with their house. Uh, no... unless you actually sell the house and pocket the difference, you have not made f*** all profit. Then people call themselves homeowners even when the bank actually owns the home, fully or partially. Unless you own the home outright or at least for the most part, you are not a home owner but a loan owner (serf).

Then, at the bank where I worked, we had a credit card called "on the house" which was a line of credit secured by the house (second mortgage). OMG. So a lot of people actually used this card to spend part of their house on consumer crap.

Any other anecdotes about mainstream America's wasteful ways?

arebelspy

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #1 on: September 12, 2012, 08:19:28 AM »
Hah, great post.

You sound like Gobo's traveling uncle Matt, documenting our crazy world.

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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Jamesqf

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #2 on: September 12, 2012, 12:47:16 PM »
Interesting & amusing.  I've seen some of it first-hand, such as the previous owner of my house's deceased husband, who kept getting credit card offers in the mail - and life insurance sales pitches!  They've tapered off these last few years, but he has been dead for about 20 years now.

Just one point, though.  Orange County is NOT mainstream America.  It's not even mainstream California.

kisserofsinners

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #3 on: September 12, 2012, 10:20:57 PM »
Just one point, though.  Orange County is NOT mainstream America.  It's not even mainstream California.

2nd...

It's the worlds shallowest wormhole.

gooki

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #4 on: September 13, 2012, 02:36:16 AM »
Any other anecdotes about mainstream America's wasteful ways?

Not wastefully, but mindboggling that corporate america don't recognise when it's getting reamed. The head office in the USA was charged $100 USD to ship 200 grams to New Zealand. What the fuck, I shipped a 13kg amplifier to Korea for that same price.

goldfingerette

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #5 on: September 13, 2012, 11:37:59 AM »
Haha, yes, I did feel like uncle Matt sometimes.

There are a lot of little things I noticed too, like how people would take a whole stack of napkins or tissues at restaurants or in the toilet, to dry or wipe their hands, then throw away all of them when done, used or not.  In Europe people will usually take a single napkin and tissue, and use both sides of it, before taking another.

What really shocked me was when we were invited for Thanksgiving to a family one time, and after dinner she was going to throw away the entire turkey, even though there was still loads of meat on it, basically only the "easy pickings" were carved off. I ended up picking the turkey bones clean and taking the leftovers home. What an unbelievable waste.
 

tkaraszewski

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #6 on: September 13, 2012, 12:11:10 PM »
...you actually need a credit card for a lot of crap...

I don't know why people say this. It is absolutely not true. I haven't had a credit card in something like 8 years. I am still alive (and employed! And have a place to live!), and I even live in California (not Orange County).

Even most car rental places will take a debit card, with the caveat that they'll hold $500-1000 until you bring the car back.

Jamesqf

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #7 on: September 13, 2012, 01:26:18 PM »
Even most car rental places will take a debit card, with the caveat that they'll hold $500-1000 until you bring the car back.

But what, in this context, is the real difference between a credit card and a debit card?

I'll even argue that the credit card is by far the better deal financially, at least for anyone disiplined enough to pay the balance in full every month.  You're getting an interest-free loan of whatever your average spending amounts to, plus whatever cash-back or other rewards come with the card.

arebelspy

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #8 on: September 13, 2012, 02:01:36 PM »
Even most car rental places will take a debit card, with the caveat that they'll hold $500-1000 until you bring the car back.

But what, in this context, is the real difference between a credit card and a debit card?

I'll even argue that the credit card is by far the better deal financially, at least for anyone disiplined enough to pay the balance in full every month.  You're getting an interest-free loan of whatever your average spending amounts to, plus whatever cash-back or other rewards come with the card.

And way more consumer protections.  I wouldn't trust a car rental company to put a hold for 500-1k on my debit card, I would on a credit card.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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ShavinItForLater

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #9 on: September 13, 2012, 04:04:23 PM »
Even most car rental places will take a debit card, with the caveat that they'll hold $500-1000 until you bring the car back.

But what, in this context, is the real difference between a credit card and a debit card?

I'll even argue that the credit card is by far the better deal financially, at least for anyone disiplined enough to pay the balance in full every month.  You're getting an interest-free loan of whatever your average spending amounts to, plus whatever cash-back or other rewards come with the card.

I'll channel Dave Ramsey for a moment to provide the devil's advocate perspective:

[DaveRamsey]
Credit card companies are snakes, and are professionals at finding ways to cheat you.  Play enough with snakes and you will get bit.  "At least for anyone disciplined enough to pay the balance in full" is a pretty large caveat--plenty of people believe they are but are not, and even the disciplined can hit hard times and end up carrying a balance unintentionally. 

Beyond that, the credit card companies can "lose" your payment or claim it showed up late, and all sorts of other things either through malice or incompetence.

Besides, how much are those points really worth anyway?  I've never heard anyone say the way they got rich was from all their Discover points. 

Also, research has shown that people spend more money when they use credit cards compared to when they pay cash--it hurts more when you actually have to open up your wallet and part with real green, compared to just swiping a card like it's play money.  You can also often negotiate a cash discount if you just ask, which would usually be worth way more than the stupid points or cash rebate the credit card offers.

There are even debit cards that offer cash back and points programs, so you can get the same rewards without using credit cards.
[/DaveRamsey]

AJ

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #10 on: September 13, 2012, 04:15:40 PM »
And way more consumer protections.

As long as you sign for it (that is, you don't enter a PIN), debit cards have the exact same consumer protections as credit cards.

arebelspy

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #11 on: September 13, 2012, 04:38:53 PM »
I disagree with Dave Ramsey on lots of things.  You found a great one Shavin.

But since it's mostly opinion anyways, I'll just point out the irrelevant thing:

Even most car rental places will take a debit card, with the caveat that they'll hold $500-1000 until you bring the car back.

But what, in this context, is the real difference between a credit card and a debit card?
Also, research has shown that people spend more money when they use credit cards compared to when they pay cash--it hurts more when you actually have to open up your wallet and part with real green, compared to just swiping a card like it's play money.  You can also often negotiate a cash discount if you just ask, which would usually be worth way more than the stupid points or cash rebate the credit card offers.

Using a debit card is not the same as paying cash - it's still swiping it.  So this "fact" is irrelevant.

As long as you sign for it (that is, you don't enter a PIN), debit cards have the exact same consumer protections as credit cards.

Okay. And if you can convince me with some statistics that people sign for a debit card use even HALF as much as they punch in a PIN (i.e. of all their debit card use, PIN is 66% and signing is 33%) I'll say that's somewhat relevant.

The fact is, it's not used that way, and then people don't get those protections when something goes wrong.

It's fine if you don't like credit cards, and that's your thing.  Some people can handle them, some can't, some don't want them, some do.  Those sets don't line up perfectly.  If you are one who can't handle it and/or doesn't want it, fine.  But if you can handle it and want it, you can't convince me they're bad.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

AJ

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #12 on: September 13, 2012, 05:07:05 PM »
Okay. And if you can convince me with some statistics that people sign for a debit card use even HALF as much as they punch in a PIN (i.e. of all their debit card use, PIN is 66% and signing is 33%) I'll say that's somewhat relevant.

I don't get it. Why does it matter how other people use their debit cards? The point is, when YOU use your card, it can offer just as many protections as credit. Citing consumer protections as a reason for choosing credit over debit is specious. You can choose at the POS which to use. I'm at a total loss as to why that isn't relevant w/o statistics...

There are plenty of valid reasons to choose credit over debit. My point is that consumer protections is not one of them (though it is commonly and incorrectly cited as one).

AJ

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #13 on: September 13, 2012, 05:13:25 PM »
However, because you asked and I was curious: http://www.actimize.com/index.aspx?page=news205

"Signature-based transactions accounted for 65% of all debit point-of-sale payments, versus 35% for PIN debit, up only slightly from 34.2% in 2007."

Though, the report is from 2009, so it could be different today...

arebelspy

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #14 on: September 13, 2012, 07:08:33 PM »
However, because you asked and I was curious: http://www.actimize.com/index.aspx?page=news205

"Signature-based transactions accounted for 65% of all debit point-of-sale payments, versus 35% for PIN debit, up only slightly from 34.2% in 2007."

Though, the report is from 2009, so it could be different today...

Yes, but that counts all credit card swipes in the signature based ones, no?  Just debit card usage, how much is signature versus PIN?

And the reason why it matters is because if a generic "debit cards are just as safe" is spread, one may hear that but not get the actual protections because they don't know about signing.

In any case, you automatically get all protections with credit.  So going through (slightly more) hoops with debit to get the same thing isn't a convincing argument, to me.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

ShavinItForLater

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #15 on: September 13, 2012, 10:21:25 PM »
Also, research has shown that people spend more money when they use credit cards compared to when they pay cash--it hurts more when you actually have to open up your wallet and part with real green, compared to just swiping a card like it's play money.  You can also often negotiate a cash discount if you just ask, which would usually be worth way more than the stupid points or cash rebate the credit card offers.

Using a debit card is not the same as paying cash - it's still swiping it.  So this "fact" is irrelevant.

It may be debatable how much the effect of swiping vs. handing over cash is, and how much is the knowledge that you're paying out of your account immediately vs. some time later.  The actual studies varied in their approach and conclusions:

- People who own more credit cards make larger purchases per dept. store (1979, Hirschman)
- Restuarant tips are bigger when people are paying by credit card (1986, Feinberg)
- Credit card users underestimate or forget what they paid for things more (1999, Soman)
- When asked how much they would pay for things with uncertain market value (e.g., sold out basketball game tickets), when reminders of credit cards were strewn about, people were willing to pay 50-200% more than the control group, and they were much quicker in responding with how much they would pay (1986, Feinberg, and 2000, Prelec and Simester)
- When primed to think about credit cards, people recall more about the benefits of products, and less about the monetary and non-monetary costs (2011, Chatterjee and Rose)

None of these studies directly experiment with debit cards.  Whatever effect is actually due to the credit card logos and other paraphernalia I suppose would still apply equally to debit and credit.  However, I would speculate that some of the effect is the "pay later" mentality vs. the immediate loss of cash that you might still mentally process when using a debit card--unless perhaps you have a ton of excess cash in your account, or you're so irresponsible that you're likely to overdraw your account. 

I really am playing devil's advocate though, I would be hypocritical to suggest otherwise.  For the record, we do have a slew of credit cards, we always pay off the balances in full (mostly automated drafts from our checking account), and we primarily use the "points" and cash back rewards cards.  However, our spending is also much higher than I'd like (which drives up the points/cash back), and I also travel a lot for my job which is fully reimbursed but I get to keep the rewards points from the corporate credit card.  When we get to a more mustachian spending level, the benefits of using credit cards would be vastly less.

I do wonder though, if our spending might decrease if we went to all cash, and if that reduced spending might far outweigh the points and cash rebates.  I suspect I am more susceptible to advertising and marketing and other forms of persuasion than I'd like to believe, and I might at some point try to empirically test the hypothesis.

arebelspy

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #16 on: September 13, 2012, 10:34:21 PM »
It is an interesting question.

It's not something I believe is relevant for the advanced Mustachian.

For example, I don't think MMM would spend less per year if he switched to using all cash.  But I may be wrong.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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Jamesqf

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #17 on: September 13, 2012, 10:59:16 PM »
I do wonder though, if our spending might decrease if we went to all cash, and if that reduced spending might far outweigh the points and cash rebates. 

I doubt that it would for me, but in any case, it's kind of wandering from the point I was trying to make, which is that (as far as I can see) a debit card (or even an ATM card) is functionally the same as a credit card.  It's a piece of plastic that means your name & other info is in the system.

ShavinItForLater

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #18 on: September 14, 2012, 03:42:24 AM »
It is an interesting question.

It's not something I believe is relevant for the advanced Mustachian.

For example, I don't think MMM would spend less per year if he switched to using all cash.  But I may be wrong.

If this research is onto something, using cash may cause many people to think and behave in more Mustachian ways.  For someone already at the Mustachian Kung Fu Master level, perhaps it is irrelevant, but I expect a lot of people, myself included, are here looking for ways to become more Mustachian.

Finances are not just a math problem.  I think behavior, psychology and emotions play a much larger role than the math.

arebelspy

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #19 on: September 14, 2012, 08:10:39 AM »
You quoted the response I would be having to that post.  So just read that quote again for my reply.  ;)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

AJ

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Re: Crazy America - maximize your expenses, and consumer credit is good
« Reply #20 on: September 14, 2012, 10:12:20 AM »
Yes, but that counts all credit card swipes in the signature based ones, no?  Just debit card usage, how much is signature versus PIN?

And the reason why it matters is because if a generic "debit cards are just as safe" is spread, one may hear that but not get the actual protections because they don't know about signing.

In any case, you automatically get all protections with credit.  So going through (slightly more) hoops with debit to get the same thing isn't a convincing argument, to me.

To your first point: nope, the report is just debit card usage - credit card swipes are not included.

To your second: No one is spreading a generic 'debit cards are just as safe' statement. My statement was literally prefaced with "As long as you sign for it (that is, you don't enter a PIN)..." Your statement was the one that was inaccurate and misleading, and that was what I was correcting.

To your third: There are no additional hoops. It is just using one card the same way as the other.

It sounds like you're saying credit cards are better for uninformed users because of the 'automatic' consumer protections. But if we're protecting people from themselves, wouldn't it be best to steer them to debit, since *most* credit card users carry a balance? There are two different groups we are talking about here: folks who know what they're doing (presumably most people here) and folks who don't. For the former, there are plenty of reasons to choose credit over debit. But again, consumer protections isn't one of them. For the latter group, wouldn't debit be preferable until they become informed and responsible enough with cards to join the former group? The risk of losing money to debit card fraud is significantly less than the risk of losing money to high interest rates by carrying a balance on a card.

Personally, I'd rather not get into the business of telling people what they should or shouldn't do. I'd rather just make good information available and let people make their own determination. In this case, the correct information is that signature-based debit card transactions are subject to the same regulations and protections as signature-based credit card transactions, though many many people don't know that because of false statements like the one you made.

FWIW - I use a combination of cash, a rewards debit card, and two rewards credit cards (one Amex and one Visa). I'm not anti-credit-card...