easy credit
Note to MAS: don’t just put a limit on unsecured debt, put a limit on credit card & loan solicitors!

In every city, usually the largest and tallest buildings are bank buildings. This should give you a sense of how much influence and profits they have. They are often much bigger and more prominent than government buildings. Many of them make the majority of their money through personal banking services, such as through loans and credit cards. Although just about every religion forbids usury rates (i.e., excessive or abusive interest rates that unfairly enrich the lender), banks somehow are able to issue credit cards with 26% annual interest and nobody seems to object. I recently attended a talk in which a Singaporean economist said that about one-third of credit card balances in Singapore are revolving (and are thereby subject to these outrageous interest rates). The sad thing is that once your balance is subject to these high rates, paying off the principal becomes extremely difficult because the interest just keeps growing exponentially.

The other sad reality is that although many Singaporeans are highly educated and well paid, they are also heavily addicted to easy credit. As an American, I find it strange that a person can take public transport or be shopping at a grocery store and be harassed by a bank salesperson peddling a credit card like some kind of drug dealer (“this card comes with a 0% balance transfer rate for up to 12 months” is the equivalent of “the first one is free”, a common drug dealing tactic). In the States, you typically won’t get accosted by bank salespeople unless you’re in a university campus. In order to get a credit card in the States, you must go to the bank or apply online. There are no credit card peddlers just wondering about.

Because the total amount of credit card debt has been steadily rising over the last few years, MAS has just put out rules limiting the amount of unsecured debt a person can have. These rules will be implemented in phases.

Starting Date Limit on Unsecured Debt
June 1, 2015 24x your monthly income
June 1, 2017 18x your monthly income
June 1, 2019 12x your the monthly income

 

Credit, especially easy credit, can be very addictive and should be handled responsibly. I think this is a great ruling, however, I think MAS should also consider limiting the number of credit card peddlers. It’s become obscene. I have to constantly lie and say, “already got” to ward these guys off. Nowadays I lie and say, “I’m in debt up to my eyeballs, do you really think I need another card?” Though the salespeople are not yet prepared to answer such questions…

Since cars are very expensive here and not really necessary for the vast majority of people, the second thing I think MAS should consider is adding “car loans” to the ruling, although car loans are a form of secured debt. Unsecured debt includes education loans, renovation loans, personal loans, overdraft debt, credit card debt, and personal lines of credit. However, I believe car loans belong in a special category and should be considered unsecured debt because if you default on your payment, the security (i.e., car) will definitely fall very short of the total loan payment.

This brings me to the lamborghini that I see and hear every morning. Whenever that car comes cruising by, everyone stares; some even look out their windows. But instead of coveting the car, I think we all should look at the guy and think, “poor guy, he’s probably drowning in debt”. I realized early on that many people who look like a million bucks are actually extremely debt-ridden and heavily reliant on things to remain the same (earnings, health, investment yields, etc.). The problem comes, of course, when things change…. and they always do.

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