“Getting information off the Internet is like taking a drink from a fire hydrant.” – Mitchell Kapor
This post is going to be the first part of a three-parter about a fresh change for one-third of the writers at Don’t Quit Your Day Job….
Since my colleague PK and I founded this website back in April of 2009, we have been gainfully employed (or enrolled in college, at least for me through 2011) and have remained at the same companies – myself in financial services and PK in the technology field. I am pleased to report that as of December 2nd, I have started a new role in a new location in a new industry – replete with all the wonderful changes that a large change in geography and work responsibilities bring. At this point, I am filled with excitement, anxiety and encouragement as to what this position will mean for me… both from a personal finance and a career development standpoint.
This first entry will be about my move and discuss the details surrounding the industries in which I have experience. The second part will be about the significant geographical, lifestyle, and cost of living adjustments that I am in the process of making. And the third will be about negotiation and competing offers.
Passing Money from Hand to Hand
“Finance is wholly different from the rest of the economy.” – Alan Greenspan
For the past three and a half years, I have worked in the financial services industry (specifically in auto finance). We were concerned with pricing auto loans: establishing to whom credit was offered, as well as down payment requirements from each individual consumer.
My role also involved forecasting volumes, forecasting profits, developing financial models and understanding collection and recovery efforts on secured loans. On an even more detailed level, it meant that I assisted in developing logistic models to predict defaults and pricing strategies and involved SAS, CART and SQL skills. It also entailed working with one of the most ingrained lobbies in the American economy – NADA or the National Automobile Dealers Association.
Seeing the industry from the inside means I have some excellent advice to offer when you finance a car:
When you walk into a car dealership and apply for a loan, the dealer will often quote you a higher APR than what the financial company backing the loan is willing to offer. This markup is then split between the car dealership and the finance company. The markup, called “dealer reserve”, is a potential financial incentive for dealers to markup financing offers to the less financially-savvy of the consumer base, and underscores the importance of understanding your credit history and knowing what APR you can expect when applying for financing.
What is a Bank?
“I sincerely believe that banking establishments are more dangerous than standing armies.” – Thomas Jefferson
The question is more fundamental than definitional.
Is a bank the brick-and-mortar building that surrounds a desk and bankers?
Is it the concept of fractional reserve banking – that you may lend using borrowed money?
Is it a company that you must see on TV with large pillars and a name that evokes the words trust, institution and stability (RIP 2008)?
I believe that a bank is nothing more than an interchange between borrowers and lenders: a conduit to facilitating many financial services. When a bank takes in deposits, it offers customers a (small… in recent vintage) return for the use of those moneys in more profitable banking ventures. These more profitable ventures (ignoring more complicated ideas like the Volcker Rule or even the Buffett Rule) are generally thought of as lending functionalities. A mortgage will return more to shareholders than deposits will return to consumers. The inherent risk is assumed by the bank and the spread is pocketed as profits for the shareholders. The main barrier to entry is being large and stable enough to balance on-demand liabilities (checking accounts) with long-term assets (auto, home, personal loans and credit cards). Institutions like the FDIC and Fannie Mae have helped lessen this burden of banks, and the new economy of banking is simply a conduit between shareholder, borrower and saver.
Children of a Technological Age
“We’re still in the first minutes of the first day of the Internet revolution.” – Scott Cook
The internet is still shattering barriers.
Lending Tree allows you to solicit many banks for your loan request to get the best offer – a form of auctioning off the profit of your loan to the lowest bidder. Lending Club performs a similar service through a non-traditional avenue. Ally, Capital One 360 and Charles Schwab are noted through the blogosphere for the best rates offered for Certificates of Deposit and savings accounts. This is due to their lack of physical branches, allowing them to pass the cost savings on to the consumer.
Finance is simply a means to an end in our lives. Money is used to purchase goods and services. If everything is running smoothly, you never need to know the name of your bank or worry about your financial institutions.
I envision a future in which infinite knowledge allows perfect information on credit scores, credit reports, banking options, lending opportunities, insurance premiums and investment options to be housed in a central repository* (perhaps on a phone – in an app known as SkyNet).
This financial Shangri-La echoes one that already extends to many parts of your personal life.
Uber and Lyft have shattered the finances and distribution network of traditional cab companies. AirBNB is challenging the business models of hotels. Amazon Fresh is pushing the boundaries of grocery shopping. GrubHub and StubHub have altered the auction marketplace for food and ticket prices alike. Banking is in the process of making this move and I am excited to be working in an industry that is helping move the buck in this regard.
I look forward to the next two parts of this three part series on a job change – one that entails a change in industry, location as well as its personal finance repercussions.
*I wanted to add more color to this statement. I use Uber for my personal taxi service. I use AirBNB for extended stays in cities. I use GrubHub when searching for food in my area. I use Charles Schwab for my checking account, E*TRADE for my brokerage account, Fidelity for my 401(k), Vanguard for my Roth IRA, Chase for my home loan, Wells Fargo for my auto loan, Progressive for my Auto Insurance, various other institutions for my student loans, American Express for my credit card, Credit Karma for credit scoring and Craigslist when searching for homes. In essence, all of these companies are pieces to a puzzle of facilitating connections between producer (or lender) and consumer (or borrower). The barriers to this traditionally have been location, time and cost. The internet is pushing these boundaries away and I am invigorated to work in an industry where these barriers are seen as an affront to the consumer as opposed to a necessary safeguard protecting consumers.