{"id":5245,"date":"2015-07-02T14:51:40","date_gmt":"2015-07-02T18:51:40","guid":{"rendered":"https:\/\/www.afcpe.org\/?p=5245"},"modified":"2019-04-23T15:44:28","modified_gmt":"2019-04-23T19:44:28","slug":"money-pools-a-non-traditional-savings-and-capital-system","status":"publish","type":"post","link":"https:\/\/www.afcpe.org\/news-and-publications\/blog\/money-pools-a-non-traditional-savings-and-capital-system\/","title":{"rendered":"Money Pools: A Non-Traditional Savings and Capital System"},"content":{"rendered":"\t\t
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As financial counselors, coaches and educators, it is important to recognize and understand various systems of saving and investing that culturally diverse populations and the underbanked might use.\u00a0 The use of money pools might not be the first choice that a financial professional might recommend to a client, but if a client is already using this system as a means of saving and investing, the financial professional can try to understand why the client prefers this method over traditional banking.<\/p>

What is a Money Pool?<\/strong>\u00a0<\/p>

In some Latin American circles, it is called \u201ctanda\u201d or \u201ccundina,\u201d which means \u201ctaking a turn\u201d or \u201cdoing a circle.\u201d\u00a0 A mainstream term is the Money Pool, but the Latin American communities are not the only groups that use this system of investing and saving money. This type of payment system is also used by individuals in various ethnic communities including Chinese, Korean, West African, and Jamaicans (Gaynor, 2009). The practice can be seen in ethnic communities from Madagascar, Taiwan, Peru, Mexico, and Pakistan (Haden, 2013).<\/p>

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Regardless of the various names it can go by, immigrant and ethnically diverse groups of individuals often see it as a reliable means of saving and investing their money to meet needs. A Cronkite News article interviewed a man who described money pools as \u201ca loan for the people who have the first few turns, and\u2026a savings account for those who have the final turns. \u201cIt\u2019s a very nice idea, as long as the group is made of trustworthy people.<\/p>


How A Money Pool Works<\/strong>\u00a0<\/p>

According to Investopedia, the term money pool means \u201cthe funds from many individual investor that are aggregated for the purposes of investment, as in the case of a mutual or pension fund.\u201d\u00a0 The concept of this smaller money pool is that there is a regular collection of a designated amount of money by a group of people that goes into a common fund.\u00a0 The members of the group take turns receiving the lump sum.\u00a0 The most common example of a typical money pool would involve about 10 individuals that all contribute $100 into the pool per month and take turns collecting the $1000 investment each, over a 10 month period of time (Haden, 2013; PopTech, 2014; Gaynor, 2009).<\/p>

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Typically the organizer of the money pool is the first to receive the first pool payment and the least-known individuals get the last payments because the system is built on social relationships and trust\/confidence in those participating (Haden, 2014).\u00a0 There are certain groups of people that purposely select to get the money in later phases because they use the system as a means of saving, as the model has a built-in discipline to saving.\u00a0 This investing system utilizes social\/peer pressure for conformity to the rule of the system and provides an incentive to be faithful with payments because failure to do so can result in injury to all investors and public exile from the community as a whole (Haden, 2013).<\/p>


Who Uses Money Pools?<\/strong>\u00a0<\/p>

Individuals use this system of investing and saving for several reasons:<\/p>