Tis the season to spend future money?

I was reading the newspaper early last week when I came across a half-page advertisement about a 50-month 0% interest installment plan to buy luxury timepieces.

It is a joint promotion between a luxury watch retailer and the credit card of a local bank, for the celebration of Singapore’s Golden Jubilee next year. (What has the 50th year occasion got to do with buying a branded watch?)

Two days later, another luxury watch retailer came up with two full-page advertisements marketing their 40-month interest-free payment to own a branded watch. It ties up with another local bank and a luxury timepiece manufacturer. One of the full-page ads is similar to a car advertisement. It displays the photos of six models from the Swiss watchmaker, with attractive prices ranging from $44/month to $144/month.

Pay $50/month and you can buy your $2,000 dream watch. Sign up a $450/month installment plan and you can instantly own a $18,000 luxury timepiece. The ad tells buyers that they can now afford to buy two watches: one for themselves and one for their wife.


Buying a gift on installment

Christmas is a gift-giving season but I don’t think I like the idea of my husband buying me a branded watch on a 40 or 50-month installment plan.

What is the point of spending money that you don’t have to buy your significant half a luxury gift? If you can’t afford it, you can’t afford it. It only proves your bad personal financial management if you buy something too big for your boots.

Besides, the true value of a gift lies not on the actual cost, but the affection from the heart of the giver. With a good intention, a $100 watch is no different from a $2,000 or a $18,000 one, provided that it is commensurate with your financial situation.


Danger of interest-free loans

We already have too many things that can be purchased by installments, including homes, cars, furniture, appliances, computers, gadgets, courses, vacations, beauty packages, medical treatment, etc. And now, we add luxury items as well.

Imagine all branded stuff can be purchased on interest-free loans. It doesn’t matter whether I have a big or humble salary. I can still wear a Rolex watch, carry a Hermès bag, dress in a Chanel suit and drive around in a BMW. But if one day I stop paying the credit card companies, I will end up having nothing to wear, live in an empty house, or have nowhere to stay.

Although we might not want to admit, sometimes we do buy things that we can’t really afford. Hiding behind installment plans with or without interests, we justify these liabilities by saying that it is a flexible alternative to manage our finances.

Through working with credit card companies, businesses successfully open a new market of consumers who previously couldn’t afford their products. The installment payment schemes also help banks to recruit a new group of borrowers who actually pay more either with interest or in total cost (Buyers may be able to pay by interest-free installments, but they are not entitled to any discount given to the original group of customers).

On the other hand, will the loyal customers of these brands still feel proud to own these luxury items when they know that fellow owners are only people spending future money rather than really able to afford them?


Middle-class trap is an obstacle to financial freedom

I mention in my book No B.S. Guide to Property Investment that we are a generation being stuck in the ‘middle-class trap’ and why it is a hindrance if you want to invest in properties to achieve financial freedom.

We grow up aspiring to live that dream of being the successful middle-class. We learn the concepts of living the good life instilled by commercial advertisements. We are tempted to indulge in the comfortable living of modern gadgets, elegant homes, expensive cars, overseas vacations and country clubs.

I don’t think anyone should start investing in properties if they have not cleared their credit card debts or minimized their secured loans. All investments involve risk. Property investment is no exception. You must be prepared to lose money if you bought the wrong property at the wrong time. Rather than helping to pay debts and achieving financial freedom, property can lead you deeper into debt.