Poor people make poor choices. I suspect most of their poor choices are made because no one was or is there to help them make better choices. I believe that there needs to be help provided to instill common sense into their financial decision making. But as my MBA friend once said, “Common sense is not common”.
Here’s an example of what I mean.
I was watching TV and one of those “Make a low payment and own some piece of crap” commercial was on. The one that I’ll illustrate here was a woman saying “I bought a Playstation for my kids for only $15 a week!”. Let’s examine the STUPIDITY of buying from this lender to the poor.
I looked up on Amazon a Playstation 4 with some games and it’s $347.69. I also looked up the website, Flexshopper.com, that ran the TV ad. It currently shows the SAME Playstation for $17 per week.
Now $17 dollars a week for a year is 52 payments which makes the total CASH outlay of $884!! That’s well North of double the price of the stupid toy. If the woman just put aside that $17 every week she could buy the console in 20 weeks, just 5 months. At the end of the year she’d have $544 extra dollars in her pocketbook.
Just for fun I did the calculations for $347.69 to figure out what interest rate a poor person is paying. It works out to annual rate of 226% !!!!
WTF? 226% is one heck of a return on investment for that predatory lender. The best CD rate right now is 1.5%. Home loans are about 4%. Used car loans are around 7%. And they say used car salesmen are scum! If we make an assumptions of 40% markup to the cost of goods, $248.35 is the wholesale price for the $347.69 retail toy. The actual annual rate of return is closer to 343%. Not too bad in my book. Can you say “Loan Shark”? The “Easy Pay” sleazes are only one group of people that are financially RAPING the poor with predatory lending practices.
I’m a free market kind of guy and I’m not sure I would advocate legislating predatory lenders out of business. But it does trouble me that there are people who are getting wealthy preying on the ill-informed. I will say that Flexshopper is better than some other of these bottom feeders in that they do show in small type right below the payment amount, the total cost of the “loan”. If someone chooses to buy from them, as Forrest Gump said, “Stupid is as stupid does”. I looked up some other “easy payment” outfits that advertise heavily on TV, Rentacenter and Fingerhut, and it’s difficult to figure out their terms. Rentacenter’s website makes you fill out an application before they’ll show the price which is total BS, in my opinion. Fingerhut buries the payment terms in their website.
What’s my solution? There needs to be an educational focus on how to make wise financial decisions. Sorry Hillary and Bernie but free college IS NOT the answer to the elimination of poverty, There needs to be education to stop the financial enslavement of the poor.
Let’s play one more financial game. Let’s say the young 25 year old mother took the EXTRA $544 a year and put it into an Individual Retirement Account, IRA, each year and worked until she was 70. If the rate of return was 7% she would end up with $166,329 in her account. If she didn’t buy the Playstation at all and put the full $884 per year into the IRA, she’d end up with over $270,000!!! All of that money, well over a QUARTER MILLION DOLLAR$, can be hers for NOT making JUST ONE stupid purchase per year!
Why is there no outcry from EITHER PROGRESSIVES OR CONSERVATIVES to end this ENSLAVEMENT in poverty?