Dealing with Debt

This past long weekend we visited Pennsylvania and spent a couple of hours around the Amish communities there. I wasn’t all that sure about going beforehand, having qualms about voyeurism, but it turned out OK. We found a house laid out in Amish style with a non-Amish guide, and learned a lot without feeling we were prying.

 

Amish live according to specific traditions originating from parts of the bible. One key is self-reliance, and one result is that connections into the home are not permitted, hence no central heating. That seemed a major sacrifice without a lot of positive compensation, but for many of the aspects I could really see the point.

 

Simple living, family and community, no ostentation or seeking advantage or difference (hence almost a uniform), staying close to the land and nature. These things may seem a bit old-fashioned, but there is some attraction to a life without some stresses we impose on ourselves nowadays.

 

So this week I’ve been noticing all the things where the Amish are smarter. And top of my list is attitude to money.

 

The Economist had a couple of relevant articles to help. Seemingly, up to a quarter of Americans have no bank account. That doesn’t generally make them Amish, that would be OK, it usually makes them miserable. Dealing in cash, pre-paid cards, and all too often pay day loans and bottom feeding sharks. The next article also bemoaned the awful maths ineptitude in most people, completely ill-fitting to the complex financial affairs we all have to face these days.

 

And, as soon as we embrace what is out there, it is complicated. And, sadly, it is filled with temptation and potential for disaster. And the dice are loaded against the weak.

 

During lent, we listen about temptation. I always find the reading where Christ is tempted by the devil interesting, as it reveals where most temptation lies. Christ is offered the chance to pull a trick, to abuse power, and to show off to others. He is tempted by hubris and short cuts, not deadly sins (though one may lead to the other). I am tempted the same way. I think most of us are.

 

And what temptation! Take my regular trip to Costco, the warehouse type supermarket near us. The first thing I notice is that everything is massively cheaper than in the local supermarkets. Not 10% cheaper, as I usually saw in Europe, but 30-50%. But I have to buy in huge quantities – there is no such thing as a tub of butter, just a gallon container of the stuff.

 

So immediately we see unfairness and temptation. The unfairness comes that to get into Costco at all you need some sort of reputable standing and to pay a fee. Then, unless you have a car, a large fridge, and a whole family to feed, the place is not for you, so most poor people have to pay 30-50% more. Then the large sizes make it too easy to spend a lot, and then later consume (and throw away) a lot.

 

Finally, every single day there are people at the checkout lines trying to sell me a credit card. Now, thirty years ago in some countries you could not even pay for groceries with a credit card, the logic being that everyday expenses should come from ready money not credit. But now the credit card is pushed down my throat. We also, by the way, receive several items of mail each week flogging us store cards or credit cards.

 

Now, why do credit cards want me as a customer? It is not for the merchant fees, they just pay for my standard credit and their costs. Their goal is to get me into debt, so I start to rack up their exorbitant interest charges. Temptation lurks.

 

Now look at Chase, my bank. There are five large branches along our one mile stretch of Queens Boulevard, each with a staff of 8-10 inside. What are they doing? One or two are sitting behind a counter for regular transactions, while the rest are waiting with business cards to lead you to a booth for some consulting. So that is 30 people, paid well and on commission, within one mile, working for one bank. My little deposit account is not paying for them. What is? Debt, and its consequences.

 

Then, watch the TV and the movies. Every family is perfect to look at. Most movies have some sort of fantasy element and a happy ending. A lot of TV is celebrity based or reality shows encouraging us to think we are all-powerful. Every advert encourages us to keep up with our neighbours, be good to our families or ourselves, feed our egos and our hubris. I have yet to see a car ad in the US which actually tells me how much the car will cost. There is one that will get me a girlfriend, many that I can drive away for nothing and pay nothing for a month or two, but all I have to pay for in the end, month after month, not to mention the insurance, repairs, gasoline.

 

The UK is better, but not much. There, every second advert is for online betting. Check out how many premiership teams advertise online betting on their shirts. That is a lot of money from a lot of punters, many of whom have got into debt and are increasingly irrational and desperate in trying to get out again.

 

We used to have things to reduce our temptation. We lived our lives in small communities and close to our families. The bank manager was a local pillar, acting as a brake on unjustified spending. Now he is the worst tempter, and many of us live alone away from our families, among others facing the same social pressure to spend to keep up.

 

Even politicians have a role. Maggie Thatcher gave her famous speech about treating the economy like her grocery shop back in 1979, but now when Cameron plans a speech encouraging people to pay down their credit cards, he is forced to rewrite it because the treasury needed to maintain demand levels. The government also needs the gambling revenue. How disgraceful, compared for example with Brazil, where welfare hand outs are tied to education.

 

One trend that will help in a small way is gender equality, since ego and denial tend to be worse in men while nurturing family seems to appeal more to women. The micro-financing in Asia is a wonderful thing.

 

Once you are in debt, it seems to me almost impossible to escape. Just like with nations, the spending habit is hard to slow, and simply dealing with mounting interest becomes a challenge.

 

Worst of all, debt is one of those invisible burdens, that no one talks about. Sufferers feel they are alone, the only one, and become ashamed. The lack of maths skills makes it even harder to respond, and denial sets in, followed by desperation. Banks do not help at all. Lottery or gambling nearly always makes things much worse quickly. The only way out I know really is an interest free loan and good advice from family or a close friend. Which again discriminates against those starting near the bottom. The Economist has another campaign going about equality of opportunity: here is another modern curse making inequality worse.

 

So, what do I recommend. If you are in debt, first of all, face it, don’t deny it. Write down your outgoings and do something about them before it is too late. Stop giving gifts and treats, even if people will notice and you will feel bad. Talk to good friends, you will find fellow sufferers and hope. Be honest with your parents and in-laws, maybe they will help. Cut up those store cards and only spend on credit when you absolutely know you can pay it at the end of the month.

 

Conversely, look about your friends. My guess is that a surprising percentage could have debt problems. Try to ask them. Try carefully to coach them. If you have some spare cash, offer to help. Do it before it is too late, as this spirals out of control so quickly.

 

At a wider level, the Economist applauds the UK for putting personal finance into the national curriculum, and so do I, but also notices a weak correlation with success where that initiative has been tried elsewhere. My view is that this menace has to be faced across many dimensions. Education is important, but, just like smoking, obesity, discrimination, marital abuse, and the other areas where progress has been tough, we need a social response as well to change norms and expectations. This has to come out into the open, lose its stigma, and be faced head on. It takes years, but can work in the end.

 

What about banning the temptations? Well, that is tough. I do think in the US it should be clear what you are paying for things, even including the tax on everyday items. And the sooner we realise most bankers are crooks doing the simplest job in the world and rewarding only themselves, the better. But we cannot regulate away technology completely.

 

Otherwise we would all become Amish, and, much though I see their point, I would not recommend that. However, I do wish Christian Churches would invest more effort into areas like this, which after all Amish show us is part of biblical teaching, and focused less narrowly on issues like contraception and abortion.