A GUY"S VIEW:A householder’s saving strategy
Judy Jones lived all her life at Bush Hall, St. Michael. She was a single mother who worked hard to raise her children in the best way she knew how. In addition to instilling proper discipline in them, she taught them the importance of a good education, giving an honest day’s work for an honest day’s pay, and the careful and judicious management of their monies.
When her children started to work she drilled into their heads the importance of saving for a rainy day. “If you spend all you have today, you will have nothing for tomorrow”, she was wont to say. She did her best to demonstrate these principles to them by her example.
Ms. Jones started out as a clerk in the public service and rose to middle management. Through prudent saving, combined with strategic loans and a fairly burdensome mortgage, she was able to build a decent home for her family. But she was always in debt.
Ms. Jones was not afraid of debt. She knew that she would always owe some bank or credit union, but she saw this as a necessary evil to enjoy the life she wanted. She was careful never to lapse in the payments to those she owed. In addition, she paid all her taxes, even if a little late at times.
Remarkably, Ms. Jones was able to set aside a little of her income in a credit union account. There was never a large deposit, but her regular small amounts added up over time.
She thought she was fortunate to have access to so many offers of money from so many lenders. The commercial banks were all offering great loan deals. The leading credit unions also pitched the benefits of borrowing from them. And then, out of a clear blue sky, there were other non-bank lenders that started to offer loans to all and sundry.
She was particularly impressed with one institution that promoted the wisdom of leaving your savings in tact while borrowing to do the things that needed to be done. That sounded like a gift from heaven, so she decided that she would borrow $75,000.00 to give her house a face lift. The estimate she had for the job was $50,000.00. She surmised that she
could spend the $50,000.00 on her house and deposit the remainder to her savings. It was not often that she was able to add $25,000.00 to her savings at one go. This deposit brought her savings to a little over $200,000.00.
When her next bank statement arrived in the mail, she called her children and laid it on the table before them. “I never had a big job”, she said, “but look at that.”
They were impressed, for although they were better educated than their mother, and all had better paying jobs, none of them could point to $200,000.00 in savings.
As Christmas approached, both the banks and the credit unions advertised their Christmas loans. The bright red and gold advertisement read, “Easily have the fantastic Christmas you want with our special Christmas loans. No qualification necessary”.
Wow. Her home was well appointed and she needed to add nothing, but she saw the opportunity to add to her savings. She could borrow another $25,000.00 and add to her savings and pay back over time. She decided to go for it.
She had a wonderful Christmas that year. Her entire family assembled at her home and they enjoyed everything that is common on the best local Christmas table. That afternoon, while sipping some falernum and coconut water, she was telling the gathering of the goodness of God to her. She had been blessed with the comforts of life and growing savings.
Sandra, a country cousin, asked her how she managed to accumulate such good savings. Judy did not hesitate to explain her strategy. “At first I saved a little of whatever I worked for or what these children father gave me for them. And then I realised that I could save faster if I borrowed and pay back over time.”
Sandra paused and appeared to be thinking for a while. She looked a bit puzzled. Slowly, and almost haltingly, she asked, “Judy, how much interest you get on your savings?”
“Girl, when I started saving, interest used to add a good penny, but now the interest can’t even cover the bank charges. I don’t know why the Central Bank don’t do something with these bank charges. They ridiculous.”
“Wait, you still paying back these loans, right! What interest you paying?”, a mystified Sandra asked.
“It depends. On one it is 8 percent and on two others it is about 12 percent. But my mortgage is only 5 percent.”
There was a short heavy silence in the room. It was as if they were all hearing this information for the first time, although, but for Sandra, they had all heard of Judy’s impressive savings before. Judy too, was confused, but not about the information she had shared. She could not understand the sudden silence and thoughtful looks.
Everyone went back to the ham and the drinks and avoided eye contact with Judy. But Judy did not let it go. She pursued Sandra, so Sandra spoke. “It ever occurred to you that you may be worse off by borrowing to save and having to pay back at interest rates that are higher than you receive on the savings?”
“What you talking about? I could never have $250,000.00 in the bank if I had not been borrowing so much money.”
“And how much money you owe the people?”
Sandra waited for an answer that did not come. So she continued: “It can’t be less than $500,000.00. And if you slip, you slide. Miss a payment and see what happens. You behaving like a Government that borrowing money to make the foreign reserves look good and boasting about how much money you have. You realise that you
did not earn your savings and you paying more than you have? You will die and leave debt for your children to pay.”
Her children were thoughtful, but Judy exchanged the falernum and coconut water for a straight white rum.