Source : Google photo of credit card
Synopsis : The credit cards are now as common as flies everywhere. People can’t seem to live without it. The society demands it, the business people demand it, the capitalistic system demands it so one must have a credit card. It brings instant gratification that the society demands. But the credit card companies are not responsible for your debt and your unhappiness. The blog looks at the downside of credit and shows how fiscal discipline can go a long way to bring financial stability in anyone’s life.
One day somewhere in the United States a gentleman walked into the show room of a car dealer and saw a new car that drew his attention so he asked the approaching young car salesman about the car and its price. The salesman looked at him up and down to assess his worth and how serious he was before he would give him some information because the gentleman was Asian so perhaps not a serious buyer.
Still the man asked for the price of the vehicle after walking around the car and looking at the interior so the agent told the price and asked how he was going to finance it meaning how and from where he was going to get the bank loan. The Asian gentleman then said that he is not looking for a bank loan and will finance the car himself.
The agent was incredulous and could not believe his ears so he started to walk away because he decided that the man was not serious and was not worth his time. Whoever had heard of a cash buyer? Everyone looked for financing and trade ins and then the bargaining began in earnest.
No one paid the sticker price so a good bargainer knew that there was plenty of room for discounts and some added freebies but this man did not ask for any discount and freebies so he is perhaps not a serious car buyer so he walked away. Besides the man looked foreign and not very well dressed so that created another negative impression on him.
Now an old salesman was listening to this conversation and came to assist. He very politely asked the gentleman to sit down, have a cup of coffee and profusely apologized on behalf of the young salesman saying that the fellow was young and did not have much sales experience.
The prospective buyer listened with stony face and was about to walk out but the old agent prevailed and showed the car, opened the engine compartment to show the technical features and the interior entertainment system etc. He also gave him a very beautiful colored brochure that had all the details so the man was satisfied and said that he will be back shortly.
Sure enough, after sometime the man walked in and put on the table a bag full of money, signed the papers and got the key to his new car and drove off leaving the younger agent totally flustered because he had so badly misjudged the Asian gentleman and lost his commission which was substantial.
In a country where almost everybody uses credit card, it was quite unusual to get a cash buyer so he did not take the customer seriously. He also did not have any knowledge of Asian culture or about the outside world but the older man knew.
It also happened to me when I went to a show room of Mazda in Manila where I was looking for a two liter sedan. The ugly pockmarked agent behaved just like the American and walked away from me because he did not believe me as a cash buyer. I too walked out and went to Nissan where I was very well received and where I bought a beautiful Altima with cash.
Now we live in the era of credit cards. The banks constantly call us and offer free credit cards that we refuse to their great surprise. Whoever refuses a credit card? It is a status symbol for people who have plenty of credit cards in their wallet.
But an American comedian who made plenty of money telling jokes gave this piece of advice. He said that he never took credit in his whole life and pays for everything with cash. He sleeps well and never worries about his pending bills. He never bought anything he could not pay for with cash and it is probably the best advice he has given but who listens?
The allure of credit card is very strong so people are greedy for it. Just buy anything using your plastic card and walk away for a while. The bill will come surely with added surcharges because that is how the credit card companies make money but the honeymoon period is yours to enjoy for a while.
You cannot rent a car there unless you have a credit card. The gasoline stations will not take your cash after 5 pm so you must purchase gas with your credit card. There are many robberies of gas stations late at night so they do not like to keep cash after 5 pm when someone comes to collect it.
When you want to buy expensive things like a house or a car , then you should get financing for it and sign the mortgage papers. The loans are often arranged by the dealer of the car or the real estate agent so you just have to sign the papers that bind you to the loan until your death or the crash of your car whichever comes first.
People have grown up in this credit culture that is actively encouraged by banks and credit card companies so they offer free credit cards to high school kids who are yet to learn about money management.
The frequent bouts of family quarrels are often linked to money woes that start to pile up and make people desperate to escape the debt trap. People buy groceries, clothes, pay for vacations and gambling in Reno and Las Vegas. There is absolutely nothing you can’t pay using your plastic card. The only caveat is the downside of taking too much credit that your income falls short of accommodating.
The credit card companies keep a very close tab on your purchase and the frequency, the amount and even the location and the purpose to judge your credit worthiness so if you pay your bills on time or before time all the time then your rating goes up meaning you are a good customer. 700 plus score is a very good score and a lower score means you do not pay your debt on time which means further credit to you may be denied. Now in the United States there is a law that can freeze your credit until you have cleared up all your past debt plus the interest.
Remember when the housing market collapsed a few years ago there? It was because the banks gave loans to those people who could not afford to buy their houses or pay their monthly mortgage so all of a sudden millions of people saw their houses foreclosed and they were pushed out onto the streets.
We now live in the era of instant gratification that the credit card offers and can’t wait to get a new house or a car or a 60 inch OLED TV . The whole idea is to get everything now and worry about how to pay for it later. You will see almost brand new cars parked in front of banks that have recovered these cars from people who could not pay the monthly amount so lost their initial down payment. People who lose their homes also lose their down payment which can be substantial depending upon the total value of the house.
Now there are many who are good earners and savers so they accumulate a substantial amount before they decide to make a purchase of a car or something expensive. In a country where everyone uses credit card, cash is still the king so you get the least price if you show them your money.
Some use the convenience of using the credit card because it is so easy and you do not have to carry a lot of cash all the time. They pay off the credit card bills before the due date meaning within a month or so .This way they avoid penalty but they have the fiscal discipline and a good understanding of their liabilities. It does not work if one person is very punctual in paying his debt but the wife does not so they may end up quarrelling about money a lot that may have its own consequences.
The fiscal responsibility is learned process and it starts long before a child starts to handle serious money. He learns from his parents about it and knows that his parents do not take credit anywhere so he learns the value of living a debt free life.
He learns honesty from his parents and saves his pennies in a piggy bank where his parents also drop some extra change once in a while. I had a piggy bank when I was very young and was delighted when it got full and I broke it open to count a pile of coins that I used to buy something that I needed. It did not put money pressure on my parents so they encouraged me to save. This habit stayed with me all my life but I also learned to develop the discipline.
In many Asian countries, credit is a dirty word so people become good savers and pay for everything including a car just like that Asian gentleman I mentioned earlier. Some even pay for their new house with cash or build their own house with cash the way we did.
I think people get into the debt trap so easily because they want to compete with their neighbors or their coworkers. If they have a new car then you must also have one. If they have the new model of I phone or I watch then you must also have it.
We have a neighbor who brags about her latest gadgets all the time and wants to know when we will get ours. She does not believe us when we say that we are not gadget freaks and are quite happy without them. Some neighbors pass by and make comments like when are you going to change your car? There is nothing wrong with our car but people change their cars every year and roll over the debt year after year.
It is also a matter of false pride that they are driving a brand new car never mind if it is on credit. Everybody does it so that is the culture.
To learn the fiscal restraint is to develop the discipline to say NO emphatically because it provides the mental peace that the credit card does not.
I knew a fellow who had the gambling habit so he started borrowing money from some very bad people just like the mafia and lost his house . Still he could not pay back the debt so one day he ran away and abandoned his wife and three children so his wife sought the help of her siblings who bailed the fellow out and saved the family and their marriage. It is not known if the fellow ever paid back the money to the siblings of his wife. He is dead now so the issue is moot.
The rivalry starts early in the life of children who see their classmates or school mates with the latest I phones or other gadgets and start pestering their parents for the same because they feel deprived if they do not have what others have. This is the start of the life based upon pure consumerism that is the hall-mark of the capitalistic system. It teaches the kids not to take anything seriously so they can destroy their new expensive toys easily because the parents will get them a new one.
If shredding expensive jeans with razor blades is the fashion then they must also do it and get new ones to shred because that is what others do in their high schools. It does not matter to them how much it costs because the parents will provide them if they pester them long enough.
Some parents encourage such behavior in their children especially if they were poor growing up and felt deprived so they want to make sure that their kids are not deprived of anything even at the risk of serious debt.
I will now tell you the merits of saving. When you get married and have a good job that pays you well, you have the opportunity to start saving for the baby you just had. May be you will have a second child a few years from now but surely one day they will grow up and will go to school. By the time they are ready to go to the university, you will have saved enough for them to attend any university anywhere and pay for all their expenses. That is called discipline.
There are millions of teen age students who get easily indebted in college to the tune of tens of thousands of dollars that they must pay back once they start working. The student loan debt in the United States runs into billions of dollars and is at a national crisis level now. It is because the parents were unable to save for their kids.
The most expensive thing to pay for is the house that someday you want to live in that can turn out to be the gigantic debt trap that many are unable to escape from and lose their shirt on it someday.
Another thing to worry about is the enormous cost of health care that can bring disaster to any family that is not prepared for it. We get sick or get into an accident. It can happen to anyone anytime but how many people are prepared for such extraordinary expenses all of a sudden?
I started out with the topic of credit card so it is fitting that I end with it. I have never wanted to live on credit and never did. I was very lucky that my wife shares my beliefs and tells me that it is a good feeling not to be in debt and sleep well. We never worry about bills and our routine expenses because we prepared ourselves since we got married. Our kids attended the best university and now have very good jobs. We live in our own house that was built with cash.
Because we do not like credit card. If the simple plastic card has so much power over you that makes you unhappy then definitely it is not worth it.
Note : My blogs are also available in French, Spanish, German and Japanese languages at the following links :