"WR6_gUnUj-ztiW07KQcOCnTel9A"/> Notes From Atlanta: A Country Where Everyone is a Debtor (I)

Saturday, September 22, 2007

A Country Where Everyone is a Debtor (I)

By Farooq A. Kperogi

On April 5 this year, I read a Nigerian newspaper editorial bewailing the piteous savings culture among Nigerians. The editorial was actuated by a World Bank report that claims that only 15 percent of Nigerians operate a savings account in commercial banks. It quoted the World Bank as saying that our poor savings culture is the reason we are ranked the 10th poorest nation in the world. Really?

Well, on April 11, six days after the Nigerian newspaper editorial, CNN reported a survey conducted by two American research agencies— Employee Benefit Research Institute and Mathew Greenwald & Associates— which showed that 40 percent of Americans have no savings for retirement. A full 25 percent, the report added, have no savings of any kind whatsoever.

The Christian Science Monitor, a paper whose title belies its largely secular, general-interest orientation, did a more detailed reporting on the collapse of savings culture in America. The paper showed that in June 2004, the personal savings of Americans fell to an absolute zero. It quoted Dallas Salisbury, president and chief executive officer of the Employee Benefit Research Institute in Washington, as saying, “That's largely a function of income . . . They're just barely managing to survive as it is, and they don't have enough income to save.”

Isn’t it interesting that this man could very well be talking about Nigerians or citizens of some other so-called Third World country? Let’s not be deceived, however. The lowest paid person in America receives about $6 per hour, or about $660 a month. That adds up to about 85,000 naira a month—more than the salary of a university graduate. So there is no basis to compare the standard of living in America with that of Nigeria.

Nevertheless, Americans, as we have seen earlier, have an almost zero savings culture. But if America’s savings culture is this desperately abysmal, why is it not a candidate for ranking among the world’s poorest nations, according to World Bank standards?

I think it’s because the loss of savings culture in America has been compensated for by the gain in the adoption of a debt culture. Nancy Register of the Consumer Federation of America captured this trend well when she said, "In two generations it seems that we've lost the culture and habit of savings. There's so much marketing pressure to spend and buy and have instant gratification. And if you can't buy it now, put it on your credit card."

The debt culture in America is sustained by credit-card and mortgage institutions. I have no space to explain these financial instruments in as much detail as I would have liked, but a brief sketch will suffice.

A credit card is a plastic card the size of an ID card which contains money lent to a holder by a bank for which interest will be paid at the end of every month. It operates like this: A bank, say UBA, convinced that you’re reliable and are capable of repaying debt, will lend you, say, 100,000 naira in credit.

You can spend the money as you wish. But at the end of every month, you’re required to pay a minimum of 10 percent of what you have spent from the money. You will also pay other fees called finance charges. And at the end of the year, you will be charged what’s called the APR (that is, annual percentage rate), which ranges from 20 to 40 percent of your total credit limit of 100,000 naira. If you default in your payment or spend above your credit line of 100,000 naira, you will be charged hefty penalty fees.

Credit cards, as you can imagine, give people a false sense of financial security. But more than that, they have made the American society socially unreadable: you cannot easily judge people’s real economic status by their material possessions. Everybody—or almost everybody— rides more expensive cars than they can ordinarily afford, and live in bigger and more expensive houses than their salaries can typically manage to pay for.

When I first came to this country, I was frankly confused by the unimaginably stupendous opulence I saw everywhere. My undergraduate students, mostly in their teens, were riding brand new, expensive SUVs (what we prefer to call jeeps in Nigeria). Well, more than half of the cars Americans drive are fuel-guzzling SUVs. Don’t even talk about their sartorial elegance that bespoke boundless prosperity—at least to my Nigerian eyes.

Then I realized that most people I related with “own” their homes; they are not renting. I said to myself, this country must truly be the place where honey and milk flow in the streets. Little kids ride brand new SUVs, most people own their houses, and not many people seemed to lack anything they wanted. But when I asked what the annual incomes of some of my friends were, I couldn’t reconcile their lavish affluence with their earnings.

Before long, I learned that it’s all credit-card-induced wealth. Almost everything that most people own here is on credit. Some people, in fact, cannot repay their debts in their entire lifetime. I found that scary.

So in my first year of living here, I swore that I would never get a credit card. For one, I hate to be indebted to anyone—when I can help it. Debt oppresses me like an incubus and sucks my equanimity in ways that defy expression. That is why I like live within my means, even if this means I have to endure a lot of self-denial. The credit card culture makes people live substantially above their real means. And I didn’t want to fall into the huge ocean of debt that I saw many of my American friends swimming in.

The second reason for my reluctance, which is related to the first, is cultural or, if you like, religious. I was brought up by a fastidious Muslim cleric of a father who socialized me from my formative years to develop a strong distaste for—and indeed fear of—debt, especially usurious debt. I didn’t think I would overgrow that socialization.

But after only one year of consciously resisting the lure of “free” money, my resolve was finally broken. The truth is that it’s practically impossible to avoid debt or, to be sure, credit cards if you live in this country. You can only do so at the expense of a hell of a lot of self-abnegation. As I will show later, the credit card has become the measuring rod for people’s trustworthiness.

For instance one day in Louisiana my friend from Portugal who was studying for a mater’s degree in engineering asked me to accompany him to buy a cell phone. He was excited at the thought that he would finally have his cell phone and be able stay constantly in touch with his family back home. What happened shocked us.

When he wanted to pay, the sales representative of the phone company asked for his credit card. “I have no credit card, but I have cash,” he said, thinking he would impress the sales representative with his “cash liquidity.” But the sales rep said her company would not accept cash. “We only accept credit cards,” she said.

We exchanged bewildered glances. My friend then said he had a debit card, which is like a credit card, except that the money is drawn from your actual income in a current account (what Americans call “checking account”) with a bank. The sales reps insisted that she would only accept credit cards. We went to two other cell phone companies. The story was the same.

To be concluded next week
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