How come we could have an international debt crisis, again?
We can’t help but feel nervous about the threat of a full bore recession as world economies – the United States, Italy, Greece, Ireland and Spain – lurch from one debt crisis to another.
The reason is that life appears to be good when we can have what we want today and pay for it tomorrow. What most people (and national governments chasing the popular vote) have ignored is that when you borrow more than you can repay, there’s going to come a day of reckoning, eventually!
Sadly, not just individuals but whole countries have borrowed and continue to borrow more than they earn.
On the personal front, inflation plays a big part in making us feel wealthy by increasing the value of our houses. We develop a false feeling of wealth because there is so much equity in the house. However equity does not necessarily equate to wealth.
Equity in your home can fool you into thinking you can afford the new boat, the car, the plasma TV, the overseas holiday, an investment property or even the bach.
It doesn’t help when lenders can give you money quickly and easily over the phone. This just feeds the "I can have it now and pay for it later" mindset. It fails to take into account the cost of paying for it later.
Often, feeling rich changes our priorities too.
During my 35 years of experience in the banking and finance industries, I have seen this many times over. Sadly, while as many as 40,000 children go to school every day without breakfast in New Zealand, I would venture to guess they probably have a large plasma TV and XBox console in the lounge, or copious amounts of money from the family’s income will be spent on the car, alcohol or cigarettes.
You would think that an advanced society would be more ethically responsible, but then you read that New Zealand’s four largest lenders have made more than $2 billion in profit. You can understand why ethical lending is not one of their priorities.
The reality is that you cannot trust lenders that have a profit motive. In the end, you will pay.
Beware also of “the next new thing.” We are bombarded with messages that say you have to own the new iPhone, because if you don’t, you’re just not cool.
But then it becomes the iPhone 4. The next “must have” follows on from that – the iPad, then the iPad2, then the 55-inch high definition TV. This constant bombardment of the next new thing sucks people into debt, often beyond affordability.
Is having the “next new thing” and keeping up with the neighbours, or competing with them, the right look for Christians?
Debt is good if you can manage it or use it to your advantage, but few people are in that position unless they are educated and trained in good financial management. Many people may think they are, but they are not.
The first step is to understand that your financial situation is unique. Do not follow the herd. Do not do what the neighbours or friends are doing because you don’t want to feel left out – even if it’s a question of where to invest your money.
To make a good financial decision, you must first understand your personal priorities. List those priorities and work back from there.
I am in the process of providing a number of financial seminars, followed by a personal health-check on your finances, to local Baptist churches around New Zealand. Check with your pastor as to when there is going to be one in your church, and make sure you attend. Better still, bring you neighbour, friend or family member and let’s genuinely help each other in this vital area of finances and debt.