Friday, October 09, 2009

By 

James W. Stone

There are around 30 million people in the U.S. who do not have a checking or savings account. If you've been hit with bank fees for account maintenance, returned checks, or for overdrawing your checking account, you may have thought about closing your account. But having a checking account is still a better deal than paying to cash your paycheck, or buying money orders to pay bills.

The Wall Street Journal published an opinion article, January 24, 2008, about the "unbanked" written by Bill Clinton and Arnold Schwarzenegger (Yes! That Bill and That Arnold!) In the article, they state, "Over a lifetime, the average full-time, unbanked worker will spend more than $40,000 just to turn his or her salary into cash." That's a little under $1,000 per working year. They further point out how people spend more than $8 billion a year at check cashing outlets, payday lenders and pawnshops on basic financial services that most Americans receive for a very low cost at their local bank or credit union. And most of the people who are paying that $8 billion a year are low- and middle-income Americans. The article asks you to, "Imagine the economic and social benefits of putting more than $8 billion in the hands of low- and middle-income Americans." Read the Wall Street Journal article Beyond Payday Loans.

Now, you might be thinking, “It's not just the fees banks charge — it's also the attitude many banks have about taking your money”. And, “Aren't there some risks with having your financial information in the bank's computer system?” You can probably find about one-in-ten households in our country that will agree with you on these points.

So, why does your bank hate you enough to charge all these horrendous fees? What can you do about it? Actually, they don't hate you. But if they can make money from your bad behavior, they will happily take advantage of you.

Before we get into planning a revolt here, let's take a moment to acknowledge why you should have a bank account. You can have your paycheck automatically deposited, and have your routine bills automatically paid from your account. That's pretty convenient if you avoid overdrawing your account. Assuming you can maintain an adequate amount of money in your account, your bills will always get paid on time, and you won't have to drive to the utility provider to pay the electricity bill.

If you don't have a checking account, or a savings account, you might not qualify for a mortgage or a car loan. You might be denied an application for a credit card because of this, too. Even if you are approved for these loans, you will face a higher interest rate because you fall into a class of people who are seen as being a greater risk to the company making the loan.

In fact, having a bank account is one of the first steps in building a strong financial image. If you can't maintain a bank account it will imply that you don't participate in the mainstream of our country's economy. You're an outsider. The key to building a strong financial image is to learn how to keep your bank account in good condition.

If you have a bank account and it keeps getting hit with fees, learn how to manage your money in a way that protects the bank account. Even if you have a bank account, you can still keep track of your budgeting by using envelopes with cash in them. You can do everything the same way you would without a bank account — except you won't pay fees for cashing your checks; and you won't pay for money orders to pay bills by mail. If you're afraid you will overdraw your account, give yourself a spending allowance for day-to-day expenses and only use the bank account for paying household bills. Let the money in your checking account build up to the minimum required to avoid monthly maintenance fees. Then open a savings account.

To get a checking or savings account you can live with, you should start by talking with your bank to find out if you have the right type of account for your purposes. Find out if they have accounts that have low (or no) maintenance fees for low activity on the account and accounts that allow you to maintain a low balance. Find out if your bank offers classes on how to use a checking account.

After you have talked with your bank, find another bank and talk with them. Then, do yourself a favor and talk with a credit union, too. Credit unions offer many of the same services as banks, but they are "not-for-profit" organizations and usually don't have as high a fee structure as a bank has. Credit unions often provide classes on how to manage your money.

Where's the pain in all of this? You will need to do some math to keep your finances in order. It's not difficult math, but it is part of the effort you need to put into making sure you have the money you need when you need it. You will also need to control your spending. Just because you have a bank account does not mean you have money to burn.

No matter how you look at it, you will save money by using a bank account correctly rather than using check cashing stores and money orders. If you have a bank account, you will be viewed by mortgage lenders and other creditors as being part of the mainstream economy. You won't be a financial outsider.

James W. Stone
Copyright 2009, James W. Stone, all rights reserved worldwide