With Engagement Rings, Love Meets Budget
http://www.nytimes.com/2014/02/01/your-money/with-engagement-rings-love-meets-budget.html?ref=your-money-email&nl=your-money&emc=edit_my_20140203&_r=0
JAN. 31, 2014
Tina Fineberg for The New York Times
Your Money
Ilona Kaprovsky, a 24-year-old New Yorker who works in finance, said she didn’t initially think she wanted a diamond as the centerpiece of her engagement ring — a lab-grown stone like a white sapphire, or even cubic zirconia, would be just fine. Besides, who would know the difference?
But she eventually warmed to the idea when she and her boyfriend, Justin Veach, 28, started to talk about it more seriously. “During the process of buying the ring, we both were weighing what the value of the ring is,” said Mr. Veach, who is studying at Carnegie Mellon for his master’s in business administration and will probably finish with about $80,000 in loan debt. “Is it real? Does the diamond matter?”
In the end, it mattered, as it does for the many American couples who collectively spend billions on diamond engagement rings each year. In 2012 alone, they spent nearly $11 billion on diamond engagement and wedding jewelry, according to Olya Linde, lead author of Bain & Company’s 2013 Global Diamond Industry Report. At a time when many young people are facing big student debts, a weak job market and rising housing costs, this luxury purchase still appears to be firmly planted on many ring fingers across the country.
Diamonds’ Steady Rise
After a spike in 1979 and a plunge in the early 1980s, the value of diamonds has been slowly climbing ever since.
$20,000
Rapaport
Diamond
Index
16,000
12,000
8,000
4,000
’80
’90
’00
’10
’14
Source: Rapaport
Average U.S. price per carat of the top 25 quality round diamonds, plotted monthly through January.
The amount spent does tend to rise and fall with the broader economy, however, as it did in the latest boom and bust.
Couples paid an average of $4,000 on engagement rings in 2012 (and another $1,000 for her wedding band, and $500 for his), according to a 2013 report from Jewelers of America, a trade group, using data from a variety of jewelers. That is about 25 percent less than the average spent on engagement rings in 2006, or $5,317, before the economy collapsed, according to another report by the group. In 2011, couples spent $3,538 on average.
But arriving at the right amount to budget is something that many young people continue to struggle with, and retail analysts say that more people are beginning to use the credit programs offered by the largest national jewelry chains. Thinking about how that money might work harder for you invested elsewhere clearly saps all the romance out of the process. And as someone who grew up spending summers working in her family’s small jewelry store, I am not opposed to celebrating the occasion, within reason, with something sparkly.
But let’s just pretend for a moment that you invested $12,700, or the current benchmark price for a high-quality one-carat diamond, according to the Rapaport Diamond Index, an industry benchmark for diamond prices. In a portfolio of 60 percent stock funds and 40 percent bonds with a real return of 4 percent, that $12,700 would rise to about $27,830 after 20 years, and nearly $41,200 after 30 years (that’s after inflation), according to calculations by Vanguard.
If you invested an amount equal to the average ring price, or $4,000, the money would be worth nearly $8,800 after 20 years and almost $13,000 after 30 years.
It is hard to compare those values with sentimental ones, as well as traditions that are deeply embedded in the American psyche. Diamond prices are generally less volatile than those of other commodities, and the average annual appreciation of a high-quality one-carat stone is about 3 to 4 percent annually, according to Edahn Golan, an analyst specializing in the diamond industry. “Supply is limited,” he said. “It’s a millions of years process, and they are mined faster than they are being generated by mother earth.”
Of course, euphoric couples in love aren’t thinking about supply and demand (or that the growing middle classes in China and India are driving growth in the latter), nor do they view the ring as an investment. Even if they did, it’s not a terribly efficient value proposition, at least when you generally buy at retail and must sell at wholesale (and nobody initially plans to sell anyway).
A ring with a 0.7 carat diamond that cost $4,895 on Blue Nile, an online jewelry retailer, might sell for 20 to 25 percent more at an average brick and mortar retailer, while the same size and quality ring could command at least 40 to 50 percent more at Tiffany or Cartier, said David Wu, a luxury goods and beauty analyst at the Telsey Advisory Group in New York.
But what is interesting is that given how much has changed over the decades — men now snoop on their girlfriends’ Pinterest boards for clues about what they really like, and couples often shop together — the fact that it’s a purchase loaded with expectations persists.
I spoke with about a dozen 20- and 30-somethings in the market for a ring, with budgets ranging from $1,500 to $25,000, and many of them, mostly men, admitted that they were concerned about appearances, which factored into their budget: I feel like I should keep up with people in our circle, said one. Her family is wealthier than mine, wrote another. The perception is that I earn a lot of money and should be able to spend in the same way, added another, who is earning a healthy salary now but has been in debt in the past.
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And the most popular refrain: She is going to wear it for the rest of her life.
It is a purchase that is “heavily driven by the heart and expectations,” said Holly Wesche, owner of Wesche Jewelers in Melbourne, Fla., and whose family has been in the jewelry business for three generations. “They are not thinking about their college debt or the house. They are trying to make it happen.”
Many of the young and men and women I spoke with sounded relatively levelheaded about their spending plans — and the jewelers said that people tended to come into their stores highly educated on the topic and with a budget.
RECENT COMMENTS
Heather
7 hours ago
I've read almost all the comments and wanted to add my engagement ring story. I had a beautiful and expensive ring picked out at Tiffany's...
NE
7 hours ago
A few people have mentioned the not-so-great mining practices of mining. A friend of mine is on a trip to Africa looking at artisinal...
Denise
7 hours ago
Suckers for a brilliant marketing scheme by the diamond industry. What sheep people are.
But others seemed to set budgets arbitrarily. One 27-year-old graduate student based his number — $1,500 to $3,000 — on what he could afford to pay off on credit. A 31-year-old lawyer decided to spend half his monthly income, or $5,000.
“I found that coming up with a budget is difficult,” said a 28-year-old consultant in Los Angeles, who wanted to remain anonymous because he had not yet proposed and did not want to make his concerns public. “It’s not easy to discuss.”
For Ms. Kaprovsky and Mr. Veach, it was an open discussion. The couple thoroughly educated themselves on the “four C’s” — cut, clarity, color and carat weight — that factor into a diamond’s value. They visited retailers in Pittsburgh, ranging from Zales to Tiffany, but ultimately bought a ring through Blue Nile: an elegant, hand-engraved platinum setting, which will showcase a round diamond, slightly shy of one carat.
They knew that buying just below the landmark sizes, say 0.91 carat instead of one carat, would save them money, and the budget-minded couple also managed to save elsewhere: The total price came to $6,250, but since Mr. Veach bought the ring on his Upromise credit card, he received 10 percent cash back, or $625, which will go toward his Sallie Mae student loans.
“We found our money values are pretty aligned,” Ms. Kaprovsky said. “We are both relatively thrifty and do our research when making large purchases.”
88COMMENTS
Engagement rings date back to Roman times, or further. But what many people probably do not realize is that the notion of a diamond ring was initially marketed to the masses in anadvertising campaign in the late 1930s by De Beers, which controlled the diamond industry at the time. The same firm’s copywriters also decided, in the 1980s, that the purchase should be worth two months’ salary.
It is a powerful symbol. Even Mr. Veach joked about what wearing a cubic zirconia would say about their union. “A diamond is a 10 on the Mohs scale,” he told Ms. Kaprovksy, referring to the scale of mineral hardness, when making his case for buying the real thing. “C.Z. is an eight. What am I saying — our relationship is only strong as about an eight out of 10?”
That underscores the notion that the industry really isn’t in the business of selling diamonds, as Martin Rapaport, publisher of the Rapaport Diamond Index, recently said. “We sell the idea behind diamonds.”
