I did not know this, but “break the bank” is actually a gambling term used to describe the (rare) situation when the casino bank does not have the cash to cover the winning bet. Does this actually happen?
Honestly, I always thought this term stemmed from the “childish” behavior of smashing a piggy bank in order to get at the money inside.
I like to think of this term in this more literal sense. When I hear “break the bank,” I think of someone literally breaking their bank to access needed money to fund a purchase, service or to pay off a bill.
This is sometimes very bad.
All Hail the Piggy Bank
Too many individuals are financially illiterate and I blame that on the lack of financial education in our society today.
Financial education must start at home and the piggy bank is typically a child’s first introduction to personal finance. It is strategic, empowering and teaches the most basic (but also the most valuable) lesson of personal finance.
The piggy bank teaches you to save for the future. It’s plain, simple and effective and breaking the bank has consequences.
The Adult Piggy Bank
As adults we no longer save our money in piggy banks, although it is not such a bad idea. Our version of the piggy bank is our retirement savings. Too many people have none, but that is a different discussion.
Many people are enrolled in mandatory or voluntary retirement plans through their employers. Others started saving early for retirement and have built up a nice nest egg.
Unfortunately too many people deplete their retirement savings well before retirement to pay off debt. Nothing breaks my heart more than when I consult with an individual who has reduced their retirement in an attempt to pay off debt and avoid bankruptcy.
You see, retirement plans covered under The Employee Retirement Security Act (ERISA) are 100% exempt from creditors in bankruptcy. Individual Retirement Accounts not covered under ERISA are exempt up to $1,245,475.00 per person in bankruptcy under Federal exemption laws. State exemption laws may vary.
So, by selling off your retirement funds to pay back debt, you are transferring to your creditors money they would have otherwise had no ability to access. You have converted an exempt asset (the retirement) into a non-exempt or partially exempt asset (cash).
You have essentially broken your bank and in my opinion, it can usually and should usually be avoided.
Before deciding to cash in hard earned and properly saved retirement funds, consult with an experienced bankruptcy attorney to explore all of your options.
Do not break the bank unnecessarily.
Image courtesy of mtungate (Flickr).