Vinnie the Loan Shark: Citizen of the Year

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Vinnie the Loan Shark (DepositPhotos).

By Horst Siegler

Special to the Financial Independence Hub

The most important definitions are not found in the dictionary; they are the ones you make for yourself to serve your purposes.

You first encountered this idea when your mother told you to clean your room. When you thought you were done she made you clean it some more. The problem was not with the room; the problem was she had a different idea of what a clean room meant (it didn’t mean shove everything under the bed or into the closet and close the door). Besides, you wanted to get outside to play and she wanted the room tidy.

In a posting titled How Findependence differs from Retirement, Jonathan Chevreau makes a case for how he believes the two words are different and why. He argues that you might be financially independent before you retire because you no longer work for a salary. Some who retire need to continue to work because their income doesn’t meet their needs. His definitions for the words are his own.

Credit cards as “survival tools”

The article about credit cards in a posting titled Credit Cards as ‘survival’ Tools? is all about definitions. It outlines how the ideas (definitions) around debt, how people spend and save, and what each means to a different generation have all changed. It shows how credit cards now function as a survival tool, how people are becoming comfortable with debt and how living for today has replaced planning for tomorrow.

People are obviously using the words in a very different way from that of a previous generation. In addition, it seems clear they are not using the “dictionary” definitions of the words but ones they made up for themselves to suit their purposes. And this is the important part.

Feeble justifications for spending money you don’t have

People will justify spending money they don’t have and running a balance on their credit cards because, for example, “it is more important to have a good time with your friends than to pay off your balance.” Hidden in this justification are their definitions for what they consider important. It contains a good measure of denial as well.

People don’t seem to realize when they make a purchase on their credit cards and run a balance they aren’t buying anything. They are taking out a loan for the purchase and the loan carries with it a crippling interest rate. Most consumer credit cards have an interest rate in the 20% range. If you received 20% on your savings / investments, your money would double in just over three years. Wouldn’t that be nice!

On a balance of $10,000 the minimum payment is about $250 on the average credit card. It will take you more than 60 years to pay off the balance and you will pay in the neighbourhood of $160,000 over that time. Just think for a moment. You would be paying the credit-card company the entire balance 16 times over. Always assuming, of course, you make no further purchases.

At least you know up front that Vinnie will rip you off

Vinnie the Loan Shark looks like a candidate for Citizen of the Year by comparison to the interest rates charged by credit-card companies, the banks, financial institutions and merchants. With Vinnie you know you’re getting ripped off and paying unconscionable interest on your loan. You know he’s a crook. You know you’re going to suffer if you don’t make the payments.

We don’t think of our financial institutions this way. Maybe we should. Maybe we should come up with a whole new set of definitions around our money, credit cards, interest rates and what we consider important in our financial universe.

Nothing smart about running a credit-card balance

A very frightening statement in the “Credit Cards as survival Tools?” article is that lots of “smart, hardworking people who are careful with spending also have a lot of credit-card debt.” How people who run a balance on their credit cards are deemed “smart” or “careful with spending” is beyond me. My definitions of “smart” and “careful with spending” seem to be a good deal different from the person who expressed them.

When you sit down to fashion your financial plan make sure you (and your partner and your financial team) are using words that mean the same to all of you. If not, find people who do. You should all be on the same page. And it’s a page that uses definitions that make it easier for you to achieve your financial goals. It is, after all, your financial security and future happiness that matters, not someone else’s.

Remember what I used to tell my students, “You live with yourself the longest. You may as well be happy.”

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Horst Siegler

Horst Siegler is a retired teacher, carpenter, commercial photographer and coach. His financial advice, which he has put to good use for his family, can be found in greater detail in two books titled “Bet on Yourself to Build Wealth.” The general reader version can be found and previewed here and the student / young adult version here.

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