x Abu Dhabi, UAEWednesday 26 July 2017

Art of using credit is in the hands of the cardholder

How many people are getting away with this pre-global financial crisis attitude towards spending and credit?

Illustration by Gary Clement for The National
Illustration by Gary Clement for The National

What are the odds?

Twice in one week, I've come across the same question: "When [or where] can I buy a credit card?"

The first was from my nine-year-old daughter, who is still learning about financial literacy. So her question is understandable - even if my reply was unequivocal.

"You don't buy credit cards," I told her.

"Why?" she replied.

"Because you need a job and a regular salary before you can apply for one at the bank. And then you have to pay them off every month so you don't rack up the high interest on them."

"What's a salary?

"That's what you get in return for working, what you get paid every month by your company."

"Oh," she said.

"Well, when I grow up, I'm going to be the president of a country and everybody can live there for free. We will grow our own food. And build our own houses. And have those big wind things [I'm guessing that she'll be harnessing the power of wind turbines]. And get our credit cards for nothing."

"Which country are you going to be president of?"

"I'm just going to wait until somebody gives me one."

So it's back to the drawing board for us, then.

Either that, or she's a hippie at heart and will be setting up a small commune with friends. And then come home every week to do her washing and eat something decent. It's a good thing she can make toast and scrambled eggs already. Next lesson: the washing machine and a quick run down on GDP and sovereign debt just in case she does get that country. Can't have her running it into the ground like Greece or Spain, can we?

Anyway, my second "where can I buy a credit card" moment came a few days later, when I was looking at the Abu Dhabi Woman's website (www.abudhabiwoman.com).

Somebody had posted the following: "I shop a lot and would like to buy a credit card. Which is the best credit card for a shopaholic person like me?"

For a moment there, I had a frightening thought: my daughter had posted it because she was seeking "better" advice from somebody other than (gasp!) her mother.

But then I realised that was impossible. She doesn't know what a shopaholic is. And never will if I have anything to do with it.

Despite the immaturity of the question, it was just too tempting not to reply.

"Shopaholics should be banned from having credit cards ... and you don't buy them," I replied.

"You need a job with a regular salary and the money skills to be able to handle the responsibility of having one.

"From your comment, it doesn't sound like you are ready. Do yourself a favour and find another - cheaper - hobby that won't lead you into serious debt, which you probably can't pay."

So far, there's been no reaction to my comment from the original poster. But my reply did get three thumbs up.

But it makes you wonder: just how many people are getting away with this pre-global financial crisis attitude towards spending and credit? They still carry around a multitude of cards, most of which are maxed out. And then struggle to pay even the minimum balance on them because, collectively, it's too much money to outlay every month on so many cards.

It's hard to feel sorry for them, but some have paid a high price for their frivolous overspending and have ended up in jail.

We know that's not the answer, more so when banks end up with a non-performing loan on their books that is unlikely to be paid because the person responsible for it is in jail and can't get out until it's paid. It's a no-win situation for both parties.

That long-promised Federal Credit Bureau, which would give all banks in the UAE access to a registry of borrowers, is needed urgently to prevent irresponsible people from applying for more than one credit card that should only ever carry a limit that is a true reflection of their earnings.

Privately, though, I think it should also be a requirement that people applying for credit cards have to prove they can use them responsibly and have the means to pay them off in full every month - more so if it means saving them from a life of unmanageable debt that is compounded by high interest rates.

If they can't, then perhaps a debit card is the best way to start. Let them run out of their own money - and learn from the consequences of it - before letting them loose on a high-interest credit card.

Now that's a valuable lesson. What do you think?