It has been quite some time since I posted a new entry
on here. It was to be expected given that I really have this place as a way to
vent, and the last couple of months have just been too busy to sit down and
write something meaningful. In all honesty, it really still is too busy, but I
have gotten to a point where I could use a break from my hectic schedule.
After all the “feel good” entries I did about the Mini
and my motorcycle endeavors earlier in the year, it is time to get back to some
more down to earth bitching again. Do not fear though, because with the ski
season just around the corner I am more than likely to have a number of
exciting things to say about that in the near future. Mind you, it is probably
a bit too warm here for the time being for proper snow fall, and there has been
very little precipitation in the last couple of weeks, so it may just be that I
start bitching about a lack of snow…
Today I wanted to talk about loans and excessive
personal debt. It is a topic that regularly has me annoyed, but recently there
has been a resurgence of the topic in the media. It seems the economic crisis
we have been experiencing since 2008 and that does not seem to want to go away
is claiming a number of victims. Add to that the approaching consumer feast of
Christmas, and we have a recipe for disaster looming.
One important value I was taught growing up was that
of money. If you want to buy something you will need to save up until you
actually have enough to do so. Borrowing money was something to be avoided, and
should be reserved for real estate purchases. Whenever there was something that
I really wanted, I would set about saving money over time until I had enough
money to buy the coveted article. Many times this would imply foregoing getting
the latest and greatest, and certainly avoided many impulse purchases. Later,
as I got my first credit card, I used this simply as a means of paying rather
than a way to borrow money. Again, if I did not have the money in the bank to
pay for the credit card invoice at the end of the month, I would not conclude
the purchase. This is particularly important given the prohibitive interest
rates credit card companies tend to charge. I often feel credit card companies
are nothing but legal loan-sharks when it comes to lending money, and the only
real difference is that they will probably not come and break your legs if you
don’t reimburse them on time… This approach to purchases is one that I still
apply, and although over time my finances have improved and so I often do not
need to save up further to buy something I like, the process has instilled a
way of taking time to consider any purchase. As a result, more often than not I
actually end up not buying that new (insert gadget/object here) because I
realize that I actually have no need for it.
Starting out in adult life together with my (future)
wife, I had purchased a second hand TV and was renting a VCR. Since we were
avid video watchers, we decided that we actually wanted to buy our own VCR. The
problem was that at the time the cost of a new VCR was equivalent to something
like half a monthly salary. Given that rent, food, insurance etc. was already
absorbing pretty much all of the pay check, this was not going to be easy. So
we set about saving up for it, and I believe that after 7 months of cutting
down on food expenses (this was pretty much the only variable we had in our
expenses!), we had finally scraped together enough money to by the VCR we were
dreaming about. It was a very proud moment when we brought home and installed
it. The effort we had gone through to get it probably made us appreciate it all
the more, and we had avoided racking up any sort of debt.
Today, people have gotten used to the idea of always
having everything. The consumption society we have become dictates that we must
all have what our friends and neighbors have. You simply must have that new
giant flat-screen TV, and the new iPhone 6. The fact that you already have a
very functional phone that does what you need it to do does not matter anymore,
and such purchases have become necessities. Everywhere access to credit is made
available, and it is especially around the holidays that this phenomenon
becomes the most prevalent. If you happen to have kids, the situation is even
more extreme as they must not feel left out from their friends. The fact that
year-end often coincides with a number of other major expenses makes it all
even worst.
The behavior of buying what you can’t afford concerns
really all classes, not just those struggling to get by. An article I was
reading today was mentioning how bankers are pawning their expensive cars in
December so that they can buy extravagant gifts for the holidays, and then
repurchase the cars when they receive their bonuses in March. According to the
article, this practice has become quite common in Geneva where expensive cars
are the norm. It would seem to me a lot more logical to actually save up that
big fat bonus in order to make those big purchases later in the year. Certainly
you would save money as you avoid paying any interest on pawning your vehicle.
It is just that society today for the most part works in the way that the more
we earn the more we must immediately spend. With the spending then quickly
out-accelerating the income, that little debt you started in your late teens
because you just couldn’t wait a couple of months for your new phone will soon
become a mountain.
So, the fact that it seems the recent past has taught
us nothing, it is very likely that we are heading for another credit crisis.
Yes, interest rates are for the most part low (unless you look at what some
credit cards are charging!), but this is not something that is going to last
forever. The general public just continues to take up more and more credit, and
it then really only takes a very short period of reduced income to quickly
become insolvable. Should interest rates just increase a little bit, the impact
on all of those that have a large number of small credits will be devastating.
It is time we began thinking more carefully about how we buy things, and start
to really think about buying that latest gadget before we do it. Unfortunately
I doubt this will happen…
