Credit isn't real money

[jack]

Again, life questions from Drop the Dead Donkey. I maybe view credit differently to many people, being fortunate to normally have enough money, and being weaned on traditional views of fiscal responsibility, and think of a credit card as the least inefficient way of acquiring certain legal protections for quirks of historical reasons.

Using DTDD as an example. At one point Sally's purse goes missing with a large amount of money in. She suspects Dave, which he and everyone is extremely shocked by. At another, in revenge on Damien for something, George lets his daughter smash his car. Which is seen as harsh or vicious, but not unscrupulous or evil.

However, when Damien leaves and Dave spends a similar amount of money from his credit cards at Ladbrooks [gambling], everyone sees this more like the second than the first. I've seen it elsewhere too, that charging something to someone's credit card is seen as a bit cheeky (both whether or not you might expect them to mind buying it), when taking money from them to buy it is seen as wrong.

Why is that? (Is the implication that they might be able to recover the money with hassle? And it end up being stealing from a big bank, which isn't seen as so bad? But surely that involves reporting it as theft, which would get the friend arrested, wouldn't it?)

Comments

[captain-aj.livejournal.com]

You can gamble off of credit cards? :O

[woodpijn.livejournal.com]

I thought something similar in Enchanted, when

possibly minor spoiler warning

a six-year-old girl gets her dad's credit card from a hiding-place in a drawer, saying "Daddy says this is only for emergencies. And this is an emergency" - the "emergency" being a clothes-shopping trip. I think it's supposed to be cute and endearing, but I don't think they'd have written it like that if it were a hidden wad of cash.

end spoiler

(Just to clarify, I thought Enchanted was excellent - I'm just describing a minor scene from it which illustrates your point, rather than slating it in general.)

[robhu.livejournal.com]

Credit card money is not real.

[robhu.livejournal.com]

I kinda thought getting a dress so you can look good for your one true love would be considered an emergency for a rich American person.

[cartesiandaemon.livejournal.com]

Well, this was fiction, not a properly cited documentary. But why not? Surely both the credit card company and the gambling institution will probably be greatly benefited if they take you heavily into dead, hasn't gambling always been involved with dangerously overexposed loans, just think about the Godfather, etc.

Online gambling sites often require a credit card, don't they? I assume there just for accountability reasons, but it means it's what you use.

Of course, I don't know, not really being a gambler (though it doesn't feel the same if it doesn't involve wads of cash), whether placing bets by credit card (over the phone in this case) is normal then or now.

[cartesiandaemon.livejournal.com]

Yeah, that's a good example. They might have done it with cash (especially if the cash were a windfall of some sort), the kid isn't going to appreciate the difference so much, but it definitely seems to suggest credit doesn't matter in the same way.

[shreena.livejournal.com]

That's really spooky. I had exactly the same reaction to that bit of Drop the Dead Donkey. I think it's beyond weird that Dave is so offended to be accused of stealing but then steals from Damien.

[cartesiandaemon.livejournal.com]

It's ok, it's not *so* spooky. Nothing about it ever occurred to me when I *first* saw it. I mostly followed a typical viewer paradigm of accepting from the program subtle moral clues [eg. that in one show a bat to the head is comic violence, in another it's a fatal wound] and so laughed along, knowing the joke, without considering the economics. If I'd been younger (when I was inclined to question *everything* and make sure I understood it) or older (when I can spot interesting things to question, yet glaze over things I know why they appear wrong) I might have been insulted.

But I was watching the DVD this afternoon, and this just occurred to me, and this seemed a perfect example (as shown my you having noticed it yourself ages ago).

Robhu said it, credit isn't real money. But *why*? Is it simply that because you're paying it off later, you don't make the connection to the deprival you're trading when you spend it? (But that sounds like "people are stupid"[1][2]) Or does it make sense from a financial situation if you're in such a situation for reasons I don't happen to grok?

But it seems to apply to everyone, affluent rich, poor, middle class.

[1] I mean, if you're completely broke, maybe as credit as you can get makes sense, if you can't pay any of it off, you're not any *more* broke. Or if you live hand-to-mouth, day to day, then trading an uncertain future for a certain gain might totally make sense. But see above, it's not just poor or rich.

[2] Of course, my finances aren't superlatively organised, I have my own emotional idiosyncrasies I have to ignore when making rational decisions about money. But I don't know if it's just that, or if it makes sense in some way. For instance, maybe everyone needs occasional luxuries they feel they can't justify purchasing (like holidays, you generally decide you need them, but they're an order of magnitude more expensive than many other things so they don't *look* worth it at first), and "being able to buy on credit" is a natural bottleneck to keep this to a steady but reasonable supply, instead of my making a decision to spend on such things every so often?

[robhu.livejournal.com]

The way it works is I see something shiny and give the sales person a bit of plastic. Then they give me the shiny thing and the bit of plastic back.

One of the bits of plastic I have does the same thing, but it stops working more quickly.

[d37373.livejournal.com]

I think we're confusing two things here.

Credit card money, debit card money, or indeed bank statement money, is not real. I discovered this recently when I was trying to get home by bus - shiny bits of plastic don't mean anything to bus drivers, you have to give them cash. If the economic system broke down more than 'spent bus money on the last round, nearest cash machine is out of order' we would discover that cash is only shiny metal and shiny paper.

Equally, my salary is not real money. The real money is about 30% less than the big number I signed up for, but since this is a shared hallucination it doesn't really matter. For me you can take off another fraction of 'real' money for living in London - living costs are up, wages are up. Little difference for most jobs.

The second thing is credit, as in loans. Credit cards being the best way to get a legal guarantee is a legal artifact and only a deciding issue for the well off. I would say that availability, ease of use, social acceptance/ease of self-justification ("emergencies") are much bigger drivers. Personal debt makes sense in some situations:

1. long term gain (house vs. rent, university, almost never otherwise. Suit for an interview?)


2. real hand-to-mouth emergencies. That could count as (1), in terms of surviving (although you have to think that your life will be, in balance, positive)


3. Pure financial benefit. This is incredibly rare for individuals, but very common for business. An individual who can do this is called an "entrepreneur" and counts as a business :)


4. Short term benefits outweigh any long-term downsides. Death or already-certain bankruptcy. Imminent breakdown of the financial system. Also applies to governments borrowing to stay in power.

I have so much more to say about this, maybe I should write it up and post it. Although I am suddenly tempted to write it all here, with subheadings :)

[cartesiandaemon.livejournal.com]

Yes, I mean the second. The first is interesting, but I don't exactly have anything to add, I wasn't thinking about that.

Those are all good reasons, when having credit is obviously the right financial choice (if sometimes unpalatable) and I think everyone agrees it makes sense for those situations. And it's interesting to see how many there are.

In fact, you miss one, when your earning power is growing rapidly. If your wage is steadily rising faster than an interest rate, then borrowing now might make sense. In an extreme case, imagine your salary was rising exponentially, faster than borrowing rates, then anything you borrow now is nearly free next year, so it's almost all upside if you want it at all.

But the point is, many people seem to find credit desirable in other situations, when a simplistic objective analysis might seem to suggest it wasn't, eg. buying a good car now, rather than buying the minimum necessary car and trading up later, or putting nice consumer items on their credit card.

It's possibly that's a "mistake" which is totally justifiable in the circumstances, but alternatively, maybe it's completely rational for some sixth reason for credit, that I hadn't seen

I have so much more to say about this, maybe I should write it up and post it. Although I am suddenly tempted to write it all here, with subheadings :)

Totally. Or both. Start here and then breakaway to your own post if you lke.

[d37373.livejournal.com]

Hmm, that's a little different from how I was thinking. Exponential earning potential is another way of saying "very low interest rates", which doesn't fundamentally change anything.

I was thinking about things from a financial point of view, rather than utility. From utility's POV, the other reason for debt is that the 'value' gained by owning the thing for an extra year is worth paying a n% premium for it. I would argue that there are very few things that are actually more valuable the earlier you get them.

[cartesiandaemon.livejournal.com]

I'm not sure if that's a misunderstanding? I don't mean, earning power generally, but if I'm getting steadily promoted (or expect to win the lottery tomorrow) then it makes sense to take big loans now if I want. In some sense that's like having a really low interest rate just for me, but I think it's a different case.

[d37373.livejournal.com]

You're still paying more for something you could have cheaper later. Let's say people A and B know they are going to get rich next year.

Person A borrows £100 to spend on gadgets at 10% interest, and pays it all off at the end of the year (cost of £110). Person B waits a year, then buys the same stuff for £100. B has better quality (less worn) stuff and more money.

One counterargument is that they're now so rich £10 is peanuts, and they can afford to spend it. I disagree - once you've got enough to live comfortably, £10 if £10 no matter how much you have in the bank.

[cartesiandaemon.livejournal.com]

Yes, you are still paying more, but that in that case there's an obvious reason for it, whereas in many uses there isn't. If tomorrow I'll have more money than I can spend, then it doesn't matter if I overpay on many things to get an extra day's use out of them.

Even if I don't literally have more money than I can spend the utility of that £10 tomorrow is likely to be lower than the benefit I get. You compare what benefit you get from that £10. You can have gadgets for a year. What else could I do with it? I could get 10% better gadgets or 1% better AV system or 0.1% better car or 0.005% better house... All barely noticeable, whereas having those gadgets now is quite good.

[d37373.livejournal.com]

You haven't got gadgets for an *extra* year, you've just got them a year *earlier*.

On the other hand, you are right about utility in the case where you are going to get rich. My intuition of utility is still a bit shaky - I have only recently started looking at the theory.

[cartesiandaemon.livejournal.com]

Well, assuming you've got gadgets for the rest of your life once you're rich, you've got them for "DEATH-NOW" in one case and "DEATH-NOW-1" in the other. Although we're basically agreed about this case, it's when people think it's wise and there *isn't* an objective reason we're puzzled about.

I don't have any technical knowledge of the subject at all, just thinking about it.