My favorite Ann Landers column is about the girl who writes that she has not asked her boyfriend to help pay for her birth-control pills, because “I don’t know him well enough to talk about money.”
She was on to something. People have quirks about money.
Take debit cards. Why have they overtaken credit cards? Why would someone who could defer a card payment from purchase through grace period want to be debited instantly instead?
The answer, I am told, is that people feel they have no ability to control their financial obligations. They would rather pay up front than risk being caught short when a credit card bill comes due.
In essence, people are paying the banker to be a disciplinarian.
The same principle underlies the Christmas Club accounts that were so popular years back. In January you’d start putting in $2 a week; 50 weeks later you’d get a check for $100 plus a Christmas candle.
I always said that if you put the money in an interest-bearing account instead, you could own the candle factory. But people like to have someone force them to save. Even when it comes to overdrawing your account and incurring transaction fees, most people do not mind paying, some psychologists have reported. They feel they are being punished appropriately for breaking the rules.
But banks do themselves, as well as the public, a disservice by encouraging some kinds of consumer ignorance.
Consider the proliferation of so-called interest-only mortgages. We all see the ads telling us that this or that bank can cut our monthly mortgage payments by half or even more.
How can a banker in good conscience be involved in this deception? Down the line, when job loss or retirement may have reduced these borrowers’ income, they’ll be stuck with the whole nut of the mortgage debt.
Such shoddy products lead to awful publicity and sometimes to legislation that makes it harder to do more respectable business.
You say your bank steers a straighter course? What do you do if customers have large balances sitting in no-interest accounts or earning a pittance? Do you tell them to move the money into a higher-yielding CD — or do you just relax and enjoy it?
Sitting pat may be good for a while, but someday those customers may wise up, resent your failure to clue them in, and switch to another bank.
“Look,” you may say, “personal attitudes and ignorance are none of my concern. I just run a bank — and let the buyer beware.”
But, like with interest-only mortgages, you have a real stake in being a trusted adviser on such matters.
