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Is severing the link with cash leading us into debt?
The much-loved board game Monopoly was recently bought up to date by Hasbro. If you haven’t played it recently, you might not realise that players no longer appoint a banker. They don’t even use money. Instead, there’s a central console and players have chip and pin credit cards. As the blurb says: “Make millions with a swipe of your card!”
The game is merely mirroring the way we now use money. Although folding paper money has hardly disappeared, “putting it on plastic” is far more common. As a result, people have become distanced from real money. The reliance on credit has surely been partly responsible creating our debt-ridden society?
There is a generation that now barely uses cash. They use Pingit to move money, contactless payment, PayPal and cards, while carrying cash is as alien as it is to the Queen. They begin their adult lives by taking out massive loans for their education, solvency is but a distant illusion and debt is actively encouraged by parents and government. While student loans, easy to repay, can be termed “good debt”, credit cards pose more of a problem. Yet people are not taught about the crucial difference and view at all debt as identical. It is not.
Is cash antiquated?
David Wolman, in his book The End of Money, says that cash is antiquated and that full digital banking and payment is inevitable and, indeed, beneficial to the economy. This idea is flawed. To begin with, cash helps people to budget. If you don’t have it, you can’t spend it. Harsh? Unrealistic in our consumer-led economy? Perhaps, but against the backdrop of severe recession perhaps it is the only way to manage one’s finances.
The “cash is king” philosophy is out of favour in the digital age. This is not bad in itself, if what you are spending is actually your money. How many late nights have been salvaged by using a debit card to pay for a taxi or an urgently needed App for your smartphone? Parking is so much easier without having to hunt for coins. Cash is not always practical and debit cards are a great step forward.
But the growing chasm between consumer and cash means that plastic has become the solution to everything, even if the plastic gets people into debt. Those less in tune with their finances cannot see how their spending is affecting their personal situation. Spending what you do not have is an easy trap to fall into, one into which I myself once fell. What is needed is more financial education. In its absence, perhaps a healthier attitude to debt itself is required.
This remote relationship between man and money has exacerbated an already heavy reliance on credit which nearly always ends painfully with mounting debts and unmanageable problems. UK national debt remains high and growing and the British people are mirroring that with huge, increasing personal debt of their own. As children may look to their credit card-reliant parents as an example of how to live, so too adults look to their overspending debt-ridden government for inspiration. This destructive cycle needs to be broken.
The abuse of debt
The majority of people use credit wisely and within their budget, planning and paying off what they owe and managing their small debt. Without credit, the economy could not grow and none of us would ever get on the housing ladder or start businesses.
Where credit falls down is when it is abused, creating debts that can never be repaid. Soaring levels of bankruptcy, rising stress levels connected to debt and burgeoning instant borrowing schemes have created a culture where debt is the norm. Just as with a national economy, debt should not be the default setting, and should be kept to a minimum, with every effort made to repay that debt at the earliest convenience.
Older generations still see debt as something shameful. Generally, though, debt is no longer a taboo, not the badge of shame as it once was. But it must not be seen as a normal modus operandi. Filing for bankruptcy has become easier. This is important in eradicating the stigma of debt and helping people get back on their feet. But it has also been abused by reckless borrowers, getting into debt with no thought of ever repaying. However, as long as people see their government spending and borrowing without thought for future generations who must service the debt and ultimately pay it back, what possible example can they follow?
I believe that people’s financial habits mirror the economy of their country. Statistically, countries with low levels of national debt encourage their people to save and thereby owe less personal debt. Greece, Japan, the UK, the USA all owe much both in government and personal debt.
Will it take a crisis to get us saving again?
Ireland on the other hand has had a huge rise in savers. As the national debt rose, so too did personal savings. Perhaps the message here is, as the nation’s debt worsens, people’s attitude changes and they start saving more out of fear. Do we then have to wait until things are at crisis point in the UK for people to start saving more and for the BoE and the government to recognise the importance of preserving people’s savings? The Bank has signalled that it does not expect interest rates to rise above 0.5% until 2015, a prediction that will dismay many savers. Again, borrowers are rewarded. If savers cannot rely on their savings and are constantly being penalised, they can hardly spend as the government keeps exhorting them to. This affects savers and non-savers alike, as well as having a moral impact on philanthropic endeavours and stunting entrepreneurial activity.
As our relationship with cash has become ever more distant, so too has our attitude towards debt. No longer seen as a problem but an accepted standard, over-borrowing is felt to be the only way to survive. As savers are disadvantaged, it only helps to prove that saving is a waste of time while being in debt is acceptable, with no negative consequence.
Morality and debt are intertwined and debt should always be discussed with a moral viewpoint. Without it, debt is as alien a concept as cash is becoming and the relationship towards it will become even more ambivalent. Taking morality out of the discussion about debt has resulted in our trivialising it and turning a blind eye to the long-term damage that it causes.
Debt has a consequence. It must be paid back. Our debts as a nation are condemning the next generation to debt serfdom.
A guest blog by Charlotte Sabel. The views expressed are those of the author.