Monday, November 05, 2007

The Perils of credit...

‘Recovery Agent claims another life’ said one of the headlines today. This was not an isolated case. I remember having read at least three such headlines over the past month. The thread is common: someone takes credit for varying reasons, cannot pay up the bank and is hassled by recovery agents (sometimes to the extreme). When this crosses the limit, the ‘poor’ soul has no way but to take his life. The recovery agents are then taken to task, the banks are warned against indulging in such practices and life goes on, until the next such incident.

Having read these different cases, I most definitely condemn, as the media has done too, the methodology of hiring recovery agents and the acts committed by these agents. But somewhere, what has gone unnoticed is the root cause of all this: why to take credit in the first place ? At least today’s case seemed genuine in the sense that the guy had probably taken credit to start his own shop and business. But I am sure that are also cases of people taking credit to buy the next big thing, the next gadget, the next status symbol; and then landing themselves into trouble. This is no doubt abetted by the ease with which credit is available in these days. Today, hardly anyone ‘applies’ for a loan. The banks do the needful. Given that, it comes as no surprise that a small proportion of the borrowers turn defaulters.

In fact, these recent cases are also connected with the recent book that I finished: “Rich Dad Poor Dad” by Robert Kiyoaski. For those who have not read this so far, this is an extremely thought-provoking book in which the author tries to bring out the difference in the basic thought philosophy (when it comes to money) between the rich and the rest. He brings out a number of key points during the course of the book, one of them being that the rich use their money to buy real assets (not those assets as defined by accountants) whereas the middle class uses their money to buy ‘book’ assets (which actually are liabilities because they suck money in the form of maintenance instead of generating money for their owner). I believe this is truer in today’s world where I find a lot of the people I know rushing to buy the latest fad or gadget (especially at my age where one can afford to be more adventurous in investing their well-earned money). As Robert Kiyoaski rightly diagnoses, it is the dearth of ‘financial literacy’ that is responsible for this state of affairs. Most people, he says, are simply not aware of how to make their money work for them. This results in a never-ending rat race where people continue to work hard, get their increments and promotions only to invest them poorly and find themselves short of money after some time, followed by some more hard work.

I strongly recommend that every reader of this piece gets a copy of ‘Rich Dad Poor Dad’ as soon as possible and experiences the power of financial literacy, thus enabling him to harness the power of money and make it his slave rather than his master.

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