The Nature of Credit and the Nature of Man

Since i began work about half a year ago, the nature of credit (cards) and the possible financial perils that accompany owning a card/cards is something that I have been thinking about. Now lest anyone thinks that I am about to go on a tirade against credit cards, let me just make clear that I am not. As the extremely astute and articulate Mr Wang has pointed out (come on ST, don't disappoint me) here , here and here , there are ways to "beat" the system and come up on tops (or at least, not fall into the credit leach that credit card companies are capable of turning into).

A more subtle danger of using credit cards though, is the possibility of interest-free installments. Now I am not a financial guru (I'm sure our well-acclaimed financial journalists can provide some valuable insight - in fact they do, sometimes - though rarely), so my subsequent arguments will essentially take a common-sensical/logical approach rather than an empirical, show-me-the-proof train-of-thought.

Now, as the term suggests, "interest-free installments" basically means you repay what you owe without paying additional charges on interest (assuming you pay your bills punctually). Perfectly ok, one may think - but herein lies the twist, and danger. And it has nothing to do with financial models or statistics, but the nature and psychology of human beings.

Why do I say so?

Firstly, the nature of man (this is not a sexist language) is such that we are generally folks who do not like to take on - or at least minimize - the responsibility for our actions. Before you go "huh", let me explain further.

This tendency and desire to "pay less" is a natural one - and one that credit card companies exploit to their maximum advantage. Say if Mr Tan decides to purchase a lap top that costs $1,500; in addition, he wants to buy a $3,000 sofa set as well as a 42-inch LCD TV that costs about $3,500...if full payment is being made upfront, he would immediately be $8,000 poorer, and assuming he's a salaried employer (earning about $3,000 a month), most likely he would think twice before forking out for all three items.

But with interest free payments, he is able to spread out the cost over, say, 24 months. Each month, all he has to do is to repay about $333 in installments. The cost (or responsibility) of paying for what one owns is diminished temporarily (at least at the moment of purchase); this creates a false sense of reduced liability. To state in simpler terms: If one does not feel the pinch (and pain), one does not know that he is in trouble. By spreading out the "pain" over 24 - or 48 months - it makes the consumer think that he can get away with what he wants at a lowered cost. In fact, what it only does, is to tempt the consumer to purchase more (than what he originally needs, or is able to afford) without considering the costs - and common sense - of doing so.

Secondly, human nature is such that the utility obtained from material consumptions are only temporal ones. So if today, Mr Ali commits $3,000 to a brand new state-of-the-art home theatre system and decides to pay by installments (because he earns only $1,000 a month and is unable to afford the product directly); most likely, 6 months down the road, his interest in his theatre system will wane (according to the Law of Diminishing Marginal Returns), unfortunately, his commitment to a 24-month repayment scheme does not. So the amount of utility he obtains from having the theatre system go into the negative - in short, the burden of owning a set exceeds the utility he gains from the set. Now, you know why SIngaporean car owners change a set of wheels once every five years...

These two reasons are why the concept of interest-free payments - while increasingly popular - are starting to become baits to financial destruction. To be honest, I absolutely dislike living on credit (because it is an indirect form of covetness), although sometimes this is impossible to avoid. In fact, I am living on credit now (due to my wedding preparations), the difference being - I am willing to pay for what I think is valuable (my relationship with my wife-to-be), and this value exceeds that of what money can quantify.

Some pointers to consider:

1. Remember - there is no such thing in this world as a free lunch. Whatever you owe, you'll have to pay back (if not now, then later).

2. The bank always wins.

3. If you are feeling impulsive about buying something, it is a sure sign that you probably don't need that thing. Unless its value can be qualified in other non-quantifiable ways (i.e. a professional photographer paying 10 grand for a camera knows what he is getting out of the camera), don't be stupid and jump into the bandwagon as well. A confession: One of the worst purchases I have ever made was paying $450 for a Palmtop (few years back) for appointment-jotting. Afterawhile, I decided that remembering my appointments in my head was far by the easier thing to do. Now the palmtop is an expensive paperweight.

In all fairness, using credit cards and interest-free payments are perfectly ok. The only issue is that most folks do not seem to understand the psychological logic of how these mechanisms work. So the next time you are tempted to plonk down $5,000 for a product (esp with a beaming salesgirl saying "oh, its interest-free", better think twice before doing so.

Individuality in Modern Culture: The Loss of the Self in Romanticism

A superb summary by Reinhold Niebuhr on the tension between romanticism and idealism - the reason I am putting this down on the blog is because the book (The Nature and Destiny of Man) is almost impossible to obtain (unless one is willing to buy through Amazon) - mine is a borrowed copy from NTU library - and his words are well worth retaining:-

Romanticism is, in short nearer to the Christian faith and a more perverse corruption of it than idealistic philosophies. It understands, with Christianity, the unique and arbitrary character of historical existence and knows that the rational universalities of philosophical systems can neither fully contain nor comprehend the unique quality of the givenness of things nor yet themselves fully transcend the contingency and irrationality of existence. With Christianity, it consequently discovers the subtle self-deception and hypocricy of rationalistic cultures, which manage to insinuate their own particular values into the supposed impartial and objective universall values of their philosophy. (The relation of democracy to bourgeois culture for instance.) It is this penetration into the dishonesty of rational idealists which establishes affinities between Nietzsche and classical Christianity, despite his strictures against the "bad conscience" which Christianity prompts. On the other hand romanticism, at least in its fully developed Nietschean form, substitutes brutality for hypocrisy and asserts the particular and unique, whether individual or collective, in nihilistic disregard of any general system of value.

The simple fact is that both the obviously partial and unique and the supposedly universal values of history can be both appreciated and judged only in terms of a religious faith which has discovered the centre and source of life to be beyond and yet within historical existence. This is the God whi is both Creator and Judge revealed in Biblical faith. Romanticism understands the fact of the goodness of creation in all of its particularity and individuality; but it has no perspective beyond creation. Idealism seeks a rational point of vantage beyond the created forms and thus has an inchoate conception of God as judge. But the judge turns out to be man's own reason. The individuality of man is tenable only in a dimension of reality in which the highest achievements of his self-knowledge and self-consciousness are both known and judged from a source of life and truth beyond him.

The idea of individuality which is the most unique emphasis of modern culture, is thus a tragically abortive concept, which cannot be maintained as either fact or as idea within the limits of the cultural presuppositions of modernity. The social history of modern life moves from the individualism of the early commercial period to the collectivism of industrialism. The individual who emancipates himself from the social solidarities of agrarian feudalism and the religious authoritarianism of medievalism is, within a brief span of history, subjected to the mechanical solidarities of industrial collectivism. His revolt against this collectivism betrays him into the even more grievous tyranny of primitive racialism and imperial nationalism.

The cultural history of modern man gives him no resource to modify or to defy this tendency. In idealism the individual is able to transcend the tyrannical necessities of nature only to be absorbed in the universalities of impersonal mind. In the older naturalism, the individual is for a moment to apprecoate that aspect of individuality which the variety of natural circumstances creates; but true individuality is quickly lost because nature knows nothing of the self-transcendence, self-identity and freedom which are the real marks of individuality. In romantic naturalism the individuality of the person is quickly subordinated to the unique and self-justifying individuality of the social collective. Only in Nietzschean romanticism is the individual preserved; but there he becomes the vehicle of daemonic religion because he knows no law but his own will-to-power and has no God but his own unlimited ambition.

Without the presuppositions of the Christian faith the individual is either nothing or becomes everything. In ths Christian faith man's insignificance as a creature, involved in the process of nature and time, is lifted into significance by the mercy and power of God in which his life is sustained. But his significance as a free spirit is understood as subordinate to the freedom of God. His inclination to abuse his freedom, to overestimate his power and significance and to become everything is understood as the primal sin. It is because man is inevitably involved in this primar sin that he is bound to meet God first of all as a judge, who humbles his pride and brings his vain imagination to naught.

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