[This is Part II of a two-part series on how banks affect our everyday lives. Part I was Money matters: How money works.]
“The bank” has been a standard villain in the movies since the earliest days. In fact, it wouldn't be the holidays without Jimmy Stewart reminding us how wonderful life could be without Mr. Potter, the banker villain.
But where would we be without banks? Yesterday's article looked at how our financial system has evolved to where money is no longer what jingles and crackles in our pockets, but has become only a set of numbers in some bank's accounting system.
And we depend on this evolved system of money a whole lot more than we often acknowledge over dinner.
In the olden days, you either carried your money on your person or left it at home under the mattress. And that made you a target. We might still be that vulnerable today except for the fact that we don't carry near that much cash anymore … because of advances in banking and the federal insurance that protects our money.
Putting money in a bank account isn't only safe, it is also convenient. When you need some money, you don't have to go all the way to the bank to get it; you can simply write a check or swipe a card.
Our smartphones are also making banking even more accessible. A March 2015 report by the Federal Deposit Insurance Corporation, or FDIC, estimates that 38 percent of all mobile users have banked on their phone and 52 percent of all smartphone users took advantage of mobile banking in the 12 months leading up to the survey.
All my life I have suffered from a leaky memory. One of the things I can never remember is what I spent money on … when I use cash. When I use a bank instrument of some kind, they conveniently remind me at the end of every month what I spent money on (even on those things I'd rather not remember). To me at least, that is a big-time benefit.
That written record we get every month from the bank is not only convenient — it helps my wife and I control our money far more effectively than if we'd paid cash for everything, because it enables us to track our budgets so much more accurately. Tracking your budget is much more difficult when you work with cash. Using the month-end bank statement makes budgeting (and financial success) so much easier.
Very few people have achieved long-term success in their personal finances without a budget. And few things make a budget work like the tools banks give us. Back when my wife and I started our budgeting with the cash envelope system, it didn't take long for problems to set in. We would be at a gas station, needing to fill up the old van, but the gas envelope was at home. So we would dip into the food envelope. If we weren't careful, we would forget about that. And at the end of the month, it was hard to recall how we'd spent the food budget.
The slate of modern bank services gives us control of our finances not just by helping us budget. Most here on Get Rich Slowly understand the importance of planning for our retirement (however that may look for you). The most common instruments people use for their retirement investing — things like Roth IRAs and employer retirement plans like the ubiquitous 401(k) plan — cannot function without banks.
Never in our history have we had the luxury of so many choices for how to manage our money. When I grew up, you had a savings account and a checking account and that was it. Now you can have several savings accounts and CDs, all linked with different kinds of checking and money market accounts, debit and credit cards and who knows what else. Although interest rates of savings accounts and CDs have been minuscule in recent years, there was a time (and there will come a time again) when those paid real money, and they formed a vital part of your financial portfolio.
Even with low interest rates, a savings account should still be a key part of your finances, both for an emergency fund or a staging place for your other investments. As interest rates rise again, and they will, strategies like laddering CDs will become a viable investment choice again too.
5. Lifestyle enhancement
The Census Bureau tells us that more than 60 percent of all homes are owned by their occupants. Until home mortgages took off after World War II, that figure was not much more than 40 percent. Few things have impacted our quality of life like the ability to own our own homes … and that would have been impossible without banks.
Debt is a double-edged sword. Many tales abound of folks who used other people's money to increase their net worth, but far more traumatic are the stories of people whose finances were ruined by debt. Whichever way you slice it, the fact that bank credit is available as an option has enhanced our lives in more ways than we might realize.
The way I see it, banks provide valuable services to us which, when taken together, enable us to pursue our goals without much thought.
What are the most important benefits of banks as you see it? What services do you think banks will provide in the future?
William Cowie spent 30 years in senior management (CFO/CEO) before retiring. He has a bachelor's, a master's, and a partial doctorate in management and strategy. Author of the book “The Four Seasons of the Economy,” William also assists medium-sized businesses in the use of the Four Season Strategy to help them capitalize on economic cycles. He runs two blogs: Bite the Bullet Investing (investing) and Drop Dead Money (the economy) and writes for several other blogs in addition.