The Next Form of Currency

When we think of currency, we normally think of paper bills or metal coins. However as defined by Merriam Webster’s Dictionary, currency is, “circulation as a medium of exchange. ” With that definition in mind, credit cards are a type of currency. Indeed in recent decades credit cards have been the dominant currency. It’s easy to see why credit cards are popular: they provide instant access to credit, they allow you to make purchases online, and they allow you to establish a credit history to expand your ability to borrow.

Yet the way we pay is changing once again. The cause for this change is smart phones. Smart phones are built on a mobile computing platform. They can do everything from taking pictures and recording videos to playing music and giving directions. People are basically walking around with the equivalent of a personal computer in their pockets. Some entrepreneurs are taking advantage of these devices by finding new applications for them, specifically in terms of payment.

Jack Dorsey, Twitter co-founder, and Jim McKelvey saw an opportunity. Millions of small businesses across America are cash only. They refuse to accept credit cards as payment options citing hidden fees, long-term contracts, and expensive start up costs. However, refusing credit cards can lead to economic duress because businesses are essentially excluding potential customers. In 2009, Dorsey and McKelvey developed a product called Square that allows merchants to accept credit card payments within minutes. The product consists of a reader that plugs into the headphone jack of an iPod Touch 4th generation or iPhone 4. Square charges merchants 2.75% per transaction and deposits the money into their bank accounts the next day. (Interestingly enough, Visa is a large investor in Square and an executive sits on Square’s advisory board.) Approximately 800,000 readers are currently in circulation. Technology, like Square, is transforming business with mobile payments. Small businesses, craftspeople, and food trucks now have access to a larger population of customers. Square boasts that by making payment methods easier, people are buying more.

Mobile systems like Square are transforming the payment environment. According to investment bank Barclays Capital, U.S. mobile commerce sales (purchases made on smart phones and tablets) reached $5.3 billion in 2011. That’s an 83% increase from 2010. Generator Research, a consulting firm specializing in digital media, forecasts that consumer usage will grow 600% to 490 million worldwide by 2014.

Many see the potential of smart phones to surpass credit cards in efficiency and accessibility. In this world of mobile payment, wallets do not exist. Credit cards, loyalty cards, and coupons are all stored on the phone. Instead of swiping a credit card at the checkout counter, customers would wave or tap their phone. In the current system, credit card companies such as Visa and MasterCard charge merchants approximately 2% per swipe much like Square. The banks handling the transaction and the payment network charge the merchant an additional 1%. With mobile payments, however, things work a bit differently. With Google Wallet, for example, merchants are charged according to where the transaction takes place and how much the merchant makes off of this payment system. According to the Google Wallet website, merchants are not charged an in-store transaction fees but only pay the one time cost of the reader. Online, merchants pay Google according to their monthly sales:

Monthly Sales Through Google Fees Per Transaction
Less than $3,000 2.9% + $0.30
$3,000 – $9,999.99 2.5% + $0.30
$10,000 – $99,999.99 2.2% + $0.30
$100,000 or more 1.9% + $0.30

For in app payments (charges for additional functionality, content subscriptions, or pay-per-use features,) merchants pay Google a flat 5% per transaction.

Mobile commerce has implications for more than just billing. It has the potential to change the way merchants’ market to customers. For example, there are now opportunities to bring in local business through the use of real-time and geographical offers, like with Groupon Now. Companies with mobile payment services can also utilize a consumer centric marketing approach. With its virtual wallet, Google is collecting massive amounts of data on consuming habits. As a result, it can create more targeted successful ads.

Near field communication (NFC) technology is what makes the Google Wallet possible. NFC chips allow phones to establish radio communication with each other by touching them or bringing them close together.

Mobile payments are already the norm in other countries. In Africa, where many do not have credit cards, cell phones often replace cash. Additionally, in Japan, people have been swiping phones at convenience stores and bus stations for years. My bet is that mobile payment will be the norm in the US within the next five years. Tell us what you think at http://twitter.com/theflcp.

Information for this post was found on the following sites:

How do we pay?

When you go to pay for something, how do you do it? Coins, paper money, and credit cards are such rudimentary aspects of our monetary system that it is hard to think about a time when items did not have a set value but were traded for other items. Here are some interesting facts about the history of money and its evolution.

The need for money came about when merchants began to expand their network beyond friends and family to strangers from foreign lands. At first, people would barter. For example, you are a farmer who cultivates wheat. One day at the market you run into a fisherman. Mutually you decide to exchange your surplus of wheat for the fisherman’s surplus of fish. There were a few problems with this model. The first is that both you and the fisherman would have to come to an agreement about how much fish was equal to how much wheat. The second, and arguably the most important, problem is if the fisherman does not want wheat; but, instead he wants lumber. It could be very problematic for you to find a lumberjack, barter with him, and then go back to the fisherman to barter for some fish. The need for a more standard method of payment was becoming increasingly urgent.

Precious metals such as gold and silver made an appearance as accessible methods of payment. Prices were measured in weight. Yet this method had its own set of problems. It took a considerable amount of time to weigh the pieces. Additionally, specialists had to determine the purity of a gold piece.

The first signs of coinage appeared at around 550 B.C.E. in two very different parts of the world. In Lydia, which is now is western Turkey, King Croesus minted gold coins ranging from as small as a lentil to as large as a U.S. nickel. Coins were minted with set weights and stamped with an official stamp. Simultaneously, small standardized metal pieces in the shapes of small spades and knives appeared in China.

Physically, a dollar bill is nothing more than a piece of paper with a 1 and a few other symbols printed on it. If you think about it, physically, only symbols differentiate it from a 20 dollar bill or even a foreign bill. Yet whenever a dollar bill is used, a phenomenal event is occurring. The seller and the buyer both acknowledge and agree on the worth of the said bill. This modern banking system was first used in China seven centuries ago.

A note called “feiqian” or “flying money” dates back to the Ming Dynasty in the 1400s. There were many advantages to utilizing paper money. Firstly, it was significantly lighter and smaller than gold bars. Additionally, the ‘farmer, fisherman, and lumberjack’ problem now had a viable solution! You, the wheat farmer, could buy fish from the fisherman using paper money. In turn, the fisherman could go to the lumberjack and buy wood himself. As you can see, paper money transformed economies.

Yet paper money had one large drawback. It was susceptible to being counterfeited. The Chinese Government sought to frighten potential counterfeiters by placing threats on the Ming note such as, “To counterfeit is death.” Additionally, the person who turned the counterfeiter in was rewarded in silver and inherited the property of the criminal.

The Chinese government was also worried that the paper money might not hold its value. To fix this, they assigned metal amounts to the bank notes. For example, a note could be cashed in for 20 stacks of 100 coins. Yet the government ended up printing too many paper bills and the economy was inflated. One 1,000 cash note had an exchange value of 250 coins. So by 1425, the use of bills were no longer allowed.

“Pieces of eight” were the world’s first money. The 16th century was the Age of Exploration. By the early 1600’s the Spanish “peso de ocho reales” had spread across Asia, Africa, Europe, and the Americas. The coins were made out of silver mined in modern day Bolivia. They stretched about 1.5 inches across. Around 1600 sources say that a single piece of eight would have paid for 50 pounds, about $80, worth of goods anywhere in the world. The Age of Exploration and Spanish piece of eight established the beginnings of a global economy.

The next historical milestone in how people ‘pay for things’ was the credit card. The credit card first came into play in the booming American economy immediately following World War II. The Bank Americard, 1958, was the first card issued by a bank. But the widespread use of credit cards came in the 1990’s. The fundamental idea of credit, or buying something on credit, is similar to that of an I.O.U. It is a promise to pay for something in the future but to get the item now.  Like the previous forms of monetary systems, the credit card has its downfalls. For example, if you don’t pay your bill on time, fulfill the I.O.U., the credit card company can charge you an additional 25% on balances owed.

What do you think the next major form of currency will be? Comment on our twitter page! @theFLCP.

The inspiration and source for this post came from an article written by Neil MacGregor. Please visit the link below to read more on the history of money:

http://www.bloomberg.com/news/print/2011-10-25/coins-to-credit-cards-a-short-history-of-money-neil-macgregor.html

How to Pay for Holiday Gifts

The holiday season is approaching. For some this time of year is associated with religious services and family gatherings; but, for others, December and early January have a material connotation. A.K.A. gifts. However, with the economy still in a deep recession, unemployment at about 10%, and credit tight, many families face grim budget options for seasonal gifts.

The Layaway payment plan is one budgeting option recently receiving a lot of attention. Under this plan a customer can shop for an item today, put down a 10-20% down payment, pay a small service charge, and he or she comes up with the balance in installments prior to a set date (most likely Christmas.) If the item is fully paid for by the set date, then he or she can take the item home! These ‘forced savings’ plans were popular from the 1950’s through 1990’s. However in the 2000′s, demand floundered with the widespread availability of credit cards and gift cards. Now they are coming back in a big way as parents are tapped out on credit and lenders have tightened up. Over the past few years, Wal- Mart, Toys “R” US, Sears, K-Mart, and Best Buy, to name a few, have all re-started Layaway plans. These plans can be beneficial. For example, some parents try to set aside cash each week to save for presents but invariably spend this saved money on emergency bill payments. For these parents, a Layaway plan is a good savings option.

Although these plans seem to have the customer interest at heart, they are very controversial. Service charges, for example, range from $5-$15. Although that might not seem like a lot, as a percentage of the gift this fee is hefty. Lets say a family budgets $200 on gifts for you and your siblings. Under a Layaway plan, they could be paying a $10 service charge. This works out to be 5%. If you think of the fee as an annual interest rate, that works out to be 20% (5% over 3 months.) That’s a lot to pay for something they could do themselves. Another potential problem with Layaway plans is if the customer is not able to make the full payment by the set date. Here department store policies vary. If shopping at Wal-mart, the customer will have to pay a cancellation fee. In other stores, the customer may loose everything he or she has put up. In either case, the customer has lost some money and is without merchandise. This scenario may seem remote but with this economy anything can happen, a change in vocational status or an emergency bill that needs to be paid.

If your parents are tight on cash and you are worried about your holiday gift, layaway plans might be worth bringing up at the dinner table. Please provide full disclosure to them of the benefits, risks, costs associated with these plans. Another way to save is to open a bank account! With this option, the bank is paying you to hold your money (interest) and there is no chance of loosing what you’ve put down. For more information refer to the link below on on the topic from the NY Times and the link to Wal-mart’s Layaway policy – be sure to read the fine print!!! Have any thoughts and opinions on Layaway plans or other saving options??? Comment on our Twitter – @theflcp!!!

Twitter Page:
http://twitter.com/#!/theflcp
@theflcp

Are you really saving money with Wal-mart’s Layaway plan??

Link to NY Times Article about Walmart reinstating its Layaway Plan:

http://www.nytimes.com/2011/10/12/opinion/wal-marts-layaway-plan.html

Link to Wal-mart’s Layaway Plan (be sure to read the fine print!!!)

http://www.walmart.com/cp/Layway/1088466?adid=1500000000000006858130

Monday Money Matters – Credit Cards and Debit Cards

Kinect

Hello everybody, Monday Money Matters here today! Here are some review questions from the previous MMM.

1.      An Xbox 360 4GB Console with Kinect costs $300. If the sales tax rate is 8%, how much will you actually pay for it?

2. Which is the better deal:

  • 4 boxes of donuts for $30
  • 1 box of donuts for $8.5

Answers:

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1.      $324

2.      4 boxes of donuts

Anyway, how often do you see people use cash to buy stuff? Not very often. Americans often buy items using Credit Cards or Debit Cards instead of using cash. This small plastic card is much simpler and easier than carrying a wallet full of cash. So what is the difference between these 2 type of cards?

Credit Cards

Credit cards allow you to borrow to make purchases. Credit cards are considered a loan and a promise to pay back. Borrowers may charge up to a set amount – the credit limit. If you exceed it, your credit card will be declined. However, by paying off the balanced on time and in full will lead to no interest and give a better credit score, allowing a greater credit limit. If you don’t pay off in full, you will be charged an Annual Percentage Rate (APR), which is the interest rate for credit. However, paying on full and not getting into credit card debt is a good idea. For example, Lindsay Lohan accumulated over $600,000 in credit card debt, and was two months late on her payments. Her accounts were frozen and she was sued.

Debit cards withdraw money from your checking account when you make purchases. Debit Cards withdraw money from your checking account when you make purchases. Debit Cards are essentially the same as money. One advantage is that you can’t get into debt or owe money by using them.

Review Question:

1.      If you spent $2,500 last month. The APR offered by your credit card company is 14%. If you pay the amount in full, how much interest will you pay?

2.      However, if you don’t pay off the debt, what will happen to your credit score.

Answers:

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1.       $0

2.       It goes DOWN

Shopping Wisely

Powerade $1.70/bottle

Hey guys, Monday Money matters here today!

The question today is do you shop wisely?

Shopping wisely can help you save money, get the best deal, and stay in range of your budget. Whether you are at a grocery store or shopping mall, you always have to make decisions between items. It helps to look at the prices. For example, say I have to choose between buying a bottle of Powerade or Gatorade. In where I live, one 32 oz. bottle of Powerade costs $1.70 while Gatorade costs $1.50. Obviously, I would buy Gatorade instead.

Another thing to be aware of is the per unit cost. For example, it costs $1.50 to buys one FiberOne bar while it costs $3 to buy three FiberOne bars. The former deal is $1.50/bar while the later deal is $1.00/bar. This is why buying in bulk is recommended. Also avoid buying items at the cash register because buying in bulk is definitely cheaper.

Last but not least, there’s always sales tax and inflation. Sales tax is a percentage tax on items that you buy in stores. For example, the sales tax in Pennsylvania is 6%. This would turn a $500 TV into $530. Quiet a big difference than what you see on the price tag! On the otherhand, inflation is a general and progressive increase in prices. This makes prices slowly increase. For example, a bottle of milk costing $3.75 might cost $4.00 the next year!

Gatorade $1.50

In order to see if you shop wisely, let’s see if you can answer the following questions correctly:

1. If sales tax is 6% and this X-Box costs $245, how much will you actually pay for it?

2.If Nicki Minaj’s album costs $10 this year, and inflation is expected to be 1% next year, what will it cost next year?

3.Which deal is better on a per-unit basis?

A.3 cookies for $4.00

B.1 cookie for $1.50

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Answers

1. $259.70

2. $10.10

3. A

Computers – Hardware and Software

I’m sorry I haven’t posted in two weeks! I’m so wacky. Now back to this week’s Tip of the Week:

Shopping Wisely on Computers

Not many college students can survive these days without their own computer, but how do you prevent yourself from spending to much money? They do cost a lot. For example, regular laptops costs from $700 to $1,500. To alleviate the cost, you should check for discounts, rebates and back to school specials. For example, Apple Computer offers student discounts to students and teachers, and consistently advertises important education incentives and rebates. Recently, my friend bought an Apple laptop bundled with a free iPod Nano and a free photo printer, copier, scanner! These were rebate items so he told me he had to fill out some online applications. However, it proved to be worth it as he saved about $400! Dell Computers also offers students discounts on their computers if you participate in college or an university. Another good alternative in saving money is to move your desktop from home to your school, which costs of course costs nothing.

Why Pay To Watch When You Can For Free?

I noticed recently that I spend about $50 per month watching cable TV. One of my friends uses Verizon Prime HD. He told me that it costs him $65 a month. This means that I spend $600 a year while he spends $780 a year! Obviously, if we cut this spending we would save tons.

I decided to use a movie subscription site named Netflix. This nifty website charges only $8.99 a month for 1 DVD at a time. Using this, I can save nearly $500! With this plan you can rent one DVD at a time. As soon as you send the DVD back with their pre-paid envelope, the next movie in your list is shipped to you. Netflix offers a very fast service. It takes only two days to receive the DVD! This plan also offers an instant watch mode. This allows you to watch movies right off their site, without waiting for them to deliver to your house. However, some movies cannot be watched this way.  This plan is also quite ideal, because you won’t be wasting hours watching the TV or viewing useless commercials. Also you may add a few more dollars to take out more DVDs at a time if one is too slow. For example, you can add an extra $3 to take out 2 DVDs at once.

On the other hand, you can use Hulu, which is free! They offer free, full-length, and high quality movies and TV shows, both current and classic. This is perfectly legal as they partner with many providers such as Fox, the Comedy Channel, and various movie studios.

However, if you are a busy college student, you should generally keep away from watching too much movies or shows because you don’t have the time.

Why Pay to Drink When You Can Drink for Free?

My name is David, and I’ll be writing weekly tips for youth on how to use your money wisely.

Drink Water Instead of Coke

I noticed recently that I spend $1.49 every time I want to drink a bottle of coke. Some of my friends at school drink at least 2 bottles of soda a day, if not more. The average American drinks 57 gallons of soda every year. That is 20 oz., or one bottle a day. Obviously, this can become a very expensive habit. It can add up to almost $550 per year! Even just drinking coke less often, can save you tons. For example, drinking coke every other day, will halve the cost to $275! On the other hand, drinking filtered water or tap water is free! Plus, it is healthier and better for the environment (no plastic bottles).

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