Would you ever give your bank or a finance company money to use if they paid no interest to you for the use of your money?
Never? No way?
I hear a collective “No” coming from my readers.
But most of you do (or did)!
It happened when you were focused on something else and you were paying attention to the service you wanted. We all love something that is easy, completely safe, and helpful.
Would any of you give your money to a bank or finance company, interest free, and never ask for it back?
Some of you do (or did)!
Today’s column deals with a bitter pill, but perhaps it will go down easier if you know I was (but not now) right in there with you.
In my career I did a great deal of travel within the U.S. and around the world. When I was younger I was told never to carry cash. I was encouraged to buy Traveler’s Checks (or Cheques as they like to call them to make them sound more sophisticated.)
In this transaction you would go to a bank or finance company and you would buy checks issued by them. They were very official. You had to sign them in the presence of an official and then they would give you a little piece of paper that listed the serial numbers on your checks.
You were told to keep the serial listings separate from the actual checks. That way, if the checks were stolen all you had to do was call the bank for finance company and they would, without question, refund your money.
What a deal!!!
You envisioned yourself riding a gondola in Venice and some guy grabbing your wallet, or purse, and taking off with all your money.
Maybe you were walking on The Great Wall of China and your wallet fell out of your pocket! But, aha, you were smart so all you lost were your Travelers Checks.
You would call the 800 number and your money would be replaced.
You were able to summon these dreams about the Greek Isles, and other exotic locations because they were in all the advertisements on television, paid for by the Travelers Check issuing organizations.
Petty thieves, robbers and muggers beware! You cannot cash the checks you stole because you cannot duplicate the signature and you do not have the proper ID.
How could you lose?
You could travel with an air of invincibility. You would never be at risk. And, in a way, you were helping make a life of crime more difficult!
But friends, some would argue that the real robbers, muggers and petty thieves were those who were selling you the Travelers Checks.
Let us consider this scenario. You are going to Europe and you want to have about $5000 in cash for emergencies. You amble down to the appropriate seller and buy 10 Travelers Checks in $500 dominations. You sign them in front of the seller. You get the serial number slip and you get your checks in a nice little plastic wallet. Voila! Transaction complete. You thank the seller and you depart feeling very safe and secure.
Now this is what really happened. You gave the seller $5000 of your money. The seller gave you some nicely decorated pieces of paper not issued by the U.S. Government, but by the seller’s employer. They look official. They look legal. They look safe.
They are official, legal and safe. But only if used properly.
From the minute you left the seller, the seller’s company, at a profit, was now investing your money. They were lending it to others and getting paid for it.
No matter when you return from your vacation, and assuming you can find all those pieces of paper, and you go to the seller and ask for your money, they will happily let you sign each check and they will give you your money back. What they will not do is thank you for letting them make money on your money while you were away.
This is fine to a point. So you didn’t earn any interest while you traveled but you had the security of knowing should you be robbed, or simply foolish, your money would be there for you when you got back home.
Now readers, how many people who travel get robbed? What percent would you guess? Not very many people. So the seller who gave you the checks doesn’t have to pony up any money very often. And when they do, it is a very small percentage of what they made on all those free loans provided by travelers the world over.
And even when you get robbed, the travelers check company loses nothing. All you lost were pieces of paper. They simply give you your own money back, not a dime of their money.
When the thief tries to cash the travelers checks he stole from you the people he encounters simply refuse to pay because clearly it is not you, nor is it your signature.
It me repeat this important lesson: the company who sold you the checks, and to whom you gave an interest free loan, and who made money on your money while you were vacationing, cannot lose in this deal! Foolproof! Cunning! Brilliant!
The situation gets a little sticky when we remember that in the early years of issuing travelers checks, you actually did pay a small fee for your checks. In those days, everybody paid a fee for their checks and then loaned the seller their money for free. In those days, the sellers of the checks were really laughing all the way to the bank, or maybe they were the bank.
The customer paid them to take their money interest free.
I think it was about this time that old P.T. Barnum talked about “one being born every minute.”
Why am I writing about this. Well, I was one of those folks who returned from a trip and just kept some of his travelers’ checks for the next trip. Into the drawer with the passport they went and out they would come the next time I traveled.
It was simply easier than running to a seller every time I wanted to travel and going through the clerical stuff all over again.
As fate would have it, I often couldn’t find the travelers’ checks when I needed them and would buy others anyway. So over a period of decades a person could accumulate a number of unspent checks.
And don’t forget, in this scenario the organization that sold you the checks, anticipating using your money to make money for a week or two, has now had the use of your money for months, or years.
This practice, not limited to me, gave rise to the idea of Bank Holidays! Can you even envision how much money was rolling around in vaults that belonged to travelers who never claimed their cash?
One day I decided that since they had a record of every travelers’ check I ever bought because, remember, they were going to give me my money back, and that they had taken down my social security number when I bought the checks, I felt certain they had a computerized record of every single one of those babies I had purchased and could tell me which ones were still outstanding.
If they could identify which of my travelers checks were still outstanding, and if those checks had been therefore lost and never cashed, it should be a simple effort to now reimburse me for all the free money I gave them and never spent or asked for back. The important part of this idea is that I would be asking them to give me back the money that I gave them.
Nope.
The specific company I used wrote me a very fine letter saying they didn’t keep any information, especially not social security numbers (then why did they collect that information???) and unless I could actually produce the check there would be no refund because they simply had no way of knowing how much money I might have given them or how many checks I might have purchased.
Accounting 101! I buy their checks. They write down the numbers on the checks and they take my personal information. They take my social security number.
Accounting 102! I cash some of those checks on my trip. They pay those checks to whatever hotel or restaurant accepted them.
Accounting 103! How could they not know which ones were not cashed and have a record of who has them (ME) and how to find me?
Profit 101! If they hold me fully and solely responsible for producing those pieces of paper that I foolishly or accidentally have misplaced, they get to keep my money. Free.
Philosophy 101! Figure out how many million people bought travelers checks. Figure out how few had them stolen. Subtract out the folks who went right to the bank and cashed in their checks when they returned from their trip. You will still have a very huge number of people who either forgot about it, kept the checks for a future trip that never happened, or who have secured those safe pieces of paper away for the day the banks fail or the government falls (although one would wonder who would be redeeming travelers checks in that instance.)
Statistics indicate, reliably, that there are billions of dollars in play through the travel check business. Why do you suppose the finance companies did away with the fee for travelers checks?
Theology 101! Once you find out how many people are willing to give you their money for free,
why do anything to discourage them from doing so. So they got rid of the fees. There is plenty of profit to go around without charging fees that might discourage folks.
I am not discouraging anyone from using travelers’ checks.
I am encouraging everyone to cash in unused travelers checks immediately on return from vacation.
I am congratulating finance institutions on discovering this incredible source of profit.
