I realized by a response to my last post that while explaining how to choose a bank in Israel, I came off very critical of the Israeli banking system. My intent was to explain that when looking for a bank in Israel one should consider (1) the workings and time of the individual branch more than the bank (2) consider the advantages and disadvantages of a personal banker, (3) pay attention to a different credit card system, (4) get the most out of online services, (5) avoid bank fees and (6) make sure you can bank in your mother tongue.
As a whole, the Israeli banking system is actually pretty good . In fact, the service I personally receive from Bank Mercantile on Herzl St. in Petah Tikvah ranks right up there with my beloved WAMU zt”l.
Israeli banking, like banking anywhere, has its ups and downs, and I believe that some of the benefits of the Israeli system should applauded:
(1) ahead of our credit, not behind:
In the US, a person takes a credit card and then, when payment is due, runs to decide from where he or she will repay it. In Israel, we have a system where the consumer decides from where he or she will pay BEFORE he or she uses a credit card. By hooking up a credit card up to a checking account, Israelis are one month ahead of their credit card bills, not one month behind, where penalties upwards of 35% await most Americans.
(2) credit card limits based on cash flow:
In Israel, we have a system whereby the limit one spends on a credit card is established based on one’s regular income. This logical safeguard guards against excessive spending, and can help people stay within a subjectively normal limit. Yes, one can always go to his bank, take out all his money and then charge more, but the fact that one has to go through all these steps distinguishes those who innocently wander into debt from those who are fanatically driven to it; not everyone can be helped, and it wonderful that we help those we can.
(3) credit for loans based on income, not debt:
Perhaps the stupidest measure of credit is the FICO score, the one currently used in the United States. The FICO score rewards a constant reliance on credit and utilization of debt, whereas a logical system would look at one’s ability to repay a debt. Israel, thankfully, has such a system. When one takes out a loan in Israel, he or she should expect to bring tlushim and prove that he or she actually has the ability to repay the debt, not turn it into a second, third, or as many Americans do, sixteenth mortgage.
(4) the mandatory pension law:
While most countries preach against Keynesian economics, few actually resist the temptation of demand driven economics and actively encourage savings. Israel is light years ahead of the United States not only in the understanding that the paradox of thrift is completely untrue (savings is investment, not a removal of money from the economy as Keynes saw it), but in mandating a pension system that demands that workers save their earnings to take care of themselves in the long run. Sorry Mr. Keynes, but in the long run, we still want to retire with dignity before “we’re all dead.”
(5) Real oversight for our most important investments
While our mandatory pension system may seem limiting (although more options are on the way), the options that we have are overseen by a responsible government organization. If you check out pensianet on a regular basis, you’ll notice that any time one of the funds has a statistic that looks out of whack, it will be highlighted in red and noted for correction. Israel understands the importance of diversification and knows that if it allows its citizens to take the risks taken in the US, then it also faces the risk of suffering the same financial crisis.