6 dumb places you're leaving your money
Do you hate compound interest? Don't you know that compound interest is magic? Don't you want to be rich? Are you afraid to retire with zero savings? You should maybe relocate your cash, ASAP. Because, oh, the places you store your money are so completely dumb. (See also: 3 Ways Your Cash Rewards Can Make You Rich)
Here are some really stupid places to keep your money.
1. Fancy Coffee Apps
If you feel like the crux of every other personal finance article is, "You are going to retire as a hobo if you don't stop drinking fancy coffee," you would be right. The perils of fancy coffee wouldn't be such a hot topic (and by hot I mean beaten like a dead horse) for financial writers if North Americans didn't treat their Starbucks card like the more caffeinated version of a checking account. As of the first quarter of 2016, Starbucks customers had a total of $1.2 billion loaded onto Starbucks gift cards or its mobile app. For comparison, $1.2 billion dollars is more money than many large financial institutions like Charles Schwab, Discover, and Mercantile Bank have in deposits. That unused money you have stored on your Starbucks card is not earning any interest.
As a side note, Starbucks' mobile wallet is pretending to be your bank so hard that the company is releasing a prepaid Visa card later this year. Of course its main perk will be that you can earn Starbucks stars for every dollar spent on the card.
RELATED: 8 tips to teach your kid about saving money
2. Unused Gift Cards and Credit Card Rewards
Perhaps the people who use the prepaid Starbucks Visa will actually use their coffee credits. But that's doubtful. The gift card industry thrives on consumer confusion and apathy. Every year, people lose thousands of dollars in merchandise and service perks by not using them. Between 2005 and 2011, $41 billion worth of gift card value was lost to expiration dates and misplaced cards. This type of quiet financial bleed is called "breakage" in financial parlance. Instead of you getting "free" perks, gift card and rewards companies get to earn interest on the money you loaned them for free.
Don't get me wrong. Just like I love fancy coffee, I also love PayPal. Fintech companies like PayPal and Square make my life as an online seller much more profitable and convenient. I used to treat my PayPal account as a slush fund for luxury purchases. I would sell stuff on eBay and the money I earned from my online storefront would sit, sometimes for months, in my PayPal account until I found something on eBay that I wanted to buy.
As a frugal training tool, it helped me live on a tight budget without feeling deprived. My bank account was for paying bills and my PayPal account was for fun. But then I realized the obvious: I was not earning any interest on my sometimes sizable PayPal stash. As an easy alternative, I now transfer all my PayPal earnings into a free savings account. I make a smidgen of interest and my funds are immediately available for spending.
For expats and professional travelers who cannot open a bank account in foreign lands and depend on PayPal as a workaround for the direct deposit of their paycheck, please note that money in PayPal is not insured by the FDIC.
4. Under Your Mattress
A survey by the American Express Spending and Savings Tracker found that 43% of Americans keep their savings in cash. If that weren't bad enough, 53% of those cash-is-king savers hide their cash in their homes. Hiding your life savings in your house is terrible for two big reasons:
- You aren't earning interest. Even if you keep your earnings in your crummy savings account with a .06% interest rate, that's .06% more money than you'd make from storing your money in a shoe box at the bottom of your laundry hamper.
- Your money isn't safe at home. Criminals know to check the laundry hamper for valuables because they read all the same blogs that you do. You might have a super secret spot in your house that will never be found by any cat burglar, but it is guaranteed to be found by your teenager who will embezzle from her own college fund in order to buy ridiculous teenage stuff. Even if you can avoid being robbed by strangers and family, you can still lose it all to a flood, a fire, a tornado, or those pesky silverfish (which thrive on paper).
I can think of only two instances where jewelry is a great investment.
- Example 1: You are Hedy Lamarr. You are a Jewish actress married to the owner of an Austrian munitions manufacturer. Your abusive husband decides to sell arms to the Nazis. After rescuing your mother from Hitler, you use your jewelry to finance your escape to America. In America, instead of investing your Hollywood movie star money back into gems, you invent frequency-hopping, a jam-proof radio guidance system for torpedoes that is the underlying technology for GPS and Wi-Fi.
- Example 2: You are a terrorist. Diamonds are an easy and portable way to launder money so you don't have to tote suitcases of cash or bricks of heroin through airports on the way to buy weapons.
While generations of women have been told to hoard jewelry as a safety net during hard times, Hedy Lamarr is an outlier. (Also, Hedy didn't buy the jewelry she traded for her mother and their freedom. Her abusive husband bought it for her.) Jewelry can hold tremendous sentimental value, but it's a poor financial investment.
A relative, who apparently doesn't understand the magic of compound interest or macroeconomics, recently lectured me about how America needs to return to the gold standard. He loves gold so much that he's also hoarding these cute, fun-sized ingots for when the (stuff) hits the fan. Even if I don't tell you all the conspiracy theories and urban legends he attaches to his gold buggery, his insistence that I put my money in gold should tell you many things about him, including:
- He is conflating the gold standard, which is a fixed value for the dollar, with buying gold as a safe-haven, disaster currency. Despite what you have heard on talk radio, these are two separate things.
- He has not talked to a Greek person, any Greek person, about what happens to your economy when you can't revalue your currency. The euro is Greece's modern-day gold standard. (If you paid attention during high school history, you might recall countries that were first to ditch the gold standard during the Great Depression were also the countries that recovered first economically.)
- He hasn't looked at inflation rates over the last 40 years. If he had, he would know that gold is not a hedge for inflation.
- He doesn't understand that gold lacks utility, which means that its value is determined by the currency in which it is priced, not by supply and demand.
- To quote Warren Buffett: "If you put your money into gold or other non-income-producing assets that are dependent on someone else's values in the future, you're in speculation. You're not into investing."
- He is not a fan of science fiction. If you have read anything about the post-apocalyptic world, you know that skills, not gold, are the ultimate portable currency. Also, how are you going to run from the zombies if you're weighed down by all that bullion?