3/1/08

Don't Waste Money Through Thoughtlessness: A Rant

The other day I passed by an HSBC bank that had a funny little ad in the window. It said "take advantage of our low $1.50 ATM fee." I'm not old, and even I remember when a $1.50 ATM fee was thought to be expensive. Nowadays most bank ATM fees are around $3. (If interested in articles about bank abuses, check out John Crenshaw's site.)

I try to use my bank's ATM, which is still free. (Banks haven't been audacious enough to charge their own customers yet, at least for withdrawals. Charges for checking one's balance are not uncommon, however.) Occasionally, I'm forced to use other banks' ATMs. When waiting in line, I sometimes look at the discarded withdrawal receipts people leave on the counter and floor.

It seems people like to withdraw $10 or $20, and they pay up to $3 to do so. That's 30% on a $10 withdrawal! Perhaps some of them needed just that much cash and no more, and needed it quickly. Others, however, are repeat customers. What's wrong with these people? Why not take out $60 right away, and save the extra $15 by not going back to the ATM for a while?

We don't notice small fees, but they add up quickly. Consider that if one uses an ATM to withdraw $10 for a $1.50 fee every week day, they're spending $7.50 a week, or $390 a year to get their own money. That can be the price of a decent daily lunch--that's what they're using the cash for anyway.

The ATM isn't the only place I see such foolishness. Various packaged products at supermarkets, such as beverages and yogurt, come in various sizes. For example, one product may come in 8oz and 16oz packages. The prices, if you notice, are often higher per ounce for the smaller package. For example, it might cost $1.10 while the 16oz sells for $2.00. I marvel when I see people get two of the smaller package instead of one large one. You might say it's for convenience that they're willing to pay more, but this happens with food that has relatively short expiration dates.

Another example, where I live in New York City, is transportation fares. We have MetroCards, manufactored by Cubic (CUB) (which also does defense contracting), which we use to get on buses and subways. The fare is $2. You can put as much money as you want on a regular fare MetroCard, from $4 to $80. For every $10 you put on your card, $2 extra are added for free--you get a free ride for every $10 on your card.

One would think that everyone would put at least $10 on their card. It's the rational thing to do. It's not at all the case. People put $4, or $6. But why? Yes, some people may only need two or three rides and will never use the transportation system again. I'm not concerned with these, who are mostly tourists anyway. What strikes me is that I see the same people at the subway station doing this on a regular basis. It could be that they're so poor that they can only afford to use $6 at a time, but they would benefit the most out of all income groups by diverting the $4 from their other expenses.

Nevertheless, it's people wearing professional clothing that do this the most. Using the subway five days a week, at 4 dollars a day, they're spending $20 a week, or $1040 a year. If they were to buy a $20 MetroCard every week instead, they'd get 2 free rides a week, which would add up to $208 in savings. That is, instead of spending $1040 a year, they'd spend $832 for the same exact thing. The savings could be invested or spent on Christmas gifts, etc.

Another example is people who use their credit cards to buy things on sale because they are on sale (to save money, apparently), and then pay the minimum amount on their bill. Where's the logic in that?

Consider a last example--brokerage fees. Are those people who pay $15.95 a trade really getting anything better than those paying $7, or better yet, $4.95 a trade or less? I've used Scottrade and TradeKing. I don't see why Scottrade is worth over 41% more per trade than TradeKing. (I'm thinking of trying SogoTrade, which has an even lower trading fee than TradeKing.)

The above are just some examples; there are plenty more. Most of us, some more often than not, commit silly errors. We overpay or don't take advantage of discounts (which is overpaying). Individually, our over payments may not seem like much, but they do add up. This is especially true for those of us who get paid by the hour.

Nothing above should be news to anyone. But it's helpful to be reminded of it once in a while.