Late nights and the art of gae

I met fellow MBA alumni tonight for dinner in Myeongdong, a trendy shopping district in downtown Seoul.  I did not see any other foreigners tonight.  Foreigners don’t typically spend much time in Myeongdong, which caters largely to Koreans.  Myeongdong starts rocking around 7 p.m. each night and slows down about 11 p.m. on weeknights and at 1 a.m. during the weekend.  I felt estranged not only because I was a foreigner but also because I am older than most of the people, err, youths, who wander around Myeongdong.
We dined tonight on budae jigae (solider’s stew), an interesting concoction dating back to when locals collected and cooked with leftover food available near U.S. military bases.  The need to scrounge for food has virtually disappeared in Korea, but the stew remains and is quite popular among Koreans today.  (Many traditions begin out of necessity.)  Soldier’s stew is made of ramen noodle, spam, hot dog, kimchi, tofu, macaroni, onion, and egg, as well as a hodge podge of other foodstuffs I can’t recall.  Although it may sound
unappetizing, the stew actually tastes pretty good.  In fact, one of the biggest restaurant chains in Korea, Nolboo, specializes in serving budae jigae.  We drank some soju, a rice alcohol, to wash away remnants of the stew.
I almost left to go home at about 9:45 p.m., but then my fellow alumni decided to go to a pub for some drinks.  I felt obliged to join them.  Tonight going out with friends and coworkers after work, a common practice in Korea, trumped my habit of going home after work.  I came home about 11 p.m., breaking up the party earlier than I think my fellow alumni would have.  I usually don’t make it a habit to stay out late at night, especially on a weeknight.  I made an exception though to join alumni I haven’t seen for at least two months..  My wife took care of my son tonight.  Tomorrow night it will be my turn to stay home while my wife joins some coworkers for a movie.
Two alumni paid for dinner and for drinks.  I thought it was a very nice gesture.  I offered to pay my portion, but they wouldn’t take my money.  Their kindness reminded me of a Korean custom mentioned at work today, "gae."  "Gae" are Korean quasi investment clubs.  A group of friends get together and deposit money into a joint bank account.  Members of the "gae" then take turns dipping into it when they need funds.  The "gae" have a rhyme and reason I don’t quite understand.  Some people benefit from "gae" more than others.  Group buying power is a plus, as is compound interest on a large sum of money.  However, I don’t really understand why anyone would join a group that jointly saves money so the members can spend it on themselves when needed.  Our alumni group created a joint account, and we all contribute 10,000 won (about $10) each month.  We plan to use the money for group activities and to donate to our university.  This, however, is not a "gae."  If each of us could dip into the account to pay for personal expenses, such as a  pleasure cruise, then it would be a "gae."  However, the money is earmarked for social events and donations.  I don’t think I would join a "gae" even if I could.
  1. Editfish

    The Korean ‘Gae’ sounds almost like the Chinese "Hui" (or "Group").  You might ask your wife about them (if you haven’t already), but the way I understand it, it actually does both save money and provide quick disposable income at the same time.  They were originally formed as a way to generate large amounts of money quickly bothering to go to a bank for a loan, and is actually quite ingenious.  Since you are into investing, you’ll really find it intriguing, as it has the potential for a fairly competitive return on your investment.
    Let’s assume, for example, that we have twelve people in our ‘Hui’ or ‘Gae’.  Each of us put in US$100 each month, and over the course of the year, each person is allowed to withdraw the monthly pot one time only.  Turns are determined by a bidding system of sorts, based on interest.
    I’ll be person ‘A’, you can be person ‘B’, and there will be ten other fictitious people in our group.  In January, we ready our $100 for deposit.  I don’t really need the money this month, so I bid ‘0%’ interest.  Your wife has been eyeing a new washer/dryer set, but you haven’t yet decided on a model yet, so you bid a low 2%.  One of the other people in our group (person ‘C’) needs to pay his property taxes this month and is short on cash, so he bids 10%, which is the highest of all the bids.
    We each take 10% off our US$100 and deposit the remainder ($90), which person C gets to withdraw and use (total net to him is $1090; $90×11 plus his $100).  In the Chinese version, after a person has used the money, they cannot ‘deduct’ the interest off of subsequent bids, which means over the course of the year Person ‘C’ will pay $1200 for his $1090 loan, so it’s still not really a bad deal for him.  Not too many people can get a quick cash loan for under 10%.
    In February, you’ve settled on a model you both like, and bid 5%.  I still don’t need the money and again bid 0%.  Person ‘D’s computer has crashed and bids, for sake of argument, 10%.  We deduct 10% and put the remaining $90 into the pot, except for ‘C’, who took the bid last month and ‘D’, who will take it this month.  She will get $1100, or ($90×10)+(2x$100).  Thus, for person ‘D’, over the course of 12 months, she will pay $1190 (she saved $10 in January) for an $1100 loan.  Even better.
    The one who is best off, however, is the person who doesn’t need the money at all, and can wait until the end of the cycle.  Assuming the winning bid each month is 10%, in December you will take all $1200 (since there is no one left to deduct interest) and you will only have put in $1090 ($90×11 plus the final $100).  That’s a better return than most money markets!
    Obviously, however, you would only do this with a group of people that you trusted implicitly not to abscond with your money: family, classmates, lifelong friends, etc.  😀
    Hope that’s not too confusing–and please do let me know if your wife corrects my [possibly mis]understanding of it.  😉

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