It is surprising how the whole world wants a quick fix for everything. Instant weight loss, instead muscle gain, instant riches – trade forex, watch cnbc, …so go and get a quick fix. Write a cheque for $ 1 Trillion…and hey presto all problems will be solved. Correct?
Either I am old fashioned or boring, or both. Let me tell you a small story.
One kid (well now he must be 26, this story is 4 years old, so he was a kid) ran up credit card debts of Rs. 120,000 – on a salary of Rs. 12,000 per month. Paying 5% minimum was easy, bank was happy…grandpa saw the statement on a visit and blew his top.
He told me…brought the grandson..and said I want to do a ONE TIME BAIL out…what do you think?
I said young grandson will go back to his old ways. I explained to the Grandpa that this was called A MORAL HAZARD. Your other grandchildren will learn, they will all copy him and soon your hard earned, multi-generational compounded wealth will all go to Citibank towards bank charges! To me the leak in the bucket had to be fixed before you opened the ‘Bank Grandpa account’. Simply the grandson had to CHANGE his habits which got him into debt first. If that does not change, he could find some excuse every few weeks or months for some elder in the family to One-time bail him out. Luckily grandpa had some ear for me, and he listened. (I have no clue how to charge for such things, ideas are welcome :))
I suggested fix a MUST PAY amount for your grandson, and offer to match it. So steps were as follows:
1. Grandson got a new credit card with a limit of Rs. 25,000 and a promise that he would not use credit AT ALL.
2. Old card went to granddad (for safe keeping) – grand dad was to get email statements, he had the login and password.
3. Grandson paid Rs. 4000 in the first month, no fresh purchases, total outstanding came down by 8k including Granddad’s contribution. No separate subsidy of interest / principal was available.
4. Next month bonus of Rs. 8k was paid into the account – impressed Grand dad put in Rs. 16k!!
5. Grand dad made sure that the card was cut up, and new card did not run a debit at all – if he could not pay on the due date he should withdraw from his newly started SIP – again with granddad’s matching contribution.
simple solution, not too much supervision and acted as an incentive to change behavior. Does it take too much effort to think of a simple solution like this? No but few planners look at credit card problems – believe me that is not a small amount of money. I could run classes on debt management 🙂
Greece will not learn. Italy, Spain, UK, ….let us see what they learn.
End of story: Grandson now earns about 30k, does not have a credit card at all, is doing a SIP which has accumulated about 200,000 rupees. Not bad…..many adults did not have such Teaching grandpas. Paying grandpas are not as useful as TEACHING grandpas!!
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