I recently came across a PBS video presentation: The Card Game, which shows how financial institutions came up with the ideas of 0% balance transfers for credit cards, the ever increasing credit card interest rates and opportunities for further revenues through debit card overdraft fees and the idea behind free checking accounts. An hour long presentation is worth a watch.
We all know that credit cards make money when their customers do not or cannot make payments in full, and while I don’t agree with all the tactics used by these institutions in increasing their revenue, I do understand that they are a business and need to be paid for their services; What I do believe and have come to realise is the difference between cultures who feel it is ok to carry debt and those of us who until recently didn’t use plastics to pay for anything.
For those who don’t know me, I come from Tanzania; a politically sound and beautiful country in East Africa; I moved to Toronto in 2002 and prior to that, I didn’t know any other way of paying for goods and services but by cash. I was told when growing up that I could only buy what I can afford, because if I didn’t, I will run out of money and will have to sacrifice somewhere else. However, I see a contrast on this side of the planet, where the majority swipe their plastics only to find out at the end of the month that they cannot afford those purchases, ending up paying interest rates close to 20%.
The argument from the consumer is that there is little or no governance on these institutions raising interest rates and dealing with consumers, and I agree with that statement; however, I believe it is everyone’s responsibility (and not the banks) to manage their own finances. If you know you cannot afford to spend more than $1000 a month then why purchase more than what you can afford. In today’s society we have come to believe that we are entitled to certain free things – free banking, free cell phone minutes, free online access to your whatever accounts; if all these services are free, who is paying for them? The service providers are in business and need to make a buck to pay the same employees who in-turn are consumers expecting free things. As the saying goes, there are no free lunches; if you are not paying for it someone else is.
Does this mean I don’t use a credit card? I swipe my card for pretty much every purchase I make; banks don’t want customers like me; I use a no fee credit card which gives me points that I fully utilize and pay my balance in full, banks don’t make a single penny off me; I’m more of an expense to them when I call customer service. Basically, my fees are covered by the majority of the population who carry a balance. One thing to ponder on is, if everyone started to pay off their balances each month, the service providers will make no money, and eventually start charging for the use of their cards. Unfortunately, the society we live in, I strongly believe it has become a norm for carrying a balance and not worrying too much about it, and as long as this trend continues, consumers like myself will enjoy not paying for these services and the banks would ripe 20% interests for their services.
While I agree and understand times are tough, and it is becoming difficult to put aside for a rainy day, one needs to look at his finances and make sound decisions. Over the years, many of our wants have turned to needs which we think we cannot get by without; those +200 TV channels, cell phone data plans, extra features on your home phone and so much more. It is time to look at many of these extras in our lives and ask do we really need them?
