Recently, I had the opportunity to participate in a discussion with Greene County Director of Economic Development, Brianne Jerrels, about 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 multiplier of 1.14, resulting in less than a third of the local economic impact.
Your local bank provides an excellent example of this multiplier effect. Let’s create an example to help understand how it works. You open a bank account in your local bank, like all your neighbours. The bank now has cash on deposit of $100,000. The bank, by law, must keep a certain percentage in reserve. To make the calculations easier, let’s assume that the bank keeps $10,000 in reserve and invests the remaining amount. A couple in town apply for a loan from the bank to buy a building downtown and open a cafe. 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 deposits the proceeds of the sale on deposit in the bank. The couple uses the rest for equipment, furniture and supplies. Suppose $20,000 can be purchased using local sources, and nearly $10,000 of additional funds flow back into the local economy from these local purchases. The sellers deposit this $10,000 in the bank. With the $60,000, the bank now reserves $6,000, but is loaning $54,000 to a local family to build an addition to their house. This local family pays a local contractor and eventually $30,000 comes back as a deposit in the bank. The bank is providing another loan of $27,000 to help a local ice cream parlor replace its equipment. Although the equipment is purchased outside the local area, the loan allows the store to maintain local employment and serve its customers profitably. Again, the bank generates deposits that can be loaned to the next community member in need. What started with $100,000 in deposits grew to $190,000, multiplying money and wealth in the local economy.
The purpose of all these numbers is to help us see the value we create in our local communities when we bank and shop locally. The extra money created by our bank is extra wealth infused into our local economy. The donut you bought locally, the HVAC unit you had a local company install, and the local bank you financed your house 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 in our local footprint, we need to invest in our local banks, buy from our local suppliers and support our local services. Let’s keep Greene green!
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.