You’re meeting with a Financial Advisor, a Life Planner, a Certified Retirement Specialist, whatever title they’ve got, whatever they’re calling themselves. This guy says, “Look, have I got a deal for you. If you invest in this *fill in the blank here* product, you have a guaranteed return of 7% per year! Of course, if your investments make more than 7%, you get what they made!”

Then you go down to your local bank. They’ve got a CD at 1% per year.

This is where your financial street smarts should kick in. Is this product really offering a 7% guarantee? Really? How is that happening? Who’s backing it up?

If bank CD’s are only yielding one percent, and someone is offering a 7% guaranteed investment, you might not have the financial savvy to understand what the con is. But you should know this is a con!

Now of course I have a specific product in mind when I throw these numbers out there, so I’ll tell you how this specific product worked. It was a “guaranteed minimum income” variable annuity, and that 7% guaranteed? That represented the returns of a hypothetical account that you could only access if you agreed to withdraw your money over the course of 20 years, and you could only claim the guarantee if you contacted the insurance company within 30 days of the exact 10 year anniversary of the date you bought the contract.

So you had to lock up your money for 10 years, contact the insurance company at the precise date, and then withdraw it over 20 years. Any other modification would result in the ending of that hypothetical account. So is this really a 7% guarantee? Of course not. It’s no guarantee at all.

Oh wait. There was one other way to access your hypothetical account. You could die.

Again, you might not have the financial savvy to know what the con is. But you do have the street smarts to know when you’re getting conned. If it sounds too good to be true, it is.

Here is another example of financial street smarts.

The simplest way to get you to spend more than you ought to is to create a false choice that the sales person knows you will never pick, and that’s ridiculously over-priced. But see, having seen the fake choice, you will then be more willing to pay for the option that is merely overpriced.

Condo sellers do this all the time. Vacation packages are notorious for this sales tactic. Successful real estate agents are usually brilliant at it. They know that if they can get you to anchor your expectations on that ridiculously over-priced condo, you’ll start to base your idea on what a condo “should” cost in relation to something that absolutely no one in their right mind is going to buy.

Do you ever wonder why, when you’re looking at something that you aren’t used to shopping for…why is there that third option? There’s always the cheap option that of course you would never buy, the “middle-of-the-road” option, and then the crazy expensive option. Here’s the secret. The middle of the road option is also crazy overpriced. You just don’t see it, because you’re being distracted by the “option” that is just there to confuse you.

Whenever you’re going to spend money on goods or services that you aren’t used to shopping for, make sure you have a clear idea of what sorts of negotiating tactics are available to you, and what sorts of competitive prices you can find.

Take care, pay attention, and look for the con.