Where the rich pawn their luxury goods
Everyone weeps for the rich these days, what with their riddled stock portfolios and vacant summer homes.
Yet though they’ve had Ferraris repossessed and kids pulled from private schools, one everyday cash-raising scheme you’d think the wealthy would never partake in is hitting up the local pawn shop.
That’s just what CNN reports is happening across the U.S., however.
According to the news agency’s Money channel, the rich, short on free cash, are now visiting pawn shops with all the trappings of long-ago cash: Rolexes, diamond necklaces and vintage coin collections.
Indeed, though the recession is technically over, liquidity hasn’t returned for many of the affluent, and certainly getting a loan isn’t quite as easy as it once was.
*Bing: How do pawn shops work?
So that’s why, instead of borrowing from a bank when the risk of defaulting means your credit rating will plummet, plenty have resorted to taking out cash using their luxury goods as collateral.
“A lot of people like to call them the one per cent, but we call them our client base,” one pawn broker-to-the-rich told CNN Money. “These are people who are well-off, who have extraordinary toys, but unfortunately are not liquid enough to keep them.”
This accompanying video tells the story of the wealthy pawning off $90,000 Rolexes and $54,000 diamond necklaces, but the real tale here is the risk the rich are willing to take to secure cash today.
A bank loan can be slapped with any number of interest rates, but in exchange for the relatively anonymity and isolated hazard of borrowing from a pawn shop, those hawking their luxury goods are facing massive, bloated interest rates.
CNN reports that many pawn shops are charging as much as four per cent interest per month – a staggering 48 per cent APR – and some in other parts of the U.S. can charge more than six times that amount, 25 per cent every 30 days.
By Jason Buckland, MSN Money
Posted by: Keith Carter | Mar 14, 2022 3:33:25 PM
Truly affluent people don't need to visit pawn shops to obtain cash.
It's unfortunate that our society (Canadian & U.S.) seem to think because
someone has a few toys, and drives a luxury SUV they are 'Well off' or 'Wealthy'.
The top 1% have a net worth (Total assets minus Total Debt) of well over a Million Dollars, and they don't need Pawnshops or Payday loans. Wealthy people have equity typically in the form of Real Estate or Stock Portfollio's, and can quickly obtain a (Low interest) Line of Credit if they ever found themselves in a cash poor situation. The people that find themselves visiting pawn shops as the story above mentions, are those that can be defined as 'Income Based Affluent'; people who base their lifestyles on their weekly pay-checks and not their Total net worth. True affluence comes from what someone owns and not by how much money they make. Obviously these two terms correlate and interrelate in many situations, but as the story above suggests, a lifestyle based simply on a big pay-check and Zero net-worth can come to an abrupt end; often with life and lifestyle changing results.
Posted by: Paul | Mar 14, 2022 7:15:25 PM
Additionally, many people who do not have big paycheques spend far beyond their means in an effort to live the 'good life'. When they discover they cannot live on borrowed money in perpetuity, their 'foundationless' house of wealth collapses.
Posted by: gg | Mar 15, 2022 12:37:12 PM
I totally agree with you Keith. I've been informed that the true definition of a millionaire is one with net assets > than 1 million excluding the value of their principle residence and automobile(s). As such any person in this position would never need to deal with a pawn shop. Anyone dealing with a pawn shop is just what Paul says.... no foundation and a house of cards in freefall.