In recent articles I have referred to more efficient ways of managing money. The truth is, at least in my opinion, that the so-called traditional ways that most Canadians conduct their banking, debt management, etc. is convoluted and inefficient. In fact when you really look at it, it hardly makes sense — especially considering that there are more sensible alternatives.
I often wonder how we got to this point.
To begin with, I think it is a misnomer to refer to a “traditional way” of doing banking.
Banks, in the modern sense of the word, have been around since the 14th century. The way we bank, on the other hand, has morphed into something completely different only within the last few decades.
Credit cards (as we know them today) only gained widespread use in the 1970s. At the time ATMs did not exist. That and the debit card did not come until the ‘80s, with online banking later still.
Even more recent has been the unprecedented expansion of credit we have seen since the turn of the century. In the U.S. this trend has reversed itself, but in Canada household debt continues to rise — to a point where our average household debt has surpassed that of the United States.
How did we get here?
In my opinion it has a lot to do with our financial institutions.
We bank the way they want us to bank. They make the rules. And unfortunately, the rules usually benefit them more than they do us.
They want us to be in debt. They like it when we pay exorbitant interest rates on credit cards. It is profitable for them.
To understand my point, consider this: the credit card was a great invention. In the days before credit cards the alternative was to carry cash around. And to get cash, you would have to go to your bank, during banking hours, wait in line, then make a withdrawal. Credit cards brought us convenience and security.
But now we have ATMs and debit cards.
There is really little if anything you can do with a credit card that you can’t do with these.
So I ask you this: why do we still have credit cards?
I can only think of these answers: so that we can spend money we don’t have; so we can buy things we can’t afford; and so our institutions can charge us interest rates as high as 20 per cent or more.
For more on this be sure to register for our upcoming presentation entitled Money Myths — an informative and entertaining look at what is wrong with how we manage money.
Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only. Securities are offered through Raymond James Ltd., member Canadian Investor Protection Fund. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member Canadian Investor Protection Fund. For more information feel free to call Jim at (250) 594-1100, or email at firstname.lastname@example.org. and/or visit www.jimgrant.ca.