False Advertising, I Do Believe

On my way to work this morning I heard an advertisement on the radio.  I immediately  thought to myself, “who would believe this crap?”.  It was clearly an example of false advertising.  The great legislators of this Country created a law to prevent that, right?  Oh yeah, here it is:

“Any advertising or promotion that misrepresents the nature, characteristics, qualities or geographic origin of goods, services or commercial activities” (Lanham Act, 15 U.S.C.A. § 1125(a)).

Now I’m supposing the spineless legislators who are owned by major banks and other companies have found it exceedingly difficult to “prove” something false, so that’s why you never hear about any grievances or disputes of this flavor. 

The ad was for a major regional bank, with a nice young couple talking about their trip to Europe that they planned, CLEARLY being paid for by the interest generated from their savings accounts!

I decided to look it up.  I presume they went with the highest-rate and best performing version of this account.  The interest rates range from 0.25% to 0.70%.  Based on the tiers, your first $500,000 would earn you $3,488.50 a year, and 0.70% on anything above $500,000.  Other than the fact that this would be stupid as it’s not FDIC insured at that point and you could lose it instantly, let’s go with it for the sake of my example.

A standard no-frills trip to Europe is going to cost about $4,000/person, and that’s without all the fun extra side trips.  It’s basically to stay in your hotel room.  But let’s make that assumption since no details about the trip were provided.  So the total cost is $8,000 for the couple (I presume they were BOTH planning on going, or else it would be pretty boring).

This would require another $644,500, on top of the $500,000.  Oh wait!  I forgot to account for taxes.  It’s highly probable that a young couple with over a million dollars in their savings account are in a high tax bracket, but let’s be conservative and assume they only pay 15% because they got a huge inheritance.  So now they must generate $9,412 to cover their vacation after paying taxes.

Our final tally is $1,346,214.  This is the amount they must have to fund their boring, no frills vacation at this amazing bank with amazing savings rates.  But there are a lot of people with this kind of money in savings.  Certainly at least some!  Well, per the Census, granted it’s 2004 data, the median assets at financial institutions is $4,700 per household.  It’s been a while, so let’s adjust this with a 3% annual savings rate, compounded, to get a more accurate figure.  Now we’re at about $6,000.  MUCH better.  And only 12.8% of households have $500,000 or more in assets.  And of course this would normally include home equity, retirement accounts, baseball card collections, etc. 

It turns out that only 4% of American households are “millionaires”, and 44% of net worth is tied up in an illiquid form called home equity.  And in case you’ve been living under a rock for the past four years, this particular asset class has not performed in a stellar manner.  So how many homes have over $1M in their savings accounts?  A lot fewer than the number of people who heard that broadcast this morning.  But people love hope.  They love to dream.  They hate logic and reality.  So they’ll all be lined up around the street corner to sign up for that magical savings account that will pay for their next vacation.

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