It’ll soon be the season of goodwill, which also seems to bring about exceptional financial muppetry for some reason. A few years ago it was Shona Sibary and her excessive brood that was financial folly du jour, along with TV producer Charlotte and a few also-rans. Along with running articles on how you can get to retire early, we’ve had a few on people who don’t seem to be planning on retiring ever.
I was tickled by this young 30-year old singleton living with her parents. Now I have some sympathy for her original plight of living in London on 40k a year. If you don’t want to share your living costs with other people, be they a partner or some sort of shared housing/flatshare arrangement, I can believe 40k isn’t enough to live in London. What’s a girl to do in such a quandary? Clearing off back home to live with Mum and Dad seems like an eminently sensible thing to do. Hats off to her for effective action in the face of adversity.
I also have to admire that she doesn’t have a credit card because she’s too worried about ending up in debt. Wise move, that. But where I am totally nonplussed is that of her £2200 pcm take home,
By the time I’ve paid rent, done some food shopping (I want to pay my way as much as I can), settled my phone bill and insured, taxed and put petrol in my car, there’s not a great deal left.
I mean FFS? Let’s leave aside the breathless insouciance of not getting that: hitting Bank of M&D for a few hundred sods a month for foreseeable expenses like eating and car maintenance is not paying your own way by any of the usual definitions of the term.
An ermine spent some £400 on road tax and insurance and £1k on servicing and fuel last year. My phone bill is some £50 a month, so that’s about £2k p.a. Let’s say that’s £200 a month. Leaves our heroine with £2k a month. Say she spends £1000 a month on drinking with her workmates and clothes, and surely the reduced rent to Mum and Dad plus food can’t eat up the remaining £1k. I’d say our young lady has a serious drugs habit she’s not letting on about if it’s really true that none of the £2200 a month actually sticks to the sides. There’s precious little detail about what she actually does spend it on, this is Grazia, after all, which seems to have little detail about anything. It did, however, introduce me to the latest wheeze to part the financially naive from their hard-earned:
Klarna – a buy-now pay later app
As I was considering a corduroy pink boiler suit in the Topshop Black Friday pre-sales, under the Add to Basket button, a rectangular box winked at me: “Pretend it’s pay day! Pay ⅓ now and the rest later”. That’s Klarna.
I confess I’ve read the entire article, and looked at the Klarna website, and it looks like a credit account that’s restricted in stores you can use it to pay. It absolutely beats the hell out of me why on earth you would want to do that, but if a subset of Millennials really are so gormless that they find ease of use of payment so important to them that they will take these restrictions lying down, then they deserved everything that’s coming to them, quite frankly. A jolly good shafting, by the looks of it.
Financial Friction is your Friend
There’s a strong hint that Klarna’s bad for your wealth right in the rubric here
Klarna is the millennial store card, designed for a generation who want things as easily as possible, or in Klarna’s words “a frictionless buying experience”
You want friction in the buying experience. It throws sand in the wheels of your advertising-addled monkey-brain. One of the wins I had in racking back my spending was the simple addition of controlled friction. If it cost more that £100, I wrote it down on a piece of paper with a date. Allow a week to pass. If it still looks like a good idea a week later, go get it. It’s really quite amazing how many things don’t look like such a good idea a week later. Hours of your life died to earn that money. Honour the sacrifice by taking the time out to think. Obviously if it’s a piece of safety equipment or it’s going to save life right now then go right ahead, but most purchases really aren’t that urgent. A little bit of sand in the wheels of the Iwantitnow reflex doesn’t hurt. Nowadays I can get away with 24 hours, but the week cooling-off period is a good one to break the I-want-it-now habit at the start.
Klarna is good for them. It’s not good for you. Much of Grazie’s article is spent talking about how great it is to be able to ‘buy’ a gazillion sizes, try out the ones that fit and return the others, without having to front the money. In the old days you could do that in the store, it was called a changing room. But fair enough, I geddit, things change, Millennials live busy lives and don’t do face to face, life is lived best through the screen of a smartphone. What I can’t get is what does Klarna do here that my trusty credit card can’t.
If I buy five pairs of high heels just after I pay the card off, I get well over a month before I even need to think about paying back my flexible friend. That’s probably long enough to find out which four pairs will give me bunions and return the buggers for a refund 1
a hard credit search each time you want to slice it
But the worst thing about Klarna is that say I am Grazie’s Sian, and while Klarna lets me return 9 out of my 10 items without raising the capital up front, I still decide that I need to slice it because my 40k salary is insufficient to buy myself all the things and experiences I wish to have in my young life. Each and every time Sian hits the old ‘slice it’ button, that’s a new hard credit search. Since she’s in the habit of spending more than she earns, that’s a new hard credit search every month, if not every purchase.
In comparison, if a grizzled Ermine decides to slice it, that’s called ‘not paying off the credit card in full every month’. No new credit search, just business as usual. It’s a stupid way of living for all the usual reasons, but were I saving for my house deposit then when I get to ask for a mortgage the bank isn’t going to go ‘Holy cow, 12 hard credit searches in the last year, no way am I lending this punter a single lousy penny, never mind a couple hundred grand’.
Nobody will lend me any money, because I have virtually zero income. The last time a hard credit search for ‘would you lend this mustelid any money’ was run on me was when I took out my credit cards, which was when I was still employed – it’s getting on for over ten years now. I took a look for credit searches on me. They are all for insurance and ID qualification, plus one for Starling bank. Who then go on to lie about my balance, saying it’s £0. It’s £2500 FFS, because they pay me a gnat’s cock of interest on the current account as well as being the solution to not getting receipts for contactless payments. They also don’t charge me stupid amount for using the card abroad 2.
Over There and Overindebted
Everything’s bigger in the States – houses, hot dogs, cars, and debt. And Financial Folly in the pseudonymous Kate and Tom. The problem is simple. Too many snowflake kids, too many airs about the kids, too much house.
Our first house was perfectly fine, but I was pregnant with our third child, and we had three bedrooms in that house and wanted a fourth.
They could probably afford the kids – just save the $15k pa each that goes on private schooling and give it to them as a bounty on reaching 21. See Rule 5 later on
But we have a good deal — we’ll pay $15,000 for the three of them. But, of course, it’s all going back on credit. There’s a company that offers educational loans for private school.
I love the way he claims to be good for $90k a year, and get works as a bartender at night. I mean, how does that bartending job even get to shift the needle on the dial? Then there’s this sort of addled thinking:
Tom: To be fair, we do try to save money where we can. We had a lease on a minivan that was costing us $405 a month that we just downsized to a $208 car.
Kate: We always lease cars. Honestly, we can’t afford repairs. If our car broke down, we wouldn’t have the $3,000 to fix it. We need to have that high car payment because, frankly, we are not good enough with money to have savings.
Dudes, it’s simple. If you need to lease a car, you can’t afford to drive one. End of. Sure, if you could afford to buy one, but choose to lease, well, perhaps you get the new car smell more often. I pay too much for some things, because I can’t be arsed to squeeze the lemon on everything. I can afford to do that because I don’t borrow money for these things.
These guys aren’t stupid and they’re earning a decent screw. They’re playing a strong hand incredibly badly.
More and more I start to wonder if the road to financial success is far less about what you do do. It’s a tough one – in nearly all other endeavours you progress by getting better at what you do do. With money, an individual surrounded by clever people manipulating the atavistic monkey-brain with advertising, social media FOMO and people who want your money finds themselves in an unfair fight. It’s what you don’t do that matters:
Rule 1: Don’t spend more than you earn
Rule 2: if you really must break Rule 1, then not on wasting assets. Sadly wasting assets often includes education nowadays
Rule 3: Don’t lock in commitments you can’t afford
Rule 4: Never own anything that eats while you sleep
Rule 5: invest in your children. Teach them the skills to be self-sufficient adults
The writers of The Millionaire Next Door bring out rule 5 of unassuming millionaires: Their adult children are economically self-sufficient.
None of that is about investing. You gotta plug enough of the holes in the bucket to stop running out of month before you run out of money.