Found this classic post about what a Bank might think is an ideal customer.
It has been pointed out that my post yesterday about a Real Service for Chronic Over Spenders is at best naive at worst unlikely to ever happen. Why wouldn’t a bank run a service like this? The answer is simple, it does not make them any money.
Banks make money on:
- Customers who carry balances on their credit cards.
- Customers that use the over-draft service available to them.
- Folks with bad credit that don’t get preferential interest rates.
- Consumers who do not carry the minimum balances in their bank accounts to get free banking (and thus pay $25 a month in service fees)
- Debtors who do not pay back their loans quickly (i.e. they do not make over payments)
This is an interesting paradigm for the Banks.
They must portray themselves as being helpful, trustworthy and someone who wants you to succeed in your financial journey, when in fact anyone who does succeed, does not make the bank a lot of money. I have friends who have paid off their mortgages in 5 years instead of 25 years, saving themselves tens of thousands of dollars (but in turn costing the bank tens of thousands of dollars in lost interest earnings), yet the bank must publicly say that this is a good customer, even though they are bad for their business.
A good bank customer makes minimum payments on their debts (especially their credit cards), incurs many service fees (or penalties) and rarely if ever talks to anyone in the bank about their issues. Reading that sentence it seems to be an oxymoron, in that it seems to be a description for a bad client, but if all you look at is the bottom line banks will fight over getting these customers.
How do they fight over them? They offer interest free credit cards (for the first six months), and lower interest rates on loans (for the first year), and other interesting marketing gimmicks (free iPods even). These customers make banks much more money than someone who is careful about their debt load, and that keep meticulous records of every purchase and pay things off quickly.
This week I have let my imagination run a little wild, on the problem of how to help people who spend too much or that are chronically in debt, but at the end of it the answers are evident:
God helps those that helps themselves -Anonymous
The banks will help you, but be careful of the help you get -Big Cajun Man
It is kind of like the guns don’t kill people, people kill people argument the NRA uses, in an obtuse way of thinking. People get into debt trouble because they can’t control their spending, and try to fix their spending issues with more debt, which the bank gladly obliges, and the financial death spiral (TM) begins.
Final conclusion:Getting out of debt is hard work, choose your tools to get out of debt carefully (unless you would like to try out a prototype Financial Shock Collar, then contact me).