Reporter:"Mr Devlin. Thank you for agreeing to this interview, I don't think that we have heard much of you since the days of Faust."
Devlin:"Ah yes, Faust. We did things a little clumsily back then; all that business with signing on the agreement with blood. It was all unnecessarily messy."
Reporter:"Yes, but it is someone's soul that you want; wouldn't you require a definite show of commitment? A signature in blood seems like the most natural thing'"
Devlin:"Yes, yes it's so ... obvious, isn't it? But therein lies the problem. It's too obvious and messy; a way that not many people were willing to do it. Our success rate for closing deals was very low. So we had to re-strategise, find a way where people would give us their souls without them quite knowing about it."
Reporter:"Without them knowing? How could you achieve that?"
Devlin:"Well, we start by re-examining every aspect of our modus operandi. We kept what worked and discarded what was difficult, slow, cumbersome or messy.
We found that what worked was what it has always been, to promise people whatever it is that they wanted. What didn't work was the way that we tried to trap their souls. Blood-on-agreement doesn't work; it's too messy, too slow. What we needed was a way to trap many souls, a huge number, masses even. We had to change our mindset and adapt to the times................. And we came up with Advertising."
Devlin:"Yes, we couldn't possibly appear in person to everyone that we wanted to trap and make the offer of everything-you-desire. That was too slow. We found that we could use advertising to create enticing messages about the kinds of things that people want. Nice cars, big houses, splendid holidays. We fanned the desire in people for wanting luxurious, expensive things. That was our way of 'making the offer', and we could reach the masses all at once."
Reporter:"OK, that creates desire. And ..."
Devlin:"Then we offer a way for people to get all of those wonderful things......through Debt. All kinds of debt; credit card, housing, motor, personal credit, anything that they can simply sign for on the dotted line - with ink, not blood - and then go off to buy whatever they want."
Devlin:" We then advertise more, create more desire, I mean, once you have that nice car, can you possibly live in that small flat? What about that cheap watch you are wearing? You deserve something better, because you are special, because you have worked so hard, because you are a man. You, you, you, it's all about you! You should pamper yourself, indulge a little! You can achieve all these dreams; you can make them all come true right now! You deserve it. You deserve it! .... Basically, we keep putting these messages out."
Reporter: "And ..."
Devlin:"And we watch when people take on more debt."
Reporter:"Ok, but still, this only traps them financially. I thought you wanted their souls?"
Devlin:"Ha ha ha...it's ot so obvious now, is it? We had an epiphany. Why did we want physical blood? It is of no use. Money ... that is the real lifeblood of a human being. We strap him there, and his soul is gone."
Reporter:"How so?"
Devlin:"Well, you can imagine, there are always the easy ones, those who cross the line. Those who feel that they are so in need of money that they lie, cheat, steal and rob. You've seen many of those. Brother against brother, children against their parents, lawyers who run away with their client's money, corporate bigwigs who embezzle their company's funds, even lowly clerks who forge company cheques. They are in the news every day. Why they do it? Some of these are really smart people, shouldn't they know better? They do it because they have been seduced, one way or another, to think that they are better than everyone else, that they deserved more, and so they spend. And when they run out of money, and they are deep in debt, and still they think that they deserve more, they cross the line, commit a sin, and their souls are lost! Basically, our advertising worked."
Reporter:"Ok.. but these people, they must still be in the minority?"
Devlin:"Yes, how astute you are. They are the obvious ones. The ones who fall immediately. You could say that they are unfortunate, or fortunate, depending on how you look at it. The others, the legions out there, they suffer a slow, painful death. Their souls slip out of their beings very slowly, sometimes even imperceptibly, but they eventually become a hollow shell."
Devlin:" Yes, your average man-in-the-street, debt-ridden individual. The middle class. The ones who are forced to work because they have their upgraded mortgages to pay, those who felt they needed to drive a bigger car. They bought into our message, and so they think they are living their dreams. But they have really mortgaged their future and lost their freedom. Because what can they do if they find no joy in their work? What can they do if this, what can they do if that? Nothing! You've seen the bumper sticker? 'I owe, I owe, it's off to work I go?' You appreciate the onomatopooeic quality? The hollowness of the words? It's souls, souls emptying out of these people!"
Reporter:"Uhm ... what about the poor people?"
Devlin:" The poor? Well, you know, blessed are the poor for .. you know, they can't get a credit card. So they go on with their simple life, contented with what they have. But we're working to change that. We're thinking, maybe some kind of debit card first, to let them experience the joys of spending on plastic. And then slowly entice them to think about the possibilities of increasing their debit limit, so that they can buy more, and then we ease them in with a low-value credit card. And from that point on, they'll be lost. Lost! Lost like the legions! Lost like the masses!"
Reporter:"You've .... thought of everything. But aren't you afraid that by agreeing to this interview, our readers might know of your evil plan and then they would not fall into your trap?"
Devlin:"That is impossible. No one can escape. You see, it is the most basic of existential failings; even I am not above it. What is it? It is vanity! We are all vain creatures. We have that hungering thirst for others to think of us as beautiful, successful, powerful, special beings. We cannot stand for others to think of us as normal, average, of the lower class, just one-of-billions of-others! The humans may read your article and have a moment of awareness, but they will flip the page of your magazine and see the advertisment for a shiny new car, a pair of exquisite high heels, and they will forget everything they have read and start counting their salary to see if they would qualify for a new loan. This new strategy of ours is not so new, only the means have changed to help us improve our productivity. But it is the oldest strategy of all. You can have the world, anything that you desire! How come? Because you are our special customer! In fact ... our loan has already been pre-approved ... you can get the cash in just one hour. Just one little signature here, is all we want. Right here."
Part 2
Souls are now being lost at an alarming rate when people take on too much debt. Just look at the troubles the world has today. The sub-prime crisis is a classic example. But what caused them to take up so much debt in the first place? Like the dishonourable Devlin said, it was vanity. You look at the people who bought the houses. It is not that all of them were poor. In fact, many of them were reasonably well-off. But because credit was cheap, they went out and bought a house that was beyond their means. If they had bought a house that was within their means, i.e, a much smaller one than the one they actually bought, they would have been OK.
Blessed are those who can live poorly, for they shall not fall into the hell of debt-servicing, bankruptcy and financial ruin. And hence they shall not fall into the trap of committing any sins to deal with these things; and if they do not commit any such sins, we are more able to welcome them to our Place. You can say that if the people live simply, save what they can and invest their excess cash - instead of spending it on transient, material things - they will generate good returns for themselves. With these returns, they can invest in real estate later in life and . . . literally, inherit the earth.
The weapon that that deceitful Devlin has is vanity. He appeals to the vanity of the people. He puts in their heads the notion that they deserve more, that they should seek immediate gratification, and indulge in luxury. He seduces them with sexy advertising and persuades them that they can have everything that they want, that everything is within reach, with just a little debt. And the people sign on to it. They sign on, because they are fundamentally vain.
This vile villainy of vanity cannot be dealt with by financial planning. It is a question of values. One has to learn meekness of heart and practise humility, in order for him or her not to be seduced by vain thoughts. It's hard when you have outward manifestations of wealth. You will be constantly under pressure to keep up with that image, and you'll run into trouble if unexpected financial demands occur. Also, if you live in luxury, it's hard to be meek. You'll keep thinking that you are better than others, that you are more capable, more intelligent, more special. When you are in that frame of mind, it is very easy to fall prey to vain thoughts.
Look at one of the most successful people of your generation, Warren Buffet. He is the richest man in the world, yet he lives in a simple house and drives an old car. Why would you want to live in a bigger house than he? He has billions but he is living way below his means and still has a huge financial buffer, so he is not likely to fall into any financial traps.
Other humans should do the same. Live below their means, create a large financial buffer, and give away the excess for the betterment of their fellow human beings that is meekness and generosity. Do you think we should be able to do that? Do not be so hasty to think so. That duplicitous Devlin is a cunning one. He'll gently cajole you. He'll insidiously provoke you. He'll show you your friends who are living well, and make you jealous. He'll get your family members to praise the success of your siblings when they live well and make you feel lesser in comparison. He'll make your colleagues ignore you, your clients sneer at you, your spouse complain to you. He'll make your children cry when their friends have things that they don't. That deplorable Devlin, he resides in your heart, it is not so easy to be free from his grasp.
Debt is bad. Although this may seem obvious to some people, particularly those in our parents' generation, it is not so clear to many young people. In fact, when I say this, I am often surprised by people who reply with:"Why hasn't anyone told me about this?"
The reason why it isn't so clear to many people is because of the seductive marketing of credit products. They tell you that debt is OK, that it is more important to live the life you want now, that you can always pay it back.
But the reality is that people often get trapped by debt; so much so that they need their friends and family to bail them out. Some who cannot get help become bankrupts, as evidenced by the increasing rate of credit card and loan delinquencies that we have seen.
Why is Debt Bad?
When you take out a loan, you are really mortgaging your future for an immediate gratification. The temptation to take out that loan to enjoy that thing you want can come from many places. It can be from sexy advertisments telling you that you deserve it. It can be from your friends, who all seem to enjoy it. It can be from your relatives, who always seem to talk about how successful somebody else is because they've got it.
If you're financially clueless, the ridiculous interest rates on some of these loans and credit cards might not seem that scary to you. It's just another number. Whereras the thing you can buy right now is more real to you, because you get to enjoy it right away. So it's easy for you to fall into the trap. But what's the cost of doing this? Let us count the ways.
1. Interest rates
The interest rates on credit cards and personal loans are often astronomical, ranging between 12% and 24% per annum. At 24%, it means that if you took out a $1,000 loan to go on that holiday and you pay that back at the end of 1 year, you would have paid a total of $1,240.
Let's put it in another way. If you cannot pay back the principal of $1,000 and you just pay the interest of $240, you would pay $960 in interest payments in four years. This means that you could have gone on another holiday with that money, but instead it all goes as interest payments to the bank.
2. Cash Flow
But that's not all. There's the cash flow issue. Think about why it is that you would need the loan in the first place. It means you don't have that $1,000. If you don't have this amount of money, it is likely that your pay and monthly commitments do not leave you with sufficient cash leftover for savings. If you had been able to save, you would have been able to come up with that amount in cash rather than take out the loan from the bank.
Taking out a loan, and then having to make monthly payments after that, would add to your commitments, making it even harder for you to cope from month to month. I'm not going to work it out for you. Think of your own situation. If you borrowed the money, and you had to service the loan every month, how would that eat into your income?
3. The insidious Lifestyle Need
Why do you feel you need to go on this holiday? You can take a loan and go on your holiday this year, but what about next year? Or the year after that? If you are used to taking holidays, you will find that not taking holidays for a few years will be very hard. So what do you do? Will you keep taking loans to go on holidays? If you do, at some point, point 2 above, the cash flow issue will catch up with you.
But if you don't go, you will feel miserable, because you have gotten used to it as a part of your lifestyle. This doesn't just apply to holidays. It can be any kind of consumption. If we are used to nice clothes, we will want more. If we are used to nice cars, we will always be tempted by the new models.
It's worse when it comes to big-ticket items like cars. There are very many attractive loan packages around, and as car dealers will tell you, many people will take out the loans up to the limit of what their monthly incomes will allow. And once you are used to a certain type of luxury in the cars that you drive, you will only want to upgrade when new models come out. If you are loan-happy, you will simply refinance, and take out an even bigger loan for the new car.
So, it becomes a lifestyle trap. How many people can start off driving a Mercedes Benz and then downgrade to a Nissan? How many can go to Mauritius and Europe one year and downgrade to Cherating and Malacca the next? Most can't, and if these were financed by loans, the vicious cycle of debt will continue for you.
4. Unexpected events
All loans are given based on the ability of the borrower to repay. Talk to any bank, and they will tell you that even when real assets are pledged, the ability of the borrower to service the loan without liquidating the pledged asset is still a primary consideration.
So what happens if you take a loan and for some reason you are unable to service it? What if you had to take a pay cut, or get retrenched? If you have a lot of loans, you will find the debt burden too great to bear.
In the Asian Crisis of 1998, and in the financial crisis of 2008/2009 many people had had to undergo pay cuts, and still many others were retrenched. These were years in which the number of bankruptcies reached record highs. It is estimated that about 15% of these were cases of people who had defaulted on their consumer loans. Certainly these people did not foresee the global recession happening so soon after they took out their loans. But there are many things that are hard to foresee. Things may hit you from out of the blue.
You will feel very stressed when these crisis happen while you are carrying a lot of debt. If you are caught with too many loans, you may have no choice but to file for bankruptcy. How many people who file for bankruptcy could say that "I took calculated risks in my loans?" Not many. Most would say, "I didn't know these things were going to happen". So if you are highly leveraged (i.e. you have alot of loans), unexpected events can create a personal crisis for you.
What to do if you are currently in Debt?
Make it your first priority to pay it off.
1. Reduce consumption
Think of what you can reduce in your monthly consumption to free up cash so that you can pay down your debt. Be aggressive about what you can cut. Remember that you are in bondage until you free yourself from debt. Here are some things that could be saved:
a) Eating out
This can add up to quite a lot. Restaurants with good food and alcohol don't come cheap. You feel you need to keep up with your friends? Try cooking at someone's place, and buying wine from the store; you'll find that you can have just as much fun as eating in a restaurant, and you will pay a lot less.
b) Buying stuff
Head for the bargain bins. Or abstain from buying until you can pay off your debt.
c) Having a car
This adds many hundreds to your expenditure a month. Many people living in the glamorous cities of New York, London and Tokyo travel by train and taxis. You can be just as glamorous without a car.
2) Empty your savings
You may have the mistaken idea that the money in your savings accounts are seperate from the credit card and personal debt tha tyou have to manage. That's wrong. You should withdraw from your savings accounts to settle all your debts. The logic is simple. The interest that you earn from your saving accounts is much lower than the interest on your loans.
3) Liquidate your investments
If you have investments, you should liquidate the investments to pay off the debts too. You may think that you can generate higher returns from your investments than the interest cost. Or you may have gotten a "hot tip" from a friend who is sure about making lots of money on some investments. But often than not, you'd do better staying off hot tips and borrowing money to invest.
The interest cost of loans are often so high that it is very difficult to generate higher returns through investments. Remember, investments carry risks and uncertainty, whereras the debts are incurring definite costs.
Conclusion
Let's imagine a situation where these loans did not exist, and there were no seductive ads, and consumers did not have any notion of borrowing for consumption. How would you behave differently?
Well, let's see. It could be that you simply earn your salaries, spend less than what you earn, and save the excess, so that you will have the money to go on that dream holiday or buy that dream car. Maybe it'll be that it will be many years before you'll be able to enjoy these things.
But the critical difference is this: you won't be worried about tomorrow, because you are spending money you accumulated yesterday.
No comments:
Post a Comment