Gambling on prosperity
If the 2006 bursting of the housing bubble is anything to go by, we have lost the fiscal discipline our ancestors of even a few generations ago had. The subsequent stock market crash on September 16 2008 wiped out many of the investments a lot of people thought were secure, that were actually in one form or another stock market gambles.
In the UK the ombudsman made it mandatory in 2003 for banks to have the message “Your home is at risk if you fail to keep up repayments on a mortgage or other loan secured on it” prominently featured in all advertising where property was used as security for borrowing. Still banks recklessly lent huge amounts, and consumers spent it as quickly as they got it. When the stock market crashed in September 2008, that changed everything.
No matter who was to blame, the tax payer ultimately ended up footing the bill. Those who had no savings, those who lived on credit or those who had borrowed far more than they could ever afford to repay lost everything. Repossessions and foreclosures soared; families that had been outwardly prosperous on the back of the bubble found themselves homeless and bankrupt.
Such is the way of the stock exchange. It is a huge casino, and the house invariably wins the bulk of the time. We are invited in to play, welcomed with open arms – and if we are not careful we leave with nothing.
But the outlook doesn’t need to be so bleak. Savings accounts are still available with reputable banks; in North America and Canada ING Direct is an example of one provider who makes available high interest savings accounts that can act as a buffer when financial crisis strikes. These are everyday savings accounts, with nothing special about them, that have been around decades. Financial experts and debt councilors recommend that a family invest at least 5% of its overall income in savings; these accounts invariably do not give the high rates of interest that credit card companies take, but they are much higher than the standard checking account and they are risk free.
Banks make their money from these accounts by getting a higher rate of interest than they pass on to their savers. Thus, using one of these accounts isn’t gambling on a fluctuating rate, it is passing on a small amount of the already existing rate that banks give to one another to the customer. As such it will change very little, if all, and it will never crash in the same way that stocks and shares can lose their value almost completely.
The discipline comes in being able to see a growing amount of money and resisting the temptation to use it, especially if short term investments – such as stocks – seem to be a certain gamble with a high return. Just remember, the house almost always wins, and such gambles often come with strings attached that aren’t immediately obvious; savings accounts do not. The only major string to a savings account is the discipline of the account holder.
We owe it to our children to help them avoid the mistakes we have made. Child savings accounts, with interest rates up to 5% can be used to educate and discipline the next generation how generations before them have thought – that saving is one of the most important things a person can do, for themselves and for their future partner and family.
It doesn’t need to be a bad thing. Anyone can make a game out of encouraging savings, because ultimately at the end of the day everyone wins. Even if we never face a major fiscal upset throughout our working lives, savings make us more comfortable in our elderly years and comfort those we leave behind when our time is over.
What better way can there be to give ourselves a sense of safety that cannot possibly come where the uncertainty of gambling is concerned? There is no need for us to rush anxiously to the newspaper every morning to find out whether our stocks are up or down that day, because with savings the value is always up. Rather than take the risk of investing in the sense – or lack thereof – of others, is it not better to invest in our own sense of discipline? That is, at least, something we have full control over, whereas playing the markets is something we have very little control over, if any at all. In an already stressful world why do we look for ways to add to the stress?
A savings account gives us peace of mind, ultimately with a payout at the end big enough to make it all worthwhile. What more could anyone ask?
As the housing bubble and stock market crash showed, stocks and shares are a gamble we can easily use. Savings accounts are not, and thus are the more reliable option for prosperity.
