Visit a small town coffeeshop one morning this week. Listen in on the conversation. It won’t be long before someone starts grousing about financial institutions.
“Can you believe we’re bailing out banks AGAIN? Why are we giving money to a bunch of billionaire bankers! You ask me…I’m ready to do away with ALL financial institutions!”
Get rid of banks and you’d definitely eliminate banking problems. (About like you could avoid stumping your toes by cutting off your feet!)
It’s understandable that we get upset when we hear about wasted tax dollars—or crooked cops, predatory preachers, and corrupt politicians. But we have to avoid over-reacting.
A society without rule of law, spiritual leadership, a financial system or representative democracy is…well, unthinkable.
But back to financial institutions…why do we have them, anyway? Is it just so a few rich, fat cats can get even richer?
No. Financial institutions exist to bring borrowers and lenders together efficiently.
Producing anything people want (e.g., a next-generation smartphone, deluxe accommodations in an island paradise, designer clothes, a blockbuster movie, etc.), takes capital. Where do companies and creatives and entrepreneurs get that money? From you. And from me.
We think of ourselves as “savers” when we deposit our money in the bank. What we actually are is “lenders.” We’re lending our money, through that bank, to various borrowers: the chef who wants to open a restaurant and the plumber who wants to buy a new service vehicle.
That’s the simplest way I know to explain what financial institutions do. They bring together a large number of lenders (savers) and a large number of borrowers. That way the costs are reduced for both parties.
In short, financial institutions (like banks) are aggregators. They do in large numbers what we cannot or will not do on our own.
It’s the same with a mutual fund. An investment company brings together large numbers of investors to achieve greater diversification than we could typically obtain on our own. And from our purchase of the stocks in that fund, assorted companies get the capital they need to grow.
This system is a microcosm of society at large. Civilizations are built when people figure out ways to work together so that they create a kind of “symbiotic synergy.” More is possible together than when we try to function as solitary individuals.
This is why I believe financial institutions, by and large, make us better.
But notice I said “by and large.” Just like individuals, financial institutions have the capacity to become self-serving. Fact is, these entities are usually run by good guys, but not always. Because of this, they need monitoring and accountability. We shouldn’t trust them blindly.
Which brings us to your relationship with financial institutions. How can you ensure that the ones you’ve chosen are good for you? One way is by having a clear financial plan.
You are not a saver only, or an investor only, or anything else only. You are a complex human being with diverse financial needs.
That’s why you need a carefully crafted financial plan that spells out what you want to accomplish. When you know that, it’s easier to determine which financial institutions can best help you reach your goals, including your retirement goals.
If that’s a topic you haven’t thought much about, email me at bmoore@argentadvisors.com. I’ll send you a link to take the RISA® Profile. (RISA® stands for Retirement Income Style Awareness®.) This quick and ingenious quiz is FREE, and it can help you take steps to create a retirement income plan that makes fiscal sense for you.
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