Keep the Green in Greene
Recently I had the opportunity to participate in a discussion with Greene County Economic Development Director Brianne Jerrels on the multiplier effect of shopping local. In an article dated November 28, 2021 on the University of Minnesota Duluth News Center the local multiplier is 1.48. This means that for every $1.00 spent in your local community, $0.48 is recirculated locally. Purchasing through chain store channels results in a 1.14 multiplier, resulting in less than one-third the local economic impact.
Your local bank provides a great example of this multiplier effect. Let’s create an example to help understand how this works. You open a bank account at your local bank, as do all your neighbors. The bank now has money on deposit of $100,000. The bank, by law, must keep a certain percentage on reserve. For ease of calculations, let’s say the bank keeps $10,000 on reserve and invests the remaining amount. A couple in town apply with the bank for a loan to purchase a downtown building and open a coffee shop. The total loan is $90,000. Of the loan proceeds, $50,000 will be used to purchase the building. The neighbor who sold the building puts her sale proceeds on deposit at the bank. The couple uses the rest for equipment, furniture and supplies. Let’s assume $20,000 can be purchased using local sources and nearly $10,000 additional funds flow back into the local economy from those local purchases. The sellers deposit this $10,000 at the bank. With the $60,000 the bank now reserves $6,000, but they loan out $54,000 to a local family to build an addition onto their home. This local family pays a local contractor, and ultimately $30,000 comes back as deposit to the bank. The bank makes another loan for $27,000 to help a local ice cream shop replace equipment. Although the equipment is purchased outside the local area, the loan allows the shop to maintain local employment, and profitably service its customers. Again, the bank generates deposits which are available to lend to the next community member in need. What began as $100,000 in deposits ballooned to $190,000, multiplying the money and wealth in the local economy.
The point of all those numbers is to help us see the value we create in our local communities when we bank and shop locally. The additional money created by our bank is additional wealth infused into our local economy. The donut you bought locally, the HVAC unit you had installed by a local outfit, and the local bank you financed your home through multiplied the money three times more than if you had used non-local sources.
If we want to see vibrant downtowns, profiting schools, well-stocked libraries and amenities throughout our local footprint, then we need to invest in our local banks, buy from our local vendors, and support our local services. Let’s keep the green in Greene!
Joshua Riggins is the president of Farmers & Mechanics Federal Bank in Bloomfield, and is committed to providing customers with a reliable and competent banking experience.
- -- Posted by swa on Wed, Mar 9, 2022, at 5:44 PM
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