Shomer Shekalim – ₪

When was the last time you read a newspaper article and just shook your head and signed “why?”  Well, this article in Calcalist is guaranteed to do that (click here for English).

MKs Limor Livnat and Nitzan Horowitz are proposing a bill that will make it illegal to discount children’s books more than 50% from the ridiculously high cover price.  Apparently the price set by the publishing companies, which does not take into account the basic ideas of supply and demand, cannot be discounted too much, less the authors receive too little.

My reactions are mixed.  On one hand, I think “this is what is bothering you? This demands actual time from a government so overwhelmed with expectation in the areas of finance, security, and culture that the Knesset will actually discuss this?”  One the other hand, I think “these people do not even know the first lesson one learns in economics – how can they be running the country?”

For starters, who is deciding that the authors receive too little?  The consumer?  Not at all, the consumer pays money to the store who pays the publisher.  It is the publishers who decide to pay the authors so little.  They are using an internal issue in order to force the consumer to pay more to them.  And what if this does not leave enough money for the publishers?  Then they will have to renegotiate with the authors and restructure their business.  This is all basic supply and demand.

You don’t have to be an expert in the area of selling books in order to understand this.  But in case you insist on only trusting one, Iris Barel, CEO of Steimetsky explains the real problem is “the issue of joint ownership” – meaning the relationship of the publishers to the authors.

The supply of books is high.  The demand is high too, but not as high as the supply, so there are more than enough books and the price drops.  If the price is too high, some will still buy, but on the whole people will seek alternatives like second hand books, borrowing from friends, printing offline, and the library.

And once people begin to buy less children’s books, other book sales will fail as well.  Book stores know that the main reason that many people come to the store is for kids books, which is why they are always kept in the back of the store.  The bookstores use the layout in order to force the parents to walk through the other books, in the hope that a parent will pick up something for the adults in the family as well.

But even if this action were to help book sales, what gives the Knesset the right to force parents to pay above market price?  Parents already have to compete with aggressive advertising toward their children, much of which is designed literally to brainwash their kid into annoying the parent in order to get something.  Studies show that parents will give into their kids if annoyed an average of seven times – and this is the goal of advertising towards children.  How problematic is it?  Well, according to the UK, Greece, Denmark, and Belgium, it is problematic enough that they have specific restriction on advertising towards children.  And in Quebec, Sweden and Norway, it is illegal altogether.  But not only does Israel not do a darn thing about advertising towards children; now the Knesset wants to force parents to pay even more for products, some of which the children were brianwashed into demanding in the first place.

Do not give into this.  Allow the book stores and publishers to suffer the price of their lobbying stupidity.  Hopefully, at the end of all of this, the Knesset will understand the very basics of economics.  I wouldn’t hold my breath, but I can still hope…

I was recently considering the pros and cons of buying and renting when I saw that Getting Rich Slowly, one of my favorite blogs wrote about the subject.  Here are some highlights:

“The housing industry is huge, and it spends a lot of time propagating certain myths about homeownership, myths like:

• If you rent, you’re throwing your money away.
• Owning your home is a forced savings plan.
• Home ownership is a path to wealth.

In an editorial in the June 2007 issue of Kiplinger’s Personal Finance, Knight Kiplinger wrote, “It often costs less to rent. The annual cost of owning a property, be it a house or a condo, is usually greater than the cost of renting, after taxes.” And there are other advantages to renting.

For one, you have flexibility; you can move at a moment’s notice. For another, you’re not responsible when things go wrong. If the shower starts leaking before you leave for your vacation in Duluth, you don’t have to worry about it — you call in the landlord.

Renting by the numbers
One way to tell whether it’s better to rent or buy is by checking out the price-to-rent ratio (or P/R ratio). This number gives you a rough idea whether homes in your area are fairly priced. Figuring a P/R ratio isn’t too tough. All you need to do is:

1. Find two similar houses (or condos or apartments), one for sale and one for rent.
2. Divide the sale price of the one place by the annual rent for the other. The resulting number is the P/R ratio.

For example, say you find a $200,000 house for sale in a nice neighborhood. You find a similar house on the next block for rent for $1,000 per month (which works out to $12,000 per year). Dividing $200,000 by $12,000, you get a P/R ratio of 16.7.

But what does this number mean? Writing in The New York Times, David Leonhardt says, “A rent ratio above 20 means that the monthly costs of ownership will exceed the cost of renting.” That’s \a little opaque, but what Leonhardt means is that the higher the P/R ratio, the more it makes sense to rent — and the less it makes sense to buy.

During the housing bubble, the national P/R ratio came close to 20 (and went far above that in some cities). In other words, you could rent a $200,000 house for $10,000 a year (or just over $800 per month), which is a pretty good deal.

Another way to gauge the cost of housing is to compare it to your family’s income. From 1984 to 2000, median home prices were about 2.8 times the median yearly family income. (In other words, the typical house cost about three times what a family earned in a year.) During the early 1970s, home prices were about 2.3 times median family income. During the housing bubble, this ratio jumped to 4.2.

These numbers may not mean a whole lot on their own, but they can give you some sort of idea whether housing is overpriced in your area. Plus, it seems safe to assume based on past figures that most families can comfortably afford a home that costs about 2.5x their annual income. (So, if your family makes $80,000 a year, you can afford our theoretical $200,000 house.)

Note: I’ve shared it before, and I’ll share it again: The New York Times has a great rent vs. buy calculator that can help you decide which is best for you. Just plug in the numbers for your situation, and the calculator tells you how long it would take you to break even if you bought a house.”

What do you think?

I remember the first time I went over the fees on my bank statement in Israel.  When I made Aliyah I did not even know the word amalah (bank fee), but from learning Bava Kama, I knew the word knas (fine).  The conversation went like this:

Me:  What is the bank charging me ₪ 30 as a knas?

Banker:  You’re not paying any knas, these fees are being paid as an amalah.

Me:  What’s the difference?

Banker:  Well, an amalah is a bank fee and a knas is a fine.  This isn’t a knas because you didn’t do anything wrong.

Me:  Then why are you taking ₪ 30 from me?

Bank fees are out of control.  And don’t think this phenomenon is limited to Israel.  My bank in the US used to be Washington Mutual, a bank who prided itself with the slogan “we don’t nickel and dime you.”  Of course after the recent crash, it was taken over by Chase, who, to say the least, nickel and dimes like no tomorrow.

In fact, in the wake of the recent economic meltdown, most US banks have increased their bank fees.  Basically, not enough money is being made on loans and the CEO’s salary (and bonus) has to be paid, so it’s up to the little guy to make the difference.

Israeli banks have also increased their bank fees in the recent years.  Some fees are supposedly meant for users to try other mediums (₪ 6 shekels for using a teller, but only ₪ 3 if you use an ATM) and some are just a slap in the face (20 shekels PER MONTH for just having the ability to use a credit card.)

The real reason this happens is for two reasons, (1) collusion and (2) price discrimination.

Collusion:  The market basically dictates how high or low bank fees can go.  But when several banks decide to act together in order to dictate policy, our oligopoly turns into a cartel and banks can pretty much get whatever they want out of whomever they want.

Price discrimination:  As mentioned above, many banks raised the bank fees for people who use the teller, supposedly in order to encourage ATM usage.  I suppose they think that the incredibly long line at the bank is just so inviting that I would love to spend 45 minutes on line instead of using an ATM.  So who still uses the teller inside for simple transactions?  People who cannot use the ATM.  In many cases, this includes immigrants and the elderly.  These people will probably not put up much of a fight over a hike in bank fees, mostly because they lack the ability.  Banks are using a simple economic tool of price discrimination in order to extract the greatest amount of money from each individual market segment

So if this is true, who pays the least bank fees?  The answer is obvious – whoever makes the biggest stink over bank fees will pay the least.

I pride myself on currently not paying any bank fees.  And before that, I prided myself for paying minimal bank fees.  The deals are there, you just have to look for them and be aggressive when setting up your account, and if need be, move to another bank.

Last week, in the comments of a post I began discussing this issue with some readers.  I wrote there:

My wife is at Mizrahi can use their ATMs for free (I don’t know the terms; it is from before we got married). I am at Mercantile / Discount and, because I work for an educational institution, I do not pay any fees (I found out about this about 9 months after I began working at my job – apparently there is some kind of auction for which bank handles the educational accounts and Discount won, so you can negotiate better terms there if you work in education.)

Devorie, a reader, posted:

Bank Yahav now offers no-fee accounts for both public sector employees and private sector employees. The terms are very reasonable – I think you have to transfer a minimum salary of 5,000 NIS for one person or 7,000 NIS for two (Bank Igud also has a no-fee account, but the minimum salaries are much higher). You can save a lot of money by taking advantage of a no-fee account. Some banks will also negotiate the fees, if they think you will leave them for the competition.”

I don’t know the terms and every time I try to do a study where I compare bank fees, I am faced with such a plethora of account types and exceptions that it becomes nearly impossible to compare anything.  It all comes down to the simple fact – you can get a better deal as long as you bargain.

If anyone has any other stories or ideas for avoiding bank fees please list them below.  Thanks.