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This was posted as a blog post on Straits Times Blogs section by Chua Mui Hoong on Oct 20, 2011. Thought it would be useful to post it up here for everyone's reading pleasure.
Temptation of Easy Money
Posted By Chua Mui Hoong On October 20, 2011 @ 10:24 am In ST's Home Ground | 0 Comment
It took all of 10 minutes for Stanchart to give me $90.
I didn’t even ask for it. It came knocking on my door, in the form of a very courteous and efficient young man.
I was passing through Novena MRT, on an errand, when I was accosted by the said young man from the Stanchart road-show kiosk which was situated in a non-descript corner fairly close to the escalators leading the way out from the bowels of the station to shopping nirvana above. I glanced at the Stanchart logo and paused.
I am one of those people holding multiple credit cards who helped Singapore cross the 6 million credit card threshold last November. I am responsible for a tiny fraction of the total personal consumer loans of $150 billion as at Jan 2011.
But I didn’t have a Stanchart credit card. And I wanted one, primarily because of its advertisements found on the pages of The Straits Times, promising two-for-one and other irresistable dining deals.
So I paused and listened to the marketeer. Barely 10 minutes and a few signatures later, the marketeer told me I would get three cards: a Visa and Master credit card that would each be pre-loaded with $40 I could spend; and a $10 credit in an additional line of credit, which would charge zero interest if I used up to $3,000, but would charge a whopping 17.9 per cent of interest on balances over that.
I have always been suspicious when a bank starts offering me money, but I made an exception and graciously accepted Stanchart’s generosity, because I figured that I could outsmart them.
I reckon Stanchart is giving me money for three things: to get me to sign up for its cards to boost its card popularity; buying my customer information (I belong to the desirable demographic of being employed, aged 25-49, who like to shop); and to put Temptation in my path - Temptation being that line of credit in case I need a quick loan.
It isn’t for nothing that personal consumer loans in Singapore have grown at a faster pace than business loans. Banks here are becoming very good at finding ways to persuade people to borrow. They have an arsenal of economists, and no doubt psychologists, and marketing experts who find new ways to trick unsuspecting people into getting into debt.
But I shall overcome.
Much as I welcome that $90, I will not succumb. I will keep the two credit cards, but continue my practice of paying for all my credit card bills in full at the end of the month. No rolled over debt at 24 per cent interest per annum for me, unlike the owners of the $4 billion in rolled-over debt in Singapore.
But that third card - the one promising an easy loan - will be cut up immediately and go straight into the bin. After I’ve found a way to turn that $10 credit in it into cash, that is.
You see, I am an Informed Customer and I know some of the tricks of banks.
They make debt seem attractive but they don’t call it debt of course. They don't even call it a loan. It’s called ExtraCash, ReadyCredit, CashLine or CashPlus. They dangle various freebies in your face to tempt you into taking up a loan: a smart new luggage bag, or cash. They send over big mailers in glossy paper with cheques written out in your name, making it seem cool and normal for you to get into debt.
My advice: Don’t fall for it.
That line of credit comes with a high interest rate. And even if the bank is smart enough like Stanchart to offer the first $3,000 loan at zero-interest, you have to be super-disciplined and organised to remember to pay it back at the end of the month and to promise yourself never to exceed that $3,000, or else risk paying a high interest rate or a high late payment penalty for a loan you didn’t really intend to take.
Think it won’t happen to you? Well, studies have shown that we always underestimate our own level of stupidity and over-estimate our intelligence.
I must confess that when I started writing, my plan was to deliver three or four clever tips on how to get the better of banks that want to suck you into their debt trap. After all, although I am a borrower, my only loan now is a mortgage. I pride myself on being more of a saver than a spender.
Then, I read some scholarly articles on debt and the types of people who get into debt. From my research, I found a detailed study of debtors in the United Kingdom. What I read was interesting.
People who land themselves in debt aren’t just the poor, desperate, gamblers, or ill-disciplined good-for-nothings.
They are regular folks like you and me, with good jobs, a mortgage, and maybe one or two children to care for.
They enjoy shopping, and aren't averse to rewarding themselves with a gift or two, but they would say they seldom went overboard. They like keeping up with trends (and the Joneses).
So what got them into debt?
First, the attitude that debt isn’t bad, and that debt can counterbalance income flow during difficult times. Apparently, that’s a very common first step towards a life of indebtedness. Certainly modern banks encourage it, urging you to take up a loan for a holiday, to prepare for life’s surprises and what nots.
Second, a flexible attitude towards budgeting, can be seen in rationales like this: “I’m spending more this month, but never mind, I can take up a loan and curb my spending next month.”
Those two factors struck me because many of us would have thoughts like this today.
So I may have to be doubly careful when the cards arrive after all. Keep the credit cards to enjoy dining privileges. But the advance credit line? Forget about using up the miserable $10. Don’t even expose myself to temptation. Just bin it.
Temptation of Easy Money
Posted By Chua Mui Hoong On October 20, 2011 @ 10:24 am In ST's Home Ground | 0 Comment
It took all of 10 minutes for Stanchart to give me $90.
I didn’t even ask for it. It came knocking on my door, in the form of a very courteous and efficient young man.
I was passing through Novena MRT, on an errand, when I was accosted by the said young man from the Stanchart road-show kiosk which was situated in a non-descript corner fairly close to the escalators leading the way out from the bowels of the station to shopping nirvana above. I glanced at the Stanchart logo and paused.
I am one of those people holding multiple credit cards who helped Singapore cross the 6 million credit card threshold last November. I am responsible for a tiny fraction of the total personal consumer loans of $150 billion as at Jan 2011.
But I didn’t have a Stanchart credit card. And I wanted one, primarily because of its advertisements found on the pages of The Straits Times, promising two-for-one and other irresistable dining deals.
So I paused and listened to the marketeer. Barely 10 minutes and a few signatures later, the marketeer told me I would get three cards: a Visa and Master credit card that would each be pre-loaded with $40 I could spend; and a $10 credit in an additional line of credit, which would charge zero interest if I used up to $3,000, but would charge a whopping 17.9 per cent of interest on balances over that.
I have always been suspicious when a bank starts offering me money, but I made an exception and graciously accepted Stanchart’s generosity, because I figured that I could outsmart them.
I reckon Stanchart is giving me money for three things: to get me to sign up for its cards to boost its card popularity; buying my customer information (I belong to the desirable demographic of being employed, aged 25-49, who like to shop); and to put Temptation in my path - Temptation being that line of credit in case I need a quick loan.
It isn’t for nothing that personal consumer loans in Singapore have grown at a faster pace than business loans. Banks here are becoming very good at finding ways to persuade people to borrow. They have an arsenal of economists, and no doubt psychologists, and marketing experts who find new ways to trick unsuspecting people into getting into debt.
But I shall overcome.
Much as I welcome that $90, I will not succumb. I will keep the two credit cards, but continue my practice of paying for all my credit card bills in full at the end of the month. No rolled over debt at 24 per cent interest per annum for me, unlike the owners of the $4 billion in rolled-over debt in Singapore.
But that third card - the one promising an easy loan - will be cut up immediately and go straight into the bin. After I’ve found a way to turn that $10 credit in it into cash, that is.
You see, I am an Informed Customer and I know some of the tricks of banks.
They make debt seem attractive but they don’t call it debt of course. They don't even call it a loan. It’s called ExtraCash, ReadyCredit, CashLine or CashPlus. They dangle various freebies in your face to tempt you into taking up a loan: a smart new luggage bag, or cash. They send over big mailers in glossy paper with cheques written out in your name, making it seem cool and normal for you to get into debt.
My advice: Don’t fall for it.
That line of credit comes with a high interest rate. And even if the bank is smart enough like Stanchart to offer the first $3,000 loan at zero-interest, you have to be super-disciplined and organised to remember to pay it back at the end of the month and to promise yourself never to exceed that $3,000, or else risk paying a high interest rate or a high late payment penalty for a loan you didn’t really intend to take.
Think it won’t happen to you? Well, studies have shown that we always underestimate our own level of stupidity and over-estimate our intelligence.
I must confess that when I started writing, my plan was to deliver three or four clever tips on how to get the better of banks that want to suck you into their debt trap. After all, although I am a borrower, my only loan now is a mortgage. I pride myself on being more of a saver than a spender.
Then, I read some scholarly articles on debt and the types of people who get into debt. From my research, I found a detailed study of debtors in the United Kingdom. What I read was interesting.
People who land themselves in debt aren’t just the poor, desperate, gamblers, or ill-disciplined good-for-nothings.
They are regular folks like you and me, with good jobs, a mortgage, and maybe one or two children to care for.
They enjoy shopping, and aren't averse to rewarding themselves with a gift or two, but they would say they seldom went overboard. They like keeping up with trends (and the Joneses).
So what got them into debt?
First, the attitude that debt isn’t bad, and that debt can counterbalance income flow during difficult times. Apparently, that’s a very common first step towards a life of indebtedness. Certainly modern banks encourage it, urging you to take up a loan for a holiday, to prepare for life’s surprises and what nots.
Second, a flexible attitude towards budgeting, can be seen in rationales like this: “I’m spending more this month, but never mind, I can take up a loan and curb my spending next month.”
Those two factors struck me because many of us would have thoughts like this today.
So I may have to be doubly careful when the cards arrive after all. Keep the credit cards to enjoy dining privileges. But the advance credit line? Forget about using up the miserable $10. Don’t even expose myself to temptation. Just bin it.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/