The power of cash

I like cash.

I don’t mean that I like money, which actually I do, but I mean I still like having notes in my wallet. I also like online banking, cellphone banking, eWallet and all the other modern ways of moving money from A to B. But I still like cash.

I like it because it makes life easier in filling stations (I have an irrational fear of filling up and then finding that their point of sale devices aren’t working), coffee shops (where I spend much of my life) and, most importantly, any place where I want to leave a tip.

Someone contacted us recently about the issue of tipping. She asked:

“Please advise. I had a conversation with a waiter who told me that if a client pays with a card and the tip is included in the bill they are charged for the POS transaction, i.e. the waiter pays for the POS transaction. I found that very weird. So what the restaurant has done is they have passed on the 3% that they get charged to the waiter. Another scenario is that if a customer walks in has meal and for whatever reason the customer doesn't pay, and comes back they following day to pay they get a P200 fine. These kids don't earn much and all of this isn't fair according to the way I see it.”

If this is true then I share her outrage. It’s immoral, indecent and just plain wrong to punish the waiter because a customer decided to pay with their card. Yes, we probably all know that the bank charge a small fee to a store that uses a point of sale device, but that’s the cost of doing business, something the business should accept. Passing on that cost to the waiter is disgraceful.

Maybe there’s a very good reason for always carrying some cash to tip the waiters in that restaurant. In fact let’s just do that in every restaurant until we can make sure that no restaurant is behaving so badly.

Cash is also good in another sense. This time I don’t mean notes and coins but I mean money that’s yours, not someone else’s.

People sometimes accuse me of being obsessed by certain subjects and it’s possible I do repeat myself about them but that’s because I believe they’re important. I won’t stop talking about scams, Ponzi schemes and pyramid schemes, multi-level marketing schemes and so-called “alternative” health products because I sincerely believe (and I’m right) that they threaten our well-being.

But a more direct threat to the average guy is something more ordinary, more mundane.

Hire purchase.

I know I’ve written this before but I make no apology for doing so again. And again and again. Hire purchase is the worst possible way of buying something. It really is.

To begin with there’s something that stores don’t explain fully and is often hidden deep in the hire purchase contract you sign. The goods you buy don’t belong to you until you pay the final instalment. Until that moment, the stove, fridge, TV or laptop you think belongs to you in fact still belongs to the store. That’s why it’s called “hire” purchase. For the two years you’re struggling to make the monthly payments, you’re just hiring the item. That’s why, if you default, the store is entitled to come and repossess it without going to court. All they’re doing is taking possession of something they own, not you.

Another thing they often don’t make perfectly clear is that if they repossess the goods, the debt doesn’t disappear. You’ll still owe either close to the outstanding balance or perhaps even more.

Let’s do the maths. Let’s say you take a liking to a TV that is on sale in a store for cash for P3,000. If you buy it on hire purchase you’ll probably spend twice the cash price, let’s assume a total of P6,000.

I’m not making this up. Already you’re paying 100% more than the cash price, just for the convenience of hiring a TV that, once you finally own it, will be two years old and that would have cost you P3,000 more than if you’d bought it for cash.

But’s only if you’re lucky not to lose your job, have your business collapse or suddenly have a disaster that meant you can’t make the payments.

If any of these things happened, maybe after a year, halfway through the hire purchase period, the store can just come round to your house and take it back. No court order, no deputy sheriff, no procedure, just a guy in a truck taking your TV away. And you still owe them half the total cost, still P3,000.

What they then do is sell the TV to recover some of the money you still owe them. But remember that the TV is now a year old, second hand and probably not in perfect condition. If you’re lucky they’ll get P500 for it. That leaves you still owing P2,500.

What often now happens is that the consumer thinks it’s all over. The TV has been repossessed so they think the debt has gone with it. Wrong. What happens is that the debt actually increases as the store adds on interest, penalties, debt collection costs and the fees charged by the law firm they’ll eventually engage. At the very least the charges will exceed the money they got from selling the TV, leaving you owing exactly what you would have owed if you still had the TV, probably a lot more. But you don’t still have the TV. You’re paying for an empty space in your sitting room.

The solution is simple. Don’t buy things on hire purchase. If you possibly can, save the same amount of money you’d spend on hire purchase for a year and you can then buy the thing for cash. If you can’t wait that long then buy something second-hand. Whatever you do, don’t sign a hire purchase agreement. It’ll cost you an enormous amount of cash you could be spending on something much better. Like living a financially stable lifestyle.