MINDLESS MUSINGS

My first full time permanent job began sometime in the early 1990s. It was a small lighting fixture manufacturer rune by 2 brothers. Their 2 wives ran the office and reception, and there were two other guys making the fixtures before I arrived. A grand total of 7. There are a few stories from this place (1 actually made it into the Potential Death etc. series!) This time I have a simple thought I want to follow.

We got paid in cash. One of the ladies would hand us a little yellow envelope with folded notes and coins inside which added up to our pay that week. I don’t even recall a slip with information written on it. It was a tiny place, so any questions you had about leave or tax or whatever you just asked.

I also remember that being a family business, they would shut for 3 weeks over the Christmas/ New year period. That only left you with 1 week holiday to use when you wanted. It was the cause of some drama when the next bloke got hired later in the year and had not accrued enough leave to last the 3 weeks. But again, I digress.

My interest here is on…well, interest. From the banks that is.

Most people would have still been paid in cash back then. It was then up to them if they wanted to put any of that money into a savings account. Plenty of people just didn’t have bank accounts. I remember opening an account for myself and 3 friends to save for a holiday because none of them used banks.

I would get paid on Friday and I would walk up to the bank near my work to deposit some money into my account. Not a great amount, this was just my savings account. Eftpos was not a big thing back then and cash was king. Your keycard was mostly for finding an ATM to get cash. Seeing that I already had that cash, I would never withdraw from my ‘savings’ account unless I was really stuck.

That is a key word here: ‘Savings’ account. I put money in there because I wanted to ‘save’ it. The only money in that account was the cash I had physically taken into the bank and given to a teller with a deposit slip. It was whatever I could spare, and the plan was to have it grow. To simply withdraw it from an ATM later would be stupid!

I’ll not get too far into financial management and budgeting, my purpose at the moment is just to look at the drastic change our relationship with banks has had and 1 factor I believe had a big impact on that. Banks did not have automatic access to our earnings. They had to entice us to put our money into their coffers.

Believe it or not, but back then money in an ordinary savings account increased! Seriously! The interest you earned was worth (at least a little bit) more than all the fees and charges. If you did nothing it would indeed grow, rather than be slowly chewed up until it vanished.

Banks had to do a bit of work to entice your hard earned ‘cash’ onto their books. They also had to compete with Building Societies and Credit Unions, which had the irritating habit of trying to help people accumulate wealth, even if that was simply by not ripping them off. A financial institution that was not insatiably chasing profit and was content with just taking its’ fair cut. Inconceivable!!!

Years passed and the banks slowly absorbed the building societies and the credit unions slowly faded away. Technological advances swept in and improved payroll efficiency and security. Much like other such innovations it resulted in many jobs lost. Payroll office staff were slashed along with armoured car and other security work. Tedious and dangerous jobs, but they paid the bills.

Anyway, my gripe is with the choke hold on our income this new and improved service gave the banks. No more would they need to cajole our measly leftover cash for savings accounts. Oh, they would still be called savings accounts, but the whole system was upended, and the balance had greatly shifted to the banks. Depositing our cash into a bank account was no longer optional.

Prior to this, a worker’s budget (if they bothered) might look like this:

PAY $446.00

RENT $180

BILLS $50

PETROL $20

FOOD & FUN $100

SAVE $90

Only that last bit would go into the bank. Everything else was paid for in cash.

The new set-up meant that the banks got your whole pay and charged whatever they considered was ‘fair’ to look after it for you. Those charges inevitably surpassed the interest earned on a peasant savings account, so the whole concept of compound interest was pointless. It still existed, but most people would have been unaware of it and the banks would have counted on the majority not shopping around.

Now the budget must be worked in reverse; providing that the employee has a budgeting strategy at all. ATM withdrawals are now the norm and ‘savings accounts’ are that in name only. Anyone serious about saving would open a new account to avoid ATM temptation and find a better interest to fees ratio.

The overwhelming majority of businesses paid their employees this way. Therefore, all those workers now had to have a bank account. All that glorious money to invest and earn with. All that extra capital meant massive profits. All those new account keeping fees meant massive profits.

Any of that trickle down? Tell us another one!