Best Practices in Personal Finance: GFC Ex-Post Musings

Personal indebtedness is still growing unabated whereas business credit surge is not yet in sight even as the global economy appears to be improving. What gives? Haven’t we learned anything from The Great Recession of late?

The contraction in business loans accompanied by an expansion in consumer loans during the time of the Global Financial Crisis (“GFC”) mentioned in various business and finance literature is not at all inconsistent: detrimental economic conditions force businesses to defer expenditure such as CAPEX, wage increases, new hires, expansion plans, etc; businesses, therefore, avoid taking on new debt, not least to avoid increasing their borrowing expenses. On the flip side of the coin, individuals took on even more debt to help cover living expenses, necessitated by wage freezes or wage cuts, or the loss of jobs by one or more income earners in the family. Not forgetting as well, individuals who took on new debt to pay off old debt to take advantage of refinancing opportunities, or due to financial distress, or both.

But perhaps the GFC is just a little long in the tooth now to still merit more mention in the press these days.

On a personal note, I just returned to Singapore after more than half a decade in Melbourne, in Australia’s state of Victoria. Victorians are facing a similar situation as Singaporeans: an explosion in the growth of housing loans and general personal indebtedness. For example, a greater proportion of households over there are now having to dedicate at least 30% of their monthly income towards either paying rent or servicing mortgage; this figure is significant because it is accepted as the benchmark that triggers mortgage stress. As in the case in Singapore, over in Victoria this phenomenon has also been given due recognition as a potential Sword of Damocles: should economic and jobs growth be crimped, borrowers will find themselves in dire straits. So the situation in Singapore is not unique.

Rather than just pointing out to one another statistics and facts that everyone, in all likelihood, already knows, we would do well to take a more pro-active stance to potentially prevent ourselves from being in a financial maelstrom, by educating ourselves to be more financially literate and financially savvy through sharing financial best practices, such as: always paying off the full balance on the monthly credit card bill to avoid late fees and interest charges, and not just making the minimum monthly payments; avoiding reckless or impulsive spending; exercising financial prudence instead of always trying to “keep up with the Joneses”; setting aside an emergency reserve to tide over at least 6 months of unemployment; where property purchases are concerned, consider abiding by this rule: if you can’t afford it, don’t buy it; avoiding investments you don’t know, such as exotic financial instruments; contacting your bank or financial institution to negotiate an affordable payment arrangement if you anticipate rough roads ahead, for instance, due to impending company retrenchments. I reckon imbuing our kids with the right values is also a good way to start.