Wall Street and your community

Picture this: You walk into your neighborhood coffee shop, order a $5 latte using your credit card. Simple transaction, right? What you might not realize is that you’ve just participated in a quiet wealth transfer that’s happening
millions of times a day across America – money flowing from your
community straight into the coffers of Wall Street banks.

When I named this column “Building Main Street, not Wall Street,” I had a mission: to help small and medium-sized communities understand how the financial system works against them. Today, let’s pull back the curtain on one of the most overlooked ways Wall Street extracts wealth from every corner of America.

The $50 That Stays vs. The $50 That Flees - Let’s start with something we can all relate to – a $50 cash purchase at your local hardware store. When you pay cash, magic happens, you get $50 worth of goods, the store owner gets $50 to pay employees and restock shelves, and that same $50 continues circulating in your community. The hardware store owner might spend it at the local diner, the diner owner at the barber shop, and so on. Economists call this the “local multiplier effect,” and studies show that every dollar spent at a local business generates roughly $2.60 in additional local economic activity. That is not a misprint, that $1.00 in spending generates another $2.60 within your community.

Now, replay this transaction with a credit card. You still get $50 worth of goods, but here’s how things get interesting – and depressing. That retailer now receives about $48.50 after the credit card company takes its cut. The missing $1.50 is headed straight to Wall Street, never to return to your community. “It’s only $1.50,” you might say. “What’s the big deal?”

Death by a Thousand Transactions - Here’s where the math gets sobering. The average American makes about 70 transactions per month using payment cards. If even half of those are local purchases averaging $30 each, and the average processing fee is 2.5%, your community is losing roughly $26 per person per month to payment processors – that’s over $300 per year, per person.  Now multiply that by everyone in your town. A community of 20,000 people could be hemorrhaging $6 million annually through credit card fees alone. That’s enough to support dozens of local jobs or fund significant community improvements.

But wait as they say, this is a gift that keeps on taking and – it gets worse. As cash becomes increasingly rare (cash transactions dropped from 40% in 2012 to just 19% in 2022), these fees compound. After roughly 25 credit card transactions, that original $50 that should have stayed in your community has been completely
consumed by processing fees, vanishing into the digital ether of Wall Street profits.

The Convenience Trap - Don’t get me wrong – I’m not suggesting we return to a cash-only society. Credit cards offer undeniable convenience and consumer protections. The point isn’t to eliminate their use, but to understand the hidden cost of that convenience. Think of it this way: when you choose between paying cash at Joe’s Hardware versus using a credit card at a big box store, you’re not just making a purchasing decision – you’re casting an economic vote for your community’s future.

Your Banking Relationship Matters Too - The plot thickens when we consider where you bank. When you deposit money in a Wall Street mega-bank, those funds typically flow toward investments and loans that benefit distant shareholders rather than your neighbors. Community banks and credit unions, by contrast, are required to invest a significant portion of their deposits locally through home loans, small business financing, and community development projects.  According to the Independent Community Bankers of America, community banks provide 60% of small business loans despite holding only 12% of total banking assets. Your choice of financial institution literally shapes your community’s economic landscape.

The Army of One - The beauty of this issue is that it doesn’t require government intervention or policy changes. It requires something much more powerful: individual awareness leading to collective action.  You don’t need to overhaul your entire financial life. Start small: use cash for local purchases, when possible, consider switching to a community bank, and encourage your favorite local businesses to offer cash discounts.  If just 20% of residents in a typical community made these adjustments, the economic impact is substantial – more money circulating locally means more jobs, better wages, and a more resilient local economy. Remember: every dollar you keep in your community is a dollar not extracted by Wall Street. That’s not anti-capitalism – that’s smart capitalism that works for everyone, not just distant shareholders. The choice is yours, one transaction at a time.

John A. Newby is the author of the “Building Main Street, Not Wall Street” column dedicated to helping local communities, government and business combine synergies allowing them to thrive in a world where truly-local is being lost to Amazon and Wall Street chains. His email is john@truly-local.org