Before I begin, let it be known that my opinion is based on a logical view point and has nothing to do with anyone. Its nothing personal, just facts and my private opinion on the topic of loans, interest, and financial management.
Introduction
Today we lived in a capitalized society. A free market where we can choose freely what we want to buy, what to sell, and make more profits based on the initial capital we invest on anything be it business, services, manpower etc. These profits in turn fuel the economy, provide jobs, and provides users with the basic necessities to live, food, clothing and shelter. People who invest a lot of capital get more returns and can afford to buy big houses, fancy cars, gadgets and jewels. Capital in this sense is "education" and the "time" we spend on education, for besides money and services, that is also an investment which could spur big returns.
This capitalized and free market society has it perks, but also its downfall. Of course people are free to choose. But not all people are smart in making decisions, for all our backgrounds are different. People see things differently among themselves. We are born in world of diverse mentalities, backgrounds and personalities. That is why there exists a term rich and poor. Rich which refers to people who have wealth more than average and poor, whose wealth is considered below average. In the capitalistic point of view, rich people are people whose investments have paid off, and poor people are those who either did not invest or just made a poor investment at the first place.
People who are born rich are enjoying the investments their parents or ancestors have invested. But as our financial history has dictated, economies tend to collapse, due to many unavoidable factors. Nature, weak investor trust and many others. When one aspect of our economy collapses, the others will also collapse with it, just like a row of domino blocks. He comes the role of a centralized system so as to counter this domino effect.
Some of us are weak in financial management or sometimes born unlucky. Some of us invest in a house only to have discovered that the house would have been destroyed the next day by a flood. Some of us invest in hand phones not knowing that smart phones are already a thing in the consumer market. That's why wealth is something that takes a lot of wisdom and vision to create.
A summarized history of banking
Banks. In the middle ages, at the times of the crusades, banks were created to transfer assets quickly from one place to another at a certain fee. This fee is paid for the service of the bankers. This helped society a lot because it provided a safe way of transferring assets in the presence of bandits and robbers, hoping to have some wealth for themselves. These bankers had so much fees, until they became richer than kingdoms. Kings and queens who often went bankrupt because of the war they had lost, often borrowed money from these bankers. The more they borrowed, the more "fees" they have to pay. Some kingdoms went bankrupt because they couldn't afford paying back these bankers. Finally the kingdom's assets are taken away by these bankers, and the more these bankers became rich and had power behind the scenes.
With the richness that these bankers have, they invest more. They lend more money. And the more people who cannot pay up their debts, the more assets they earned. With this seized wealth, they make smart investments and the value of their wealth quadruples. This pile up of wealth eventually leads to power mongering and abuse by the "upper" class which is for me a modern form of oppression itself.
These power people buys influence and power with these assets and finally shape the world to what it is today. An age where the rich opresses the weak in a clean way, in broad daylight.
These "fees" finally was given a name: interest, that which mainly shapes our financial system today. Banking is a way of taking advantage of the weakness of the human soul, the yearning for richness, to turn this yearning of others to profits for another. The weak humans end up having to work hard just to pay up these "fees" instead of paying for the real value of the things they bought. These "fees" fuel the richness of the bankers and the more these bankers oppress.
Capitalism and marketing
It has now become a trend. People tend to buy things they cannot afford and don't need. This problem comes from the rise of electronic media: television, radios, internet.--> Advertisements.
Advertisements are by-products marketing. Marketing is a way of communicating the value of the product to the consumers. Marketing to the final consumer (non business) is using the neuro linguistics programming of the human mind to make the user buy the product. The final consumer mostly buys the product not as an investment but as a need or a desire.
When we look at ads around us: For example, a cool, rock hipster with girls and riches all around him, or a beautiful hot chic, whose eyes of men roll when they see her. Ant these cool or beautiful people, they all use a product. Hmm... an I-Phone perhaps, or a Tablet, or a Passat, or Maybeline makeup. These ads gives the end consumers a sense of inadequancy. Its another word saying that if we don't buy it, we will never be cool, happy, sexy etc. That is why only good looking people appear on ads. We subconsciously have the mind set that if we buy those marketed products, we will also become like the people in the advertisements. --> Happy? Muscular? Sexy? Fulfilled? Impotent? Just look at any bill boards around you and think about it.
Marketing is not entirely bad. It is good if it helps the society by selling to them what they really need. Telling them to buy necessities instead of luxuries. The capitalistic system that we have nowadays promotes wasteful buying. It tells us to buy things we don't really need. Finally when we throw away these useless products, and buy more useless products which is more expensive.
Loans: An illusion of wealth
Banks also market their "products" by using ads. They show a happy couple with smiling kids (mostly all good looking) happy with the house that they bought. At the end of the ad, there comes a message, "Finance Packages: 3 % Anually". 3 % seems to look harmless. But imagine if you want to make a loan which cost $300 000 and want to make a 30 year loan so that you can own that house. Ok lets do Math:
Interest:
3%/year x 30 years = 90%
Total money borrowed form the bank:
$300 000 + (90% of $300 000) = $ 570 000
Amount paid per month:
$570 000 / (30 years) / (12 Months/year) = $ 1583,33 / month
Which means for the first 14.2 years, the consumer is only paying interest ($270 000) in total. What do you call that? Isn't that opression?
That is why when we walk throug financial centres, these banks have gigantic buildings compared to normal retailers. Imagine the income they make from 1000 consumers, who take up the same bank loan. And lets say, if any consumer couldn't afford to keep up with the payment due to a financial meltdown which makes people lose their jobs, the new owner of the house will be the bank.
Some home owners who couldn't afford mortgages opt for refinancing, which means they borrow money to cover up the debts they cannot pay. This decreases their monthly payments. Only one thing increases. The income of the banks. So these banks become richer, at the expense of people who are struggling with their mortgages.
The thing about houses: Based on their location: The value goes up. A smart investor could make a loan for a new house, wait for a few years and sell it again at a price higher than what he is paying the bank in total. That however requires careful planning and smart decison making.
Cash loans - A bigger trap
Cash loans. The consumer gets flexible cash. But it comes at a higher price, namely a higher interest. For example a consumer makes a small $20 000 cash loan at 8% interest per year and he wants to pay it in 10 years. Let do Math's again:
Interest:
8%/year x 10 years = 80%
Total money borrowed form the bank:
$20 000+ (80% of $20 000) = $ 36 000
Amount paid per month:
$36 000 / (30 years) / (12 Months/year) = $ 100/ month
Ok. Seems less. But the danger of cash loans, is that one tends to missuse the cash they see in front of them. They get $ 20 000 of loan. And thers a big chance that they will spend it on bad investments like luxuries which doesn't give any returns due to the flexibility of cash and the dangers of capitalistic marketing.
Mindset change towards loans
Being a smart consumer, one should never forget this rule:
"Spend only what you can afford"
Being a smart investor, on should
"Take risks only with a solid foundation and a clear vision. Always have strong reliable backups"
And most importantly. One should see the capital we get from loans as capital for investment. This capital is not wealth. It is never wealth, for if we think that is wealth, forever will the banks have a hold on our lives and continue opressing the weak.
Credit card misuse. The end of civilization
Another product trend by the financial industry (ironic why they call it industry):
Its located in everybody's wallet/purse. Almost all businesses accept them. Anybody with a simple pay check is eligible to own them. --> Credit cards
They offer nice credit limits. CREDIT limits. Another word for Loans -> with the interest.
Good usage is using them and paying all of what you use with your next pay check. Bad usage is not doing so. However the best usage is not using them at all, but for the sake of easing our transactions like airline booking, online shopping etc, there are several perks to have them, ONLY if you know how to use them.
Having a credit card without knowing how to use them is like driving a airplane without a license. --> Crash and burn!!
Having one credit card is enough. Having two or three because one is reaching its credit limit and is not usable anymore is a disaster. Both short term and long term.
