Although many people are quite capable of
successfully managing their finances,
the ease with which many can obtain credit, combined with the
pressures of society
to conform to
certain living standards, leads many of them into the debt trap. Let’s face it, from the time we are first introduced to
the schooling system we are taught to conform to standards of accepted
behaviour and to compete with one
another. The one who wins gets the praises and the favours from the teacher.
Hence, many of us push to be this ‘special one’. We learn to put up our hands quickly
if we even think we might know the answer to a question. And we also learn that
by providing the correct answer earns us additional praise. At the same time we
also learn that if little Betty or little Johnny gets her or his hand up before
us and gives the right answer we get a big fat zero. We learn that we need to
be ‘better and faster’ than everyone else in order to retain our status in this
society and despite our limited financial means we push ourselves past these
boundaries even though we know we shouldn’t.
The
classroom lesson we learn is that it pays to answer first even at the expense
of others in the classroom and even at the risk of giving the wrong answer. Our
fragile ego’s and our pride is at stake. We take this lesson with us into our
adult lives even though the rules have changed. Our houses have to be better
than the house the Jones’s are living in. Our car needs to be better than
theirs or at least be the newer model or have a bigger engine. Guess what? The
Jones’s are just as broke as you are and yes you are keeping up with them but
you are both going in the wrong direction!
Is this financial immaturity? I would suggest so, because so many of the
rules we have been conditioned into believing are just dead wrong!
·
We are conditioned to paying off our mortgages as
fast as possible?
·
We are conditioned to buying motor vehicles on
hire-purchase, lease arrangements or even worse, on residual buy-backs?
·
We are encouraged to take-up several credit cards
and are offered staggering credit limits on these and other retail clothing
accounts.
·
We get numerous credit and loan offers in the
mail or ‘credit cards’ that we can activate on first usage.
In
short, credit is just too easy!
There have been many books written on the subject of credit and of debt.
Some authors write extolling the virtues of using credit card debt to avoid
signing sureties for your business while other authors write to highlight the
advantages of being able to claim your interest payments as a deduction against
your income for income tax purposes. These authors are correct in their
thinking, but this does not mean that their advice will work for everyone in
all circumstances. Consider the reader who is particularly risk averse. He or
she does not embrace debt under any circumstances and has to be forced into taking
credit due to emergency situations or simply because their money management
skills are lacking. For example, they are unable to adjust their monthly
expenses to the point where their income will cover these expenses. They opt to
use credit to achieve this balance. But this credit must be repaid at some
future point. Unfortunately for many, this credit simply builds up until it
becomes a seemingly insurmountable task to eliminate. Often there is a final
surge of acquiring debt as the individual gives up his attempts at paying off
his debt. ‘In for a penny, in for a pound’, appears to be his adopted motto
before his reputation and creditworthiness hits a brick wall. This is not a
good place to be. Once you lose your creditworthiness and your creditors start
to ‘blacklist’ you will find it practically impossible to acquire credit for
anything. This blacklisting can last for several years depending on when the
first judgement takes place and when the final judgement occurs.
Some people will opt for liquidation,
but you cannot be liquidated if you have no assets to liquidate. Other options
might be to hand your financial affairs to a third party to administer in an
attempt to derive some ‘breathing space’ away from aggressive debt collectors
and irate lenders. Where a creditor takes the debt to the courts, the courts
may impose a garnishee order in which your employer is obliged to pay a stated
amount to your creditor before your employer can pay you. I have been told by
several employers that they have employees who have garnishee orders on their
salaries that exceed 50% of what their employee’s are earning.
How did it get this bad? Surely
lenders should be assessing the ability of the borrower to repay his debt? It
seems to me that the lenders are so focused on the returns they derive from the
high interest rates or administration fees that they charge, that the ability
to recover their lent funds is secondary to their greed. These lenders will
often take control of the borrower’s bank cards and secret pin codes to secure
this debt although this does not guarantee that the debt will get paid. The
employee may ask for his salary in cash. He might lose his job. He may even owe
his employer money which means no income for that month for the debt collectors
to collect on.
The borrower who gives up his bank
card and whose finances I dare say may already be spiralling out of control
also loses a fair measure of control over his bank account when this happens.
The debt collector might draw funds at inconvenient times, for example, just
before his debit order runs resulting in ‘bounced’ insurance premiums or
medical aid payments. Despite the bank being fully aware that the borrower does
not have the available funds to pay these debit order premiums the bank will be
quick to impose a significant fee for ‘bouncing’ these. This just worsens the
borrower’s predicament. How did it get so out of control? Simple: debt is too
easily given and very readily accepted.
Next we will take a look at some examples of
how we are duped into making bad decisions.
No comments:
Post a Comment