Wednesday, 5 March 2014

Operations File: Credit where due

A beginners guide to the complex world of finance...

If you look up the definition of usury in any dictionary you will find explanations like this one “the practice of lending money at an extremely high rate of interest.” (Collins English Dictionary).


If you take out a loan from many companies advertising on television these days those rates of interest are commonly way in excess of 1000% and closer to 2000%. In real terms this means that if you borrow £1 you will have to pay back between £1000-£2000. Far better to beg on a street corner than borrow from such people who, used to be termed as loan sharks.


Far better to borrow from Credit Unions, high street banks and building societies where the rates of interest are far more manageable and there is less chance of bankruptcy. If we all did that, then the possibility of massive debts would be reduced and the loan sharks would rather pleasingly go out of business I hope. Just one snag with that... the most vulnerable people of our nation cannot access these more favourable rates at present.


The assumption seems to be  that if we permit people on low income to have access to the lowest and most advantageous rates of credit they won’t be able to pay even that which is not true for the majority of people who strive to be law abiding. Low rates of interest on borrowing is surely more preferable to people on low income taking on extortionate rates of interest repayment to increase national debt. Usury does not help and therefore, in my view is it should be outlawed.


To borrow £1.00 and be asked to pay back £1.50 is far more reasonable and fair. It is after all someone else’s money that we are borrowing and while we are borrowing it, they have no longer got that money themselves. Few will give something for nothing unless it is to charities.


By comparison when we talk about inflation and talk about interest rates of 1-2% it seems rather negligible, particularly when we take into consideration the plight of other nations. Except that absolutely everything we buy increases in cost and that (as we know) soon mounts up driving us toward the temptation of more borrowing to cover our living costs as well as our expensive habits.

Again people on low income and on benefits feel the brunt of this the most. The expectation is that they can budget more effectively than many a finance director with no means by which they can negotiate favourable terms.


In our interests

If no one lent anybody any money, many would not be able to travel to work, have a roof over their heads or the finance to start up a business, hence why we have the complex financial structures that we see today. However, I think the time is fast approaching when we as a nation and indeed globally need to think about what we really need to borrow and why we need it.


We are now very used to living off credit cards without being particularly well informed about credit rating and how that works. The more assets (valuable things you could sell) you have, the more credit you can secure so long as you can prove you can pay your bills. Your credit rating increases the more assets you can acquire with the money you borrow.  It decreases if you fail to pay your creditors.


What complicates matters is the value of your assets which fluctuates depending upon what people say is worth money at any given point. For example, a large stately home used to be considered highly desirable until people realised how much they cost to maintain and keep in good condition. While they still hold a certain degree of worth it is less than it used to be, but the land they are on remains valuable. So when buying property the amount of land and its location determines value as much as the style of architecture and its condition. Sadly being fickle creatures we change our minds about what is trendy about locations as much as we do anything else including clothing, cars, technology, sport, art, food and politics!


What is popular in the moment is what is most valuable. Predicting what is going to be popular and desirable is also a way of investing in the future which is what stocks and shares is all about.


In short we have globally evolved into a species that like to gamble and that strives to be psychic when it comes to money and finances. This is fine except when we ourselves lose out financially. It then becomes abundantly apparent with alarming speed that money is often wasted when some of it could be saved as a contingency against misfortune. Savings also accumulate interest, though not much in lean times.

It is in our interests to spend, invest and save all at the same time. The rewards of doing your research properly with regard to interest rates should now be obvious.


What happens though, if you have no money to do these things? Many don’t and those that are without funds find it hard to budget when the rules of business and industry do not also apply to the private citizen. Direct Debit payments for many on benefits or on low incomes are not possible given that the benefit system in the UK works on a fortnightly payment schedule and the rest of the world works on a monthly one.


Not all people receiving benefits are unemployed but their income is so low they need extra help. Benefits are not a right, but they can mean the difference between life and death. They can also make the difference between a mere existence and a life of possibilities and hope. Nations that do not have any benefit system tend to be third world counties.

Lessons from WWII

In Britain during World War II it was considered frightfully bad form and not in the rules of cricket for people to profit from the disabled, the sick, children, the elderly and those who were giving their all to fight oppression, persecution, abuse, poverty and disease - ordinary and extraordinary people of Britain in fact. Back then we had values worth fighting for and preserving and in many ways (though not in all), we could claim the moral high ground simply for being supportive of each other in our own land while fighting oppression and persecution on behalf of others elsewhere.

Does Britain still have those values? When I see the unemployed, the sick, the disabled and the poor (many of whom work) being vilified and hammered by vicious, unrelenting criticism from those who have never experienced real hardship, I begin to wonder if we were justified in being victorious in WWII.

Perhaps if more employers paid their workers for all the hours they worked and fewer employers bullied, persecuted and abused their staff, and instead encouraged their workforce to train to learn a job, trade or profession and progress, then there might be an end to unemployment and an increase in wealth, health and happiness for all in this country.

I hope I still live in a nation that remembers what any life is worth and is prepared to invest, work and fight for the ethical values it claims to hold so dear.