With tax season around the corner in the US, I wanted to do something related to taxes and privacy, but I quickly realized that this is a complex topic with very little wiggle room and I don’t feel comfortable giving people any advice on something that can easily land them in hot water legally. Plus, it’s an even more US-centric topic than I usually post. So here’s my two sentence summary on doing taxes privately in the US: use paper forms and do it yourself. If you need a professional AND maximum privacy, find a tax lawyer and make sure you arrange with them to hire them in such a way that you benefit from attorney-client privilege.
Instead, I decided that this week I’ll deep dive (somewhat) into financial privacy in general. This should be a much more widely-applicable topic to my non-US readers and it’s far less likely to land you in legal trouble. Now please note: this is a deep, nuanced topic. Just in the US alone I could probably write a small book on this topic, so there's no way this post is going to be comprehensive, but I hope I can cover most of the major pillars for most of my readers.
Do You Need a Bank Account?
Let’s start off at the top. Well, if we wanted to start at the very top, we’d have to begin with getting a job. I wrote about my opinions on privacy in the workplace in a previous blog, so feel free to check that out if you need. But let’s assume you’ve got a source of income and now you’re deciding how best to store and use that income. Should you get a bank? My general opinion is yes. While any bank is going to involve surrendering some privacy – you’ll have to hand over a lot of personal information to help them detect and prevent fraud – a bank still offers the best security for your money. At least here in the US, we have what’s called FDIC Insurance, which means any liquid cash you put in an account with that bank is guaranteed up to $250,000. In other words, any cash you store at the bank is guaranteed to be yours no matter if the bank goes bankrupt, burns down, gets robbed, etc. Putting cash under your mattress offers you zero protection against damage or theft and Bitcoin… just don’t use Bitcoin as your primary financial method. If you qualify for a bank account, ninety-nine times out of one hundred that’s going to be the best move for you. I have no doubt that most countries around the world offer some parallel to FDIC Insurance so make sure yours does and go with that.
Big Banks or Small Banks?
Of course, not all banks are equal. Here in the US, we have big national chains like Chase, Wells Fargo, and Bank of America. We also have smaller, local chains. Here in my state, for example, we have chains like Frost Bank or Velocity Credit Union. On that note, we also have banks and credit unions. There’s a lot of choices. As far as big banks vs small banks go, I think that’s a personal choice. Assuming that both are FDIC Insured, typically small banks will value you more as a customer and treat you better. They also make for smaller targets by cybercriminals. On the other side, bigger banks invest more money into cybersecurity because they’re bigger targets, and there is the whole advantage of being a needle in a haystack if you’re being specifically targeted. If I bank with Frost, for example, there’s a lot less customer records to wade through to find me than if I banked with Chase. Assuming you’re not being targeted by a technologically-advanced enemy, I would say that the biggest advantage to a national bank would be if you travel frequently. Frost doesn’t exist outside of my state – or at least not that I’m aware of – so if I have to make a deposit or some other in-person banking issue, I have to wait til I get home and withdrawing money from an ATM will incur a charge. Not so with a bank like Chase which exists practically next to every Starbucks.
Without being too US-centric, I also generally encourage credit unions over traditional banks. They typically have requirements to join – for example you have to work in a certain job field or area – but they offer numerous advantages. In addition to better customer service, they typically have better interest and savings rates and other perks like car insurance discounts with certain companies and stuff like that.
Paper or Plastic
Debit cards are generally regarded as a bad move by both privacy advocates and personal finance experts. Personal finance experts encourage the use of credit over debit – assuming that you’re able to control yourself and not spend too much – because they offer rewards and purchase protections. I’ll get to that in a moment. Privacy advocates discourage the use of both because financial institutions are increasingly tracking customer data for a variety of reasons, such as getting a more accurate credit score for borrowers, offering better services, and predicting consumer habits. These are valid, understandable uses. However, I firmly believe this has a dark side that is only beginning to emerge. In the realm of reality, banks have been known to penalize customers for shopping at “deadbeat” locations like Walmart. Financial information is also used in the UK to attempt to catch people defrauding the welfare system, which can be so extreme that it can disqualify people because they dared to take a vacation, buy name-brand foods instead of off-brand, or treat themselves to a nice dinner. I’m sure there’s also other negative impacts of the privacy violation that I’m not currently aware of. In the realm of speculation, it is a well-known fact that your health insurance rates are higher if you’re a smoker. How long before banks start selling your purchase history to health insurance companies, who then use your purchases to determine if you’re a smoker or not? Or if you drink too much by their standards? Your purchases can be used to determine incredible amounts of information about you, and your habits. I believe – though this is just conspiracy theory on my part for now – that someday the amount of alcohol or types of food you buy will help determine your health insurance coverage and/or rates, the brands you buy will help determine your credit score, and more. All this is to say that the best way to spend your money is in cash. Every payday, calculate how much you’ll need and go withdraw that from the ATM. Use that to pay for gas, groceries, and more.
Online & Non-Cash Payments
Sometimes you have no choice but to pay with a card. Some places don’t accept in-person or cash payments, or sometimes you have to buy something online that you just can’t get locally. There’s a lot of options here. Popular options include digital card issuers like Privacy.com, MySudo, Abine Blur, Revolut, and others. I discuss all of these, how they work, and why you should use them on this page of my website. If you don’t qualify for or don’t trust one of these services, the next best option is a prepaid gift card. Visa and Mastercard both sell “Vanilla” gift cards that can be purchased in cash at almost any grocery store or gas station in the US. There’s also gift cards if you plan to use the money toward a specific purchase, like Netflix, Amazon, or Steam. The only drawback to Vanilla cards is that I’ve heard that you’re required to register them online before using them for online purchases. I haven’t attempted this myself, though I plan to in the future. This could tie the purchases back to you, but it’s still a good solution for protecting your actual debit card number and using compartmentalization as a security tactic.
Using Plastic Right
I have always aimed for The New Oil to be a site dedicated to “the average person.” The average person, in my experience, does not have an advanced stalker and is much more worried about identity theft than surveillance capitalism and exploitation. On a similar note, I am a mild personal finance nerd. I love thinking about how to best handle my money to provide the most value for my dollar as well as to create the life I want to live. For example, my partner wants to travel. That’s not cheap. All this is to say that I understand why some people may want to use credit cards. As I said before, personal finance experts recommend using credit cards generously because they offer purchase protection and many of them offer cashback or reward points. The system they recommend is to get several credit cards and use them based on what they offer. For example, if Card 1 offers 10% cashback on gas and Card 2 offers 5% on gas, use Card 1 for buying gas. If Card 2 offers rewards points for buying groceries and Card 1 doesn’t, use Card 2 for buying groceries each week. There are of course caveats to this: pay attention to annual fees, reward terms, and what exactly the purchase protection plans cover; use the credit cards as if they were cash (don’t buy everything in the store when your budget is only $200); and pay them off in full each month to avoid interest. There’s more, but this isn’t a personal finance blog, I’m just pointing out some examples.
With this in mind, I think the average person can benefit from gaming the system and taking advantage of the recommended credit card system at the same time. For example, I mentioned that I believe in the near future we will see health insurance rates and eligibility affected by purchase patterns (among other things). So maybe divide your groceries up into two parts: healthy, generic-brand stuff and others. Use your grocery credit card to buy the healthy stuff and cash to buy the beer. This will create a pattern of transactions showing that you buy healthy food while leaving out the more indulgent parts of your purchases. Or perhaps divide your purchases up by location. For example, if you shop at Whole Foods – first don’t as Amazon is a garbage company – second, put that one on your credit card. Then go to the liquor store or Walmart to buy your beer where it’s cheaper and pay that in cash. (I know keep using beer a lot as an example, it just seems easiest.) I think there’s a lot of ways you can use this system to your advantage.
Of course, in a perfect world, companies would respect our privacy and not sell our financial information in the first place, which would leave us free to take advantage of credit cards and other financial hacks without risking our futures. But unfortunately part of life means playing the hand you’re dealt, good or bad. I think that for most people this half-truth approach of mindfully using credit cards to both gain points AND create a picture of a healthier, more responsible you is the way to go. This offers the best blend of privacy and functionality in today’s data-driven world. However, for those who want to go full-in on principle – or out of necessity – I hope this post has given you some ideas, approaches, and insight on how to make your money work for you instead of letting third party companies use it as a Trojan horse to steal your data.