QUESTION: My parents tell me that I should start saving. But I tell them that unlike their time, there is so much temptation nowadays that are very hard to resist, not to mention the gadgets that can really make life a lot easier. Am I not right? – asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.
Answer: Both you and your parents are correct.
You should save and bundle it with investing as this is the surefire way of achieving many of the more important goals that people have. On the other hand, there are more obstacles now than before to saving and investing.
While it is true that many things today can make life a lot easier than the days of old (e.g. washing machines vs. hand washing, computers vs. typewriters, text messaging vs. paging), it is the timing of purchases of such things that can throw us off our personal finance track. And retailers have a lot to do with that.
Now don’t get me wrong. Retailers are not bad people. In fact, like you and I, they too have to make a living. But they have to play fair. I’ll give you examples.
What is the deal with this 0 percent interest on gadgets, appliances and furniture?
The 0 percent is based on the suggested retail price (SRP) divided by the number of months of installment. But when I ask if there is a cash price, these retailers will typically quote an amount lower than the SRP.
If that is the case, then there is interest because the total of the installment amounts will be higher than the cash price.
But cash price is not shown on the price tag. Only the SRP is indicated as retailers hide behind the reasoning that the price tag under R.A. 7394 (otherwise known as the Consumer Act of the Philippines) is “to discourage and minimize haggling which is a waste of time and energy of both buyer and seller.”
Come on, even large companies haggle so why can’t the end consumer do the same.
By the way, the number zero (and its variations like buy one, take one) is the most powerful number in consumer finance. It gives people the signal that items can be enjoyed now at a much lower (financing) cost.
What about those selling electronic items with warranties of only seven days. And when you find what you bought as defective, they will only replace the item and not refund your money.
R.A. 7394 says that “consumers are entitled to either an exchange or refund, as long as there is a defect in the quality of goods or imperfection in the service.”
What is not allowed is if the consumer merely changes his mind on what he bought and wants to return the item or have it replaced with another.
However, if you want to press your rights on an exchange or refund, it will be a tedious process with the appropriate regulator.
What about the ease with which consumer loans are being granted? Isn’t that a good thing? Yes but you better watch it.
Again, R.A. 7394 states that any consumer loan may be repaid at any time and without penalty. But some lenders still go by anniversary or loan release dates as the dates when loan payments can be accelerated or the loan fully settled before the last installment date.
In addition, some lenders get away with still charging penalties for full loan prepayments by calling such penalties processing fees. Have you ever heard the expression “If it looks like a duck, walks like a duck and quacks like a duck, it is a duck”?
Some lenders use the tactic of quoting their effective lending rates in equivalent add-on-rate.
While this is allowed, the Truth in Lending Act requires that all of the cost of the loan must be disclosed to the borrower before the loan is contracted.
Some fail to do so while others simply ignore the law because they are informal lenders.
A 0.99 percent add-on-rate is not 11.88 percent a year (i.e. 0.99% x 12 months) for a 12-month loan but effectively 21 percent a year (i.e. not counting loan processing fees).
Even in investing, some investments still quote their simple (not compounded annual) investment returns since their inception.
This return is misleading because that number just keeps on getting larger and larger without taking into consideration the length of time it was computed.
The bottom line is that consumers like you will need to get smarter in the face of all these tactics of retailers that detract us from the more important tasks of saving and investing.
I am inviting you and anyone else who reads this column to restore power to the consumer.
Do not patronize those who do not at least mention the cash price before the sale, who offer very short warranty periods and refuse to accept refunds, who refuse advance or prepayment of loans outside of anniversary dates, those who still charge loan prepayment penalties under the guise of loan processing fees, those who still do not disclose the full cost of loans, and those who focus on meaningless returns.
If you want to know more about personal finance for consumer empowerment, avail yourself of our free tools at www.personalfinance.ph. You may also check out our personal finance training schedules.
(Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to efren@personalfinance.ph. Learn more about investments, budgeting and retirement at 4th Financial Fitness Forum 2016 at SMX Aura on March 12. For more details, inquire at info@rfp.ph or text <name><email><RFP> at . 0917-9689774)