Cav's Place

A lot of things could be said about the current economic crisis, but it’s quite obvious that credit, the concept of spending money you don’t have, was somewhere at the root of it. This makes me feel pretty bad for not writing about this much earlier, before the crisis hit, because I have been firmly against the “life on credit” concept for many years. Still, better late than never…

The first thing to be said against buying things on credit is that the interest works against you, so you end up paying significantly more. This should be enough to make everyone avoid doing so, because it only takes some planning and patience to deposit the money into an account before buying the item, therefore making the interest work for you and ending up actually paying less than the item costs. This means that, if you’d make monthly deposits instead of monthly payments, you could either have more money left for other things each month or be able to buy the next item sooner. Either way, you benefit, there’s no doubt about it.
But you’re not the only one who would benefit from such a behavior. If you’d pay less for an item, it means you could afford either more or more expensive items. Under the current system, that means higher income for the manufacturers, distributors and everyone else involved. However, we know that we’re already using far too many resources as it is, so using even more can’t be a good thing for the Earth, which means that buying more items wouldn’t be the right thing to do. The right thing to do would be spending more for an item, which you would be able to do without even noticing it, because the difference would be covered by the interest working for instead of against you. That way, the manufacturers would be able to afford improving the production and waste management processes in order to be able to help the Earth instead of harming it. And everyone would benefit from a healthier Earth.
The only ones who wouldn’t benefit from this would be the bankers… They certainly like the “life on credit” concept because it earns them a lot of money out of thin air, practically. That said, overturning this state of affairs would only be the right thing to do. Banks could then use the money they obtain from deposits in order to make (reasonably safe) investments, which would once again benefit everyone in the long run. Their profits would likely be much lower, especially since they’d need to pay some of them back to their own “investors”, namely the people who deposited their money there, in the form of interest, but I don’t see any problem there. Some people certainly earn unfairly large amounts of money under the current system, and bankers are obviously part of that class of people…

But if it’d be such a good thing for almost everybody, why aren’t people doing it? On one hand, because they’re simply too used to the current system. On the other, because thinking, planning and having patience aren’t exactly common abilities of humans. What’s more, wealthy individuals tend to also be influential, which means that bankers exercise a significant amount of influence over the authorities, which results in laws, regulations and recommendations which encourage this state of affairs, making the average person even less likely to find their way out of it.
Actually, it’s a vicious circle. Once a person buys one thing on credit, it’ll be extremely difficult from them to turn back. After all, they’ll likely need years to pay back that loan, by which time they’ll need (or at least want) to replace said item. At that point, they won’t have any money set aside for the new purchase, seeing as they couldn’t have paid back the loan for the first purchase and saved for the second one at the same time. That means they’ll need to buy the second item on credit as well, and the third, and the fourth, and… This particular mechanism benefits bankers a great deal, especially because people make that first important purchase while they’re very young, when most are even less likely to think through the implications. They don’t say “impulsiveness of youth” for nothing… Not that more, shall we say, experienced people would necessarily be any better when it comes to this, but there could be some difference.
Credit cards are also a part of the problem, quite obviously. They imply spending money you don’t have even when it comes to daily purchases, not only the major ones. Even if you pay everything back before the bank starts to charge any interest, there are still usually some fees associated with it. But, even without those fees, it’s the concept that’s the real problem. Credit cards simply get people used to the “life on credit” concept, making it easier for banks to entangle them in a larger web afterwards. And the fact that it seems to be so much easier to make purchases if you have a credit card, in some cases even being the only way, only proves what I said about bankers exercising a significant amount of influence over how things work.

So what’s there to do? Seems quite simple, actually… Just plan your first purchase and be patient. Deposit your money into an account and wait until you’ll have enough to buy whatever it is you want to buy. Sure, it means you’ll need to wait a while before you’ll be able to buy that first item, but the constant benefits which result from this behavior far outweigh that small initial cost. It’s the start of a virtuous circle, a “life on debit”, if you will. Banks would then start working for you instead of having you work for them. And the benefits would work their way through the system from that point on, as I have outlined above.
The only major problem with this idea is housing. That’s far too expensive and people would need to spend most of their lives depositing money before they’ll be able to buy their own place. Of course, once you realize that they currently need to spend even more of their lives paying for their house or apartment, it doesn’t sound that bad anymore. Still, it means that people wouldn’t be able to have their own place for a long time, which doesn’t sound good. Solving this problem implies other measures, most of which will be the topic of another post… However, one obvious solution would be to drastically reduce the population, which is desperately needed anyway and which would result in a lot of empty homes and therefore low prices, or even the chance to move in for free. Another would be to have the parents deposit money for their children’s homes, starting even before their birth, so they’ll be able to afford the purchase when the child is, say, 20 years old.

In the end, many things seem simple if you just stop and think about them for a moment. But I keep saying that nobody except ourselves has ever “accused” humans of being intelligent.
A lot of solutions could be found if people would think, plan and be patient, and those solutions would benefit them as well as others and the world as a whole. But getting the average person to do that is constantly an uphill struggle… I just have to hope that someday it’ll stop being a losing battle as well…