Wednesday, 21 August 2013

The Exorbitant Cost of Accessing My Own Money

By Ian Toal, 2nd year MDP student

The day before I left Xochimilco/Mexico, I was running a little low on money. I didn’t really need anything, but in Xochimilco almost all business transactions are done in cash – to my knowledge, there was only one place we used where groceries could be bought with a debit card. Just in case I needed anything, I thought I would maybe go to the bank and withdraw 100 pesos, just to have around. Withdrawing a larger sum would not be necessary, as I was leaving the next day. I didn’t want to have to exchange pesos once I got home. Another factor favouring a small withdrawal was that getting change for large bills in Xochimilco was difficult. Even a 20 peso note can be difficult to change. One hundred pesos would be a good amount.
As I considered this, I realized that the banking charge for a withdrawal was 24 pesos. So I would lose ¼ of my money just by getting access to it.
I decided against the withdrawal, but began to think about banking charges. 24 pesos is approximately the same value as a banking charge at a Canadian bank – somewhere around $2. So from that perspective, it does not seem like a high rate. However, when the buying power of the peso in Mexico is considered, the charge becomes less reasonable.
The day before, I had bought four grapefruit down the street for 9 pesos. Admittedly, they were ‘seconds’, either the wrong size or shape for the picky Canadian market, but they were perfectly fine. Grapefruit in Canada can cost up to $1 per fruit. Using this as a rough guide, in Xochimilco I could have bought about 10 grapefruit for the 24 pesos I would spend on a bank charge. To buy the same 10 grapefruit in Canada would have cost somewhere around $10. In terms of buying power, the Canadian bank charge should be somewhere around $10. If the Canadian cost was less for the ‘inferior’ fruit – say 50 cents each - it would still have amounted to $5, which is still pretty steep for a bank charge.

Although banking charges are not fixed – at the airport they are 30 pesos or more – 24 pesos seems to be a fairly standard fee in the rest of the Mexico City. So people are faced with a dilemma. Either they withdraw a large amount of cash at one time, or they lose a significant amount of money each time they go to the bank (not to mention the time involved in getting to the bank). While Xochimilco is a fairly safe neighbourhood, someone walking around with hundreds of pesos is at risk for losing it. And as mentioned, the people have to use cash – there is no other option.
The Mexican people I met were hard working, happy, but not well off. Affordable banking should not be beyond their reach. Why the banking charges are so high while the cost of other services are not remains a bit of a mystery to me. Tortilla prices are regulated, because they are a necessity of life. Getting access to a bank account is also a necessity. Losing a significant chunk of money with each withdrawal makes poor people even poorer. Walking around with large amounts of cash is unsafe. Payday loans are being investigated in Canada. Perhaps Mexico needs to investigate its banking system. Incidentally, the bank we used was Scotiabank.    

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