Thursday, 12 January 2012

How Banks Could Solve Our Financial Problems

During an interesting moderated discussion on twitter with @GenYchat, @YouTernMark, @MsJuliaRS, @WriterChanelle and a cast of thousands, the issue of the need for immediate rewards for younger people came up with regards to finance. It was suggested that if someone from an older generation had an extra 20$ they would put it away for safekeeping, but a GenY would think of things to spend it on.

Fact: Age is not positively correlated with the ability to manage finances. Stupid does not discriminate based on age. However …

This generation is a product of its environment. Everybody has things. You need the latest technology to keep up with the world, so we splurge on our smart phones and laptops, etc. No one wants to live in a shanty, so we buy houses we can’t really afford, or pay ridiculous amounts of money to rent a nice apartment.  We don’t make the decision as to whether we can afford a brand new vehicle or not. The bank does! If they believe we can make those payments, who are we to argue? The satisfaction of saving money for the future does not outweigh the immediate gratification of having nice things. Also, if anyone had any reservations about going into debt, they were completely desensitized to it after their post-secondary education.

Side Note on Post-Secondary Education Costs

I had a conversation with someone once (a real face to face one) who felt that the issue of the rising cost of tuition could be solved by encouraging parents to save money for their children’s education, but he wanted to know how he could encourage parents to do this.

Fact: A child should not be punished for having parents who do not put money away for them. 

Another Fact: Saving money for tuition does not address the problem that tuition is ridiculous (Don’t get me started).

End of Side Note

There are only two ways to address this problem. The first is to change the way people think about their finances. This involves educating them on the dangers of not investing/saving and how to properly budget, which would cost money, take time and might not even work anyway. LAME!

The second (arguably better) way to address this problem is to add some kind of positive reinforcement or immediate gratification to saving money. What tool could a banking institution use to persuade a twenty-something to put a couple dollars in a savings account every month? What trivial thing motivates us to spend time and money with no real physical or financial gain? VIDEO GAMES!!! People spend hours on World of Warcraft performing menial tasks to “level up” or sometimes just to get something new without even knowing what it is. You can spend a week doing the same task over and over again to get a new hat for your character. They also spend big bucks on software and expansion packs. People make a living levelling up characters and selling them to lazy people who don’t want to spend the time doing it. We just need to mesh this logic with the banking system.

Solution: Every bank account has an avatar. The avatar’s level and accessories are based on your interactions with your account. Now it won’t be funny when you tell people you only have 20$ in your chequing account, because you’ll say it like this “My chequing account avatar is a level 2 Imp with a dagger.” This also lets you tell people how good you are with money without sounding like an ass. You can’t tell people “I just put $500 into my savings account,” but it would be perfectly acceptable to tell them “my RRSP avatar is a level 600 Warrior, and yesterday I purchased the Ancient Sword of (insert mythical/nerd terminology here) for him.”  Not only do you sound awesome, but you’re well on your way to an early retirement, which of course, you are entitled to. 

In the future, your investment portfolio could look like this

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