Mr Micawber’s famous recipe for happiness: “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” Charles Dickens, David Copperfield
A recent story which appeared in the Nation newspaper on October 7, 2018 on credit card debt and increased credit card issuance by a banking sector in Barbados set me thinking about Charles Dickens’ famous character, Wilkins Micawber. Most of us would agree with the philosophy of Wilkins Micawber that we ought to ensure that our expenditure does not exceed our income. Yet, similar to Micawber who refused to be guided by his own stated philosophy and racked up a huge debt (for the time), many of us often find ourselves facing mounting debt without a realistic hope of meeting that debt obligation.
Fortunately for us, though we mortgage our futures and have grave difficulty serving our debts, we will not find ourselves in debtor prisons, although a few will surely find themselves before the courts. Like Micawber, many of us live our lives in the hope that ‘something will turn up’ to deliver us from our self-imposed problem.
Governments and consumers spend more money than they receive or make. When the government needs more money it raises taxes, prints money or goes further into debt. Like the Barbados Government, when citizens need more money, we charge it. So, like Governments whose expenditure far exceed their incomes, a nation lives ‘Micawberishly’, hoping against hope that even without the much needed necessary adjustments, things will get better and therefore we ignore the bitter truth that our material circumstance will not alter in the foreseeable future.
For the ‘Micawberish’ among us, the real gap between our income and liabilities tends to be viewed as a mere temporary setback and tomorrow everything will improve. In the meantime, we continue to impoverish ourselves with the strategic complicity of the banking community. The easy availability of credit cards is part and parcel of the insidious nature of the financial difficulty experienced by so many. Many who use other credit cards to pay minimum payments on credit cards merely compound their financial difficulties.
But the banking community is in it for the profit so banks routinely discourage borrowers from paying over and above the minimum payment. If you have a mortgage and would like to pay more than you are required to pay, you are discouraged with unnecessary hurdles placed in your way. The really financially inept among us appear not to understand that, in relation to debt payment, whether it be a mortgage, credit cards, hire purchase for the most part, student loans and so on, debt consolidation, the more that is paid against the loan, the shorter the time required to pay off the debt. On the other hand, minimum payments will only result in a longer period to repay the debt and the larger the interest payment on the principal borrowed.
Global governance concerns on the issuing of credit cards
In the context of rising indebtedness by consumers and especially students, several countries, including the US, have sought to regulate the issuance of credit cards and bring greater transparency and accountability to that sector.
Accordingly, in the US, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (GPO, 2009), or “Credit CARD Act of 2009,” introduced changes to the Truth in Lending Act to make the risks of credit card debt clearer to consumers/borrowers. Now credit card companies must provide consumers with a billing statement which would include the following information:
– “enhanced consumer disclosures” (Title II of the Act) with words to the effect that “making only the minimum payment increases the amount of interest you pay and the time it takes to repay your balance.” Moreover, the statement must now also advise customers how long it will take to pay off the debt making only the minimum payment, assuming no new purchases are made, and also how much you would have to pay off each month as an annuity to pay off the debt in 36 months, assuming that there are no new purchases.
– “protection of young customers” (Title III of the act): It is now more difficult for persons under age 21 to access a credit card without parental support in the form of a co-signature or evidence that the debt can be repaid.
A place for early financial education
It appears that partly as a result of the above and other factors including early financial education that consumers in the US have become more prudent in their use of credit cards opting instead to use debit cards. Persons who use credit cards tend increasingly to pay off balances every month. But the data is somewhat mixed as it is suggested that in the US and elsewhere, as of 2018, credit card usage is at an all-time high with millennials in Asia for instance, (not so much in the US), showing an increasing preference for online shopping. This has led to a 26 per cent rise in credit card spending among card members aged between 26 and 35.
Some parallels can therefore be drawn, for it seems that like Americans, we are a really financially illiterate people. What is therefore required is basic financial literacy education whether in schools or at work. Otherwise, we will continue to accumulate debt, fail to pay our bills, default on our mortgages and work long into our later years often in low-paying jobs in order to pay off our debts.
A decade ago, Bill Losey, a retirement planning expert, argued that the global crisis (and it still haunts the Caribbean, ten years after its onset), offered the “opportunity of a lifetime to promote financial literacy and potentially save a life. Maybe, just maybe, financial literacy could be the solution to many of our country’s social problems.” It just may be, once we understand, that our financial behaviour is ‘Micawberish’ in orientation.
(Cynthia Barrow Giles is a senior lecturer in political science at the University of the West Indies, Cave Hill Campus)