Personal Debt - Who’s to Blaim?
There are two questions that I am asked more than any others, how do people get into debt and who’s to blaim. This blog looks at the Who’s to Blaim question.
Is the individual to blaim? I once heard a comment from someone who was overweight. They said that no-one ever forced them to eat anything they did not want to. I think it is pretty much the same with borrowing. I don’t think i have ever spoken to anyone with a debt problem who told me that they were forced to take the money they borrowed. In the UK, we are certainly living in a have now pay later culture. People are much more likely to buy on credit than save up for their purchases. We tend to buy now and worry about the consequenses later. To my mind there can be no doubt that this situation is fueling our increasing levels of debt.
Now people will say that my comment above is unfair. That the cause of their debt problem was not overspending. At the time they borrowed, their income was good and the repayments were no problem. They will say that their debts only became out of control after unexpected circumstances. For example the break up of a relationship, an extended period of unemployment or an unusually long maternity. This may be true. However, I would argue that if they had not borrowed so much in the first place, they would not have the same difficulties when the problems struck. We seem to have forgotten about the art of saving for a rainy day.
One sound piece of financial advice I heard was that everyone should have savings of at least 3 x their monthly take home income. This may sound impossible to most. However, just think how different things would be if we all stuck to this principle. We would be able to get through most problem times without borrowing.
But what about the banks? Many people say to me that surely the banks are to blaim. They should not have lent the money in the first place. The Government should put a stop to it. This is an interesting question. Surely no of us wants to live in a world where we are are not able to decide for ourselves whether we should borrow or not. We live in a culture where the underlying values are ones of personal freedom and choice. For someone to impose borrowing maximums on us would surely fly in the face of this.
Nevertheless, I am in favour of our banks taking more responsibility for who they lend to and how much they lend. I believe that banks need to spend more time with individuals looking at their ability to repay before agreeing to lend. Over the past 8 years I have come across many individuals who have been allowed to borrow from their banks when a simple income and expenditure excercise would have should that repayment was impossible. Clearly, if banks are to look more closely at they potential clients before lending, this is going to add cost to their sale process. However, perhaps this is a small price to pay if debt problems down the line are reduced.
