ING, shoes, and are the big guys completely honest with their customers?

In one of my last entries, I was briefly noticing that (grad) students should not invest in stocks - unless they are financially strong. Being such implies having the financial security - as defined by Bodo Shaefer - i.e. the quantity of money, liquid, that would be enough for one person to live for a year without working or receiving money from other sources.

This is an essential thing to do many people neglect and, say, in Russia almost no one cares about. When I first came to Catalonia four years ago, the first thing I learned was to save. I was reading a lot of Kiyosaki back then, as well.

In money terms, the financial security amount differs from person to person, but basically it is calculated as a sum enough to provide some elemental living during one month multiplied by 12. No luxuries, travelling or gifts are included into this quantity - unless they are vital for your existence.

This money must be never touched, spent or invested into anything implying any risk - you cannot lose it. It must be always there for you in case of an emergency, e.g. job loss (that hopefully will never occur).

I am sorry if I am explaining the very basics to you, but you won't believe how many people are actually unaware of this simple truth.

What is the best way to accumulate this quantity? Saving. The recommended share is 10% of monthly incomes. There are three possible ways to save that I see, may be, you can name more. One is a la antigua: you can have your treasure stashed under a mattress. The other one is to give it to your Mum/friend/significant other who you completely trust and who, unlike yourself, would never fall into temptation to spend this money. The third one, and the one that I personally recommend, is to open a savings account. Not only will it keep your money protected from loss, robbery or fire but also it will generate interests.

In Spain, the best bank for the purpose - according to the word of mouth - is ING Direct. This mogul of  the Dutch origin has its branches across the globe. In Spain, it offers a very attractive product called  la Cuenta Naranja ("The Orange Account"). Back when I contracted it in 2011, it provided 4% APR (TAE in Spanish) during the first 4 months with a decrease down to 1.20% APR during all the consecutive months. Now, according to the latest ads, Cuenta Naranja promises 3.30% APR during the first 4 months, and this less attractive stake must be the consequence of so very often mentioned Spanish crisis.

Spain is in Europe, so you would imply that due to the heavy corporate and governmental regulations no fraud can occur anywhere - with the exception of the very high level politicians. However, a recent event of my life made my disbelief in the latter statement even stronger.

I was shopping in the city, and I popped into a store of an Inditex brand retailer, Uterqüe, and I saw some fancy boots. The was a sign right next to them indicating that they were on 50% sale. Winter sales start on January, 7, in Spain, a month from then, so I was eager to treat myself with a little bargain before the global shopping spree.  When I approached the pay desk, I have discovered that the announced price did not make up 50% of the initial amount, it was more. When I asked the cashier if I had some problems with arithmetic, or was it them,  she turned all shy and said: "Yeah, may be the discount is slightly less than 50%..." I bought the shoes anyway.

The next day, however, I came back to the shop for the proofs of that the promotion was misleading, and they had already covered the initial price with an opaque seal. No matter what, I made some photos with my iPhone and vanished rapidly. Here are the proofs:

Well, after coming across this little cheat, I was a little disgusted, and the next thing that occurred to me was to check whether my ING bank account pays me the interests it promises. I must say that I don't really care about the interests because I am intended to make my financial security with my savings, and I am close to my goal. Nonetheless, it was a tempting basic finance exercise, and I had some free time so I did it.

I've modeled my personal wealth dynamics and the interests compounding on the basis of the promised: 4% TAE (3.928% nominal interest) within the first 4 months, and 1.20% TAE (1.196% nominal interest) afterwards. I believe you understand why I don't provide the actual money values on these graphs.

The fall in wealth curve in March 2011 is explained by the fact that I paid for my studies in the UK from this account which I shouldn't have done but still did. 

In a nutshell, almost for every month, the paid interests were slightly smaller that those promised. It was not exactly 4 per cent the first four months, and not 1.20 per cent later - it was a little less. However, as you can see, in the global perspective the difference is negligible. Also, there may be something in the ING Direct's interest calculation methodology that I perhaps don't know. My calculations were pretty straightforward: initial wealth, interests compounding, new contribution, interests compounding and so on. The monthly contribution has almost always been pretty constant: 10% of my monthly income. By the end of october 2012, the difference between the actual wealth and the modeled wealth, i.e. between what I owned and what I should have been owning, made up just 0.45% of the actual accumulated wealth.   

So, to make a long story short, as a Russian person who does not care much about the small things, I give the Cuenta Naranja my seal of approval, and I am not intended to switch the bank.  

Shoes price, however, is a philosophy question. Name a fair price for a pair of shoes.