Seeing the value of your money

At no time do any of us physically receive the cash we’ve earned, so that we can consciously pay the cash for the rent and mortgage; pay the cash for electricity etc.; pay the cash for council tax. At no time do we see in cash, the balance of money left after these costs, which we then can use for food, clothing, mobile phone, cosmetics, medical treatment, entertainment.

Since about 1464 UK legislation has tried to ensure that employees receive their wages without payment in kind or without deductions, but even with the latest version in the Employment Rights Act 1986, there is still confusion as to what can be deducted.

This paper is trying to go beyond this stage, and to draw attention to the fact that ‘everything’ is deducted, even your credit card. No one ever sees much actual money, because it is costly for any business or organisation to handle actual notes and coins, and therefore there is no connection between being paid your worth and then seeing what your worth is and seeing the results of all your work. We are becoming more and more remote.

There seems to be two separate streams. On the one hand we earn and we do whatever you can to maximise what we receive. (Well after government deductions for tax and national insurance and also deductions for court judgements, for maintenance payments, for damage to employers’ property, for company fines, for additional pensions payments – it’s a long list.)

Then there’s the payment side with standing orders, with direct debits, with money just being pulled out of our account almost unconsciously. To maintain the fiction, if we ‘need’ to buy other things we then use a credit card (using money we may not have or indeed don’t have) and then transfer money from our bank account to cover it, if there’s enough there!

This is the problem that really leads people into overspending. The problem is the gulf between grasping the value of what we earn and bringing that into contact with what we are actually spending.

Not much more than fifty years ago, people were paid in cash, using wage packets and with your wage slip folded up inside the packet and with the real pound notes and coins. On getting home, in many families the money was split up and put in jars separately for the rent, for food etc. and spare money was paid into a savings account with the Post Office, a building society or a bank.

However there was a major problem of wages theft and of harm and injury to the wages people, let alone the cost and complexity of physically making up and distributing the wages packets. So it had to change. But have we got it right? Could we do it better?

Actually it’s more complicated than that because everyone wants you to spend more, that’s what all the advertising is for – the retailers want you to buy from them, the banks and credit card companies want you to borrow from them and the government wants you to do both because they collect tax every time we buy anything. Furthermore if we spend any money then someone else will earn some money and so in their turn they will spend money (and the more that this repeats, the higher the velocity of money and the more ‘they’ receive and the happier ‘they’ are.) The problem is that if we get our calculations just slightly wrong we’re in deep trouble, let alone having a huge mountain to climb to re-establish our equanimity and our ability to enjoy our worth.

WHAT COULD BE DONE?

1. What about a graphical presentation for your bank statement, summarised monthly, showing on the left a big block scaled to represent your incomings and on the right a series of blocks stacked one over the next for your total direct debits (the ‘must’ items you’ve paid,) your total standing orders (‘optional’ items you’ve just paid, which you could probably manage without,) your total other debit cards payments (the ‘routine’ items you’ve bought, for food, entertainment, and other random retail purchases, which you could control better) and finally a block scaled to show your payment(s) to credit cards, and showing as a final block your increase in cash worth, the balance remaining. Hopefully in green rather than red!

Alternatively and much simpler, because we can be using computers, we could revert to paying, all those who want to, weekly and also for the big charges e.g. rent or mortgage to be collected weekly on a direct debit basis. We can then debate whether the remaining services and taxes should be paid for by standing order or by direct debit – council tax, electricity, gas, water, county court judgements.

2. To help people receiving benefits these could be provided by weekly credits to special VISA cards where the funds can only be used for specified purposes.

I was one of the accountants who helped companies to get their staff onto monthly pay because the handling on the cash was such an appalling problem. The computer software we used was only set up to pay people monthly so there was no option for weekly payments. Essentially we had software for the monthly paid staff and we wanted everyone on the same system.

If the weekly earnings were to be paid in on a Thursday and if the crucial payments were all moved to a weekly basis (and payments collected early on Fridays) then people could get text messages every morning of what their bank balance actually is and they can then see how they are valued and work out how to enjoy their earnings… all they then need to do is limit their spend on Friday and Saturday so that they can last the full week.

For the economy generally there would be some constraint, some belt tightening as individuals could see more easily what they are spending and as a result they will stop borrowing more money. The banks and the government will not be happy!