A subtle change has been made to the way people buy and pay for products and services, and this change has not been made for the buyer's benefit.

The Simple Buyer-Seller Model

This model is the traditional one, and it is the most equitable.

A buyer goes to a seller, selects the product or service wanted, and is given a fixed price which he pays or makes arrangements to pay. The seller delivers the product or service, and the buyer's obligation to the seller is complete at a predetermined time, the time the product or service is completely paid for.

Although many purchases are still made using this model, other models have emerged which place the seller in an entirely different relationship with the buyer. And I suspect that this trend all began with the insurance model.

The Insurance Model

A buyer goes to a seller, selects the product wanted, and is given a fixed price which he pays or makes arrangements to pay. However, the seller does not deliver the product at the time of purchase. As a matter of fact, the seller, and often the buyer too, hopes to never have to deliver the product. And often, when the buyer asks the seller to deliver the product, the seller does everything possible to keep from doing so. This kind of transaction is not the purchase of a product, but rather the purchase of a potential product, and in order to keep the seller obligated to providing the product when called on to do so, the buyer must renew the purchase regularly. The sellers relationship with the buyer only ends when the buyer gives up his interest in the product. Since the seller may never have to deliver the product, this kind of transaction guarantees only one thing--the sellers continuous income. I call this model continuous income pricing.

Most people find nothing wrong with this kind of transaction, but the model has been altered into others much more sinister.

The Utility Model

Telephone companies have used an altered form of the insurance model for a long time. What the buyer purchases is the ability to use a service, but he pays for it regularly whether he uses it or not. The person who makes ten calls a month pays as much as the person who makes a thousand calls. As a matter of fact, the person who makes no calls pays as much as the person who makes a thousand.  Clearly not an equitable transaction, but we have all accepted it. And in recent years, the companies have found a way to increase the fee by offering bundled add-on services. You all know what they are--caller id, call waiting, voice-mail, multiparty calling, etc. And when sold,  we are told that the bundle is cheaper than the services separately, which is true. However it is only true if one were to buy all the add-ons separately; it may not be true if one buyst only a small selection of these add-ons rather than the bundle. This kind of transaction, too, guarantees only one thing--a continuous income for the seller. But we say, ok, it's not too bad, because most of us make enough calls to justify the fee.

Cable and satellite television providers also use this model, but in ways that really seem ridiculous when you think about it.

A basic package is sold which consists mainly of channels hardly anybody wants to watch except occasionally. So the buyer is forced to buy a number of things he knows he is unlikely to use. But whether or not he uses them, the monthly fee has to be paid. Then the basic package is supplemented with other packages which the buyer is more likely to watch which cost an additional fee. These additional packages consist of more offerings than one can watch in any fixed time-period. So again, the buyer is not only purchasing things that his is unlikely to use, he is purchasing things that are impossible to use. The pricing model exists not to make the transaction between the buyer and seller equitable, it exists to guarantee the seller a continuous income.

The Revolving Credit Card Model

Banks and merchants offering credit cards have also found a way to put this model to use.  They do it by charging high interest rates and requiring only minimal monthly payments, which are calculated in a way that hardly reduces the principal, so that the payments go on and on. In fact, these banks and merchants don't want anyone to pay off the principal, for once it is, their claim on your money ends, so as long as they keep you paying, their continuous income is assured.

The Individual Retirement Account Model

We are told that IRAs are the key to financial security in old age, and these accounts are sold to us on the basis of average returns of the market over selected periods of time. The model is simple. You make regular contributions  which are sometimes matched by someone else, say, for instance, your employer. These funds are then deposited into an account at a brokerage where they are invested in the market. When you reach retirement age, you can then supplement your other income with regular disbursements from your account. All of this seems straight forward enough, but it isnt.

First of all, averages are useless figures. By their very nature, they are the result of a summation of items and then dividing that sum by the number of items. Inevitably, many of the items are greater than the average, and many, usually many more, are less that the average. So how do you know what return to expect? Are you going to be one of those who get more than the average or one who gets less? There is no way of knowing. All you can do is hope.

When someone is trying to get you to buy into this scheme, all you'll ever be told is what the average return was. But every investor does not make money. Many lose money. How many and how much money? We don't know; the numbers have never been provided. How would you feel about this scheme if you found out that one million investors made x-dollars and that three million lost y-dollars? Something like that may very well be the case. We just dont know.

So this, too, is a scheme that guarantees the investor nothing, but guarantees a steady flow of money into the market, where shrewd brokers and professional investors have an opportunity to relieve you of it. And you can be certain that they will if they can.