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The normalisation of lending is a huge issue in general. There's a pervasive idea that being able to actually afford things is abnormal. That everyone should j
by esotericn 8y ago
The normalisation of lending is a huge issue in general.
There's a pervasive idea that being able to actually afford things is abnormal. That everyone should just take a loan out for education. For a car. For a house. For a cellphone.
Yes, there are benefits to being able to get things 'earlier' than otherwise would be possible. And if everything goes right, the situation a borrower is in at the end of a loan may be better than had they not taken it.
But the actual result of this seems to be that, for example, ~everyone in Britain is tied into full-time employment to pay off various creditors.
It's commonly posted on here that the average American has savings amounting to effectively a bag of crisps.
That's the obvious result if you use every available bit of income, even if it's "investing" for a future that never comes.
- nicoburns 8y agoAgreed, although student loans are a little different in this regard, as repayment us only due while earning.
- clairity 8y agoit’s very reasonable to take out a loan for an income producing asset (like education), as long as the expected return is greater than the cost of the loan. but those sensible loans have also normalized loans for non-income producing assets, and that’s where it’s better to be able to pay up-front (unless you get an interest rate below inflation or the fed rate).
- esotericn 8y agoThe variance is more important than the EV. An individual human is N=1. It's a single trial. You only live once. ;) An example would be taking out a mortgage. The highest EV is generally mortgaging yourself to the hilt. But in various circumstances, you'll then lose everything. Oh, and during the period you've basically given yourself a guaranteed annual cost you can't discharge without potentially taking huge losses on a house. (In the student loan example, you stay for the period, or you get no fancy bit of paper at all).
- clairity 8y agoyes, i've assumed a functioning market where the interest rate correctly accounts for risk, but that does mean a small but non-zero chance of loss. but simply being alive is risky; there are no guarantees in life.
- basch 8y agoget rid of banks, and make tuition a combination of % of income for x years, combined in with some kind of social good calculation, so charity type work can count more than what it pays.
- clairity 8y agoi'm not sure getting rid of banks would be appropriate, but i agree about pricing in positive externalities!
- sjg007 8y agoThe economy does feel like a game of musical chairs at times.