Originally, engagement rings were used to lock down the good looking ladies when you popped off for a crusade. The theory being that if you were going to race off to battle invading Moorish folk, or dragons, then it was only reasonable that your betrothed had some sort of income protection in the event of your fiery death. The notion of building an emergency fund into a piece of jewelry appealed to people at the time, and was especially useful in the days where banking wasn’t so sophisticated.
The problems with such a strategy are plentiful, and this carry-over from days of yore is a crippling thing indeed. First off, the people with the small willies ruined it for everyone. They decided that if they left for a time that a person with a bigger willy might ride in on a beautiful stallion and steal their bride to be. The solution? Bigger, shinier, more expensive rings.
The next problem is lack of intrinsic value. Since the jewelry industry knew that most big and shiny rings are bought by insecure and naive folk they are happy to build on those fears. When I went shopping for rings I started out looking at places like Tiffany, and the big stores like Macy’s. I was surprised to find that the intrinsic value of the rings on offer were really low. We associate such famous brands with quality, but in reality the price of the components of an engagement ring from such places is much smaller than you might imagine.
This of course is rather relevant if you plan to buy the engagement ring and go off to do battle. You put $5,000 onto her finger, go get beheaded by a roaming band of gypsies and when it is time to cash it in, the resale value is $1,000 of stones and gold.
Oh, your lover bought it for you only 6 months ago, now he is dead as a duck and you need it for rent payments, how awful! In that case we can expedite the sale, and we can get $750 to you right now in cash.
Living Happily Ever After
OK so Prince Charming makes it back from his gallivanting, your ring never gets sold, and you guys live happily ever after. Let’s say 65 years of joyful bliss. You’re gonna have to add that ring to the insurance, as jewelry requires a specific rider. Let’s ballpark 1.5% of value for the premiums, and for the sake of making this a fairytale story not increasing the amount of the premium each year…
- Asset Price $5,000
- Annual Dividend $-60
- Duration 65 years (then someone else needs to insure it – have you seen the movie The RING? It never ends!)
With a resale value of $1,000 you are looking at a total net loss of $7,900, or an annualized rate of return of -6.36%
For perspective.
If you were to spend $20 on an engagement ring (as shown in the picture at the top of this post) and put $4,980, with annual $60 additions your final value after 65 years would be:
- $14,965 Savings Account at 1% (best for Emergency Funds)
- $57,500 A Treasury Bond at 3.4%
- $851,759 A stock market account at 8%
I do understand it is nice to pass down your engagement ring to your child or grandchild… but personally I would prefer to receive $851,759 if that’s ok with you?
What’s it all about?
We live in a corporate driven world where we allow media to tell us right and wrong. We are told that a $20 ring makes you cheap… we are told if you aren’t skinny you are ugly. It is my firm belief that buying into the hype is the single worst thing you can do for your finances. And if you can’t find a person you can feel confident enough in giving a $20 ring to, or if you can’t accept a $20 ring from someone you claim to be in love with, you need to stop, think about what is important and realize that you are being led astray by the media. Most Americans will have an expensive engagement ring. Those who can’t afford the ring will put it on credit, at atrocious rates of interest.
Recent studies (while not exhaustive) have indicated that 36% of American workers have less than $1,000 saved for retirement. 60% have less than $25,000. When you consider this, just think that a simple decision on the engagement ring could make the difference on you retiring successfully or not.
Let’s take that same ring purchase invested in stocks and stretch it forward until 65 years of age (40 years): Final value of $123,731. What’s more.. because you have that money rather than a rock on your finger you wouldn’t need to draw down on social security. You could use the funds to tide you over for a few years, meaning you could increase your SSI payments by 8% per year for your retirement.
Full Disclosure
I bought into the bullshit, and bought a ring at the price that was ‘expected of me’ by society. While it may have some sentimental value, I personally think it causes more worry than anything. We have to worry about damaging it, or losing it, and all the time it is costing us money in insurance payments. I bought it because I didn’t have enough confidence to turn up with the $20 special.. which was a silly mistake, that will cost our family money. I bought it because I was fat, had a small willy, and have a set of pearly whites only the English can understand.
Ultimately, I think it is very hard to break free of the stereotype and peer pressures on something like this, it is hard to stand up and say this is just stupid and wasteful. The pack will snigger at you, they will imply that you are less than them for this. Part of breaking free of the rat race is getting away from people who think like this. They aren’t a positive influence, and chasing them into their own world of debt and lack of savings does you no good.
$20?..how about $1k
Sure, but the $1k ring still implies you ‘cheaped out’ – at least in the circles I run in, and that includes people of very moderate means.
So why not go all out?
Fwiw my own wedding ring cost about $8 from Amazon, and does nothing to mark territory (per Gary’s comment)
i see your point, but more importantly… which credit card did you use for $8k amazon purchase??
Eight, not eight k.
$8… lol thats awesome
im inspired
The historical purposes – a large part of the net worth of most men, they’re usually able to give away only one, which in a society whose norms saw commitment in front of sex helped insure fidelity; it wasn’t just income protection, it was a hostage — have for the most part been superceded.
That doesn’t mean that things are entirely bullshit, or that we’re controlled by advertising.
There’s still significant signaling value — it’s a polite way of ‘marking territory’, it’s a luxury good (differing tastes, subjective value, you can criticize the value of any luxury good), it’s pretty, lke a sports car there’s a “mine’s bigger than yours” element. It’s also expressive, which is to say that rather than being wasteful it can serve an inherently human function.
Nonetheless, it’s not something I see as especially important. But that doesn’t mean that I sneer at it.
What’s the difference between a $20 and a $5000 ring for ‘marking territory’?
Add to this the ethical issues of confict diamonds and it makes an even more interesting argument. Having traveled a good bit in Africa, I learned a lot about conflict diamonds, something I never knew of or thought about when I received my own engagement ring 35 years ago.
That’s a great point, and the whole game is intertwined. In fact ethical stones can charge a premium above intrinsic value, so the better a person you are the worse the financial decision it is.
Yes, a Kimberly Process diamond certainly could come with a much higher price tag. http://diamondfacts.org/index.php?option=com_content&view=article&id=128&Itemid=134&lang=en
I hear what your saying, and in a lot of ways I think the same way. However, I had to put aside seeing the ‘ring’ as a financial investment, because in that respect, its a total waste of money. Instead I view it as a statement of how much I value my wife. In addition to it being a token of my commitment, and an awesome piece of bling, that blinds people when she cleans it, I want it to be a reminder to her that I value her more then ‘gold and silver’. That combined with the fact that I knew she wanted a classic diamond ring, was what ultimately led me to drop a couple g’s. She still enjoys it to this day, so I don’t regret my decision.
That said, I think whats most important is not what the best financial decision is, but what ultimately is going to bless your wife the most. If its saving the money for a 401k, go for it. If its a ring with anything but a ‘blood diamond’ buy her a rare gem. For my wife, her dream was a classic diamond ring (not even thinking about the cost) so that’s what I got her.
A major issue I have is with the assumption that a big rock shows love.
In fact I believe 9 times out of 10 it’s a compensation for not showing love where it really matters. I’m not saying you aren’t, but if the default for love=expensive ring then it’s easy to substitute love for money/possessions and when that happens everything goes to hell in a hand basket pretty fast.
BTW, you may want to check with your home insurance if the theft of jewelry outside the home is covered by your policy. For most policies, it is, so you can drop the seperate rider for jewelry coverage only. The only thing is it doesnt cover is accidental loss, and has the added down side of carrying a larger deductible, but we figure the risk is small since she rarely takes it off and we dont hang out in ghetto areas too much.
Yeah, but I have accidentally lost a large piece of jewelry in the past and am a little sensitive about that 🙂
I have been married twice. The first time, I got a cheap engagement ring from a cheap man. It wasn’t only that he chose to spend his money on himself, he chose to spend his emotions there, as well. But I was young and foolish.
This time, I got a wedding ring ordered from a jewelry store in Dublin–significant to me because of my background. Instead of an engagement ring, being both a)older and b)more understanding of what true love looks like, I got a deck that my husband both paid for and put significant amounts of his own labor into.
In the end, it cost about the price of a mid level ring–about $3500. But we can enjoy it, our family and friends can enjoy it and it increases the value of our house.
What’s interesting to me is that my daughter is following my example, not society’s. She got a $30 ring on a trip out west as her engagement ring, and, when her husband offered to buy her a newer, nicer one, she decided she’d rather save for a house than deal with the issue of a stone catching on things, and got a newer, nicer wedding ring, instead.
Go, Daughter!
Fantastic! Actually my father in law frowned at the ring I got, but more recently bought a newer (and expensive) ring for his wife.
Spending money later in life when you have the house and other things sorted makes a massive difference.
The tradition was almost single handedly invented by the De Beers diamond cartel in the 1930s. Diamonds have become the biggest scam perpetrated on the educated society. They have almost no intrinsic value except for wholesale resale value and the price of the precious metals in the setting. There’s not really even a market setting prices for diamonds, it’s all smoke, mirrors and “traditions” perpetuated by De Beers implying that buying big is good and trying to re-sell is bad.
There are numerous good reads floating online about just how deep this brainwashing is. Here’s a few samples:
http://www.businessinsider.com/history-of-de-beers-2011-12?op=1
http://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-to-sell-a-diamond/304575/
That’s some interesting reading. I’ve heard parts of these stories before, but nice to see them in historical depth and flow like this.
The principle here can be applied to a LOT of things in our daily lives. Often times, people confuse cost with value.
Most luxury goods are ridiculously overpriced, but people are susceptible to branding and their own insecurities.
Absolutely- I actually wanted to write it about a different item (my fancy watch) but thought that using an engagement ring would be more relevant to more people.
My issue with jewelry, and diamonds in particular, isn’t that it’s a luxury item that’s overpriced. At least most other goods in that category are discretionary spending, and one could argue that a nice watch or expensive cars are at least of much higher quality and you get more by spending more.
The issue with diamonds is how society has been convinced that it’s a required purchase, and that bigger and more expensive is better, and that not following that rule makes you less of a man. They’re playing on the emotions of vanity, guilt and fear all at once! Brilliant. What other luxury product falls into that category?
True, they have some unique angles. But you could also see the same in certain circles- eg some big swinging dicks might feel the need to buy a watch- if you take something like a Bell and Ross it has the Valjoux movement inside, which means that 80-90% of the ticket price is marketing.
Not quite as rampant as engagement rings I’ll grant you, but it’s worth noting that there is ‘in circle’ peer pressure too.
I suppose a true test of “value” is a price at which that item has liquidity and can be resold quickly. For cars, yachts and planes that’s easy to establish. Not sure how it is with high-end watches but jewelry for sure very little intrinsic value beyond the metals used and the labor. Diamonds have nearly no value at all because now you can make flawless synthetic ones of almost any size you want.
I tried to talk my wife out of diamonds into another stone that had something other than cartel value. No sale. I have noticed that the status game is peer fueled. My wife worked in the schools and the norm for her peer group was much more modest than mine (Big Four accounting/consulting at the time).
Not only was I able to get by without an engagement ring, but was able to recycle my grandparents wedding rings. Only 3 mm wide, but made of 22K gold and inscribed with their wedding date in 1934. IMO, I got something 10 times more awesome and deeply significant than a department store wedding ring.
That being said, I am still educating my wife on the time value of money every time she sees a massive rock some fool bestows on one of her friends.
Yeah its a constant battle, and on many levels with those damn rings.
One I found amazing was the quality of dept store rings, even a Tiffany’s ring, was often very low, then you savvy up and get one from a Blue Nile etc, then you realize that the entire think is nonsense!
You’re approach is nice, my wife wears both her grandmothers wedding bands along with her rings, and they do mean a lot more than the stuff we can spend thousands on.