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Our bank statements are communicating – Are we listening?

A bank or account statement is defined as a summary of financial transactions recorded over a period of time by financial institutions i.e. bank, insurance or asset management companies.  Most financial services providers send account statements to their clients on a monthly or quarterly basis depending on the agreed upon frequency. Historically, these account statements were printed, sealed and posted to clients. The advancement of technology over the last few years has made receiving account statements faster and more convenient for clients, where most clients receive electronic account statements via e-mail.

But when was the last time you opened the e-mail with your account statement? Is it even important to open your account statement?

Many people (myself included) look forward to payday, waiting anxiously for the SMS notification confirming that we’ve been paid from our respective banks. Payday for most people is rewarding and it actually makes sense after working hard many days on end, right? A few days after payday, the salary seems to vanish in a heartbeat – home loan, personal loan, credit card and countless debit orders processed against our accounts.  And just like that the salary is gone! Burdened, frustrated and hopeless, the excitement of payday quickly wears off and we abandon anything that has to do with our bank accounts (including check the account statement for anything out of the ordinary), because it is too depressing.  Does this sound familiar?

A significant number of people in Lesotho do not ever check their bank statements and if they do, most aren’t sure what they should be looking for.  For those who attempt to look at their statements, they tend to spend little time studying their bank statements, because they are too busy.

Researchers such as Thaler (2008) have argued that people use “Rules of thumb” or short cuts when making decisions, because people are very busy.  As a result, people tend to miss the fraudulent transactions such as unauthorised debit orders going through their bank accounts or miss the annual increases in monthly charges. Another mistake most people make is to assume that things aren’t likely to change, for example “my monthly salary does not change, so why bother checking my statement if I know it’s the same amount every month”. Although the salary may not change much, a lot of things can change on your account that may be detrimental to you because you were too busy to check.

Two psychologists in Behavioural Finance, Tversky and Kahneman discovered many “rules of thumb” or shortcuts people use when making decisions such as anchoring, availability, representativeness and status quo biases.  For purposes of this particular article however, the focus will be on the “status quo” bias; which says that people are comfortable with what they know. We prefer to stick with things we are familiar with for example we tend to park at exactly the same spot at work or at the mall. We also prefer using the same route to work every day because it’s comfortable. Changing behaviour or trying anything new is often very hard (similarly to checking our bank statements every month) because we are comfortable with the status quo.  In a recent article on my blog, I also referred to the “yeah whatever” bias or rule of thumb, where most people tend to have no interest in checking things like their bank statements, because they are too afraid of what our bank statements might be telling them. It’s easier to pretend like those transactions on your bank statement do not exist or matter; and we often have a “yeah whatever” attitude, especially when it comes to checking our bank statements. So, what is the worst thing that could happen you might ask?

Why is it important to check your bank statement regularly?

•             You are able to recognise fraudulent activities early

Fraud is on the increase globally where many people have been victims of fraudulent activities.  In South Africa for example, many peoples’ accounts were debited with unauthorised debit orders of R99.00 and because most financial services providers only notify you of transactions from R100.00 and above; a lot of customers were not aware of the fraudulent activities happening in their accounts. A similar issue has also affected customers in Lesotho in the last few months.  It is therefore important for you to know all the debit orders that you have authorised to go through your account and to know the exact amount as well e.g. M500.00 debit order to my investment and M56.00 to my insurance premium. In the case where you do not recognise a particular debit order, it is paramount that you speak to your banker immediately and investigate the legitimacy of the debit order in question.

•             You are able to understand your spending habits

With most financial service providers promoting a “cashless society”, most people now have debit cards enabling them to swipe for most transactions in a convenient and easy way. This electronic trail makes it easier to track your spending i.e. where and what you are buying.  Doing a monthly reconciliation can help you monitor your spending habits and help you take corrective measures where necessary. Furthermore, you are able to track your bank charges easier as you transact. Some people make daily cash withdrawals of small amounts often attracting a lot of withdrawal charges. By tracking your spending habits, it is easier to change this behaviour where you could consider making one weekly withdrawal that will cater for your expenses instead of many smaller withdrawals. This could also help you minimise high withdrawal fees. Another challenge most people face is tracking and monitoring spending habits for cash transactions. This makes it harder to reconcile because people forget where they spent the cash. To help you keep track of your spending, you can consider keeping receipts so you can include them in your monthly reconciliation process when you are checking your spending.

•             You can unlock funds that can be used for saving

Most people complain that they do not have excess funds available for saving.  Yes, we all have limited funds to cater for our monthly expenses, thus makes saving money even harder. One technique I learnt from a colleague was to print out my bank statement and use 3 different highlights. I started this process by using a yellow highlighter to mark all my monthly recurring transactions e.g. loan instalments, debit orders.       I took a second highlighter and marked all the transactions with items that were “nice to have” e.g. money spent buying snacks, drinks, clothing on sale etc.  Then lastly, the last highlighter marked all the transactions where I spent money but could not remember what the money was used for. After this exercise, I discovered M200.00 that I could save monthly by simply checking my bank statement, tracking, monitoring and reducing my expenses. It would be interesting to see how much you could save by doing the same exercise.

As payday approaches for most households, the challenge for you is to start looking at your bank statements and listening to the message or red flags it is giving you. Perhaps you’ve been a victim of fraud and you haven’t been aware; or may need to cut down on your spending. It is by listening to this story i.e. looking at your statement that you can take control of your finances and be on your way towards managing your personal finances better.

Maluti Mountain Cement

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The Reporter is a Leading weekly FREE newspaper published every Friday across all districts of Lesotho

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