Alyssa Bahe
March 4, 2016
Word Count: 1648
Topic: U.S. Eagle Essay- Myths & Truths
Banking can be, for many people, overwhelming and confusing. There are so many different
questions to be answered and so many available options. Each person may have a different option that
is best for them and their circumstances. As if all these questions and options aren’t overwhelming
enough, people may simply be confused by some common ideas that are not true. Thus, while we can’t
all be banking experts, there are some things that should be known.
Some ideas that people have are that all debt is bad and that carrying a debit card is more
dangerous than carrying cash. Some may even think that banks are useless and the best place to store
savings is under a mattress. There is also the question of whether financial institutions lend out
customer deposits. People are also afraid of online banking and its possible security risks. Additionally,
people have many opinions on credit unions versus traditional banks. Some of these ideas are true, but
some are not. Below is an investigation into these and a few other common banking myths and truths.
When most people hear the word debt, they immediately think of high interest credit cards and
high monthly car payments. A common misconception of debt, is that all debt is bad. So, while these are
examples of debt, they are only examples of bad debt. Bad debt is incurred in purchasing depreciating
assets, that is, purchasing something that will not increase in value over time. Bad debt also typically
includes debt incurred with a high interest rate. These types of debt can become a large financial
burden. However, if there can be bad debt there must also be good debt. Good debt generates an
income and increases net worth. Some examples are good debt are incurred when paying for a college
education, real estate, or a small business. Yet these ventures do not guarantee wealth and success.
However, their potential to, makes them better than bad debt which has little, if any, possibility of a
gain.
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March 4, 2016
Word Count: 1648
Another common misconception is that carrying a debit card is more dangerous than carrying
cash. People believe that when a debit card is stolen, the thief may have access to more of their money
and perhaps their entire account. While there are some security risks in using a debit card, these risks
can be minimized. A person must be careful where the card is used and how it is used. When used as a
credit card at the point of sale, there is a delay in processing, allowing for more time to report, if stolen.
Additionally, the debit card, used as a credit card at the point of sale, may have Visa/MasterCard
protection if reported quickly. This is better than cash. If cash is stolen or lost, it may never be
recovered.
Some believe that saving money under a mattress is a good way to safeguard savings. This is not
true. Saving money under a mattress or buried in the backyard have their own safety risks. The money
could be stolen. There could be a fire. One could even forget where it is, which could be good for future
treasure hunters but would be bad for the original “investor”. Additionally, by hiding his money an
investor takes the money out of circulation which is not good for the economy. By using a financial
institution to store savings, the investor could avoid these risks. Additionally, the investor could earn
interest on his money and thus increase the investment.
Financial institutions lend out customer’s deposits. This is true. When money is deposited, it is
not locked away, rather it is lent out to others to help them pay for big expenses. Think of the movie It’s
a Wonderful Life. There is a scene where there is a run on the small Savings and Loan owned by George
Bailey. The people shout for their money. George Bailey tells them, “You’re thinking of this place all
wrong. As if I had the money back in a safe…the money’s not here.” He tells the people that their money
is in the homes of others in Bedford Falls, to whom the money was lent. While this can sound scary
especially with the run on the Saving and Loan that happened in It’s a Wonderful Life, there have been
measures taken to avoid such problems. With the Great Depression causing financial problems,
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thousands of banks failed at that time. To provide security, the FDIC, the Federal Deposit Insurance
Corporation, was created. The FDIC insures the money deposited by customers should the bank fail.
Similarly, the NCUA, the National Credit Union Administration, provides insurance for money deposited
in a credit union.
People fear online banking, believing that it is a good way to get hacked. The risk of being
hacked is unfortunately part of our world today. However, if one takes precautions and uses a reputable
bank, the chance of getting one’s data hacked is reduced. By choosing an online bank that is backed by
the FDIC, losses up to $250,000 are covered. Also, by remembering to not divulge one’s passcodes and
not to do any online banking in public places or on shared Wi-Fi, one further reduces the possible
security risks. Additionally, even though traditional banking may seem less hackable there is still a risk.
Traditional banks typically have all their customer’s financial information stored in a large data center
that could be hacked. Thus, because online banking offers many advantages including higher interest
rates, low fees, and 24/7 service, many people believe these benefits outweigh the risks.
There are also many ideas that people have about credit unions. Some think that a credit union
is no different from a traditional bank. Others believe that credit unions are behind on technology. Two
other ideas are that credit unions have few locations making them only usable for local areas and that
credit unions, while being good places to stash money, offer fewer services than traditional banks. These
ideas may come from a lack of understanding of what a credit union is.
Credit unions are “not-for-profit” institutions. Thus, they normally have lower fees, superior
service, and better interest rates. As a not-for-profit organization they are not focused on making money
for a group of owners. According to MyCreditUnion.gov the philosophy of the credit union is “members
helping members”. As discussed in the discussion on George Bailey above, the money from one member
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is used to make loans to another member. Many credit union members like helping their fellow
members get mortgages or other loans to improve their lives.
While credit unions may not have the new and exciting things like banks, there is a reason for
this. Credit unions have less money to invest in technology. First off, credit unions are typically smaller
institutions, especially when compared with the large national banks. Additionally, credit unions, due to
their not-for-profit business model, typically funnel resources back to their owners (i.e. customers) in
the form of lower fees, higher interest rates on deposits and lower rates on loans. There is a company
that measures customer satisfaction called the CFI Group. In 2014, this company researched both banks
and credit unions. According to these reports, credit unions’ members were more satisfied with both
their financial institutions and their technology than bank customers, 90 out of 100 versus the 87 out of
100 of banks. It is also true that credit unions do not have as many locations as the large national banks.
They overcome this by partnering with other credit unions to offer more accessibility to their customers.
Finally, credit unions offer the same financial products as banks. However, banks generally have more
options in each product. So in some cases, a credit union while having a quality credit card, may only
have one type; whereas, a large bank could have four or five types of credit card. It could be similar for
the other products and services offered by the credit unions.
In summary, working with one’s money be it at a traditional bank, at an online bank, or at a
credit union can be very daunting for some individuals. However, by increasing their knowledge about
their money and the options offered at the various financial institution’s, many of these fears and
concerns may be alleviated. Through research they will find that having debt in itself is not a bad thing.
There are types of debt than can be beneficial. They will learn that if they utilize safe behaviors and deal
with reliable and reputable companies, banking online, using a debit card, and/or depositing their
money with a financial institution is not exceedingly risky and can be a good option for them.
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Furthermore, by doing some research, individuals will come to understand that yes, financial institutions
use customer deposits to lend money to other customers. This is the basis of a bank or credit union.
This is a good thing and, if needed, the FDIC or the NCUA provides insurance for a customer’s deposit.
Additionally, an individual who does his research will find out that credit unions are an excellent option
for many customers. The credit unions offer a high level of personal service, good interest rates, and
they offer all of the services/products that the large banks offer. It should be noted that the credit
union may not have all the bells and whistles of the larger banks nor as many locations but this is by
design due to their not-for-profit business model and people often feel that advantages of the credit
union outweigh the “lack” of options on each service/product. Also, credit unions may join together to
offer more ATMs, providing increased accessibility to their customers. People don’t need to become
financial geniuses but by doing some basic research, they can develop a comfort level with their money
and with various financial institutions such that they no longer feel so overwhelmed.
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Bibliography
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