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The big argument between borrowing and saving (I)

There are two interesting write-ups that have been circulating on the internet and on WhatsApp lately. Both of them basically analyse whether it is wise to save money or borrow. Both started out with a bias and I believe, deliberately did half-analysis to justify their points. Now, as we live in an age where a lot of education is obtained online, it is important to clarify and examine some of the issues raised by some of these random interventions lest they become received wisdom. I have encountered these write-ups in a number of WhatsApp groups I belong to, especially those populated by bankers and ex-bankers. 

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Whereas the first write-up merely pooh-poohs the wisdom of developing a saving culture in the first place, and concluded that people who save at all do so because they have no ideas to invest upon, while those who borrow are the smart people with a lot of great ideas, the second one took the argument further by emphasizing that people should just borrow to spend – not necessarily to invest as the first one had argued.  The second writeup looked at the debate from a national perspective, criticizing Japanese savings culture (a factor which naturally translates into a country which saves and invests and hardly tanks on foreign loans), and concluded that the economy was suffering because of that. The writer went on to praise the most-borrowed/leveraged country on earth; the USA, for the culture whereby everyone lives on credit and is able to enjoy tomorrow today. No, it was not a satire. From the calibre of those I saw who shared and liked those articles, and defended them, it is evident that we are on a slippery slope. I am therefore taking time to demystify the article or at least put up a strong argument against what the articles are preaching. 

A profound analysis of this issue – whether its wise to borrow or save – would actually entail looking at decisions and motivations across each spending unit – individuals, households, companies and governments. 

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We all know the kind of life they live especially in the western world where almost everyone is hooked on loans which become oppressive after a while. Most people live life just servicing loans. The biggest worry for most people living in those countries is about their credit scores. I have friends there who believe that this is a huge conspiracy and envy the system we run here. The idea that makes it easy for someone to borrow to enjoy tomorrow today also creates hordes of purposeless individuals who live for immediate thrills, and lies at the centre of the kind of advertisements that drive consumerism and objectifies a people. This is extended to us here too, when we hear that Africa is a big MARKET. Personally I’m not sure that’s what we need here at our stage of development. The US may be able to cope with this given their achievements over centuries.  That branch of economics that proffers that people must be kept spending and buying has taken a hold in the USA and a few other countries around the world and is gaining grounds in countries like Nigeria, albeit foolishly.  But that brand is not accepted globally. Whenever banks get comfortable here in Nigeria, just as elsewhere, they start pushing high-priced consumer loans into the hands of the people. Almost everyone I know has got into trouble with such loans.

For instance in Germany they don’t have such a culture and are much like the Japanese. The German person does not understand why you need to spend what you haven’t earned and many shops just don’t take credit cards. In some parts it’s still cash they want.  To the same extent consumption is not growing in Germany because people hardly binge on fleeting acquisitions; Germany is not a consumerist nation, but a producing one.  They are quite efficient and understand sustainability.  In fact most Germans don’t bother to ever buy or own houses and they are a damn sight happier than many of us who acquire chattel all over the place. The economy is lucky for it though because the stability has allowed it to effectively produce everything cheaper for exports better than any other European country where consumerism usually leads to demand for higher wages and longer holidays. Wages are stable for one.  But places like Greece, Spain, France, and even UK present the opposite picture.

What obtains for individuals will obtain for households. I personally think we (households) should borrow in moderation just to enjoy our life. I believe we should rather try to be more productive and be generators of wealth. To that extent I humbly disagree with the neo-liberalist bent of the Indian professor, author of one of the articles, who seems to be gushing praises at what the Americans themselves know to be a dysfunctional system. My apologies for not being able to provide a reference to both articles as they merely moved through WhatsApp like rapid fire with no attributions but I’m sure many of my readers would have seen them.  I reproduce one of them below however.

For a company I believe it is ok to borrow funds for stability or expansion when you can access such. For accountability and resilience though it is good for a company to know what it truly owns and not overborrow and overtrade just because it has access to funds. 

Before we discuss Nigeria it must be said that we are in the era where losses are socialised and profits privatised what with many huge bailouts to private companies where CEOs are close to politicians. That cannot be fair can it? In Nigeria this is standard practice but we should remember that we are not the U.S. where they have all their infrastructure at advanced stage. When you use money that should otherwise be applied to infrastructure, education or health to bail out your ‘smart’ friends (via AMCON) who have taken advantage of our loose and corrupt credit system which favors a few who never repay, then you too can never know peace in your own country. 

Banks here are known to have this affinity for borrowers who never repay. That is why after cleaning out the books in 2009, we are hearing from CBN that non-performing loans are again on the bound. Being a bad debtor or being a collaborator on the other side of the table ensuring that loans go bad does not make anyone smarter than a honest saver. This is the real issue with Nigeria. Most so called big boys are tanked out on loans that they don’t intend to repay. Maybe we can say they are smart in the Nigerian way but I hope the country changes. 

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