Rage Over a Lost Penny
Benjamin Franklin is often quoted, "A penny saved is twopence dear" (often misquoted as "A penny saved is a penny earned.)We’ve heard this adage all the time, but today a penny isn’t worth much, and besides, it’s no longer the truth. I’ve thought about this lately and intent to prove Ben wrong.
To illustrate, let’s say you have earned 1 penny that you intend on saving. Let’s start with taxes. If you happen to be in the lowest tax bracket at 10%, though that could be anywhere from 15% on up, depending on what you earn, every taxed dollar you earn is worth only $0.90; that means your penny is now worth $.009. Tack on FICA, 4.2% for most wage earners, and 1.45% Medicare for the calendar year 2011. Texas doesn’t have state income tax, but if it did, those would need to be subtracted, so it’s worth even less. So our dear penny’s net worth is $0.0084915.
Let’s start making some money, right? Next, you must find a bank that will allow you to open an account with a meager $0.0084915 deposit. Some banks will let you open a savings account with no minimum deposit, but most that have an interest rate that is more than negligible at this point require a minimum deposit anywhere from $25 or $500 and up. The amount of interest could vary widely depending on what types of account you open (CD, Savings, MMA, etc), though you probably aren’t eligible for much beyond a plain old savings account with your small deposit. We are adhering very strictly to the “penny saved” philosophy, no additional deposits or withdrawals, we are not doing anything to the penny except save it, etc, and we are not rounding, to illustrate the point. Let’s say that you open that account with .21%APY interest compounded daily, paid monthly. Let’s say you leave the $0.0084915 in the bank for 1 year, and the average APY during the duration for the year is .21%, just to be concise, though it may change. You make no other contribution to this fund. At the end of the month, you have $.0085093 in the account. Remember, we’re not rounding to illustrate this idea. So far, your saving a penny has cost you $.0014907, a far cry from a penny earned.
But, wait there’s more, the bank charges a monthly service fee of $ 5, because you have no automatic transfer or direct deposit, do not maintain a daily balance requirement, or have any other accounts linked with the bank. In the first month, your account balance goes in the red,-$4.9914907, and you have no overdraft protection. In Texas, state law prohibits both a NSF fee and a daily overdraft fee for the same item, again this may vary depending on different State legislature, but we are not adding to the fund, and not touching the penny. The penny stands alone. So, the next day the bank now hits you with an overdraft fee of $35, account balance is -$39.99149. Each day your account is in the red, an additional $35 charge for a maximum of 5 consecutive days is applied. Your failure to promptly pay back the overdraft results in this additional extended overdraft fee.
You now are $179.99149 in the hole at the end of your first month.
For the next 11 months, every month, you get hit with a $35 extended overdraft fee, for 5 consecutive days, plus the $5 monthly service fee.
Your account balance at the end of the year totals -$2159.9914.
We’re still not done, we haven’t accommodated for a 3.9 % per year cost-of-living adjustment and inflation while your money was in the bank “accumulating interest”. Total net worth in the account is -$2244.231 at the end of the year.
So, your penny worth $.001 today will be worth -$2244.231 in one year from now. Awesome.
However... a penny in good condiation minted in 1793, the first year the United States minted its own coins (and possibly Ben Franklin's era), recently sold at auction in Orlando, FL for ... $1.38 million dollars!
At this rate, I suggest taking your penny, stashing it under your bed for 200 years and cashing in on the profit!
posted by Austin @ 10:02 PM
1 Comments:
Ha, Ha! You are SO funny! :) How about just saving the penny in your piggy bank? In one year, you will still have a penny and if you earn any more pennies, you will have a bunch of them. Or you could stick them under your mattress. Or you could just put them in a jar and save them to put under Claire's pillow when she looses her first tooth (once she GETS her first tooth, that is! and hey, by then, you will have a bunch of pennies saved for her tooth fairy prize. She might request $10 if she's like her mother).... :) Anyway, you made me smile.
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