Think about your most recent commute – preferably a commute that’s about podcast length, not one or two songs long. You may have driven on the interstate, a highway around town, perhaps a few congested streets with a few too many red lights — because they always seem to turn red right before you get there.

You may skirt along a couple four-lane roads lined with developments into your neighborhood, and even the narrow, car-lined streets leading up to your house. If you have a piece of property, you may have enjoyed the shade of a couple of trees along the dirt road. So, how much of that drive do you consider local driving?

When we think about what is local to us, we all have a different take on what that means. Whether it’s the entire city, or just your small corner of it, where your community begins and ends isn’t always a clearly defined area. The same is true of your local economy. What’s included in that bubble?

We know local economies are important, encompassing food, small business, and local banking. That word, local, creates buzz, but putting that into your personal priorities to shop local and eat local -- what does that actually mean? How is it different from the national or global economy?  The word implies "nearby," as if it’s merely a matter of geography. There may be a chain restaurant nearby that’s in your neighborhood, but economically, the profits may not stay in your community. Is that local?

A more in-depth look shows us that it is about the community and bonds that connect those who live, work, play, and break bread together. It’s about the people who depend upon each other to make that geography thrive.

What makes up a local economy?

It may sound obvious, but we know our current economy contains components of all three: local, national, and global. Over the past hundred years, though, the local component has obviously changed. It’s likely shrunk in some areas, while in other parts of our community, we can see where urban sprawl has expanded. Whether for convenience or work, many people have moved from a small town to a big city, while others have moved from a big business in the city to online jobs and stores.

In 1925, you bought shoes in your neighborhood or the closest town. You ate the tomatoes and grain that were grown by farmers surrounding your town. You would go to a local theater to watch Ben-Hur (the biggest movie that year). Sure, they filmed Ben-Hur in Italy and California, but the food sold at the theater was local, often based around regional availability. Not all, but much of the money spent in the community stayed local, and it made your town or neighborhood better. Today, our money circulates all over the globe, and our communities are spread out. Small businesses struggle to compete with big-box chains and family farms are absorbed into corporate entities.

A more localized economy aims to restore some of that ability to rely on our communities. The goal is getting more of the money spent locally to stay within the community. Local banks help communities grow by keeping financial resources circulating through the local economy through local investment. A local economy is made up of producers, sellers, services, and consumers, the same as the global economy. Keeping a greater percentage of the money circulating within the community boosts that effort and fuels the local economy.

Buying locally supports small businesses and builds a more sustainable economy. Local banking is similarly essential to the growth of locally owned businesses. Your money supports your neighbor’s new ice cream parlor, and it also funds home loans. This allows people to live in these homes, work in these businesses, and keep the community healthy and functioning. The local economy improves the lives of the people around you. When you bank local, buy local, and support these community efforts, you are contributing to your local economy.

Producers of local goods and services

The bedrock of any local economy is the small businesses that make, grow, or sell products and offer services to those in the community. A jar of local salsa will include ingredients from farms in the area. This means more local jobs, not just salsa bottlers, but chefs, designers, and vendors.

An entire service industry depends on available goods. Some producers sell their own products, perhaps at a farmers market. Most, though, rely on neighborhood grocers and convenience stores. These small businesses, producers, and sellers also consume local services. They buy signs, they remodel, and they take out loans. They deliver products to other small towns within the local area. They provide concessions at the school sports events and meals at community social events. Both the goods and services generated have an economic impact.

Perhaps the nearest grocery store is a regional chain, not even based in your state. That's not uncommon. But whether or not the chain employs, sustains, and funds the community to which it is selling its product has as much impact on the community as the goods themselves.

Consumers of local goods and services

You might consider the focus of the economy in your community comprised of the local business owners and the people who work there. You’d be right. But the people who frequent these stores, buys their goods and utilize their services is also a part of what fuels the local economy.

Small businesses employ half of the private sector workforce. It is you and your neighbors who make up much of the local workforce, but also who purchase and utilize the goods and services generated within your local community. When local consumers throw their purchasing power behind local businesses rather than national chains, the local economy remains economically healthy.

The impact of small businesses on the local economy

When thinking about whether a business is really a local business, not just geographically, but part of the cycle of producers and consumers, it’s helpful to understand where that revenue generated by the grocers and restaurants and retailers and wholesalers, and service providers spend the money they earn. Of course, you don’t see where their money goes -- or do you?

On average, when you spend $100 at a local business, $68 remains in the area. If you shop at a national chain store, only $43 of each $100 stays in the area. This is likely because these local companies bank where you bank, where you trust your money is kept: locally. Those financial institutions reinvest in other local entrepreneurs, families looking to buy a home, and yes, they even hold onto the funds for the local nonprofits.

Plus, as a consumer, local sales often save fossil fuels used for transportation, as well as plastic in packaging. This helps the environment stay clean and helps the buyer (that’s you) pay less.

Local money grows

When a consumer buys that jar of locally grown and bottled salsa, a little bit of that money is shared by everyone who has a hand in its production and sales. The money isn’t whisked away to a corporate headquarters in New York, Singapore, or the Cayman Islands. A larger part of that money will stay in place in your community. 

Employees will spend some of their paychecks locally, and businesses will buy more (again, think locally) and keep the effect going. Consequently, studies have found local restaurants, music stores, and book stores can return three times the money to the community when compared to national chains. When those financial resources are deposited in community banks and credit unions, those funds are used as loans to fund new economic development.

How do I know what is local?

Local means different things to different people. It can refer to a neighborhood or an entire state. In your search for good, local food, you buy eggs from the next state over, but depending on your location in your state, those eggs may be laid closer to your house than most from your own state.

If you live in the suburbs, “local" to you may mean the next town over, or even all the adjoining towns connected to the nearest big city. If you live in the heart of a city, you might consider the region around your home – including the closest grocery store, schools, and the branch of your bank or credit union – your local community. Your idea of local depends on where you call home and what you consider your corner of the world.  However, what funds your city, your neighborhood, your town, and the buildings on your block – that is what makes up your local economy.

The fringe benefit of a local economy for consumers and businesses

Shopping locally also increases the connections between people and their community. Local businesses are far more likely to donate money to local causes, from tee-ball to the library. People who feel more connected are also more likely to donate or volunteer. Often, the best way to define your local community -- and where you spend your money, thus, your local economy -- is by figuring out where those dependencies come together.

A recent article in The Harvard Business Review, tells big retailers to forget about loyalty plans with rewards. Instead, businesses should build community — what many small businesses do naturally. This sort of relationship, chatting over a coffee or recommending an appliance repair person, makes people feel good and provides what so many small communities are missing. Good customer service is a hallmark of local businesses because people care about their neighbors. The same can be said of the differences between a community financial institution and a megabank.

Local economies build local wealth

Spending money locally is more likely to return to the local economy, and to influence how local businesses donate time and money to many community projects and events. 

Small businesses are job creators. They create much of the local tax base that funds roads – yep, that one you were driving earlier on your way home -- schools, and emergency services. This boosts home values and creates wealth for the entire community. In addition to businesses and the people who live in the community and utilize their services and shop locally for their products, the public sector creates another pillar that helps build, serve, and sustain the local economy. Feeling interconnected with your community yet?

You and your neighbors both pay for these services through taxes and utilize these services as residents of the local community. As the economy grows, more services can become available, such as more variety in restaurants, more programs and activities for kids, and more service providers to help you keep your home air-conditioned or your car running.

How do I help my local economy?

Help your local economy by becoming part of it, which is easy because you already are! Learn more about local businesses and institutions and use them when you can. 

Buy locally

Farmers markets and small, independent businesses near you are the obvious ways to support local businesses, but it’s even more than that. Sure, sometimes you grab lunch at a chain restaurant or shop for clothing at an online or out-of-town department store. Just as important, though, it is about understanding the community-building processes that buying locally puts into place. It’s about making an informed choice about where you spend your money, and even finding ways to support community businesses when they support the local community.

Work locally

Small (and medium-sized) businesses hold strong local economies together. Over the last few years, many Americans have reassessed their work life, and are seeking new employment that better aligns with their personal values. What a great time to consider your professional impact on your local economy.

Bank locally

Local banks and credit unions enable local economic growth for small businesses, consumers, and more. If you need $3,000 to buy new equipment for your landscaping business, a national bank will give you a high-interest credit card. A local bank or credit union will sit down with you and help you find which of their services fits you best.

How banking locally supports your local economy

A local bank offers more than just savings and checking. They provide loans for businesses, homes, and cars -- just what you need for your commute. A credit union can help you more than a megabank because they know you better. During the pandemic, these local institutions were essential in issuing loans and getting government money to small businesses quickly. When you keep your money at a community financial institution, it can help a local restaurant add outdoor dining or help a couple buy their first home in your community. You make that happen. You are vital to your local economy.

Kasasa believes that sustainable banking is the economic bedrock of every local community. For this cycle to strengthen and support your community, we all must support local businesses, local initiatives, and local programs. If sustainability is something you value, it's an easy choice to move your money where it matters: Shop, bank, and borrow local.