We Collect Interest

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It is our last night on the Carnival Legend.

It has been a delightful ten day cruise to Mexico, Costa Rica, Panama, and Honduras. This has been my sixth cruise and Tim’s fourth. The next one is already booked in September to Alaska from San Francisco! With this being the longest cruise we’ve ever taken, I have noticed some tremendous differences in the general population of the ship.

Our first cruise together was 5 days and had a much lower concentration of older people, as well as a much higher concentration of children. What stands out to me most from that trip, though, was not a conversation I had; it was a conversation I overheard. We were browsing the shops along with the thousands of other tourists that flooded the port in Cozumel, Mexico that day, and we were in a jewelry store. (As I started to write this, I had to think back to what we were doing in a jewelry store in the first place. Ahhhhhh yes – the air conditioning worked very well in that store.) A woman had evidently selected a sparkly something to purchase and she was discussing it with a man whom one would probably correctly assume was her significant other or spouse. I don’t recall it word for word, but it went something like this:

Person A:“I love these earrings and they are $800. I’ve always wanted a pair just like this. When we buy them here, they’re not just less expensive - we don’t have to pay taxes on them.”

Person B:“We made a payment on the credit card before we left for the cruise, so there is some room on it, and I can get an advance on my next paycheck on my phone. Plus, you might get that job and we’ll have that check, too.”

I know this is not exact, but I swear that I am not exaggerating this conversation. I clearly remember thinking about how they were spending money they hadn’t earned yet with the cash advance, pay from a job she didn’t even have yet, if at all, and the little bit of room they made on the credit card balance would round out the purchase… of earrings. On a cruise vacation. The layers of complexity regarding how these people seem to think about and utilize money are absolutely worthy of unpacking.

1. It’s tough for me to think of a purchase that is less of a necessity than earrings. There is no utilitarian purpose for piercing ears; it is strictly ornamental. Plus, you can get a whole package of earrings that will do the job of maintaining pierced ears and ornamenting your head for a few dollars. Further, it’s simply not a tragedy if the completely useless and optional holes I’ve put in my ears heal over.
   Do we all have the right to feel good and attractive in our own skin? Absolutely. But this conversation does not reflect positive money habits.

2. The couple seemed very enamored with the idea of not paying taxes on the purchase because of the location in which it was to be made. You know what else saves money on sales tax? Not buying anything. That saves not just the taxes but also the whole purchase price!
   Is there anything inherently wrong with spending $800 on earrings? Or any amount of money on anything legal and ethical? No, the purchase in and of itself is not the problem, nor is the price. I personally cannot imagine spending so much on earrings because I notoriously lose them, or get tired of them and take them off all over our house and in our cars. But I’m not much for jewelry anyway, which is why I had to think hard about what we were doing in a jewelry store.

3. I won’t get into the cost of their cruise because a cruise doesn’t have to be an expensive vacation. We paid less for this one than we would have spent on a week of groceries. Also, they may not have paid for the cruise. It’s possible it was a gift or a prize or some other explanation. So I’ll give them the benefit of the doubt there and I won’t pick on them about the strong potential that their credit card was maxed out because they paid for a cruise that it doesn’t sound like they could afford.

4. I hate payday advances. I know that “hate” is a strong word, but it is not strong enough in this instance. Years ago I had a friend who listed me as a contact when she took a payday advance. Every two weeks, the advance company called to ask me to let her know that they were looking for her. Every two weeks she was trying to scrape together the funds to make her payment to them so they wouldn’t call me about finding her. I really didn’t care at all about the calls. I hated for her to have to pay them something like $47 every two weeks to “renew” her loan because she couldn’t ever seem to pay it off. I think that literally went on for years. She paid thousands of dollars to “renew” what had been an advance of less than $200 in the first place. I eventually lost touch with the friend, but the advance company still called for a good while.
   More than once I have paid off an advance for someone I love on the condition that they swear an oath never to darken the doorway of one of those places again. I’m not mad at the payday advance companies; I’m mad at systems that don’t teach people why not to use them and how not to.

5. I have no idea what those two people did for work, but I sure wouldn’t want to wear desperation to a job interview. The human mind is largely incapable of putting our best selves forward with something looming in our heads like, “I have to land this job to pay for those earrings.” These folks were evidently spending a paycheck from a job that hadn’t even been offered.
   Now look, when I know money is coming, I joke that I have spent it a hundred times over in my mind. IN MY MIND. Not in reality!
   Fun dinner conversation suggestion: ask everyone at the table, “If money was no object and you didn’t need to earn it, what would you choose to do with your time?”

6. Many people are surprised to learn that I do not hate credit cards. I am actually a pretty big fan of them and pay for almost everything with credit cards. Credit card points paid for our round trip airfare to reach the port for this cruise we are wrapping up. I have dozens of credit cards and I track their rewards, points, interest rates, due dates, balances, limits, and other related data. That’s correct: I have multiple dozens of credit cards. 0% interest offers are called “golden tickets” at my house because they arrive by mail and I celebrate them like Charlie’s ticket to Willy Wonka’s chocolate factory. I love using someone else’s money for 18 months for a 3% one time flat fee. However, as I made the statement to a family member not long ago, “We don’t pay interest, love. We collect it.”
   That’s not a completely accurate statement because I do borrow money and pay interest on funds used for assets that appreciate and/or earn income, like real estate, for example. However, the current average credit card interest rate in the US is about 20%. Nope. Not for a pair of earrings on a credit card that is just barely under its maximum balance, and is about to be maxed out again. I far prefer to be the lender collecting the interest rather than the borrower paying it.

Again, there is nothing inherently wrong with the purchase this couple was contemplating. But I could write months of newsletters about what was wrong with that conversation.

If you want to learn more about money and how we think about it, don’t forget to tune into The Money & Markets 101 Playbook: How Capital, Credit, Policy, and Psychology Shape Wealth on Sunday night, when this is the exact topic I will be teaching.

Tim is definitely not snoring again as I write this, but I think there is a small motor inside his pillow that I have mistaken for the sounds of snoring. Home to my three dogs tomorrow!!! Wish us luck at the airports. We’ve heard we’re going to need it.