OMG, they don't understand money!

The argument

I had an argument today that someone couldn't change to use direct debit instead they'd rather bitch about the payment handling cost of their bill.

Ok, let's forget for the time being that they could if they wanted set up a quarterly direct debit rather than a monthly one and see what their argument is for not having a monthly DD.

It goes like this;
At the end of each month say I only have just enough to cover the direct debits then I am not able to put much aside for one off payments like the car going wrong. If I pay quarterly then at the end of each month I can put something aside so that I have some money in an emergency! My argument is that if you're still paying the same amount for the services you have then regardless of whether you pay in 3-month chunks or single month chunks you are still spending the same amount so would be able to put the same amount aside.

I genuinly had to check my logic in a spreadsheet since the people that were telling me this pony I normally respect their opinion but this time it's just bubkiss and prooven bubkis at that!.

The reason this came about was a phone bill, the processing fee for non-direct debits was £6, a lot but they do offer a way of not paying it, I think they also add a further money off incentive when using monthly direct debit too, so let's do some maths on it.

Ok so hypothetically lets assume our person takes home £40 a month and each month the bill would be £10. These numbers are totally made up and are just to show the point, you can replace them with whatever numbers take your fancy and still end up at the same conclusion. For using a monthly direct debit the company offer £1 off that months bill, however opting for a payment method other than direct debit you're charge £6 for each payment as a processing charge, totally scandalous given the actual cost to the company but that is also an irrelevant detail to this argument.

description	amount
bill	£10
DD discount	-£1
total	£9

So this is the payment structure each month, therefore over the quarter it's going to cost £27 and over a year that cost will be £108. With a monthly income of £40 this means they'll be able to save £31 a month, that's £93 per quarter and £372 per year. So lets look at the quarterly billing.

description	amount
bill	£30
added payment processing	£6
total	£36

So this time over the quarter it costs £36 and over the year it costs £144. With a monthly income of £40 this means that they'll see their savings creep up to a whopping £120 each quarter before seeing it slashed to £84, and I think this is where the false sense of it being a better deal creep in because your bank balance will look much healthier for a fleeting minute but that money is really already spoken for. So each quarter they'd save just £84 and each years that only £336.

You don't have to be a genuis to pull this one apart, I think there is a false belief that you somehow have more money when you see it in your account and decide to ignore the fact that the money is really already spoken for.

The argument went that you have money available to pay for incidental expenses like car repairs e.t.c. so let's examine that hypothesis. That incidental money has to come from somewhere so you have to have some savings, the idea is that paying quarterly means you can put more aside each month, and yes the cash sum will be greater, but remember this money is always already spoken for, so unless you're entering into the realms that you decide not to pay a quarterly bill at some point when it's due because the money is already spent this argument really doesn't hold water, see the figures above. For example a car repair comes in right before a quarterly bill needs to be paid, if you've been paying by DD and making the savings listed then you have £93 saved up, let's assume the repair is £93 so you now have no savings left, boohoo. Let's make the same deductions from the quarterly payment, so you currently have £120 in the bank so paying the £93 for the car leaves us with £27 phew so we still have money in the bank when the phone bill lands on the mat, and that bill comes to ... £36 erm, we don't have enough to pay that bill!!!!!!!! This is the goddamn point I am trying to make you're worse off by deluding yourself about quarterly payments

Second part of argument

The £6 handling fee of non-direct debit payments, yes I don't think any company can really justify a figure this high, but they do charge it and my argument was the fewer customers that use this method the more expensive it becomes per customer. This seemed logical but was once again argued!

Hypothetically let's say it costs the company X amount to process non-direct debit payments for Y numbers of customers. The company are in the business of making money so take what it costs them to process these payments and shares it across all those customers that are using this service. So the cost per customer is X / Y. Therefore as the value for Y tends towards 1 the cost per customer tends towards X, meaning that fewer customers means each one will need to pay more, this I saw as a simple equation but apparently it doesn't matter how many people the cost is spread across it's still wrong!!! Give me strength.

Final Straw

This was the clincher that finally told me that the grasp of money simply wasn't there and is so laughable that I won't even go into detail about it. I said when you pay into your pension from your savings rather than as part of PAYE doesn't that mean you're taxed twice, once as you receive your wages then again when you draw the pension you'll get taxed as income? Only to be told it doesn't matter I'll get taxed it's all the same!No, NO it really isn't the same making a payment to a pension pre-tax means you're only fucking well taxed once so NO it's not the fucking same you financial wizard you I despair I really do, how can anyone in this day and age think this way, it's driven me to tears!