The tyranny of bad personal finance

A loan with no interest? That pretty lady with the cash makes a strong case.

A loan with no interest? That pretty lady with the cash makes a strong case.

If you work in Midtown Manhattan like I do, you may have seen this sign. It’s for a pawn shop which has employees man street corners in the area holding up this advertisement. Since I started working in Midtown a few months ago, I’ve been fascinated by it, because I think it captures a lot of what’s wrong with personal finance in America.

The reason this sign is so spectacularly horrible is that it combines the concept of “liberty” with a too-good-to-be-true offer of a no interest loan. It asks of the passerby, Why are you toiling away, living so meagerly, while you could have freedom by means of a fistful of cash?

Of course, money doesn’t buy liberty, at least not a complete sense of liberty. But even more basic than that truth is the fact that there is no such thing as an interest-free loan, at least not one offered by pawn shops that intend to, you know, stay in business. The concept of “no free lunch” applies very well to finance: you have to pay something in order to borrow someone else’s money. Usually that something comes in the form of an interest rate, but it can also be a fee, something you already own, your labor, whatever. In this case, it’s probably a fee. So though there’s no interest rate on the loan, you’d better believe you’re paying something to borrow the money.

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