CAT | Money
Apparently the trendy thing for consumers to do now is to use cash or debit cards or checks instead of credit cards. A recent NPR report says that for the first time in a long time, Visa Debit cards surpassed Visa Credit cards. Supposedly, the rationale for using a debit versus a credit card is that if you don’t have a credit card, you won’t spend money you don’t have, because a debit card won’t let you.
I’ve got to admit I find that very silly. The only benefit of using a debit card over a credit card is forced spending control. This can easily be replaced with the slightest bit of willpower or a nagging significant other.
The costs, on the other hand, are somewhat significant. First, if you use a credit card, you can probably earn 1-3% cashback on all of your purchases. Thus, you only pay 97-99% of what the suckers using cash/debit/check are paying. Over time, that really adds up. Think about buying groceries for a family of four over the course of a year: probably $200 a week at least. If you get 2% cashback on those purchases, you get $4 per week, or $108 per year. That’s not bad for just grocery purchases. Second, if you use a credit card, you can help build your credit, which is always a good thing. Third, fraud protection on credit cards is better than on debit cards. Fourth, if you have an emergency, a credit card allows you to buy things that you need. If you cut up your credit card because you don’t have the self-control to use it, then you put yourself in danger of having no spending power when you need it. If you try to spend more than you have with debit, you’ll get nasty overdraft fees. Finally, credit cards allow you to take advantage of the time value of money – you don’t have to empty your bank account with every purchase; rather, you can keep money in your bank account, earning interest, until your credit card bill is due. I know the time value of money is not super-significant, but it’s better than nothing.
Of course, all of this assumes that you have the willpower to only spend as much as you can pay for every month. If you pay less than your full balance, then you’ll probably spend more than the benefits of a credit card. But if you’re already doing that with a debit card, why not just spend as much with a credit card as you would with a debit card? Is it really that hard not to go crazy with a credit card?
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Shopping for a Car – the Prisoner’s Dilemma
4 Comments | Posted by George in Econ, Environment, Lifestyle, Money
My car is currently on its deathbed. My 1990 Toyota Camry has been so good to me for so long. However, I took it in to a repair shop a few weeks ago because I thought the rear cylinders were leaking. I wasn’t too worried because rear cylinder repairs are only a couple hundred bucks.
Turns out I was right… sort of. Not only were the rear cylinders leaking (slightly), but both front CV joints on my car are cracked, I have a bunch of “valve issues” and I’ve got oil leaking on my timing belt. Total projected repair cost: $1800. My car’s blue book value: sub $500. So I’ve come to the conclusion, that sometime in the near future, I need to find another car.
I’ve been looking around at new and used cars, and I’m probably going to go with the smallest, cheapest, most reliable thing out there, as I am a law student rapidly accumulating debt. However, the one aspect of this decision that bothers me the most is that because the average car on the road is getting bigger, and more and more people are driving SUVs, roads have become more dangerous for drivers of smaller cars. Essentially, it’s a prisoner’s dilemma of safety. All else equal, you can be safer if you drive a bigger car, at the cost of making everyone else less safe. The irony is that if everyone drives bigger cars, then we’re all just as safe as if we all drove smaller cars (or maybe even less safe if you factor in the increased likelihood of flipping over), because with each additional larger car on the road, there is an increased risk of being hit by a larger car, which will cause more damage than an equivalent accident with a smaller car.
Honestly, this will not affect my decision. Because I believe that pollution, resource depletion, and congestion are such serious problems, I would be a hypocrite to go out and buy a big car. Plus, the probability of getting into an accident where the “safety rating” of your car is an issue is insignificant – despite what commercials tell us.
Yet I can see how many people, especially those with families, choose to buy a bigger car primarily for safety concerns. Ironically, the danger they are trying to protect against is generated by other people, just like them, who are trying to be safe.
I see so many commercials from car insurance companies that say: “People who switched to this insurance saved $x on average.” That is, for the most part, a pretty worthless statement. Why would anyone switch to a different car insurance provider if it cost more money? They all essentially provide the same product. Thus, the statement that people who switched to this insurance saved $x on average says this: people with particular characteristics switch to insurance companies whose insurance algorithm favors those characteristics. In other words, car insurance customers act rationally.
Additionally, if you are a good driver, you should be dissuaded by an insurance company who offers “accident forgiveness.” An insurance company is going to have to cover their costs one way or another. If they don’t increase premiums for someone’s first accident, that just means they are using everyone else’s premiums as a whole to subsidize that person. So if you are a good driver who doesn’t get in any accidents, this is not a good thing. It’s not like a company who offers accident forgiveness is less profit hungry.
I drove home from Blacksburg, VA to Arlington, VA this past Monday and averaged 40.75 miles per gallon. I was pleasantly surprised, as I drive a 1990 Toyota Camry that is rated around 32 mpg highway.
I think the reason for this was drafting off a truck the entire way. Although drafting off of passenger vehicles is generally not recommended, because if they slam on the brakes, you’re in trouble; drafting behind a truck is significantly safer because trucks take a long time to slow to a stop, so if you see brake lights you’re not necessarily doomed. In addition, trucks are huge and block a lot of wind.
Anywho, there was a truck driving 75 mph for 200 miles of my journey, so I just sat behind him. When I filled up upon arriving home, I calculated that I had averaged 40.75 mpg. My recommendation is if you happen to have a truck driving near you on a highway, it might not be a bad idea to draft off of the truck to save some fuel.
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Gas Prices Moving up to $3/gallon again… is this surprising?
1 Comment | Posted by George in Environment, Money
Apparently, gas prices rising as spring and summer approach, as they do every year, surprises some people, as does the fact that the long term trend of gasoline prices is unquestionably upward. In an article about these high gas prices that I read today on Yahoo news, there were some interesting quotes.
“It kills me,” said Gloria Nunez, 53, as she filled her Ford Explorer SUV at a San Jose gas station. Nunez, a clerk for a communications company, has started working a couple hours of overtime each week to help soften the blow.
“All of a sudden you kind of have to watch your pennies,” she said.
It might not kill you, Gloria, if you made a tiny sacrifice and bought a smaller car. And guess what… you’d save money on your initial car purchase over a Ford Explorer, and save money on gas!
Several customers at a Mobil station in St. Petersburg, Fla., were upset because there seemed to be no real reason for the price increase…
“Katrina, I can understand,” Franc said. “I didn’t see a very good explanation this time. You hear so many excuses it gets to where you don’t believe anything anymore.”
News flash, Franc. Gas prices are volatile in the short term – sometimes they move upward or downward quickly.
He’s been considering buying an SUV for personal use, but thinks with gas prices rising he’ll start researching hybrid vehicles.
Thank goodness!
