Congratulations you are a creative. The right side of your brain dominates your left which amongst other things makes you fun to hang out with. In fact we should go for a beer sometime. However, one possible flip-side to this zest for an unconventional life is having a low boredom threshold and, let’s face it, most articles on money are about as exciting as watching a riverbank erode. Finance is usually narcolepsy on steroids (or is that horse tranquilisers?). That’s because most of it is written by left brain thinkers who frankly need to get out more. Perhaps we can try and take an alternative approach?
I’ll be straight with you. I am not here to bleat on about the virtues of saving £2 on a coffee everyday and how this is going to make you a multi-millionaire – and anyway, how the hell are you going to meet that deadline without any stimulant assistance? No, this blog is all about how to avoid financial flagellation, and for once in your life it doesn’t involve a paddle, a cane or a 90 degree angle.
Contrary to popular belief the banks actually love you. Not because they admire your creative genius but because they are able to exploit your ignorance – along with just about everyone else’s. Ignorance is not the same as stupidity, it merely relates to the point that you are probably unaware of how the system really works. Now given you are always at the sharp end of the consequences of this game shouldn’t there at least be a modicum of curiosity on your part? And have you ever wondered why you were never taught how the financial system works at school? Of course once you understand exactly how biased, corrupt and rigged it all is you may wish to consider altering your behaviour. That is entirely your prerogative although, as we will see in future posts, your brain may be working against you on this one.
In order to play the game you first need to know what the rules are – so let’s start with a couple of basics. When you put your money in a bank it no longer belongs to you. It is now the banks property. Err…really? Afraid so. You are not giving it to them for safekeeping (although no doubt most people think that is what is happening*) you are in fact loaning your money to the bank. It’s like giving your friend a tenner and receiving a paper IOU in return. It still ‘theoretically’ yours but in reality it’s about to get blown on a round down the Dog & Duck. You will hopefully get it back on demand from your friend but it’s not guaranteed and legally speaking it’s the same with the bank. In fact, if your bank fails, it’s almost certain you won’t.
Now to ensure you do get it back the government has promised that anyone with up to £85,000 in an account (per separate institution) is safe. And where are they getting the money from? Ah, yes they have put aside a huge pot of money – the Rescue Fund amounting to £4 bn… except total UK bank deposits amount to £1000 bn. It doesn’t take a rocket scientist to work out there may be an underfunding problem here. There is an expression that says ‘if you can’t pay you won’t pay’.
Now most of us might be dreaming of having even 10% of that figure sat in our current accounts – so why is this even relevant? Because this is just one part of a bigger problem, namely, the country is insolvent – and what happens when the government doesn’t have the money to pay for what it has overpromised. They will do what history suggests they always do in this situation and steal it off you. You, your friends and your parents are all going to end up a lot poorer unless you take the time to understand where we are and what is almost guaranteed to happen next. Remember, ‘In a depression the winner is the person who loses the least money’. If you are interested to know how to avoid being wiped out you may care to drop back to read future posts.
*Public attitudes to banking survey by ESCP Europe for the Cobden Centre
Paul Knott author of OUCH! Available at Amazon.co.uk and all good book stores.