A lot of this is specific to the US. For example UK bank accounts are nearly all free, no matter how much money is in them. 99% of cash machines don't charge for withdrawal no matter which bank you are with.
What? I've had various UK bank accounts for years and I don't remember every being charged anything at all. Except for a few one off things like same day payments to buy a house, that kind of thing.
Submitted article is talking about poor people. Budgeting is tough for poor people, and penalising those poor people because they are in tiny amount of debt for less than 48 hours feels unfair.
On a single day the banks ordered the outgoing transactions from biggest to smallest, making sure the maximum number of transactions hit the 25 GBP fee.
(They had some really crappy excuse for that, too.)
They are still called unarranged overdraft at Santander and HSBC.
HSBC is now sending you an SMS and give you until the end of the day to transfer some money before you need to pay the fee. (note that unlike a few years back, money transfer seem to happen in a few hours, so that is actually possible) Not sure about Santander, I haven't been in the situation while banking with them.
I didn't see any option to disable it in either bank.
Not every bank charges £25 for informal overdrafts (which is what happens if a standing order attempts to be drawn with not enough money in the account to cover it).
My bank specifically charges £10 per month for informal overdrafts, with fees capped at £60 per quarter.
Still not free, but substantially better than the £25 you claim.
Don't use standing orders. Or any kind of direct debit. That is the best, easiest money saving advice. No one should be able to charge your account without your approval. And a lot of problems just disappear.
UK utility providers give cheaper rates to people paying by direct debit. If you can't afford to pay by direct debit you pay more. If you had debts and are on a card meter you pay even more.
I disagree, knowing the British mentality. The boat has sailed and direct debits are considered normal now. The richer people getting the discount (the majority) are happy getting a discount, and wouldn't understand the discrimnation if they spent 3 years studying it. The poorer people do not have the resources to start a law suit. Also, there's very little "banding together" left in this country. We all sit in our homes in fear of our masters rocking the boat and drowning us.
Direct debit is actually much better for you than sending out your own orders: direct debit (much like credit cards) can be undone by you for at least a few weeks.
(And I wouldn't trust myself to pay my rent, gas, electricity, water, internet etc on time every month if I had to do it manually. Why not automate?)
But plenty of service providers, merchants, utility companies etc. will charge you a fee of their own if an auto-debit of your bank account or corresponding card declines, or worse. While the cost is lower and the runway usually longer than a bank overdraft, the point is that it's not necessarily free to decline a transaction if it would cause one's account to go negative.
I've been in plenty of situations where a $29 overdraft fee compared favourably to a $150 late fee.
I was talking about standing orders, not direct debit.
(Paying with debit cards usually checks and decline if you don't have enough money in your account. But yes, a declined direct debit might lead to a fee from the party trying to debit you.)
Which is great, except they make a load of their money from hefty overdraft charges (per the article), which means the poor cross-subsidising the rich.
Well when the banks lost the ability to invest due to QE, first in the US, then in Europe, the money to pay for providing bank accounts had to come from somewhere else.
Frankly, this is explicit government policy.
Hell, QE is so ridiculous. What it effectively does is that it gives government more control over the economy. The QE money guarantees the government money that "it has to pay back" but doesn't pay interest on. In other words, the government believes (and may be right) that this money never needs to be paid back, and this is what's subsidizing government spending at the moment. Effectively a tax on the monetary base instead of on other things like assets (tax the people who only have money to the benefit of those who own houses, stocks, bonds, ... that sort of thing. And this is done without explicitly charging them anything).
Currently, every European is paying 120 euros monthly to subsidize banks and stock/bond prices. They are going to keep doing this "for 2 years" (after that, the theory is, governments are going to be offered more free money and say "no thank you, I've had enough". In other words, fat chance). By that time every European will have paid 3000 euros to push up stock prices, the vast majority does so without owning stock, so it's just a cost for them.
(The US poor have paid 8333 per-person over the last 4 years to create the current bubble in stocks, house prices, bonds and so on. Currently they're not paying anymore. Note that the stock market is doing very badly. Expect the housing market to crash shortly)
Now you might think that you haven't lost any money, and that's true, you've lost value. Those 8333 you paid over the last 4 years mostly went to funds with the purpose of making houses more expensive. Making stocks more expensive, and the like. So you haven't lost money ... well no, you haven't. You've lost part of the ability to buy houses, stocks, cars, bread, ... But don't worry ! The official statistics show no loss of purchasing power (they did take out gasoline, cars, houses, ... you see when those things got expensive, a lot of people stopped buying them. So "it doesn't make sense to have them in the consumption index anymore". Great, and might even be accurate, but let's not pretend this remains a useful metric to compare the wealth of the average American to 20 or even 10 years ago).
And this is explicit government policy. It's not like the ministers and so on don't know this. The net effect is to let the government control slightly over 50% of economic activity, which wouldn't be sustainable otherwise. So they make sure the extra taxes are well-hidden.
I wouldn't call it cross-subsidising. It is obvious that the costs to the bank are higher with customers who need to be followed up closely to avoid credit losses. Overdraft charges are a risk avoidance procedure to the banks; none of them are paid to rich customers.
(Over here, Finland, overdrafting is not really possible; you need to make a loan agreement to be allowed a negative bank balance, and that is not offered if the credit rating is not clean. Is that better or worse for poor customers?)
It is obvious that the costs to the bank are higher with customers who need to be followed up closely to avoid credit losses.
Why is that obvious?
The simple fact is, these days, there isn't any follow up. No one is 'followed up closely' in some expensive human-driven procedure. It's all automated. The cost of someone going overdrawn by £10 is pennies.
It can't be expensive because most banks will give you a free overdraft if you ask. Sometimes even if you don't ask. I've had a £1500 overdraft facility on my bank since I opened a student account 18 years ago. Back then I used it a lot without any fees. Now I don't use it at all but it's still there. If that overdraft cost anything I wouldn't have it. The only time you get charged is if you haven't planned and set things up ahead of time. I don't believe for a second that updating a signed int in a database record saves the bank £25 per infringement, yet that's what they charge.
Much worse, overdrafts are a mean product! Especially in the UK variety. When I was an intern in the UK I once handed over a cheque a day before I got the cash. The cheque bounced, I was forced to pay 25 GBP in overdraft fees and the person who had the cheque still did not get their money.
i.e. No one benefited except the bank, i.e. they did not provide any service what so ever yet still charged 25GBP for it.
Overdraft fees like that are evil as they are very much a profit center on the poor. The Finish system of just not allowing the transaction is much much better.
I've never seen a country with more horrible banks than the UK. They get their profit from poor people. They make it easy to accidentally overdraw and then charge you a massive fee. Don't pay the fee in time and you get another one because the fee kept you in overdraft. They also won't give accounts to just anybody. You need a letter from your employer so you can't open an account if you're unemployed. Even with that, you have to wait a couple of weeks for an appointment to talk to somebody before they open your account. My T&C even made it a requirement for my account to receive a regular minimum deposit each month. The phone staff are rude and unhelpful and the branches are usually closed when people need them the most (mornings and evenings) so the few useful times they do open (Sat morning), they're overcrowded and people end up missing out.
This is a failure of the market though. People want free, so the banks have to provide free. But they also have to make money, so they only option is dirty tricks. A lot like games that pressure you into buying powerups
> They also won't give accounts to just anybody. You need a letter from your employer so you can't open an account if you're unemployed. Even with that, you have to wait a couple of weeks for an appointment to talk to somebody before they open your account. My T&C even made it a requirement for my account to receive a regular minimum deposit each month.
Unemployed people can get what's called a "basic bank account". They need this for their benefit to be paid into. They need to prove their identity, but that can be done with driving licences or passports or utility bills or tenancy agreements.
The requirements for your particular account - which is not a basic account - are not generalisable across all accounts.
I agree that UK banks are aggressive at charging fees, often to people who can't afford them. And that the opening times suck. And that the telephone staff can be rude and unhelpful.
Where "very basic" means if you have any sort of ID and an address that won't change for five days, you can get an account and a debit card, be able to send and receive transfers from anyone in the UK with no fee, and use most bank machines in the UK with no fee
Your T&Cs are due to your choice of account I suspect, you could choose one without. There are now banks with opening at evenings and weekends (Metro Bank, now in many places, although they only have 32 branches so far). The banks that actually provide customer service do cater for the better off though (eg Handelsbanken).
> They make it easy to accidentally overdraw and then charge you a massive fee. Don't pay the fee in time and you get another one because the fee kept you in overdraft.
France used to be famous for that. When I was a kid (before internet to check you account), there were TV programmes about people having to pay tens of thousands of French Francs because they forgot about an account and the account charge put them a few francs in negative balance and it snowballed quickly over a few years. Not quite sure how it is today in France.
> You need a letter from your employer so you can't open an account if you're unemployed. Even with that, you have to wait a couple of weeks for an appointment to talk to somebody before they open your account.
I had to go through that to open an account in Luxembourg. Never could open an account in Spain for that reason but you don't really need one if you have an EUR account somewhere else in the EU. Spain has a wonderful collection of massive charges on everything you would think is free like getting money out of the cash machine, transferring money electronically or even receiving money electronically.
At least in the UK, you can get a free account. Used to be not so easy in Belgium (Postoffice offered a limited free banking, so that was the excuse for all the other banks for charging) and they also had their own set of shenanigans.
I have noticed things getting better with internet banking. However, some things have gotten much worse. Loan and Mortgage are no longer underwritten by the bank itself, so it does not matter if you know your banker and have been banking 20 years with the same bank - you will need to go through the exact same process as a guy from the street - worse, instead of just using your credit score as other bank would, they will use those 20 years history to give you a worse rate if they can.
> Spain has a wonderful collection of massive charges on everything you would think is free like getting money out of the cash machine, transferring money electronically or even receiving money electronically.
It depends on the bank, but the the three I use doesn't charge for anything you pointed
Almost all banks in India charge hefty penalties for not maintaining a 'minimum balance' in your accounts. As a hand-to-mouth startup we end up paying a few thousand rupees every year which makes us even poorer ...
I read somewhere that there's also an issue with bulk purchasing. If you've got no money, you end up having to buy eg single cans of drinks instead of large bottles, small packets of washing powder, and so on for various ordinary items. That means you'd end up paying a lot more for a similar amount of stuff than someone who happened to have the money for the bulk.
The other end where it hurts is your ability to take risk. If someone low balls you on a job offer, and you're flat broke, you don't have any runway to find a better offer. You also can't take a short-term mortgage (tends to be lower at the front of the curve) and will probably have to lock in a higher, longer term. You can't hold a lot of investments because you'll end up having to liquidate them at a cost. So you keep your money in cash or cash-like instruments and inflation eats a bit, too.
"It's expensive to be poor" is actually a well known saying for good reasons.
>If you've got no money, you end up having to buy eg single cans of drinks instead of large bottles...you'd end up paying a lot more for a similar amount of stuff than someone who happened to have the money for the bulk.
As an aside, this effect may be further pronounced if lower-income consumers don't have the storage space for bulk purchasing.
Even if the differences in price are within someone's budget, they may be forced to purchase smaller, more expensive per unit items because they don't have enough shelf/refrigerator/storage space. In San Francisco for example, I think many people who wouldn't necessarily be considered lower-income consumers are negatively effected by an inability to purchase in bulk.
> Low smartphone penetration in turn makes life more expensive in other ways. The unconnected do not benefit from the cheap communication, education, and even transport the app economy provides. A quarter of poor households do not use the internet at all, which makes seeking out low prices harder.
Yes, these effects turn up in poorer people not having freezers (and so needing to shop more regularly and/or not take advantage of some better value foods); washing machines (using a laundrette is expensive in time and money).
This week I've had to repair my car, computer, television and today I need to fix the boiler ... maintaining a house is hard with low income as things tend to have to wait for funds, and those things have a knock on effect.
Example: our poor neighbour needs roof work, their roof is causing our property to be wet, we have mouldy walls, peeling wallpaper. They don't have funds to get a roofer, we don't have funds to do the work for them (which would be to our benefit) nor to sue them to force them to do the work. Results - health risks, much faster property deterioration including risks of rotting wood and need to redecorate.
Social circles make a big difference too - our kids feel unhappy sometimes because their friends all have more stuff than them (for better or worse that's how they feel); on the flipside we get lots of hand-me-downs meaning we can much more afford to clothe ourselves than we otherwise would.
True, although in the US, larger suburban spaces are often cheaper than in-town apartments or houses. Our last apartment in Atlanta was 30-40% larger than our current one and had far more walk-in closet and storage space than we needed, yet was $500/mo cheaper than our present apartment in Midtown.
But yes, point taken; I grant that all other things being equal, poorer people aren't going to have as much storage space as wealthier ones.
To the extent that a company can tell the difference between rich and poor customers, rich customers will get more freebies, discounts, and other benefits. That's because rich customers are worth more to a company in the long term. Poor people have to pay the full price up front.
Another equally applied strategy is market segmentation: Try to get a higher price for those who have the money, but sell at a lower price to those who otherwise couldn't afford your product. There is a somewhat popular article by Joel Spolsky on that topic:
Of course, those strategies don't exclude each other. If you can make some people pay more for your product, you can of course be "generously" give out free stuff, so they feel cared and hopefully don't notice the mediocre deal.
An example of this is pricing of flight trips and hotel accommodation depending on the browser used in the booking: if the client has an Apple product, he/she will be charged more.
How is this discrimination? If you came to me and said, "hey gambiting, I want to buy a cookie from you, how much is it?" and I say $1, and then you come and say "hey I want to buy an entire truck full of cookies, will you sell them for $0.50 each?", am I discriminating anyhow against the first person if I sell the cookies for $0.50 to the second guy? It's the most insane assumption I've heard in a while.
It's not discrimination, it's price discrimination.
The range of coffee, and the range of prices, that Starbucks has is often used as an example of price discrimination. You take your basic product, add a cheap to provide option, and charge more. This allows rich people to give you more money.
No kidding! Another "insightful" article from The Economist? What's coming next - it's expensive to be small?
Of course there are savings from scaling things up. If you are richer, you can get better advice, because you're often better connected. Others are less inclined to screw you over. And so on..
A few years ago there was a movement to close bank accounts and move to credit unions (or at least ethical banks). Citizens of the world should reject modern banks as the evil institutions they are. I predict that they soon will.
What happens when credit union fails? Because they do. Also chances of corruption and mismanagement are higher in them. If you talk about a united credit union, that's essentially banking system. TBH, I don't understand the moaning against banks. They are providing a necessary service, how are they evil?
Look at the economies with no to shallow banking systems. High and predatory interest rates, less money available for loans is least of their problems.
No banking, no economy. Bitcoin solves the problem about inflation, access to money etc. But s booming economy also needs some sort of lending
> a new report suggests a way to add to its bottom line: offer banklike services, such as a check cashing card that would allow holders to make purchases and pay bills online or even take out small loans. The idea is to provide services that are now unavailable in many communities.
> ... for a while, [the Postal Savings System, established in 1910] was quite successful. "By the year of the Wall Street crash, 1929, they had $153 million on deposit. Postal savings banks were considered safe during the '30s when commercial banks were crashing." Rubio says their peak year was 1947 when they had $3.4 billion on deposit.
> But after World War II, banks raised their interest rates, making the 2 percent the post office was paying for savings less appealing. By 1967, the Postal Savings System was out of business.
The doubling of post systems as rural bankers in Europe has interested me for a while. Even today the basic bank services in Switzerland are done by the Swiss Post. It makes a fair amount of sense and there are some neat synergies. Even fairly small communities have a post office; postmen visit homes regularly and so can e.g. pay out cash pensions; sending out documents or valuable mail at a post office is intuitively similar to sending out money to pay bills; post has implicit identity systems to make sure mail gets to the right person.
It seems it wouldn't be very hard to adapt post systems to electronic age in most countries. It is basically accepted that electronic banking will verify identity by sending out mail (e.g. with login details) so the post is already involved to an extent.
Though obviously not as sympathetic due to not being in a state of poverty nor afflicted with basic problems of survival, this rings very true for those of us who have bootstrapped companies with poor cash flow and a relatively high personal expense base.
I've been in business for seven years, gradually shifting from consulting to product, while paying normal middle-class living expenses in Atlanta the whole time. While the numbers are a lot bigger than those discussed in the article, it's the same fundamental problem: bad cash flow burnt my credit to the ground, and has cost me untold sums in late fees, interest, high cost of borrowing, tax penalties, bank fees -- the works.
No, can't plausibly cry poor house in good conscience. Nevertheless, the old NET-30/60/90 day shuffle when one has monthly bills to pay can be quite demoralising, and stops many small-scale entrepreneurial endeavours dead in their tracks. It's not poverty, but it's still a question of livelihood and, ultimately, survival and purpose.
The hard lesson I've learned is: just because one has (e.g.) $100k in gross revenue does not mean one can live a lifestyle and/or run a company as one could on a $100k salary. Effectively, it needs to be discounted to something like $35k to account for lukewarm cash flow, which means making $100k is really like making $35k.
Relationships and education also takes a huge part in how one's life shapes. If you put a business degree guy from Harvard on minimum wage he'll probably do a lot better, knowing how to save taxes, how to talk to banks and find good deals, sleeping at a friend's castle instead of the street.
Considering the very first example from the article - does America not have bank transfers? Or accounts which cannot be overdrawn? I've had bank accounts in multiple different countries and it's usually the same - if you don't apply for an overdraft, you won't get one. If you were given one, you can cancel it. If you weren't given one, then there's practically nothing that could actually overdrawn the account, the only time when that happened to me was when the currency value changed in between me sending the money and the bank processing the transaction, at which time it was too late for the bank to reverse it - so I went like -$2 on my account which wasn't supposed to be overdrawn.
If you don't have the overdraft they ding you $35 or whatever for a NSF fee instead. So your 2 dollars overdrawn becomes the hassle of a bounced check + a bunch of money gone to bank fines.
All checking accounts can be overdrawn. You can pay for "overdraft protection", but that's more like paying a fee so that you can get a flat overdraft fee instead of paying multiple fees in a single day. Many people have been burned by using a debit card in an effort to avoid over drafting, and getting multiple overdrafts (and their $35 per incident fee) in a single day. Oh, the protection also comes with a text message that tells you when you have something like $3.00 left in your account.
My favorite fee is the "maintenance fee" aka "inactivity fee". It's legal for a bank to take your money $50 a month if you don't spend it. There's no justification for this. It's not like the bank isn't making money off my deposit already, and it's not like the bank is polishing my coins.
Again, insane, and I don't understand how this works in US. Here if I try to pay with my debit card for anything,but don't have enough money in my account, the transaction gets declined at the till(or I get an error while paying online) - it doesn't result in any charges, just means I cannot pay. Do US banks allow debit cards to overdraw accounts? Isn't this against the entire idea of debit cards??
" However, Visa Debit and MasterCard Debit cards can now be set up so that they check whether there’s enough money in your account before a payment is authorised."
I guess I only ever used Visa Debit/Mastercard Debit cards then :-)
Thats not true, you can get checking accounts that cannot be overdrawn. I have one as I never arranged for an overdraft (in UK). It is just that 99% of banks want you to go accidentally overdrawn so you have an unarranged overdraft already set up on your account.
The EU introduced regulation to make bank accounts available to everybody - even those without a permanent address of residence [0]. The EU's members are currently passing the corresponding national laws (they have until 2016 to do so).
I have bank accounts with Visa debit cards and I pay 0 for them. It really shocks me to see that in some less civilised countries people need to pay to give their banks money to play with.
Well once not paying interest did actually pay for bank accounts, when interest rates were high. Now they are zero, banks switched to mis-selling profifitable financial services to pay for it. What they seem incapable of is actually making cheap bank accounts by significantly reducing costs. Generally you expect them to have some way to cover their costs, unless the government is going to provide bank accounts as a basic service.
The best description of this I've read was by Terry Pratchett:
---snip---
The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.
The american equivalent is a car. There isn't a car for under $3k that's worth a damn, but if you need transport and that's what you can afford then that's what you'll have to buy and suffer the unreliability and the never ending maintenance costs a $3k car brings.
In my (anecdotal) experience the relation between price an quality is not just not proportional - it seems to be completely spurious after a certain minimum-price is reached.
You can get very high quality and long lasting stuff for reasonable prices. People who are poor though tend to not investigate products or reflect on decisions they make in that area. This leads to buying overpriced and unnecessary gadgets - often of very low-quality.
The shoe-analogy doesn't really work in my opinion nowadays that manufacturing is industrialized and automated.
Indeed, and particularly nowadays that price differentiation is often based on brand images and customer segmantation, not actual differences in manufacturing.
On a related note: if you look for a quality car (quality defined as "will drive you from one place with reliability and sufficient comfort"), then cheap cars, manufactured in great numbers with consistent quality, are far superior to "premium" cars which are manufactured in small numbers and then to have lots of quirks and little problems. The premium cars have luxury features of course, and can make the owner feel happy about them, but the Toyota Corolla or whatever is going to be more reliable.
Having a lack of money usually means you have a lack of time as well. Buying (say) boots because your only other pair of boots has broken does not afford you the same oppertiunity to be picky. Perhaps you will need boots before a certain time, say to go to work. You probably don't have the disposable income to buy boots before the point where you need them. This means you don't have the same freedom to research this long lasting reasonably priced stuff even if you do happen to have the budget to reach that minimum price you are talking about.
>self-confidence to not buy an expensive Apple smartphone like your peers but a reasonable priced one from Huawai //
Huawei aren't a cheap brand, they are compared to Apple, for sure, but for me it's do I buy a name brand product from Acer, LG, Huawei or do I get a no-name item. My current TV is a Polaroid(!), it's a white-label product with the same internals as Panasonics, Toshibas and LGs. It's this or nothing. Bought less than a year ago I've already had to have it opened up for fault-finding. More expensive products are definitely better, but not the next level up (the cheaper Toshibas, etc.) but the level above that - which is more by model but I'd probably include Samsung there. It really is just like the leather boots analogy.
Another instance of this for me is trousers. I basically have 2 pairs of trousers for daily wear, one is a pair of jeans. I get supermarket own-brand (UK) jeans, they all wear out at the crotch, the stitching comes apart after about 6-9months. £10 a pair (or less if I catch a sale). Now I could buy more expensive ones that are better made, there's an apparent variation in longevity even now Sainsburys > Tesco > ASDA. More expensive trousers - in the past - have never split at the crotch seam. The problem is that the more expensive ones that are still in my price range seem equally likely to fail early.
High price doesn't indicate high quality but I've found very few products for a relatively low price that weren't low quality; often atrocious designs that could be so much better using the same materials too.
One of the reasons why poverty is so difficult to solve is that, in a way, poverty is a biological niche. Even if you could manage to lift everyone out of poverty, that niche will still be there, waiting to be filled again.
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1: https://news.ycombinator.com/item?id=10178989
German banks (as a counter-example) just won't let the transfer go through. British banks charge you 25 quid.
Weren't British banks even recently ordered by their regulator to be less evil with their fees?
Large charges on people who inadvertently went overdrawn by less than £10 for less than a day have been a problem for many people in the UK.
HSBC changed from a £25 fee each time the account went informally overdrawn to a £5 per day each time the account went overdrawn.
http://www.telegraph.co.uk/finance/personalfinance/bank-acco...
Submitted article is talking about poor people. Budgeting is tough for poor people, and penalising those poor people because they are in tiny amount of debt for less than 48 hours feels unfair.
(They had some really crappy excuse for that, too.)
Depends how you run your finances.
Isn't that exactly the point of the article?
(Also, didn't they used to be called unarranged overdrafts? Did the name change to get around some kind of rule?)
HSBC is now sending you an SMS and give you until the end of the day to transfer some money before you need to pay the fee. (note that unlike a few years back, money transfer seem to happen in a few hours, so that is actually possible) Not sure about Santander, I haven't been in the situation while banking with them.
I didn't see any option to disable it in either bank.
My bank specifically charges £10 per month for informal overdrafts, with fees capped at £60 per quarter.
Still not free, but substantially better than the £25 you claim.
http://www.smile.co.uk/assets/pdf/smile/currentaccounts/smil...
(And I wouldn't trust myself to pay my rent, gas, electricity, water, internet etc on time every month if I had to do it manually. Why not automate?)
I've been in plenty of situations where a $29 overdraft fee compared favourably to a $150 late fee.
But then you typically pay a fee to whoever unsuccessfully tried to debit you, since they have to do it again.
(Paying with debit cards usually checks and decline if you don't have enough money in your account. But yes, a declined direct debit might lead to a fee from the party trying to debit you.)
Which is great, except they make a load of their money from hefty overdraft charges (per the article), which means the poor cross-subsidising the rich.
Frankly, this is explicit government policy.
Hell, QE is so ridiculous. What it effectively does is that it gives government more control over the economy. The QE money guarantees the government money that "it has to pay back" but doesn't pay interest on. In other words, the government believes (and may be right) that this money never needs to be paid back, and this is what's subsidizing government spending at the moment. Effectively a tax on the monetary base instead of on other things like assets (tax the people who only have money to the benefit of those who own houses, stocks, bonds, ... that sort of thing. And this is done without explicitly charging them anything).
Currently, every European is paying 120 euros monthly to subsidize banks and stock/bond prices. They are going to keep doing this "for 2 years" (after that, the theory is, governments are going to be offered more free money and say "no thank you, I've had enough". In other words, fat chance). By that time every European will have paid 3000 euros to push up stock prices, the vast majority does so without owning stock, so it's just a cost for them.
(The US poor have paid 8333 per-person over the last 4 years to create the current bubble in stocks, house prices, bonds and so on. Currently they're not paying anymore. Note that the stock market is doing very badly. Expect the housing market to crash shortly)
Now you might think that you haven't lost any money, and that's true, you've lost value. Those 8333 you paid over the last 4 years mostly went to funds with the purpose of making houses more expensive. Making stocks more expensive, and the like. So you haven't lost money ... well no, you haven't. You've lost part of the ability to buy houses, stocks, cars, bread, ... But don't worry ! The official statistics show no loss of purchasing power (they did take out gasoline, cars, houses, ... you see when those things got expensive, a lot of people stopped buying them. So "it doesn't make sense to have them in the consumption index anymore". Great, and might even be accurate, but let's not pretend this remains a useful metric to compare the wealth of the average American to 20 or even 10 years ago).
And this is explicit government policy. It's not like the ministers and so on don't know this. The net effect is to let the government control slightly over 50% of economic activity, which wouldn't be sustainable otherwise. So they make sure the extra taxes are well-hidden.
(Over here, Finland, overdrafting is not really possible; you need to make a loan agreement to be allowed a negative bank balance, and that is not offered if the credit rating is not clean. Is that better or worse for poor customers?)
Why is that obvious?
The simple fact is, these days, there isn't any follow up. No one is 'followed up closely' in some expensive human-driven procedure. It's all automated. The cost of someone going overdrawn by £10 is pennies.
It can't be expensive because most banks will give you a free overdraft if you ask. Sometimes even if you don't ask. I've had a £1500 overdraft facility on my bank since I opened a student account 18 years ago. Back then I used it a lot without any fees. Now I don't use it at all but it's still there. If that overdraft cost anything I wouldn't have it. The only time you get charged is if you haven't planned and set things up ahead of time. I don't believe for a second that updating a signed int in a database record saves the bank £25 per infringement, yet that's what they charge.
Overdraft fees like that are evil as they are very much a profit center on the poor. The Finish system of just not allowing the transaction is much much better.
This is a failure of the market though. People want free, so the banks have to provide free. But they also have to make money, so they only option is dirty tricks. A lot like games that pressure you into buying powerups
Unemployed people can get what's called a "basic bank account". They need this for their benefit to be paid into. They need to prove their identity, but that can be done with driving licences or passports or utility bills or tenancy agreements.
The requirements for your particular account - which is not a basic account - are not generalisable across all accounts.
I agree that UK banks are aggressive at charging fees, often to people who can't afford them. And that the opening times suck. And that the telephone staff can be rude and unhelpful.
Utter rot. In fear of being legally compelled to, many UK banks offer a very basic bank account that they typically don't advertise or offer.
http://www.moneysavingexpert.com/banking/basic-bank-accounts
France used to be famous for that. When I was a kid (before internet to check you account), there were TV programmes about people having to pay tens of thousands of French Francs because they forgot about an account and the account charge put them a few francs in negative balance and it snowballed quickly over a few years. Not quite sure how it is today in France.
> You need a letter from your employer so you can't open an account if you're unemployed. Even with that, you have to wait a couple of weeks for an appointment to talk to somebody before they open your account.
I had to go through that to open an account in Luxembourg. Never could open an account in Spain for that reason but you don't really need one if you have an EUR account somewhere else in the EU. Spain has a wonderful collection of massive charges on everything you would think is free like getting money out of the cash machine, transferring money electronically or even receiving money electronically.
At least in the UK, you can get a free account. Used to be not so easy in Belgium (Postoffice offered a limited free banking, so that was the excuse for all the other banks for charging) and they also had their own set of shenanigans.
I have noticed things getting better with internet banking. However, some things have gotten much worse. Loan and Mortgage are no longer underwritten by the bank itself, so it does not matter if you know your banker and have been banking 20 years with the same bank - you will need to go through the exact same process as a guy from the street - worse, instead of just using your credit score as other bank would, they will use those 20 years history to give you a worse rate if they can.
It depends on the bank, but the the three I use doesn't charge for anything you pointed
The other end where it hurts is your ability to take risk. If someone low balls you on a job offer, and you're flat broke, you don't have any runway to find a better offer. You also can't take a short-term mortgage (tends to be lower at the front of the curve) and will probably have to lock in a higher, longer term. You can't hold a lot of investments because you'll end up having to liquidate them at a cost. So you keep your money in cash or cash-like instruments and inflation eats a bit, too.
"It's expensive to be poor" is actually a well known saying for good reasons.
As an aside, this effect may be further pronounced if lower-income consumers don't have the storage space for bulk purchasing.
Even if the differences in price are within someone's budget, they may be forced to purchase smaller, more expensive per unit items because they don't have enough shelf/refrigerator/storage space. In San Francisco for example, I think many people who wouldn't necessarily be considered lower-income consumers are negatively effected by an inability to purchase in bulk.
> Low smartphone penetration in turn makes life more expensive in other ways. The unconnected do not benefit from the cheap communication, education, and even transport the app economy provides. A quarter of poor households do not use the internet at all, which makes seeking out low prices harder.
This week I've had to repair my car, computer, television and today I need to fix the boiler ... maintaining a house is hard with low income as things tend to have to wait for funds, and those things have a knock on effect.
Example: our poor neighbour needs roof work, their roof is causing our property to be wet, we have mouldy walls, peeling wallpaper. They don't have funds to get a roofer, we don't have funds to do the work for them (which would be to our benefit) nor to sue them to force them to do the work. Results - health risks, much faster property deterioration including risks of rotting wood and need to redecorate.
Social circles make a big difference too - our kids feel unhappy sometimes because their friends all have more stuff than them (for better or worse that's how they feel); on the flipside we get lots of hand-me-downs meaning we can much more afford to clothe ourselves than we otherwise would.
But yes, point taken; I grant that all other things being equal, poorer people aren't going to have as much storage space as wealthier ones.
Another equally applied strategy is market segmentation: Try to get a higher price for those who have the money, but sell at a lower price to those who otherwise couldn't afford your product. There is a somewhat popular article by Joel Spolsky on that topic:
http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
Of course, those strategies don't exclude each other. If you can make some people pay more for your product, you can of course be "generously" give out free stuff, so they feel cared and hopefully don't notice the mediocre deal.
http://www.ibtimes.com/ripped-mac-why-apple-users-may-pay-mo...
Of course, pricing proposals could be different based on not just the browser variant, but also cookies, browser history, where you came from, etc.
http://www.usatoday.com/story/travel/columnist/mcgee/2013/04...
The range of coffee, and the range of prices, that Starbucks has is often used as an example of price discrimination. You take your basic product, add a cheap to provide option, and charge more. This allows rich people to give you more money.
http://trendwatching.com/trends/SACHET_MARKETING.htm
(f.x. http://daniaspillett.theworldrace.org/?filename=where-coke-i...)
http://www.businessinsider.in/Heres-How-Americas-Minimum-Wag...
Of course there are savings from scaling things up. If you are richer, you can get better advice, because you're often better connected. Others are less inclined to screw you over. And so on..
This isn't the first time economies have gone to complete shit due to the extreme greed of banks playing fast and loose.
They're destructive entities.
No banking, no economy. Bitcoin solves the problem about inflation, access to money etc. But s booming economy also needs some sort of lending
> a new report suggests a way to add to its bottom line: offer banklike services, such as a check cashing card that would allow holders to make purchases and pay bills online or even take out small loans. The idea is to provide services that are now unavailable in many communities.
> ... for a while, [the Postal Savings System, established in 1910] was quite successful. "By the year of the Wall Street crash, 1929, they had $153 million on deposit. Postal savings banks were considered safe during the '30s when commercial banks were crashing." Rubio says their peak year was 1947 when they had $3.4 billion on deposit.
> But after World War II, banks raised their interest rates, making the 2 percent the post office was paying for savings less appealing. By 1967, the Postal Savings System was out of business.
It seems it wouldn't be very hard to adapt post systems to electronic age in most countries. It is basically accepted that electronic banking will verify identity by sending out mail (e.g. with login details) so the post is already involved to an extent.
I've been in business for seven years, gradually shifting from consulting to product, while paying normal middle-class living expenses in Atlanta the whole time. While the numbers are a lot bigger than those discussed in the article, it's the same fundamental problem: bad cash flow burnt my credit to the ground, and has cost me untold sums in late fees, interest, high cost of borrowing, tax penalties, bank fees -- the works.
No, can't plausibly cry poor house in good conscience. Nevertheless, the old NET-30/60/90 day shuffle when one has monthly bills to pay can be quite demoralising, and stops many small-scale entrepreneurial endeavours dead in their tracks. It's not poverty, but it's still a question of livelihood and, ultimately, survival and purpose.
The hard lesson I've learned is: just because one has (e.g.) $100k in gross revenue does not mean one can live a lifestyle and/or run a company as one could on a $100k salary. Effectively, it needs to be discounted to something like $35k to account for lukewarm cash flow, which means making $100k is really like making $35k.
And $7 to send a money order? Really?
My favorite fee is the "maintenance fee" aka "inactivity fee". It's legal for a bank to take your money $50 a month if you don't spend it. There's no justification for this. It's not like the bank isn't making money off my deposit already, and it's not like the bank is polishing my coins.
https://www.moneyadviceservice.org.uk/en/articles/debit-card...
" However, Visa Debit and MasterCard Debit cards can now be set up so that they check whether there’s enough money in your account before a payment is authorised."
I guess I only ever used Visa Debit/Mastercard Debit cards then :-)
[0] http://www.europarl.europa.eu/news/de/news-room/content/2014...
---snip---
The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.
---snip---
You can get very high quality and long lasting stuff for reasonable prices. People who are poor though tend to not investigate products or reflect on decisions they make in that area. This leads to buying overpriced and unnecessary gadgets - often of very low-quality.
The shoe-analogy doesn't really work in my opinion nowadays that manufacturing is industrialized and automated.
On a related note: if you look for a quality car (quality defined as "will drive you from one place with reliability and sufficient comfort"), then cheap cars, manufactured in great numbers with consistent quality, are far superior to "premium" cars which are manufactured in small numbers and then to have lots of quirks and little problems. The premium cars have luxury features of course, and can make the owner feel happy about them, but the Toyota Corolla or whatever is going to be more reliable.
- self-confidence to not buy an expensive Apple smartphone like your peers but a reasonable priced one from Huawai
- education to efficiently think about a products features
- patience to not buy as soon as possible but take time to observe prices and wait for meaningful reviews on amazon
At the end of the day it all comes down to your personal biography, upbringing etc.
Huawei aren't a cheap brand, they are compared to Apple, for sure, but for me it's do I buy a name brand product from Acer, LG, Huawei or do I get a no-name item. My current TV is a Polaroid(!), it's a white-label product with the same internals as Panasonics, Toshibas and LGs. It's this or nothing. Bought less than a year ago I've already had to have it opened up for fault-finding. More expensive products are definitely better, but not the next level up (the cheaper Toshibas, etc.) but the level above that - which is more by model but I'd probably include Samsung there. It really is just like the leather boots analogy.
Another instance of this for me is trousers. I basically have 2 pairs of trousers for daily wear, one is a pair of jeans. I get supermarket own-brand (UK) jeans, they all wear out at the crotch, the stitching comes apart after about 6-9months. £10 a pair (or less if I catch a sale). Now I could buy more expensive ones that are better made, there's an apparent variation in longevity even now Sainsburys > Tesco > ASDA. More expensive trousers - in the past - have never split at the crotch seam. The problem is that the more expensive ones that are still in my price range seem equally likely to fail early.
High price doesn't indicate high quality but I've found very few products for a relatively low price that weren't low quality; often atrocious designs that could be so much better using the same materials too.
Wow!