One of the most dangerous lies in all of finance and economics is the implied myth that inflation somehow “destroys” wealth. It doesn’t. Inflation doesn’t hurt everyone equally — inflation helps some and hurts others.

Inflation is actually one of the biggest reasons large corporations are so powerful in society. The government and big banks use inflation to force people to spend their money and go into as much debt as they can afford.

But how does it all work? Before we answer that, let’s first look at a parable. Some things are best learned in a story format, and inflation is one of those.

The Saver and the Slave: An Inflation Story

There were once two men who were neighbors. Their names were “Jack” and “John”.

Jack was a saver. He spent his entire life saving every penny he could get his hands on. He saved money with coupons, saved money by buying stuff only in off-seasons, saved money by spending as little as he could, etc. He was a saver. By the time he was 45, he had saved exactly $100,000.

John was a spender. He spent every dime he ever earned. Back in his 20s, he even took out a $100,000 loan, and bought two houses with it. He never used coupons, never looked at prices before buying anything, and wore nicer clothes.

During this time, inflation started to hit in. Inflation was fairly high. By the time Jack and John were 45, inflation destroyed 90% of the value of the US dollar.

For Jack, this was disastrous. He spent his whole life saving $100,000, and suddenly it was worth only 10% of what it should have been worth. This means that rather than having 100k it was as though he only had 10k. Not enough to even buy a house.

For John, this was perfect. He spent his whole life spending his money, so he didn’t see his money lose value. He took out a 100k loan, but his loan was only like he had a 10k loan now — and he still has two houses. John ended up selling one house, paying off the loan, and walking away with a free house, and 90k.

Inflation Destroys Debt and Dollars

Inflation doesn’t destroy wealth — inflation destroys dollars. This means if you’re in debt, inflation makes your debt less and less. If inflation is 10%, it’s like your debt is getting 10% smaller every year. If you’re a saver, inflation makes your savings 10% smaller every year.

Every year people in debt see their net worth increase because of inflation.

Every year people who are savers see their net worth decrease because of inflation.

Inflation doesn’t hurt everyone equally — it just hurts people with cash, and forces them to spend their money and get into debt. Inflation essentially forces people to become slaves to banks and to not have money.

In an inflationary society, people who are willing to go into debt to buy houses, businesses and such are at a huge, huge advantage over people who just save their money. Savers are penalized. Spenders are rewarded.

What This Really Means

Because inflation makes debt more attractive, an economy with inflation will see a much higher level of debt than societies with less inflation. This leads to the economy becoming much less secure, and sets us up for financial catastrophe.

Inflation is one of the reasons so many people purchase houses and property even before they have the money — inflation makes cash less profitable or secure.

There’s a reason the government and large banks support creating inflation. It pushes individuals into debt. It makes consumers slaves to creditors. It transfers wealth from savers to people in debt. It stops frugal people from being able to make ends meet unless they have large incomes.

This all means several things:

a) Investing makes more sense. Savings accounts don’t pay interest that’s higher than inflation. This means that most people will use the stock market to build up wealth over time — they have to take part in the financial system. Plenty will get fleeced in the system. Big financial institutions make more money this way.

b) Debt makes more sense. This should be obvious. You’re using inflation to essentially get free money. Most debt comes from banks, meaning you’ll be a voluntary debt slave to a bank because it’s profitable to become one. You’re shackled to the system.

c) An independent retirement is difficult. Being able to save your own money for retirement is much, much more difficult with inflation. If it wasn’t for inflation, social security would be much less likely to exist. This means inflation makes the people more dependent on the government. The establishment loves this.

If you save $1,000,000 for retirement over the course of 50 years, and inflation is 4.07%… you actually only save $136,000 in today’s money, which probably won’t be enough to own a nice house.

Does this mean you shouldn’t save? Does this mean you should go into debt? Not quite. I’ll be writing what you should do in the future… hint: gold is a great inflation hedge.

Right now, inflation is skyrocketing. Gold is exploding. Silver is exploding. The dollar is dying. This is all happening in a way that is destroying savers, rewarding debt, and creating an economy that is based on debt and insecurity.

Shaun Connell is the the founder and editor of Stand Strong Research. He’s an entrepreneur and investor living in rural America. He’s also a firm believer in income investing, inflation hedging, and debt-free living.

Related articles

• Millions of savers have no choice but to lose money (independent.co.uk)
• Through the Looking Glass economics (theglobeandmail.com)
• Why bother saving? (telegraph.co.uk)
• QE2 and Its Effects (economicnoise.com)

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Laura Rowley

Banks are squeezing customers with historically high fees and penalties, from overdraft charges to account service fees to new surcharges on foreign debit transactions.

But the pressures that have prompted the fee war with consumers started well before the financial meltdown, according to Jo Preuninger, a former management consultant who spent more than a decade in the consumer banking arena.

I asked Preuninger for a little history, as well as some of the tricks of the trade that banks would prefer to keep secret.

Secret #1: For many banks, the most profitable customers aren’t the mass affluent — they’re “Joe Lunchbox.”

In 1999, the Gramm-Leach-Bliley Act allowed banks, insurers and securities firms to merge, breaking down barriers that had been in place since the 1930s. Following the new law, “if you took all the (deposit) checks written for $10,000 and above, most were written to institutions such as Charles Schwab, Fidelity or Merrill Lynch,” says Preuninger. “They took the best customers. The banks were becoming more like Laundromats, where you put money in for a short period because you still needed to pay with a check or (get cash).”

At the same time, loans provided little profit as interest rates remained relatively low, prompting banks to seek consistent, non-interest income. “The focus was on how banks could not only identify fees they could charge, it was how to do a better job of collecting their fees,” says Preuninger.

Middle-income customers presented the greatest potential to harvest fees. “There’s certainly a customer segment that could be called ‘Joe Lunchbox,’ who expect to be nickeled and dimed,” says Preuninger. “They are managing money from paycheck to paycheck. It’s someone who would prefer to pay an overdraft fee to get their mortgage covered rather than get hit by a mortgage provider with a late fee and a ding on their credit score.”

Last year, overdraft and insufficient-funds charges totaled nearly $35 billion and comprised about 90 percent of banks’ consumer-fee income, according to a study by the consulting firm Bretton Woods Inc. Three-quarters of banks automatically enroll consumers in their “overdraft protection” programs without formal permission, and more than half of banks manipulate the order in which checks are cleared to trigger multiple overdraft fees, according to a Federal Deposit Insurance Corporation study.

“They are going to try to turn the best profit they can, which is why they post in the most attractive way they can while avoiding and minimizing legal exposure,” says Preuninger.

Someone who overdraws a checking account a few times a year should choose a bank with a program that makes it easy (and free) to shift funds from savings to checking to protect against overdrafts.

Secret #2: Banks hope frequent overdraft customers don’t understand the alternatives.

The banks deemed overdraft protection to be a customer service convenience that provides an alternative to payday lenders, says Preuninger. And yet some of those customers might almost fare better with loan sharks. The Bretton Woods study found 80 percent of overdraft fees are incurred by 20 million households, who paid an average of $1,374 in overdraft fees.

These customers should consider ditching traditional checking account in favor of a prepaid debit card, which typically cost $70 to $80 a year ($10 upfront with a $5 monthly fee). Users direct-deposit their paychecks onto the cards (the money is FDIC-insured) and can do point-of-sale transactions and pay bills online. There are no overdraft fees; the purchase is declined if the card is empty.

Secret #3: Those helpful new customer set-up kits, designed to make it easy to switch banks, also try to make the account “sticky.”

“I did a lot of work in customer attraction and retention,” says Preuninger. “The biggest barrier to new accounts was switching. There’s a higher tolerance; a bank may have a lot of long-term customers — that doesn’t mean they love (the service).”

Most banks have a kit to assist customers in switching services. But do it yourself instead. Enter your regular bills in the bank’s online billpay site, rather than signing up with each biller’s website. If your new banking relationship goes sour, the account is more transportable. You won’t have to log into a dozen different biller sites and change the account and routing numbers.

Secret #4: Long-term relationships matter.

“Know what you want in the way of a bank and stay as long as you can because tenure does matter,” Preuninger says. “If you’ve been with a bank three to five years, they treat you differently than if you are there six months. If you direct-deposit your paycheck and have a (savings) relationship, they think of you differently than if you have free checking with $100 in it. Tenure and relationship does matter.”

So if you incur the rare fee now and then, always call customer service and ask (politely) for it to be removed. Emphasize your long-term relationship with the bank and ask for a supervisor if the initial effort fails.

Most customers aren’t profitable until they’ve been with a bank a few years because of the high cost of customer acquisition — sales compensation to branch managers, IT infrastructure, documentation and account setup. “It’s a long time before they break even, especially if they goose it with $100 to you to open the account,” Preuninger says.

Secret #5: Banks want you to enjoy the “advantages” of paying with credit, debit, check and cash — because it will make you more likely to lose track of your money.

“One of most dangerous things going on with consumers is they are not paying attention to the variety of ways they are paying. They are balancing money back and forth because it’s too hard to account for,” Preuninger says. “If you pay seven different ways, you’ve just added complexity to your life. Consumers shouldn’t say to the bank ‘you’re responsible to tell me what I’m doing with my money.’”

But more banks are moving in that direction. PNC Bank, for instance, launched an account called Virtual Wallet that presents account information in calendar form, focused between today and the account holder’s next payday. A “danger day” appears on the calendar in red if the account is at risk of an overdraft. The user can either move bills later in the month, or shift money immediately from the savings portion of the account at no charge (the account does it automatically if the consumer doesn’t). Statements are only available online and the bank charges 50 cents per check for writing more than three a month.

Best bet? Simplify. Get a free checking account with no fees and a low minimum balance requirement, pay major household bills online, and then stick to cash. You’ll think twice about purchases, and avoid getting caught in the widening web of bank fees.

Read more from the original source:
Five Secrets Your Bank Doesn’t Want You to Know

Technically speaking, a credit card is an unsecured loan. This means that unlike a secured loan, which is advanced by a bank/financial institution against a security like property for instance, a credit card is offered without any security. 

Not surprisingly, many of the negatives that get written about credit cards are related to expenses, hidden or otherwise, that the user did not know (or was not informed) at the time of opting for the card. To avoid distress at a later date, we have listed down some points that you must note while using the card: 

1. Term and conditions

How many times have you read this before – read the terms and conditions carefully before signing up for anything. For every product you purchase or service you opt for, always read the terms and conditions and that includes credit cards. If you find anything in the terms and conditions of the credit card that was not conveyed to you or is contrary to what was conveyed to you, then seek a clarification from the bank. If you are not satisfied with the clarification, dump the card.

It’s important that you read up on the terms and conditions before you use the card and not after. Once you use the card, it is assumed that you have read the terms and conditions and have accepted the same.

2. Annual fees

It is common for banks to waive off the annual fees/membership fees in the first year (cards are usually issued for at least two years). The second year fees are usually charged. It is possible that you are promised that the second year’s fees will be waived off as well. The only way to find out is to check with the bank in the second year.

It is possible that the bank may waive off the fees based on your track record of making timely payments. If the bank does not waive off the fees in the second year, you can cancel the card. However, if you wish to cancel the card in the second year ensure you do so before using it, because using the card indicates that you have agreed to pay the fees/charges for the second year’s subscription.

3. Lifetime free cards

Offering ‘lifetime free credit cards’ is a relatively new trend in the credit card industry. While there was a time when most banks charged annual fees on their credit cards, the industry is graduating to a level where annual fees are being phased out. In effect, clients are being given lifetime free cards i.e. no annual fees are charged. However, its best to double-check with the bank what the executive has promised you about all annual fees being waived off.

4. Minimum payment

One detail you will find relatively well highlighted in your monthly account statement is the Minimum Payment Due. This is the minimum amount that you must pay for the purchases done in that month so as to not attract a penalty for default on payment of card dues.

We would recommend that you pay the entire sum to the extent possible. Buying on a credit card is okay till the time you pay your bills religiously. The moment you carry forward your payment to the next monthly cycle, you will have to pay interest on the unpaid amount along with taxes. In the final analysis this turns out to be very expensive.

5. Payment by EMI

On the same lines, whenever you make a large purchase (the amount varies across banks) you may get an offer from the bank to opt for the EMI (equated monthly installment) facility to make the payment. This facility does not come cheap and the interest on the EMI is prohibitive. Again to the extent possible, we recommend that you make the payment before the due date in one go and give the EMI facility a miss.

6. Borrowing cash is expensive

Credit cards can be used for making purchases on credit as also for borrowing cash. While making purchases on your credit card (so long as you pay on time) is okay, borrowing cash on your credit card is a very expensive affair. Avoid borrowing cash on your card; use the card to the extent possible for making purchases.

7. Insurance benefit

Many credit cards are known to offer an insurance cover. We recommend that you ignore this benefit and go for the core offering – credit card. If the card has features that suit you, then you can opt for it even if there is no insurance cover. On the other hand, if the card features are not to your liking then reject it regardless of the insurance cover.

In any case, on most occasions the insurance cover is usually linked with so many terms and conditions that it is very difficult to claim the same. It is altogether another thing that the insurance cover is unlikely to be sufficient for you.

See the original post:
Using credit card? 7 points to note