I’ve recently noticed a strange thing while reading through all my past posts. I mostly write about fine-tuning and twisting the dials to live as efficiently as possible, while focusing on overall happiness. However there are some elephants in the room that I really need to address.
I have written about topics ranging from the cost of commuting to Maslow’s Hierarchy of Needs. Yet I have completely missed one of the most basic topics that should be obvious.
You don’t bloody spend money you don’t yet have.
However obvious this may seem, it still seems to elude a lot of people.
Can you blame them? The advertising and normalisation of using borrowed money has been a systematic campaign by those who would profit for years, if not decades.
Personal loans, credit cards, car financing. These are all so common and we are constantly bombarded by the advertising. My bank even regularly sends me personally addressed, unsolicited credit card offers.
My current focus on this topic started when I came across a few adverts that I kept seeing often enough to become enormously irritating. I am talking about the short-term online loan market. You’ve seen the adverts from such dubious-sounding suppliers as Nimble or Wallet Wizard (I won’t link to them because I do not want to give them more online link backs). Even with my sparse TV using habit, I’ve seen them on multiple occasions.
I honestly believed that they were a fad that would just blow over after a few weeks once Australian society collectively ignored them as a useless product that no one actually needs. However, not only have these ads stuck around, but they seem to becoming increasingly common. This suggests that they are in fact a profitable business venture.
How can this be?
Alas, as seems to be happening very often these days, I was completely wrong in my judgement. Let’s call it naivety.
While writing about fine-tuning, I have forgotten that there are many that are still fending and fighting off the rats and golems as they climb themselves out of the sewers of financial hardship.
The advertising for these short-term lenders has been enough to make me genuinely sick.
Often portraying an emergency situation, such as needing a flight to be with your pregnant wife while she is giving birth or accidentally putting a hole in your rentals wall while you are moving out, the loans are marketed as a way to deal with life’s emergencies and not necessarily a way to consume even more.
So analogous to my first point is the following;
You keep enough cash around to handle life’s emergencies without paying through the nose for a loan to do so.
This seems obvious to me, but clearly I am out of touch with financial norms.
Many might also be keen to pipe up and say that it is easy for me to say because I have a high income and can afford life’s emergencies.
…but here is the key. If you are on such a low income that you are just barely scraping by and can’t afford to save an emergency fund, then you also can’t afford to make loan repayments!
In fact it is even more important for low income earners to build themselves up an emergency fund, as they can’t quickly earn the amount needed to cover an emergency.
So it makes no sense for anyone to ever need these services with just a bit of prior preparation.
These loans appeal to both the most careless with their money but also to the most vulnerable members of our society, and for that reason they draw my ire.
But what truly made my blood boil was the truly deplorable fee structure underpinning these loans.
The below is for Nimble at the time of writing (14/01/18):
For loans between $300 and $2000: 20% of the principal upfront and 4% per month compounded monthly!
For loans between $2001 and $5000: $400 upfront and 47.6158% pa
The world has truly gone mad if these products are actually being sold at these outrageous prices.
They are made to draw unreasonable profits from those that can least afford it.
I feel absolutely fine in calling out these businesses for this deplorable product that they are offering in a predatory fashion. I say predatory because the fees charged in no way reflect the amount it actually costs to offer this service and instead reflect the maximum amount the government will allow them to charge. I know this because before the government stepped in they charged even more!
The second reason that these suppliers irk me so is that they aim to drastically reduce the friction in attaining these disgusting products.
Loans were once a long and tedious process that involved physically going to the bank, filling out a form and waiting several days for the bank to assess your suitability.
However now you can apply online and have the money in your account within a few hours, making them far too easy an option for people who need money quick.
If you are just starting to get your finances in order – perhaps you have just discovered the financial independence movement and have yet to save your emergency fund – then the following options may exist to you instead of one of these outrageous loans:
- Centrelink cash advance, for those on centrelink payments;
- Sell down some of the worthless crap you have accumulated;
- Speak with utility companies about hardship payment policies;
- Speak with your lender about a hardship variation.
If you do not yet have an emergency fund or easy access to liquid money such as an offset account, then that is an emergency that needs to be sorted out immediately.
Never give your money to these predators. There is no shortage of people out there that will seek to profit during your next emergency.
I will try to leave it at that.
Shuffling through rats and golems
Pat the Shuffler