x Abu Dhabi, UAEMonday 22 January 2018

On the money: A cash-only life just a dream for many

I've been thinking a lot lately about what it would be like not to have a bank account.

I've been thinking a lot lately about what it would be like not to have a bank account. My thoughts about it have been spurred on by the high interest rates consumers are slugged on their credit cards and loans, but the extremely low interest rates they receive in return for depositing their money in a bank, not to mention the other "hidden" costs they are charged.

Is it possible to live your life without a bank account, especially if there's very little incentive to remain loyal to a financial institution if all it does is treat you and your hard-earned money with disdain?

How much would you save in fees, interest rates and charges if you went off the grid and lived a cash-only existence? And what about your stress levels; would they soar or plummet because you didn't have to deal with automated banking or customer service anymore?

It's an interesting idea, if it weren't for one element: what would you do in place of a bank account? How would you pay your bills, most of which require standing orders or direct debits from your account or credit card? And, most importantly, where would your salary go in this day and age in which electronic wage transfers are de rigueur.

But the biggest question would have to be: where would you store your wads of cash if you didn't have an account? Certainly not under the mattress, which is where any burglar worth their salt would head first.

If you send money home, do you choose to use the so-called convenience of online banking and shrug off the high fees and that attractive spread the bank so magnanimously gives itself? I shudder to think how many times I've stupidly taken that route and lost hundreds of dollars.

Low-income workers in the UAE are pretty smart. They can't afford to lose one precious dirham of their salaries through high bank fees, so go the way of the "unbanked" and use an exchange house to transfer their money around the world. Yes, they are charged a fee for the "inconvenience" of physically standing in a line. Their money, however, arrives at its destination almost instantaneously and they get a much more favourable exchange rate.

If you do this online, you can bank on it taking quite a few days before your money arrives overseas - potentially throwing your financial responsibilities at home out of whack and adding to the headache of being slugged late fees by your receiving bank because, for instance, your mortgage payment arrived late.

As banks continue to claw back those trillions of dollars they lost during the global economic crisis, it's safe to say they are offering us less bang for our dirham.

The banks, of course, would argue yes; everybody needs a bank account. After all - and I've written about this before - they really do need our money, despite the way they treat us.

But here's something interesting. According to the World Bank's Global Financial Inclusion Database, released this week, 75 per cent of the world's poor - that's more than 2.5 billion people - don't have a bank account.

The survey, which questioned 150,000 people in 148 countries, found, however, that about 25 per cent of adults earning less than US$2 (Dh7.35) a day had saved at a "formal institution".

"The problem of being 'unbanked' is also linked to income inequality: the richest 20 per cent of adults in developing countries are more than twice as likely to have a formal account as the poorest 20 per cent," the World Bank says in its report.

The reasons why three quarters of the world's poor don't have a bank account are due to several factors - and not just because of poverty, which seems the most obvious. Other issues include the cost of keeping an account, the travelling time needed just to get to a bank and the amount of paper work needed to open an account.

"Lacking a bank account often forces savers to resort to risky measures, such as putting money under the mattress," says Asli Demirguc-Kunt, the director of development policy and chief economist at the Finance and Private Sector Network, who co-authored the paper that analysed the World Bank's data.

"That makes it harder to build up reserves, let alone use credit, insurance and other complex formal financial tools."

But if there's one technology that has helped the world's poor to manage their money, it is through mobile banking, which has seen a meteoric rise in regions such as sub-Saharan Africa. This non-traditional banking option doesn't require them to travel or set up an account at a "brick-and-mortar" bank, the World Bank says.

"Such mobile banking, which allows account holders to pay bills, make deposits or conduct other transactions via text messaging, has expanded to 16 per cent of the market in sub-Saharan Africa."

Perhaps we should take a leaf out of their book and look at mobile banking as the way to go. Then again, we'd still need a bank account. Excuse me while I head back to the drawing board.