Understanding the reality of your situation also requires that you account for the myriad ways the financial industry impacts you: pushing you forward to enhance your wealth, holding you back from accumulating, diverting your earnings, generating wealth for or extracting wealth from our communities.
Take a minute and consider the financial institutions you currently use. What do you know about them? If anything, what do you know about the way you’ve personally been treated? Chances are REALLY good that how they do the small things, reflects how they do the big things.
Growing up, my family was a part of a technology company credit union. My grandfather and uncle were both employed there and so by extension, my father, mother, sister, and I could be members. At some point, they changed their membership criteria and broadened the eligibility of who could join to anyone who lived, worked, worshiped, volunteered, or went to school in the area. So if you were in the area, short of just passing through, you could join. I had my account, it was easy enough to manage, never had any difficulties (or if something was awry, it got fixed with a quick call), and in the end, formed the basis for how I simply expected a financial institution to serve me as a valued member of the group.
During my college years, I went to Alaska for an adventure in something completely different, ended up working in a salmon processing plant (we shipped fresh and frozen, never canned!), and so I opened a checking account with the local bank. Jeez were there fees! What I remember most was that when I finally cut ties soon after that, they stuck me with one more account closing fee. It was my first experience having to pay someone to hold my money and apparently, they weren’t inclined to just let me leave either. I realized that I had been incredibly sheltered, or rather, protected from the nefarious side of the for-profit world of personal finance.
When leaving for college, my mom helped me get my first credit card. She emphasized the importance of $0 annual fees, a decent 30-ish days of grace period to pay back the balance, paying it off in full and on time, to ignore that number which said “minimum payment”, to put the “cash advance” offers right into the shredder with nary a consideration, and to remember that if and when I needed to rent a car, to know that the credit card had insurance coverage already, so to skip that fee there too. I don’t remember what the interest rate was on that card. Here’s why: my relationship with it was in absolute terms, all or nothing, I use you, you don’t use me. One time (and I remember it quite clearly, freshman year, sitting at my dorm desk) I had accidentally missed the monthly payment. It wasn’t that I didn’t have the money or theoretically know that it had to be paid. I procrastinated and the bill just got lost under a pile of papers. Well, I opened the statement the next month, saw the additional $10 or $15 dollars of extra fee I’d have to pay and let me tell you, that was the first and last experiential lesson I’d have to learn to pay attention. The money itself was no particularly big deal, but the indignation I felt toward the card company and mostly toward myself for the lapse in attention was the real stinger. The terms I had implicitly agreed to were to use it for free, occasionally ask them for higher limits, and pay it promptly and fully. I use you. Period. The moment I looked away, I got used. I wised up real quick, knew exactly what had happened and why. I paid the bill off immediately and have never been late again.* (Actually, that’s only partially true. In the first months of marriage, as my wife and I were still ironing out who did which household tasks, we ended up missing the payment of one bill. From thence forward, she’s fully employed auto-bill pay to max and it’s been all good.)
The point I want to make here, in both these anecdotes, is that the institutions showed their colors real quick. When you know you have an option, and that option pays YOU in better service, no or lower fees, and higher interest earnings on your accounts (as is the case with many credit unions), the clarity of how many for-profit financial institutions perform worse while making you pay more, becomes pretty stark. Some institutions are technically non-profit. Credit unions are technically membership organizations of people banding together in a spirit of mutuality and co-operation in order to save and lend money to each other. Mutual insurance companies generate plenty of profit, but are then privately owned by the customers who buy the insurance policies, often yielding better rates, service, products, and company ethical behaviors. A few investment companies, like Vanguard, also operate this way, where profits come back into the company to keep fees really low. Some banks, particularly community banks, are for-profit but also operate in this fashion, seeking to serve and invest in the city they call home. In all these cases, they value the individuals and families they serve (me and you), and they show it in the way they do business, across the board.
Other companies lose sight of the connection with the client. You become a nameless number and their key job to make money off you by providing services and products, in order to generate profits for other investors and shareholders. In this case, the money does not come back to you or your community. It flys away and is stashed in someone else’s coffers. In the most egregious cases, they start engaging in fraud and make up stuff, like fake accounts, or events, like saying you bounced your account but in reality didn’t, in order to make even more money while they hope you’re not paying attention. This is where materialism proves itself as a spiritual disease, where ethics are ignored, fines are considered merely the cost of doing business, and growing profit above all else is prioritized.
A friend of mine did some research comparing compensation packages of CEOs at banks and credit unions. For those at banks, 23.3% of the compensation came from performance-based incentives, while at credit unions, only 7.2% of the compensation was performance-based. When you tell someone you’ll pay them to win, they’ll win at any cost. It leads to excessive risk taking and unethical behavior. If the performance compensation is more modest, they’ll focus on the long-term, like ensuring their membership grows and they stay top of mind for any financial needs. There’s a reason then that most of the financial scandals you hear about in the news (or experience yourself), take place in the performance-based, for-profit banking environment.
Now, this is not to say all non-profits are angles and for-profits are evil. In 2016, Navy Federal Credit Union got fined $28.5M for improper debt collection practices. Chances are, someone was put in charge of gathering up debts owed and offered bonus payments for the amount of money recovered. At the same time, some banks are getting creative to incentivize socially and environmentally responsible actions on the part of those who seek loans, like agreeing to discount the interest on a loan if a housing company assists 600 unemployed folks find jobs. What’s important here is to understand that there are certain principles and structures that can lead to a better society, or a worse one, and that its important we understand what these principles of mutuality and co-operation are, how and why they work, and to consciously align ourselves and do business with those whose mission and operations are congruent with such principles. As you get more familiar with these principles, and gain clarity as to your own values and how they align, you’ll be able to recognize the awesome and the nefarious for yourself, beyond any marketing or PR spins.
This book is a work in progress and we’ll all benefit from your input and collaboration. In the “Leave a Reply” below, please post examples, comments, questions, and needed edits. By posting, you grant permission for inclusion of any content to become part of the book, now or in the future, in whatever form it may take. I’ll give attributions to the extent possible. I know sharing about our financial lives can be sensitive, so if you want to share anonymously, please use the contact form instead and I’ll honor your request.