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Great savings deal
Congratulations. You made the same mistake that everyone does until they learn the "rules of the money game". Although Store A appears to be wonderful because they will give you your money back after 36 years, they have taken advantage of you. Store A understands how money works and is hoping to make a lot of extra money on the deal. Store A takes the additional $1,000 that you were charged and invests it in the economy for the 36-year period. Using the "Rule of 72", you can estimate how much the store made by investing your $1,000 at various rates (they could have achieved 12% with mutual funds).
As you can see, even at 4%, Store A gives you $2,000 back and keeps a profit of $2,000. Of course, you know that Store A invested wisely and achieved 12%. Therefore, while you thought they were nuts when they gave you your $2,000 back, in reality they made $62,000 profit off of your $1,000. Now, do you still believe that Store A has your best interest at heart? Although this example is simplistic, it basically illustrates how financial institutions (banks and insurance companies) work. For example, if your life insurance company invests your cash value at 12% and pays you a 6% return on your money, how much does it stand to earn over your lifetime? Likewise, what about the bank that lets you save your money with them, and while they earn returns of perhaps 12%, they pay you about 2-3% on your passbook savings or around 6% on your CD? Are they making money off of you? Worse yet, just imagine when you borrow on a credit card and you pay the bank 14%, 18%, or 21% just for the privilege of borrowing. How much money do you think they are making? What they don't want you to know is that you can invest your money in the economy yourself and potentially earn those higher returns. Now that you've learned, which would you choose? Store A or Store B? |