Checking Out Financial Services

Carla and Ed Johnson have separate checking accounts. Each pays part of the household and living expenses. Carla pays the mortgage and telephone bill, while Ed pays for food and utilities and makes the insurance and car payments. This arrangement allows them the freedom to spend whatever extra money they have each month without needing to explain their actions to each other. Carla and Ed believe their separate accounts have minimized disagreements about money. Since both spend most of their money each month, they have low balances in their checking accounts, resulting in a monthly charge totaling $15.

In the same financial institution where Carla has her checking account, the Johnsons have $600 in a passbook savings account that earns 2.2 percent interest. If the savings account balance exceeded $1,000, they would earn 3.15 percent. If the balance stayed above $1,000, they would not have to pay the monthly service charge on Carla's checking account. The financial institution has a program that moves money from checking to savings. This program would allow the Johnsons to increase their savings and work toward a secure financial future.

Ed has his checking account at a bank that offers an electronic banking system allowing a customer to obtain cash at many locations 24 hours a day. Ed believes this feature is valuable when cash is needed to cover business expenses and personal spending. For an additional monthly fee, the bank would also provide Ed with a credit card, a safe deposit box, and a single monthly statement summarizing all transactions.

While most people plan their spending for living expenses, few plan their use of financial services. Therefore, many people are charged high fees for checking accounts and earn low interest on their savings. Despite a wide choice of financial institutions and services, you can learn to compare their costs and benefits. Your awareness of financial services and your ability to evaluate them are vital skills for a healthy personal economic future.

Questions

1. Which financial services are most important to Carla and Ed Johnson?
2. What efforts are the Johnsons currently making to assess their use of financial services in relation to their other financial activities?
3. How should the Johnsons assess their needs for financial services? On what bases should they compare financial services?
4. What should the Johnsons do to improve their use of financial services?