Monday, September 26, 2016

The reason I use a credit card for everything

rainbow of credit by frankleleon


I hold a multitude of credit cards.

In my wallet there's a Visa Debit from S bank, a Mastercard Gold from Nordea, a Mastercard from Hypo Bank and a corporate American Express. Of these I used only two: The S bank card for all purchases from the S group (because of the 0.5% cash back offer (”maksutapaetu”)) and one of the credit cards for everything else.

The reason I use a credit card for almost all of my purchases is that then I can have much less cash on my bank account. This may seem counter-intuitive for some: I actually want to minimize the amount of money on my bank account.

That's because of the time value of money or time preference in economics, i.e., the idea that money now is more valuable than money in the future. This is because capital has an earning capacity. If there's no cost involved, one should always choose to pay later. Due to the low interest rate environment this doesn't currently mean as much as it used to but the principle is sound.

When I use a credit card to pay for everything, I don't need to keep money on my bank account. Instead I can invest that money. Let's say I would invest 1000 euros, that I would otherwise keep on my bank account, for 50 years and make 6% on that investment, then I would end up with around 18 400 euros. Now, that is extra money just from behaving more smartly without zero sacrifice or saving more, etc. Using a credit card is a no-brainer.

I always pay off my credit card bills in full. The interest rates on credit cards are quite high and no person who's in control of their finances should have an outstanding balance on their credit cards.


Saturday, September 3, 2016

Finns' trust in national pension scheme is crumbling according to Nordea

distrust by Fabrice Le Coq on Flickr


A couple days ago Nordea bank released information on a survey they had commissioned about Finns' opinions about their pensions. More and more people are starting to question the pension system and it seems I'm not alone with my ideas. A severe distrust seems to be spreading and fast.

I tried to locate the actual survey data but could only find distilled information. There's a press release about the survey from Nordea and subsequent news articles on national media outlets such as HS, Kauppalehti, Talouselämä, Taloussanomat, etc.

Men were especially pessimistic. Only 23% of the men surveyed had said that they believe the level of the national pensions will be enough. This was an 8 percentage point decrease from last year. Let me repeat that: Only 23% thought their pensions will be big enough.


The survey also asked about people's saving habits and found that more than half of the population, 58% actually, are saving for the future. This represents a 4 percentage point increase over a the previous year's result. The average savings amount was 50 to 200 euros a month. Those are actually pretty ok numbers if they would turn out to be true. The data can be somewhat biased though.

They also report that about 15% of the people who save have a special pension savings account (”PS-tili”) or a voluntary pension insurance. I should look into those with more gusto but on the surface they seem quite expensive and/or susceptive major political risks. Maybe I'll write a blog post about these in the future.


I also took a look at another data source which seems to contradict Nordea's data. OECD reports savings rates as percentage of household disposable income per country per year. According to OECD the savings rate in Finland was actually a negative in 2014 with a savings rate of -0.2%. This corresponds to about 5% in the USA and about 15% in Sweden. Man, those Swedes...

OECD: Savings rates of countries as percentage of household disposable income

The OECD data feels more representative overall and the Nordea data more biased but this is merely my speculation. At least the OECD data tells the same story as my last blog post about Finn's net worths. What do you think?