Were you also on Rothschild Boulevard back in 2011? The social protest has recently celebrated a decade, and a lot of money has flowed in the river of spending since Israelis expressed their anger over the cost of living.
What started symbolically back then with the price of cottage cheese, escalated very quickly into housing prices, the cost of private gardens, the fact that it is difficult for young families to get out of the red, let alone save or think about the future. What’s changed since then? Not much. Almost half of all families are in the red (half of them do not have to be) and two of three Israelis would find it difficult to meet a one-off expense of ILS 8,000.
So, why are we not taking to the streets (again)? The truth is that we probably got a little tired of dealing with the cost of living. After a year of a global pandemic and social distancing, it is only right that we want to celebrate life; go to the beach, eat in a good restaurant, fly abroad, do some shopping, set up a new venture that will change the world. Mainly, do what we are good at, what is good for us.
And what does that say about our money? About the overdraft in our account? About the chance of buying a new Tesla? About the future when we retire? Good question.
Data suggests that we understand the importance of saving but don’t really do anything about it. In one of the studies Prof. Shlomo Ben Artzi, a global expert in the study of the psychology of financial planning, conducted together with his team, they scanned people's minds and asked them to think about themselves in the future. The findings showed that when people think of their older selves, they experience the same emotions as they would towards a stranger. In other words, asking a person to put money aside for his or her pension for another 30 years is like asking him or her to save for someone else.
The same goes for financial education solutions, in that they do not really work. For example, Ben Artzi examined whether financial education workshops that explain to people why it is important to save and how best to save, would make people actually do it. According to him, it was a complete failure: everyone promised to start saving, but in practice, few did. With all due respect to the thrill of filling out an Excel spreadsheet for your expenses and income on a Friday afternoon, it's much nicer to sit in a cafe with friends, isn’t it?
The discourse on the banking system in recent years has mainly dealt with fees. This is not really surprising. People don’t talk about the exorbitant price of their iPhone or how much they pay each month on Netflix or Spotify; first and foremost because they know the exact cost and secondly, and mainly, because they think the price justifies what they receive in exchange.
When it comes to banking, we do not really know how much we pay, which is frustrating within itself, but, beyond that, we wonder what exactly we are paying for.
Does the banking system currently offer us a solution to help us close our overdraft and fulfill future goals and objectives? Do we get a solution for the day-to-day management of our money? And if not, then why are we paying the system?
When we ponder the question of how much a bank costs, one the most common mistakes, that also serves the existing model, is to focus on current account fees. These are the fees charged when we make a bank transfer, receive money through a payment app or withdraw money from an ATM. In practice, these fees are just small change. They amount to ten to twenty shekels a month, and no matter how annoying they are, they are not the issue.
Imagine for a moment you are asked to choose between two types of chocolate – one of high quality that in exchange for a bite, you will have to part with 10 shekels and another, simpler one, that will cost only 2 shekels. Now imagine that we did not ask the first question and the same chocolates are placed in front of you, only this time the cost of the quality chocolate is ILS 8, while the simpler chocolate is offered to you completely free.
This is, of course, not a study we concocted, but behavioral economics researchers have seen that when people are offered something for free, their rational choice goes awry and the tendency to choose it skyrockets, even though the gap in product pricing remains exactly the same.
The truth is that there really is no such thing as ‘we do not pay our bank’ – we pay, without knowing it.
In order to truly understand how much the bank costs us (hint: the cost reaches about 300 shekels a month per family), one has to focus on other and much heavier costs and there are quite a few of those: currency exchange fees, trading fees, bank guarantee fees and more.
But beyond that, and much more important, is to understand whether our money is being managed satisfactorily, or in fact, that we are quite casually paying expensive interest rates on our overdraft on the one hand, and failing to save and profit from our money on the other.
It is slightly reminiscent of the value that national health organizations give us, which are much more than a platform for connecting service providers in the field of medicine to the public. Our choice of provider depends largely on the service they provide, the smart solutions they offer us, whether it is tools for accompanying pregnant women or apps that help us maintain a proper and healthier diet. A good national health provider will offer much more than an off-the-shelf product.
The next time you consider changing your bank, instead of making sure you “win” an exemption from current account fees, and instead of putting a reminder in your diary of the expiration date of this benefit, check what really matters – What can the bank do for you? How can it make your life easier? Will it help plan for that future that is hard for you to think about?