Last week, I looked at some of the financial challenges that often develop when persons seek to finance their budgetary needs with loans. I am still alarmed at the increasing number of borrowers who have reached their credit ceiling, with the majority of their paycheques servicing their debt. Many of them don't even receive enough take-home pay to buy basic necessities.
One of our Jamaican proverbs declares: "What fall off a head, mus' drop pon shoulder;" This may be interpreted as -- something that was meant for the father is sometimes passed on to his children. This saying could be applied to our country's debt problems. In the same way that our Government is highly indebted, so are our citizens suffering from an over-dependence on debt.
The Bible speaks about the wise man who succeeds by building his house on a rock, while the foolish man loses it when he erects it on sand. Similarly, we cannot create a solid financial future on an unstable foundation of debt. Lasting wealth will only ensue from productive labour that generates profit, which is then directed into savings and prudent investments.
Let's look at some of the strategies that can be implemented by different groups in our society to resolve the debt dilemma threatening our national dreams of future prosperity.
While borrowing money may seem like the easiest way to deal with a budget shortfall or purchase your desires it will eventually lead to your downfall. It may be easy now to get multiple payroll loans, but the day will come when your ability to access credit runs out. At that time, you are likely to experience the harsh reality of financial deprivation.
Debt distress does not discriminate; it affects persons who earn $40,000 per month or $4 million per year. Learn how to use a budget to make appropriate choices with the money you currently have, or try to earn more to meet your needs. Don't be too quick to borrow because you qualify for a loan; save up to buy the items you want and dedicate more money towards creating wealth.
Many human resource departments are inundated with loan application forms and salary deduction payments to money lenders. You may think that you are assisting your staff with these loan facilities, but you are actually doing them a disservice by enabling their indebtedness. In addition, the overhead cost of dealing with these loan transactions is tremendous.
As employers you have the power to curb this debt problem. Stop paying out deductions except for mortgage, vehicle or student loans. At the very least, suspend new loan requests if the employee's debt is above a certain threshold. Allocate more resources for financial wellness programmes to teach your staff members about budgeting, saving, debt management, and goal setting.
Large financial institutions
Growing your loan portfolio may initially bring profit, but if your customer base is highly indebted, it will negatively affect your bottom line. As the pressures of loan payments increase, people will have less money to save or invest and they will withdraw the money in their accounts. You will eventually have limited funds to lend to businesses and profitable purposes.
Let prudence be your watchword when it comes to your lending policies and don't be too competitive about chasing frivolous consumer loans. Establish credit assistance departments that can help distressed borrowers to find solutions to their debt problems, and offer seminars and programmes to teach your customers about smart financial habits.
Micro lending agencies
Many small agencies target government employees and other persons who are perceived to have secure jobs. Be mindful of our country's economic challenges; it is inevitable that thousands of government workers will have to be laid off, according to IMF guidelines. Without the security of salary payments, your loan repayment inflows will be negatively affected.
Remember the massive global meltdown that occurred when people defaulted on their mortgage loans. If you continue to offer loans without consideration for people's existing indebtedness, you could be creating a business model that is destined to fail. Tighten up your business practices to ensure that loan recipients stay within established debt to income ratios.
Consumer protection agencies
Consumer groups such as the Consumer Affairs Commission and the National Consumers League should also participate in this effort to reduce indebtedness. Increase your visibility in advocating for better debt protection for borrowers, and by carrying out financial education programmes to teach people about sensible money habits.
Ministry of Finance
The ministry must play an active role in overseeing the practices of all the micro lending agencies, as some of their policies seem to go against the spirit of the Money Lending Act. Borrowers need to be protected from usurious lending rates and severe penalties for missed payments. Also, adopt at best practices from other countries to govern the activities of bailiffs and recovery agents.
Consider all the ways in which you can try to reduce debt dependence for yourself, your friends and colleagues. We need everyone's concerted effort to stop the debt crisis that is currently affecting our nation!
Cherryl is a money coach, business mentor, and founder of Financially S.M.A.R.T. Services. Her upcoming book, "The 3 Ms of Money" will reveal all the secrets she learned about financial success. Get more tips on money and business matters at www.financiallysmartadvice.com and www.entrepreneursinjamaica.com. Email comments to firstname.lastname@example.org.