Disrupting Debt Culture

Disrupting the debt culture

Even if economics isn’t your thing, it’s hard to avoid anxiety about South Africa’s possible downgrade to ‘junk status’. The evocative term simply refers to an investment grading set by ratings agencies. This is not the disastrous scenario sometimes suggested by the popular media, but a sharp downgrade in investment confidence does signal hard times ahead for the country.

South Africa bears a number of worrying similarities to Brazil before its downgrade to junk status and subsequent economic slowdown, including worrying levels of household debt. It’s a cruel irony of economic history that the conditions that make economies precarious are often the same conditions that make individuals vulnerable when bad economic times hit.

When jobs are cut, banks call in loans, and pension funds fall below the basement, people who had been swimming against a tide of repayments find themselves drowning in an ocean of debt. This is a systemic issue that needs high-level solutions, but it’s a useful reminder that as individuals we need to do our best to avoid being washed away by history.

Changing the culture of savings

Modern economies run on credit, and without credit ordinary people would be excluded from owning homes or cars, sometimes even appliances. (Of course, predatory lending and extortionate credit terms are another issue. One only needs to think of the global economic crisis of 2008, which was triggered by defaults on home loans that should never have been made, to appreciate that dodgy debt isn’t just an individual concern.) Nonetheless, it’s obvious that we need to encourage people to save more and to manage their debt in smarter ways.

I think there is a problem with the moral tone of our discussions about debt and savings, a problem with practical economic consequences. The problem is that, at least when it comes to ordinary people, we view debt and savings through the lens of austerity.

Owning a home has come to be seen as a sign of middle-class respectability, which means taking on the awesome responsibility of home loan and dutifully paying off your bond, decade by decade. Beyond that, good citizens live responsibly, within their means, not taking on debt they can’t repay for goods they don’t need.

One would imagine that we’d have a more nuanced sense of people’s needs in the hyperactive Silicon Valley digital economy, where we worship digital startups that spend more on champagne than some nations spend on healthcare and hedge funds that are leveraged to Jupiter.

The flip side of this worldview is an image of saving as cutting back, as tightening belts, as living within one’s means. That’s a terrible way to understand saving.

In fact, saving is maximising wealth. It is investment in personal economic growth. It can mean delaying purchasing decision, but that’s for the sake of increasing personal consumer power.

We need to shift our savings mindset from a negative one of cutting back to a positive one of growing our resources.

Banking as investing

South African banks make opening an account sound like joining a country club. Enjoy comfortable lounges, a gold membership card to impress your friends, a butler to call when you forget your online banking password.

One afternoon sipping great pinotage in a business class lounge instead of dismal coffee at the burger takeaway downstairs will convince anyone that these perks are great. But they’re no substitute for savings products that maximise the potential of your cash.

Too many of us have lazy money just sitting around, doing very little to increase our ability to consume and invest. We need a better work ethic for our cash.