I love reading about personal finance. It’s been a hobby of mine for the past 20+ years. I’ll even go so far as to admit that I’m also an avid snoop – I love hearing about how other people spend their money.
- Are they investors?
- Do they like to be spontaneous with their cash?
- Maybe their parents or grandparents are helping them out?
- Perchance they started a wildly successful business?
- Are they just regular folk trying to survive and have a few creature comforts for themselves?
Want to know what I’ve learned after all my many years of reading about how other people spend their money? Here it is.
There’s a persistently growing group of people who need credit to survive. These are working folks whose paycheques don’t get them from one to the next. No matter how they crunch the numbers, economize, downsize, and sacrifice, they simply don’t take home enough income to pay their expenses.
Take a good look at your finances. There’s no need to share your answer with the class. Just be honest with yourself as you answer this question:
If you had to survive on cash, would your cash run out before you got to your next paycheque?
For Some, Credit is Optional
There’s a segment of the personal finance community that loves to talk about credit card hacking. I’m not an expert so forgive my less-than-accurate description of this financial method. In short, credit card hacking appears to be a process by which cardholders maximize their points for extremely discounted or free travel, hotels, car rentals, etc… These cardholders are diligent about how they use their credit cards each month to maximize these benefits. Most importantly, THEY NEVER, EVER CARRY A BALANCE ON THEIR CREDIT CARDS.
And while travel cards are not my preference, I can certainly see the advantages. I have two friends, each of whom has 4 children. Every so often, my friends like to travel by air for family vacations. Believe you me, they make extremely good use of their travel rewards credit cards. Flight expenses for a family of 6 are very expensive. It only makes sense to use a credit card that will result in one or two of those airline tickets being free or otherwise extremely discounted.
In the interests of transparency, I freely admit that I use a credit card that saves me money on groceries. I use the card – I earn points towards food – I pay off my credit card charges long before the due date. If I had to pay for a gaggle of airline flights, I’d probably use a different credit card.
For Another Group, Credit is a Requirement
There’s another group of people who use credit cards for reasons that aren’t driven by economizing on life’s little luxuries. These are people who need credit because their paycheques are insufficient. They don’t make enough money to pay for rent, food, utilities, and transportation. To be blunt, their paycheques do not cover the basics. It’s not a situation where people have to cut back on cable for a 3-4 months to pay off a debt. I’m talking about those who have already cut their expenses to the bone… and are now digging into the marrow. These are folks who are at the financial bottom, even though they’re employed.
For these people, access to credit gives them a way to survive from one paycheque to the next.
Do not misunderstand me. I am not for one second saying that this a good way to make ends meet. It is not. The rates of interest charged on credit cards should be criminal. However, using credit is the next best way to buy your necessities of living if you’re not able to further slash your expenses and your efforts to earn more money have failed.
I’m going to suggest that those who could live on cash have some empathy for those who can’t. Put yourself in the other’s shoes. Again, no need to share the answers with the class. Just be honest with yourself.
- Let’s say you’re paid bi-weekly, i.e. every 14 days. Yet your paycheque only allows you to buy 12-days worth of food. What would you do? Would you willingly be hungry for 2 days or would you use credit to bridge the gap?
- You need your car for work, and it breaks down. There’s no reliable public transportation near you, and your co-workers don’t live nearby. Do you look for another job near home? Or do you use credit to fix your vehicle so you can maintain your livelihood?
These aren’t terribly far-fetched scenarios. People find themselves in these situations every day. When they don’t have the cash to pay for the repair, or to feed themselves, they turn to credit.
Life Can Be Expensive When You Don’t Have Enough Money
Even if you had an emergency fund, there’s no universal rule that life won’t throw you another emergency before you’ve had a chance to rebuild your fund.
Credit provides a lifeline, an immediate solution to a financial problem. The real issue is that the cure is as bad as the disease. For those at the bottom of the economic ladder, relying on credit is just as bad as not having sufficient money to pay for their costs of living.
It’s not a situation of using credit and paying it off in full, while earning a low income. People in that situation could live on cash, but use credit for other reasons. Maybe they’re earning points. Or perhaps they’re building their credit score. At the end of the day, they set aside their cash to pay off their credit card balances in full. Their income may be low, but it’s enough to get them from one paycheque to another. They simply use credit in place of cash, but they never fall into the trap of carrying a credit card balance.
My concern is for those who need to use credit because their cash isn’t enough. Life isn’t getting any cheaper. A few weeks ago, we found out that inflation in Canada had hit 4%. That’s not great, especially when your income doesn’t grow in step with inflation. For those who have disposable income, now they have just a little bit less of it. The people who were just making it from one payday to the next… well, they may not be able to do it anymore. When gas, groceries, rent and utilities all increase, while income stays stagnant, doesn’t it make sense to rely on credit if you can? Even if it’s going to cause problems later on?
Again, I ask you…
…Could you afford your life without credit? Do you earn enough to live on cash?
There are no easy answers when the belt has been tightened as tight as it can go but there’s still not enough money. If I were wise enough to have the answers, I would share them with the world. Like most of the chinwag that emanates from personal financial bloggers, my suggestions and insights are for those who already have money. Solving the problem of people not having enough money to begin with is beyond me.
In a perfect world, incomes wouldn’t have to be supplemented with credit. Paycheques would be enough to cover the survival expenses, to invest, to save for emergencies, and to buy a few little extras. That isn’t the reality for everyone. So as we start 2022, I urge you to have some compassion and kindness towards those who aren’t fortunate enough to have to have extra. Please don’t judge them for the choices that they make. They’re doing the best they can.