Pirate Money

Ahoy Matey! September 19 is International Talk Like a Pirate Day! Time to break out the parrots and rum and enjoy a pirate comic or two.

In keeping with the pirate theme, I sprinkled doubloons, gold coins, and pieces of eight on a test I just gave (the words, not the actual coins). And that got me thinking — just what are these pieces of money?

A piece of eight is a silver Spanish coin, also known as the Spanish dollar, which was used starting around 1500 and which was the basis for the US dollar. Its name comes from the fact that it was worth eight reales (so it might make more sense to call it an eight-piece coin). Indeed, for those with sharp scissors, the coin was sometimes cut into eight slices, each worth one reale, that were referred to as bits. Thus two bits was worth a quarter dollar, which is a useful fact to know if you should need a shave and a haircut. For that matter, there’s all sorts of other “bit” terminology: a dime, being just short of a bit, was called a “short bit” and a “long bit” was 15 cents.

Spanish Piece of Eight from 1739 (King Philipe)

But what about doubloons? A doubloon is a gold coin, worth twice as much as some other Spanish coin. According to Wikipedia, a doubloon is worth two ducats, and therefore worth four pieces of eight or 32 reals. But wiseGEEK says the doubloon is worth sixteen pieces of eight, and therefore worth 128 reals. Who to trust, who to trust. I like the name wiseGEEK, so I’ll go with their story (plus they admit that lots of different coins have been called doubloon). Suffice it to say that doubloon=gold and they’re good to have aplenty in your treasure chest.

Pirate flag by oren neu dag, Creative Commons License.

Cut your monthly payments in half!

There’s an ad that’s been playing on the radio lately, advertising to cut your monthly credit card payments in half by working with some sort of loan shark lending company. Is this really such a good deal?

It depends, of course, on how much you need the extra money right now, but I decided to play around with the numbers a little bit just to get a sense of how much those lower monthly payments actually cost. By way of example, I assumed the amount of debt was an even $7,000, because that’s somewhere around what different sources say is the mean credit card debt per household. I also initially assumed that the interest rate was 10% (compounded monthly) which is high for mortgages but low for credit cards. Finally, I assumed that the interest rate would stay the same, and that the lower monthly payments would be offset by being in debt for a longer amount of time.

Let’s suppose that you owe that $7,000 and are paying 10% annual interest, and you’ve decided that you want to be debt-free in 5 years. You can accomplish this by paying $148.73 per month, for a grand total of $8,923.80. That’s your initial debt of $7,000, plus $1,923.80 in interest.

What if you want to cut that monthly payment in half? You’ll need to extend your payments not to 10 years, but to between 15 and 16 years because of the magic of compound interest. Keeping the $7,000 and the 10% interest rate, equal payments spread over 15 years would require a monthly payment of $75.22. And the benefit for only having to pay (just over) half as much each month? You’d pay a grand total of $13539.60. That’s right, the amount paid in interest — $6,539,60 — is more than triple what you would have paid over 5 years!

If your interest rate is higher, like 15%, the picture is even bleaker. Paying off $7,000 over 5 years at 15% annual interest results in a monthly payment of $166.53, for a total payback of $9,991.80. But in this case, cutting that monthly payments in half is impossible. The least you could pay is $87.50 per month, and that would just cover the interest so your actual debt would never drop down. Not really good money management.

I do believe that sometimes cutting the payments down for a while is the best scenario for an individual, even worth the added cost. But when I hear ads like this I’m reminded of a friend who’s job for a short time was to try and “help” people by making offers just like this. She hated it, and she quietly cheered when a customer would check more into the numbers and realize that it wasn’t such a good deal in the long run. She quit that job as soon as she could.

Money Money Money

Just so you don’t think that the Harry Potter game is the only place to find cool polygonal coins, here’s a question for you: what shape is the Susan B. Anthony dollar? Yes, it’s round, but if you look more closely you’ll see the outline of a regular hendecagon — an 11-sided polygon!