Basic financial literacy 101 - Or things I wish I knew 15 years ago.

mindlessobserver

True & Honest Fan
kiwifarms.net
In my real life interaction with younger millenials and zoomers, I have noticed something in common with them I had when I was their age. I had no idea wtf money was, how debt functioned, how to save/invest, or even what a checking account was. All these things I kind of just muddled into as I got older, and I painfully wish I knew at 18 what I know now. So for all our younger kiwis, here is my basic financial literacy post. If I make any mistakes, could someone please call me a retard? I genuinely want this to be a useful (and non technical) resource for someone to learn the basic functions of their finances. Its not meant to be a micro economics 400 course.

WHAT IS MONEY

Money is a medium of exchange that represents a portion of the value of the entire economy. In the past it was based upon real life things like Gold. Now it is backed by meme magic. Won't say anything more beyond that. I have found the best way to think about money is not in gold, meme potential, or what its number is, but rather in steak (or some other food you really love for your meals). At a fundamental level money lets you buy the means for survival. So. I have 50 dollars in my wallet. I "could" buy this hot new video game, or I could buy 5 steaks at 10 dollars a pop and eat steak for most of the week. I could spend 50 dollars at the bar on two beers and a steak....or I could I could spend 50 dollars on 12 beers and 3 steaks at home. Thinking about your money in the terms of what its actually worth in real life items of immediate impact to you is a very good way of not ending up overspending. This is the bedrock foundation you need to grasp. What is the ACTUAL value of your money. Until you grasp that you cannot appropriately manage your risks and rewards with it. Both in its acquisition or spending.

WHAT IS DEBT

Debt is also money and don't let anyone ever tell you otherwise. Debt can also buy you a steak dinner. The key difference between debt money and your earned money is the debt money belongs to someone else. They are giving you their money for you to use in exchange for a fee. This fee is measured in interest charges, commonly appearing on your credit card form or loan application as APR or annual percentage rate. What this means is the person who is giving you the money will charge you based upon the average amount of debt you have incurred on the account on the year. The math can get complicated, but a simple way to think about it is if your Credit Card charges you a 27% APR, and you use that account to buy a really good steak dinner at 100 dollars, the actual price of that steak dinner is 127 dollars.

On the surface this may seem like a terrible deal. You are spending more money (ultimately) on an item then what its worth. But the the thing is you may not have enough money to buy something that you may actually need. Be it that steak dinner (with a potential romantic partner) or a new alternator for your car that you need fixed that day so you can go to work in the morning, because the damn thing broke 3 days before payday because of course it fucking did. The fee on using the debt money can be thought of the convenience charge, which itself has value. This also becomes important when it comes to buying a car, or a house. Very expensive things that are very difficult to purchase for most individuals.

In all of these things its very important to look at what the interest charges are going to be on any debt instrument. Be it a car loan, a credit card or if you are unimaginably desperate, a payday loan. One thing to lookout for is the "introductory offer". Things like "no money down" or "no interest for the first X months". These are often offers financed through retail stores very desperate to boost sales. They pay a fee to a bank to offer the loans at "no interest" in order to convince you to buy. The bank takes that fee, offers the loan and also crosses its fingers that you won't pay off the debt after X months, allowing them to charge both you and the retailer. So, you buy a 1500 dollar gaming computer using the Best Buy store card on an introductory offer of no interest for the first 12 months...So long as you pay $125 every month to the card at the end of the 12 months you will only have to spend 1500 dollars for the thing. With the bonus of not having to pony up 1500 dollars on day one. Beware though, the bank does not want this outcome, and it will offer an absurd monthly payment far, FAR less then 125 bucks. Probably closer to 25 bucks. Why? Because at the end of those 12 months they can charge you the APR, and if its say, 29.5%, well...You spent 25 dollars every month on your loan of 1500 dollars. Which comes to 300 dollars. Meaning your yearly debt balance will be 1200 dollars. Congratulations, the Bank can now charge you another 354 dollars on the value of the loan. Meaning your brand new gaming rig went from 1,500 dollars to 1,854 dollars. Big oof.

DEBT TRAPS

The above is the example of a "debt trap". Where if you spend too much using debt money and don't properly account for it, you begin to accrue ever greater interest charges per month. This is insidious because high interest payments not only make it harder to pay off the balance, they run the risk of eating your disposable income and perversely forcing you to take on even MORE debt to make ends meet. This is something known as Debt Peonage. Where the banks essentially end up owning your ass. There are methods to get out of it such as bankruptcy, but its imperfect, can lead to a garnishment being put on your wages, assets you own being seized, and also being cut off from using debt in the future. Which might see silly considering it got you into this mess, but remember, debt is money. And when your alternator breaks 3 days before payday, its unbelievably useful to have. Its very important to be mindful of the way banks and lenders structure things.

A very common debt trap is for the banks to offer "rewards" for using their card to buy immediate day to day consumables like gas or food. Getting a couple cents off the gallon of your gas may seem like a great deal until you consider those nasty interest charges. You buy 15 gallons of gas at 2.25 a gallon, down from 2.28 because you used your Exxon rewards card, powered by Visa. Had you paid in cash, those 15 gallons would have been worth $34.2. But because you used your credit card, it only $33.75. And it also added 33.75 points the rewards program! Good deal, yes? No. Because those 33.75 rewards points translates into .34 dollars in actual value. You also only saved 45 cents on the transaction. Meaning your credit card netted you a transaction benefit of .79 dollars. The bank will then charge a 24.5% interest charge on that transaction (Using APR, don't start math sperging econ majors, broad strokes here). That means the bank will charge you 8.27 dollars for the transaction. If we subtract your .79 dollars benefit from this the end price of your transaction is not 33.75. Its 41.23. In other words, even with your "benefits", you paid more then SEVEN dollars extra for your gas. Now imagine doing this for every time you gas up, over an entire year. Those interest charges get bigger...bigger....bigger....and pretty soon you are fucked and the bank owns you.

This is why every financial advisor on the planet will tell you to NEVER use debt for consumables like gas or food. The stuff you buy every day. Now you may be asking "but rich people seem to buy with debt all the time!". And yes, they do, but there is a very key difference between their credit cards and what is given to the plebes. Very often they will be using credit cards with annual fees that cover administrative costs and come in at VERY low APR. More like 7 or 8%. rather then industry standards of 24-32% for retail customers. This might still seem like a bad deal for the rich people, until you consider their money is large enough to make money. They are giving a million dollars to the bank, who in turn loans it to you, the plebe at 30% APR. The bank then pays them a fee equivalent to 10% of this. Meaning even if they use debt at 8%, they end up making MORE money by the fact their actual cash is earning faster then their debt is accruing interest. And this does not even get into things like American Express cards that don't charge interest at all and instead charge the vendor themselves for the honor of letting them swipe it.

Don't be an idiot and let these people fleece you. That said its super important you use debt money as its integral to the economy and is a powerful (but dangerous) tool. If you are just starting out, I recommend getting a credit card and then buying yourself a WOOHOO item. Like a new gaming console, computer, TV, whatever, and then paying it off in a reasonable amount of time. Responsible and frequent use of debt opens the doors to larger accounts and better interest rates. Which are critical tools to have at certain points in your life.

BANKS, CHECKING ACCOUNTS AND SAVINGS ACCOUNTS

In the modern setting a Bank exists to convert your earned money into debt money (as explained above). When you give your money to the bank, you are presented a whole bunch of forms you will not read and even if you did will probably not understand. They could condense it down into this post though. When you give your money to the bank you are LITERALLY giving it to the bank. Your bank account might say you have 10,000 dollars in it. But you don't. That 10,000 dollars was converted into debt and loaned to jamal so he can buy gold plated rims for his escalade at 28% APR. Both Checking and Savings accounts are used for these purposes with a very key difference. A Checking account is used for general funds and the bank will not give you a cut of Jamals interest charges on his rims. This is because you need to use that money all the time to buy things like gas, food, or flowers for m'lady. Since the money is no longer there (it was turned into Debt which became rims for Jamal), every time you fill up your car with gas using your debit card the bank has to take money from someone elses account to make good on your transaction. As consequence, the bank will not share the money its making off of Jamals dumb ass.

Now, if your money is in a Savings account that is something else. You cannot use your savings account money to buy gas. Its meant to stay there and depending on the bank, moving it out will incur a fee. However, if you leave the money alone in the Savings account, when the Bank gives your money to Jamal you will get a cut of the Money they get from him in interest charges. The amount of which is determined when you set up the account. This is how money makes money, and how you can ultimately develop "Fuck you Money". The average interest rate on a savings account according the FDIC is 0.05%. Which is not alot...unless you have say, 10 million dollars in it. That is 5,000 dollars a year for money just being parked in the account. And trust me, if you are willing to give a bank 10 million dollars, they will give you far better rates then the .05% average. These are the accounts where you get to sit in a mahogany room, your lawyer reads over the paperwork and the bankers offer to suck your cock in exchange for handing over the cash. Remember the above section on why Rich people use credit cards rather then their own cash.

IRA's, MUTUAL FUNDS, INVESTING, ETC

So, how do you get fuck you money? You don't. This not a get rich guide. This is a guide for how money works. If you already HAVE fuck you money, then take this advice on how to not lose it. Don't be that retard grandson of a millionaire businessman who instead of parking his trust fund somewhere safe and living off Jamals dumb financial decisions you instead pay fees to turn your trust fund into actual cash and then buy hookers and blow while racking up retarded debts at retarded APR. This also goes for people who manage to build a successful business or make good long term bets on investments and build their money up to the "fuck you" level.

For the rest of us, there is the magic of compound interest and putting money to work so that when you turn 65 you don't have to work anymore, or even better, have built up enough money to give to your kids so they can take the ball and turn it into fuck you money. A big hinderance to building your money is the fact that every year the Government takes their pound of flesh. However in the United States (and other places, depending) there has been created an exception known as the Individual Retirement Account. The IRA is a type of mutual investment fund that you pay into. Its entire premise is based around the idea that no matter what blips and bops occur in the stock market, the general trajectory of the economy is to increase in value as more goods and more people are introduced into it. You can think of this in the form of the rice and the chessboard parable. I put 2 grains of rice on the first square. Then 4. Then 8. Then 16. Then 32. By the time you reach the last square, your rice grains are 2^63, or 9,223,372,036,854,775,808 grains. So say you invest some money in your IRA every month, starting at 18 for 50 years. Where will your money be when you retire at 68? Say the amount is...200 dollars a month. There are plenty of calculators to do this. I used this one. https://www.bankrate.com/retirement/calculators/traditional-ira-plan-calculator/ .
You would have over a million dollars to live your golden years off of. Or give to your children. Now say you also used debt to buy a house. And over that time you paid it off. That house was worth 300k when you bought it. Now it might be more or less, but either way that now brings your total assets to 1.3 million dollars. Enjoy golfing and having Shaniqua wiping your ass in the old folks home. The best part is IRA's are not taxed the same way regular investing is.

If however you want to go the investing route and pray to be the next warren buffet (you won't), then focus on good bets and avoid overly speculative day trading. Long positions are always a better bet, and if you can start accumulating stocks that pay dividends, you can start having your money make money. Dividends are a method by which companies pay their investors a share of their profits. This can often end up making more money on average then what you would make by parking your cash in a savings account so the Bank can help Jamal buy some rims. It does carry its own risks. Your bets could blow up in your face and you lose everything. This can be hedged by joining a mutual fund. A mutual fund functions somewhat like an IRA, but it less well regulated, and subject to more taxes. The trade off though is that it ostensibly can provide higher returns while reducing risk due to its ability to distribute the mutual pool of money across multiple companies and assets. Its important however that you pay attention to just what your fund is doing. If for some reason they decided to put all your money into a short position on Gamestop for whatever reason, you might want to start asking questions. While a mutual fund has a fiduciary responsibility to not be a retard with your investments, this does not mean they won't make retarded moves.



Hope this has been helpful to someone. Would love for other users to help add their thoughts. My hope for this post and thread is for some dumb 18 year old heading out into the world to read and realize just how woefully undertaught he or she is about these things.
 
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DumbDude42

kiwifarms.net
my only financial advice is this:
do not use a credit card, ever. they're literal bait, designed to trick people into overspending and getting fleeced by interest.
do not take out loans for consumerism. a holiday trip, a wedding ring, a fancy car, whatever it is, do NOT go in debt for these things. only take out loans for the purpose of long term investments that have real value and yield real returns, such as buying real estate or starting/expanding your own business.

i've seen people get fucking ruined over these things. debt can be very insidious and do some real serious damage.
 

Spasticus Autisticus

kiwifarms.net
There's nothing wrong with using a credit card for daily expenses if you have the discipline to not run up a balance that you can't pay off in full.* In fact by using your credit card and paying it off every month, your credit score will increase, which allows you to qualify for better credit cards with cashback rewards or points programs. It also makes it easier to churn credit card signup bonuses. Plus, when/if you want to buy a house, having an established credit history helps in getting better deals on mortgages.

* This is not including privacy/data collection issues which is a whole other can of worms.
 

dreamworks face

Model bugman
True & Honest Fan
kiwifarms.net
my only financial advice is this:
do not use a credit card, ever. they're literal bait, designed to trick people into overspending and getting fleeced by interest.
do not take out loans for consumerism. a holiday trip, a wedding ring, a fancy car, whatever it is, do NOT go in debt for these things. only take out loans for the purpose of long term investments that have real value and yield real returns, such as buying real estate or starting/expanding your own business.

i've seen people get fucking ruined over these things. debt can be very insidious and do some real serious damage.

there's a simple, one step, zero effort trick to use credit cards as much as you want without having a problem - configure the card in the online settings to auto-pay the statement balance every single month, and never spend more on the card than you can pay off in a month. voila, you will never pay any interest in your entire life, and get all the cash back rewards etc. all the credit card companies give you. also, if you don't have a credit card, your credit score will be low or non-existent, and you won't be able to get a home loan etc. later. finally, using debt cards is bad because god forbid you ever have to charge back a purchase, the money is fucking gone.

i've had credit cards for over twenty years and have paid zero dollars in interest in all that time.
 

Bland Crumbs

You're no daisy at all.
kiwifarms.net
my only financial advice is this:
do not use a credit card, ever. they're literal bait, designed to trick people into overspending and getting fleeced by interest.
do not take out loans for consumerism. a holiday trip, a wedding ring, a fancy car, whatever it is, do NOT go in debt for these things. only take out loans for the purpose of long term investments that have real value and yield real returns, such as buying real estate or starting/expanding your own business.

i've seen people get fucking ruined over these things. debt can be very insidious and do some real serious damage.
There is nothing wrong with using credit cards but there is a problem with not understanding credit cards.

Credit cards are a convenience to not use cash at that moment or where you cannot. They are NOT to expand your income.

I never buy something I cannot pay off at the end of the money with a card.
 

DumbDude42

kiwifarms.net
there's a simple, one step, zero effort trick to use credit cards as much as you want without having a problem - configure the card in the online settings to auto-pay the statement balance every single month, and never spend more on the card than you can pay off in a month. voila, you will never pay any interest in your entire life, and get all the cash back rewards etc. all the credit card companies give you. also, if you don't have a credit card, your credit score will be low or non-existent, and you won't be able to get a home loan etc. later. finally, using debt cards is bad because god forbid you ever have to charge back a purchase, the money is fucking gone.

i've had credit cards for over twenty years and have paid zero dollars in interest in all that time.

There is nothing wrong with using credit cards but there is a problem with not understanding credit cards.

Credit cards are a convenience to not use cash at that moment or where you cannot. They are NOT to expand your income.

I never buy something I cannot pay off at the end of the money with a card.

it is possible to lose track and accidentally overspend when using a credit card if you aren't used to meticulously tracking your monthly budget (which financial illiterates rarely do, hence i advise staying away from credit cards)
it is not possible to accidentally spend more than you own when using cash which is one of the reasons i recommend it
 

melty

True & Honest Fan
kiwifarms.net
Don't ever miss credit card payments, if you miss one it takes like seven years for it to be removed from your credit score. Set up automatic payments anyway so you don't have to do that shit every month.

In general something a lot of people are missing is understanding the value of time. It's generally better to make more money than to spend a lot of time trying to save extra money. But if that's not an option, consider that spending two hours clipping coupons to save $10 means your time is worth $5 an hour. Taking a higher paying job that adds 2 hours to your commute every day may not actually be a better deal. Etc.

Payday loan things are always scams, rent to buy is always a scam
 

Gensou Hadou

I won't lose even to the rain!
kiwifarms.net
there's a simple, one step, zero effort trick to use credit cards as much as you want without having a problem - configure the card in the online settings to auto-pay the statement balance every single month, and never spend more on the card than you can pay off in a month. voila, you will never pay any interest in your entire life, and get all the cash back rewards etc. all the credit card companies give you. also, if you don't have a credit card, your credit score will be low or non-existent, and you won't be able to get a home loan etc. later. finally, using debt cards is bad because god forbid you ever have to charge back a purchase, the money is fucking gone.

i've had credit cards for over twenty years and have paid zero dollars in interest in all that time.
Well said.

1614647165917.png

https://www.courtlistener.com/docket/16790556/philip-p-burnell/

Do not spend more than you can afford to pay off in a month. Do not rack up $131,000 in debt spread across 14 credit cards. You are not DSP, and you do not have Pigroach Luck. If you are addicted enough to a mobile game that you take out credit cards for it, go seek help. No, really.
 

RussianParasite

Не ходи на выборы
True & Honest Fan
kiwifarms.net
there's a simple, one step, zero effort trick to use credit cards as much as you want without having a problem - configure the card in the online settings to auto-pay the statement balance every single month, and never spend more on the card than you can pay off in a month. voila, you will never pay any interest in your entire life, and get all the cash back rewards etc. all the credit card companies give you. also, if you don't have a credit card, your credit score will be low or non-existent, and you won't be able to get a home loan etc. later. finally, using debt cards is bad because god forbid you ever have to charge back a purchase, the money is fucking gone.

i've had credit cards for over twenty years and have paid zero dollars in interest in all that time.
Yes, this is a great trick to make sure you never miss a payment. I do something similar— free cash back and other rewards are sweet. That said, the bigger problem isn’t usually that people forget to pay, it’s that they don’t track their spending and are surprised when they can’t afford to pay the full bill. It’s retard shit, literally something CWC would do, I know, but a lot of people are like this.

People really need to budget and not pretend like they have money that they don’t.
 

Bland Crumbs

You're no daisy at all.
kiwifarms.net
it is possible to lose track and accidentally overspend when using a credit card if you aren't used to meticulously tracking your monthly budget (which financial illiterates rarely do, hence i advise staying away from credit cards)
it is not possible to accidentally spend more than you own when using cash which is one of the reasons i recommend it
You are not wrong but I still advocate using them responsibility. I will say that I had the advantage of having parents who drilled into me the importance of being careful with your finances. I did watch a few of my friends be careless with credit cards and get into trouble.
 

dreamworks face

Model bugman
True & Honest Fan
kiwifarms.net
Yes, this is a great trick to make sure you never miss a payment. I do something similar— free cash back and other rewards are sweet. That said, the bigger problem isn’t usually that people forget to pay, it’s that they don’t track their spending and are surprised when they can’t afford to pay the full bill. It’s retard shit, literally something CWC would do, I know, but a lot of people are like this.

People really need to budget and not pretend like they have money that they don’t.

I've had to give my lecture on how "credit cards aren't the devil and your family is white trash, oh jesus christ why don't you have a credit score even though you're 24" to a chick who graduated Duke with a 4.0 GPA. It's not worth tailoring advice to retards - the target audience doesn't even read, whereas even smart autists will just follow whatever's written down on a piece of paper unquestioningly even if it isn't applicable.
 

Moguro Fukuzou

Customer Satisfaction 100% Guaranteed
kiwifarms.net
Something just as important that has been touched on a bit is taking the time to make up a budget for your monthly expenses based on your income for the month. There's the common stuff like rent, bills, groceries, and your "fun" bucks to spend things like going out with friends/grabbing some new clothes (which you might even split into its own tier)/hobbies/etc. Having said that, it's also important to squirrel away some of your paycheck for the ever important emergency fund in case shit hits the fan. If you have the ability to through your bank you can even have every paycheck be auto divided into a bunch of different sub folder accounts in your main account (it's an option at my bank but yours may vary) that you can set up to take certain amounts of money each deposit/month, doing this will make it so you don't really think about it and whatever you have "leftover" after everything is what you can spend.

Your level of budgeting autism depends on what kind of person you are, you don't need to go into aggressive micromanagement but thinking about your money in terms of an Active versus Passive budget might help, that's what I like to do anyway. What I mean is that your Active is things like your rent/bills/groceries that will always happen every month and will typically cost the same every time while your Passive is things like your emergency fund or your entertainment budget that doesn't get used every month (in the case of entertainment you might have it set to 200 but only use up 100 in one month).

The most important thing is just to stick with it and be realistic, look up some guides online on how to figure out the right kind for you. Also, while you might think having an entertainment budget is wasting money you could spend on more "important" things you're going to rapidly burn yourself out if you never treat yourself or enjoy any hobbies. Don't go full retard like so many cows do and blow your entire budget on stupid shit, but feel okay spending a little each month on a hobby that makes you happy or having a fun time with friends. Feel free to also increase the budget during you birth month to really treat yourself to a nice birthday present that would typically be outside your normal budget. :)
 

mindlessobserver

True & Honest Fan
kiwifarms.net
Something just as important that has been touched on a bit is taking the time to make up a budget for your monthly expenses based on your income for the month. There's the common stuff like rent, bills, groceries, and your "fun" bucks to spend things like going out with friends/grabbing some new clothes (which you might even split into its own tier)/hobbies/etc. Having said that, it's also important to squirrel away some of your paycheck for the ever important emergency fund in case shit hits the fan. If you have the ability to through your bank you can even have every paycheck be auto divided into a bunch of different sub folder accounts in your main account (it's an option at my bank but yours may vary) that you can set up to take certain amounts of money each deposit/month, doing this will make it so you don't really think about it and whatever you have "leftover" after everything is what you can spend.

Your level of budgeting autism depends on what kind of person you are, you don't need to go into aggressive micromanagement but thinking about your money in terms of an Active versus Passive budget might help, that's what I like to do anyway. What I mean is that your Active is things like your rent/bills/groceries that will always happen every month and will typically cost the same every time while your Passive is things like your emergency fund or your entertainment budget that doesn't get used every month (in the case of entertainment you might have it set to 200 but only use up 100 in one month).

The most important thing is just to stick with it and be realistic, look up some guides online on how to figure out the right kind for you. Also, while you might think having an entertainment budget is wasting money you could spend on more "important" things you're going to rapidly burn yourself out if you never treat yourself or enjoy any hobbies. Don't go full retard like so many cows do and blow your entire budget on stupid shit, but feel okay spending a little each month on a hobby that makes you happy or having a fun time with friends. Feel free to also increase the budget during you birth month to really treat yourself to a nice birthday present that would typically be outside your normal budget. :)
My general use checking account had a saving account that automatically added 1 dollar every time I swiped my debit card. Be it to pay rent or buy a soda. After a couple years it ended up being around 1500 dollars. And then I went to the dentist for the first time in 5 years because I noticed a black spot at my gum line. 'You have 14 cavities idiot! That will be 50 dollars to drill each and another 50 dollars to fill each!"

Rest in peace based saving account. Also now I have dental insurance and go in for a cleaning every 6 months.
 

LinkinParkxNaruto[AMV]

I try so hard and got so far
kiwifarms.net
A lot of budgeting involves also learning what and how to buy and getting the most value out of a purchase. Sometimes the problem is not knowing how to save but not being good at buying.

Ex. You can spend 10 bucks buying 1$ lightbulbs that will all burn out or you can spend 5$ buying a single long duration one that will last longer than the 10 other ones. Sometimes buying cheap is more expensive in the end,

Conversely, that something is expensive doesn't mean its also better quality, You can buy fancy "gamer" headphones with a famous rap nigger on the box but then you look into it more, ask people who know about audio and they'd recommend you something with more fidelity that cost a fraction simply because its not as hyped. I also see this with clothing, people pay premium prices for third rate clothing that lasts very little and is not practical at all simply because its hyped and it has a really high advertising budget.

"planned obsolence" and "fast fashion" are a thing, you should know if you are paying too much for something that is planned to become obsolete anyways. Marketing plays with people's ego and emotions, that's how you get people who make decent money and should be in the clear financially still raking up debt to buy shit that is way above their income, no one wants to settle for the "poorfag" choice, like buying an android instead of an iphone or sticking to the same phone for more than one year, "oh no, my friends and coworkers will think i am a loser that struggles financially, better to go into debt so i actually get to struggle, as long as everyone think i am killing it" . Discipline kills the publicist, marketing wants you to go "YOLO" and not think about it.
 
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