by Lisa Dudson, July 24 2017
This is adapted from a story I read many years ago and is a great reminder of the power of using cash instead of getting caught up in too much borrowing. It’s a bit lengthy but worth the read.
Joe lived in a small village and worked as a farmhand. Every week he bought home his $200 in wages and with his wife Mary they would spread the cash out on the table in piles of $10 and then they would begin to plan how they would spend it. Mary used what she called her cup bank and every week she put different coloured cups on the table, each one carefully labeled. First she would put $80 in the cup marked ‘Rent’, next she put $60 in the cup marked ‘Food’.
There were cups for ‘Gas', ‘Electricity’, ‘Clothes’, ‘Insurance’, ‘Holidays’, ‘Rates’ and a few others.
When bills had to be paid monthly, or even yearly, Mary would work out how much they needed to put in the cup each week so that it would be enough by the time the payment was due. And finally, Mary would put whatever was left in the ‘Savings’ cup. There was rarely more than $20 spare to put in there. Some weeks, she found there was more money than she needed in one of the cups, and when that happened she put it into her ‘Rainy Day’ teapot where it built up over the years.
Joe and Mary had few luxuries, but if you had asked them whether they were poor, they would have smiled and said ‘Of course, not. We have a warm house plenty of food, holidays, and we save a little.’ And then they would have added, ‘We don’t have any debts.’
One day their next-door neighbour, Tom, called in to see them. He was a foreman on a nearby farm and earned twice as much as Joe. When he called, Joe and Mary were dividing Joe’s wages up as they did every week, the cups lined up across the kitchen table. Tom asked what was happening and when they told him he laughed out loud. ‘You’re so unsophisticated,’ he exclaimed. ‘And foolish! You shouldn’t leave your precious money in those silly cups – it ought to be in a bank earning interest.’
Joe felt bad that he and Mary had been so foolish. ‘How much interest does your money earn, Tom?' he asked. ‘Two per cent!’ Tom replied proudly. The next day Joe met Tom in the street and asked if he would help him look after his money in a better way. Joe sat wide-eyed as Tom explained what sophisticated people did with their money. He felt embarrassed that he had let Mary, who obviously didn’t have a clue about finance, look after their affairs.
Tom told him that clever people put all their money in a bank and then, instead of cash, the bank gave them a piece of plastic to use. It was practically magic. All the shops seemed to prefer it to cash, but if you ever needed any cash you could put the plastic in a hole in the wall and real money would come out. The bank paid you interest on any money you didn’t use and it just built up and up. It sounded too good to be true.
That night Joe told Mary how he was going to take charge of their financial affairs from then on and, with the help of Tom, get a plastic card that could even give them money from a hole in a wall. Mary had a dreadful feeling that something was wrong but because she knew that she wasn’t clever she didn’t argue.
Joe couldn’t wait for his first bank statement to see how much interest his money had made him, and when he heard the postman come he rushed to the door, as he used to do on his birthday when he was a boy.
When he saw the figure, he couldn’t believe it – seven cents! How could it possibly be true?
Mary, who was foolish with money, explained it to him. “We put $800 in over the month. All our bills came out and just our savings stayed in. On average, we accumulated $3 a day earning interest at 2 per cent per annum. ’‘Well, it’s better than nothing!’ said Joe, ‘and better than it was just standing in those cups of yours!’
It was in the third month that things began to go terribly wrong. One day Joe met Tom in the street and said, ‘Do you sometimes find that you spend more with the card than you used to with cash?’ ‘I can’t remember the cash days, old boy!’ Tom answered. ‘Don’t worry about it!
When the statement came at the end of the third month Joe wasn’t anything like as keen to rush to get it. In fact, Mary opened it. Her face went pale. ‘It says we’ve got minus $23 and somebody has taken $20 out of our account. There’s a letter as well, but I don’t understand it.’
Joe snatched the statement from her and rushed around to Tom’s house. He caught his neighbour just as he was leaving for a darts match.
‘What’s happened to my money and who’s taken that $20?’ Tom told Joe to calm down and explained. ‘This month you somehow spent $23 more than you had in.’ ‘But how can I spend money I haven’t got?’ asked Joe. ‘Well, the bank allowed you to do it by lending you some of their money. ’‘But I didn’t ask to borrow their money.
Tom coughed, ‘Well, that’s the problem. I should probably have explained it to you. It happens to me all the time. Because you spent more than you had in, and you hadn’t asked the bank to lend you the money, they lent it to you without asking you if you really wanted it. It’s what they call an “unauthorised overdraft”.’ ‘Did they want me to borrow it?’ asked Joe. “No, they were very cross that you did.’ ‘Then why did they lend it to me?’ ‘Because you are a good customer,’ said Tom. ‘And will they charge me interest?’ Tom coughed again. “Well, yes – rather a lot actually. In fact, 20 per cent.’ ‘And is that the $20 they’ve taken from my account?’ ‘Oh no, the interest charge will come next month. That $20 is for the letter they wrote to you telling you you’ve spent too much. If you don’t put it right soon they’ll send you another one and charge you again.’
Joe walked home clutching the bank statement with his head held low. When he got in Mary was making their supper. ‘Mary, I’ve been foolish,’ he said. ‘When you put our money in the cups every week we knew how much we had and what we had left. If we didn’t have it, we didn’t spend it. I felt silly that our money wasn’t earning interest, but after just three months at 2 percent we’ve only made nineteen pence. And after one mistake, the bank has charged us $20 and next month they are going to charge us 20 per cent on the extra money we borrowed.’
Mary smiled.“Don’t worry, Joe,’ she said.‘It’s not your fault. We’re just not clever enough to use our money wisely. Next week we’ll go back to the cups.’ Joe felt so relieved. In fact, that night at the pub, he told everybody he met what had happened and how only very clever people could handle their money wisely. He and Mary were going back to their silly cups. Word of stupid Mary and her cups spread like wildfire.
The next day when Mary opened the door to get the milk, there was a queue of people waiting to see her. She didn’t know all of them but she did recognise the man from the library, the teacher and her butcher. The man in the very front had been there over an hour. He was the local solicitor. “Are you Stupid Mary?’ he asked. ‘Yes,” she said, ‘that’s me.’ ‘We were wondering if you could show us how to use the cups.’
Lisa Dudson is a bestselling author and Registered Financial Advisor with over 15 years industry experience. Lisa offers financial advice through www.acumen.co.nz and co-owns the New Zealand's leading property investment agencies www.ifindproperty.co.nz