In sociology, there is a phenomenon known as the Matthew effect, or accumulated advantage. Put simply, this means that the rich get richer and the poor become poorer because of the economic and cultural capital that goes with having access to resources. Personal finance bloggers have different take on the Matthew effect: from extolling the advantages it offers and setting out ways to use it, to apologies of mobility, economic and social, viewing it as an excuse for perpetuating the ‘existing order’. These accounts share one thing: they emphasise the Matthew effect in its classic form of ‘riches bringing even more riches’.
There is another side to this effect in that rich people are not only in a position to earn even more but they also need to spend less. There is an old movie that is an example of this. It is about a young man who gets summoned to visit his dying and very rich grandfather. He is set a test: there is loads of assets to inherit but on the condition that he spends £1000 within two days, on something worthwhile. The action takes place when £1000 was a lot of money and the young chap is given a single bank note at this value.
What transpired within hours is that he can’t spend any of the money; at the moment he asked for something and offered to pay with the £1000 note, payment was refused – it makes good business sense to offer things for free to someone so rich that he has no smaller change. In brief, he had to give the note to a charity and passed the test but…
…this movie describes a situation rather similar to this of the provisions that some exclusive bank accounts offer. If you, for instance, have one of those you may forget about paying for travel insurance, having to remortgage your home to buy soggy sandwiches and water at Airports or scouting the internet for payday loans providers. Why?
Because all this – insurance, access to Airport lounges with all amenities, low interest credit cards, loans and free overdraft – and much more, comes as perks with the account.
But let us look at a specific case: my bank offers a current account they call Black account.
Black account: conditions for application
One can apply for a Black account if they earn over £100,000 ($158,103) per year or if it is a joint account over £150,000 ($237,148). Failing this one can apply if they have over £50,000 ($79,058) in savings with the bank.
In fact, one doesn’t even have to be that rich to apply for this account; they just have to earn a respectable amount. And yes, the account has a monthly fee but it is not too bad when compared with the benefits.
Black account: what are the benefits
This account offers:
Travel benefits: top UK and Worldwide travel insurance covering the account holder, their partner and their children (younger than 18 or 23 if in full time education); the cover is for 90 days for each trip and 31 days for winter sports; access to Airport lounges; and discount on holidays and travel.
Leisure benefits: 25% discount on theatre, opera and concert tickets throughout the UK.
Protection benefits: mobile phone insurance for up to £1,200 ($1,896) replacement value for up to four phones; European car breakdown cover; identity theft assistance; card protection and emergency cash; and home emergency service for up to £750 ($1,185) per call out.
Banking offers: Large overdraft facility (up to £15,000 or $23,707); credit cards with rewards and (relatively) low interest rate; and a personal bank manager.
Black account: how much saving?
Listing the benefits associated with a Black account these don’t sound like much. But thinking about my life – it involves a lot of travel for work and visiting my native country, as well as skiing and running – having a Black account could save me close to £1,000 ($1,580).
Final words: Having a bank account of this kind is certainly beneficial – you can save quite a lot of money mainly on insurance and travel related amenities. But this is only open to you if you earn enough to be able to pay for those anyway!
OK, I am off to earn my £100,000 per year because I really want one of those – not much difference left :).
I’ve heard of those. Sounds very prestigious, but I’m an abstainer to debt–so I’d have to pass. It does have interesting set of benefits, but I’m sure the company is making more in the end with those who carry a balance–banks don’t give away anything for free.
@Brent: You don’t have to get in debt with this account. We, use only the perks (and for me access to lounges is priceless). As to the overdraft – the opportunity is there and it can be used only as a cash flow buffer.
On top of the issues you mentioned, most wealthy folks are in the habit of spending less, and that’s one of the ways they built up wealth in the first place.
Funny that the people with the largest stable of resources are the ones who are given so much stuff for free. I found that as a financial advisor. When I accumulated assets and commanded $60M of client money, I was invited to lunches where I never had to pay (always at the best places), invited on “due diligence” trips to check out investments (no cost to me, other than parking at the airport), and sent free books, golf clubs, and other items. In some ways, it was sad. These people threw stuff at me for one reason: they wanted me to advise people to spend part of the money with them!
I agree. It really should be the reverse.
We have a black card but we don’t treat it that way. We are just as responsible with it as we would be with any other account.
I agree! I often ask for and receive special free things because I know to ask. How about the movie stars who never have to pay for designer clothes or can borrow jewelry.