There was a NYT op-ed last week, “Go On A Savings Spree,” suggesting that, as opposed to the tax-rebate stimulus, the best way to heal the economy is for the government to create universal mutual funds for every tax-payer. At one point, author Dalton Conley writes, “Some research suggests that asset-holders behave more responsibly and are more civic-minded than those without wealth. After all, they have a stake in the future of the economy and their community…Investing motivates people of all income levels to defer gratification and become knowledgeable about the economy and society.”
This is a misplacement of cause and effect. Giving a man an investment fund automatically makes him responsible and civic just as much as giving a man a fish teaches him to catch his dinner with rod and reel.
In both cases, it is going through the latter that leads to the former. Sure, a negative savings rate in an underpinning of the current financial crisis, but if we’re going to discuss fanciful alternative means of stimulating the economy, then I would rather donate my $600 to help pay for the cost of congressional hearings into scandalously exorbitant bank fees.
Now that everything is electronic, and especially since the passage of the Check Clearing for the 21st Century Act, overdraft fees are insanely high, and on the rise. There’s fees for having too little money. There’s courtesy overdraft fees which courteously let you spend more than you have and penalize you for it. Banks process checks largest to smallest instead of the order in which they arrive, which results in more of the checks being overdrafted. The policies are geared around maximizing the likelihood of incurring a fee. And since the supposed cost they’re recovering is so low, they amount to nearly pure profit.
Obviously you should never spend more money than you have, but the rules are stacked in favor of the house. The poor and financially disorganized get soaked. How are they supposed to get a positive savings rate when their bank account is a jack-in-the-box of fees, you never know when another one is going to pop up? No wonder the poor prefer to patronize check-cashing joints, at least then you know exactly how much you’re getting ripped off for right up front. Reining in the bank’s madcap fee spree would do more to immediately stimulate personal savings levels than sending a flood of our tax dollars to Washington-anointed money-managers.