Life and debt

Do we live to spend or spend to live?

Executive Magazine - - FRONT PAGE - Words by Olga Habre

seven years ago Leila (a pseu­do­nym) and her hus­band be­gan their life to­gether. Like most cou­ples in Le­banon, they felt pres­sured to pur­chase a home right away in­stead of rent­ing, so they took out a 30-year hous­ing loan. Their fam­i­lies wanted a big Lebanese wed­ding, but the young cou­ple could not a ord one on their salaries, so they took on a ve-year per­sonal loan to pay for the cel­e­bra­tion, hon­ey­moon, and some fur­ni­ture for their new apart­ment. hortly a er­ward, Leila also took out a ve-year loan for a car.

Lebanese tra­di­tions are be­com­ing in­creas­ingly dif cult to ad­here to. lthough they are a dou­ble in­come fam­ily, Leila and her hus­band nd it im­pos­si­ble to live on their salaries alone. Now with chil­dren, they worry that in the un­ex­pected case that one of them loses their job, they would not be able to keep up with their monthly debt re­pay­ments, which would spell dis­as­ter. De­spite this pres­sure, Leila says she does not re­gret their de­ci­sions, ra­tion­al­iz­ing them as the only way her fam­ily can live a com­fort­able life where they can buy and ex­pe­ri­ence the things they want.

In fact, many Lebanese now con­sider tak­ing on debt as the only way to live. Lebanese mer­i­can niver­sity (L ) sso­ci­ate ro­fes­sor aya arah, who teaches con­sumer be­hav­ior, says that with­out ac­cu­mu­lat­ing debt, many Lebanese put o signi cant life choices such as get­ting mar­ried. In the past, a young cou­ple may have re­ceived nan­cial as­sis­tance from their fam­ily, but a sink­ing econ­omy means most peo­ple are strug­gling and can­not a ord to help out. ddi­tion­ally, arah says that Le­banon is pro­gres­sively mov­ing from a col­lec­tive to an in­di­vid­u­al­is­tic so­ci­ety, so young cou­ples are in­creas­ingly on their own when it comes to nances.

LIV­ING LARGE

Why this need for huge wed­dings at all? The Lebanese are known for show­ing o and liv­ing large, and wed­dings are no­to­ri­ously “ex­tra.” Last month, Lebanese so­cialite lice bdel ziz s wed­ding pho­tos went vi­ral, amid claims that their wed­ding cake was of a record­break­ing size—she and the groom were pic­tured phys­i­cally stand­ing in­side the cake.

The fol­low­ing week­end, rince arry and eghan arkle s royal nup­tials were ridiculed by co­me­di­ans, who laughed about the wed­ding s sim­plic­ity com­pared to the lo­cal va­ri­ety, and joked that arkle s un­der­stated makeup was sim­pler than that of a Lebanese wo­man at the gym. Some Lebanese even took to so­cial me­dia to voice gen­uine crit­i­cisms of the “plain” wed­ding, im­ply­ing pride for Le­banon s over-the-top tra­di­tions and tastes. arah ex­plains that this is “the nou­veau­riche e ect,” the op­po­site of which is where the wealthy are com­fort­able with them­selves and do not feel the need to aunt their riches.

But it is not just wed­dings—even Lebanese fam­ily lunches are sprawl­ing, as are other so­cial oc­ca­sions. s it turns out, our need for these fes­tive oc­ca­sions is deeply rooted in the fab­ric of our so­ci­ety. ounaida l urdi, as­sis­tant pro­fes­sor of mar­ket­ing at the mer­i­can niver­sity of Beirut, ex­plains that, “all hu­mans want to achieve so­cial mo­bil­ity, or im­prove their stature in the eyes of their peers.” She says that the part of the world we live in is re­ferred to as a tribal so­ci­ety, where so­cial a airs and get-to­geth­ers are very im­por­tant be­cause they present op­por­tu­ni­ties to show o pos­ses­sions, and thus achieve so­cial mo­bil­ity. This ex­plains why many Lebanese love to dress up—a fancy dress or an ex­pen­sive watch sig­nal to oth­ers that you have wealth.

arah says that Le­banon is ma­te­ri­al­is­tic, which is a typ­i­cal char­ac­ter­is­tic of de­vel­op­ing coun­tries. “We call it con­spic­u­ous be­hav­ior, which refers to con­sump­tion where peo­ple want to dis­play their wealth and sta­tus through what they pos­sess,” she says. But what is the price we are will­ing to pay to feel ac­cepted or even en­vied by our peers? Jurdi laments that many seek so­cial mo­bil­ity even if it means get­ting buried in debt.

A GLOBAL CO­NUN­DRUM

This is not an ex­clu­sively Lebanese prob­lem. In the S, to­tal house­hold debt soared to over 3 tril­lion at the end of 0 , ac­cord­ing to a re­port by the ed­eral es­erve Bank of New ork. By the end of pril 0 , con­sumers in the owed . tril­lion, ac­cord­ing to N The oney har­ity.

The Lebanese are mov­ing from a cul­ture of sav­ing to credit, as il­lus­trated by Leila, who ad­mits she is liv­ing from loan-to-loan. It is hard to mea­sure ex­actly how in­debted the Lebanese re­ally are. While in­di­vid­ual banks have records on client debt, no na­tional data ex­ists. In ad­di­tion, Le­banon has a large shadow econ­omy—uno icial eco­nomic ac­tiv­ity ex­ist­ing along­side the coun­try s o icial econ­omy, such as loan sharks, uno icial deals that mer­chants o er clients, or even bor­row­ing from fam­ily.

Whether you blame ad­ver­tis­ing for whet­ting the world s ap­petite for con­sump­tion, the in­ter­net and so­cial me­dia for fu­el­ing the re, or the ease with which we now have ac­cess to credit, the en­tire world is sink­ing fur­ther into debt.

THE SCI­ENCE OF SPEND­ING

Stud­ies in be­hav­ioral eco­nom­ics look­ing at how hu­man de­ci­sion-mak­ing hap­pens have demon­strated that con­sumer be­hav­ior is rarely ra­tio­nal. In the 0s, Stan­ford niver­sity s fa­mous marsh­mal­low ex­per­i­ment claimed that kids who were will­ing to wait longer for a big­ger re­ward—or demon­strated dis­ci­pline and prac­ticed de­layed grati cation—were more likely to suc­ceed in life. ar­tic­i­pants in one ex­per­i­ment wanted to pun­ish un­fair play­ers so badly that they were will­ing to take a nan­cial hit them­selves to do so. In an­other ex­per­i­ment by Richard Thaler, fa­mous for the Nudge the­ory that won him the No­bel rize in 0 , stu­dent grades were ad­justed for a max­i­mum grade of 3 rather than 00, which re­sulted in an ir­ra­tional higher feel­ing of sat­is­fac­tion among the stu­dents, de­spite the fact their grades did not ac­tu­ally change.

Other ex­per­i­ments have looked at body lan­guage, eye move­ments, and neu­ro­science, such as RI scans of brain ac­tiv­ity and speci c re­gions and sub­re­gions that show in­creased ac­tiv­ity in re­sponse to speci c in­for­ma­tion stim­uli. These nd­ings can be ap­plied pos­i­tively—like nudg­ing—en­cour­ag­ing be­hav­iors that lead to a good out­come for in­di­vid­u­als and so­ci­eties, or mis­used by mar­keters to ma­nip­u­late con­sumers into ir­ra­tional spend­ing that can drive them into debt.

TUG­GING AT EMO­TIONS

Brands and ad­ver­tis­ers know this, and are o en ac­cused of ma­nip­u­lat­ing emo­tions and prey­ing on vul­ner bouli­ties to cash in (see page ). The meth­ods of do­ing this are get­ting more so­phis­ti­cated, with the most vul­ner­a­ble more likely to fall into the traps. The young are too in­ex­pe­ri­enced to un­der­stand the cost-bur­den of their spend­ing. The old may not be savvy to some tricky mar­ket­ing tac­tics. Low-wage earn­ers want a taste of the lux­ury they work so hard to try to achieve.

op cul­ture is also per­pet­u­at­ing con­sumerism, coin­ing phrases such as “re­tail ther­apy” to im­ply re­lief, and us­ing emo­tion­ally charged words, like say­ing you “de­serve” it, to de­lude the hard-work­ing every­man that they have toiled enough to pur­chase some­thing. The younger gen­er­a­tion has its own set of terms ( ear of iss­ing ut), L ( ou nly Live nce), and treat yo self.

When com­mu­ni­ties were smaller there were less peo­ple to im­press, but now we are bom­barded with (of­ten ex­ag­ger­ated) life­styles of the rich and in­sta-fa­mous. arah says, “Temp­ta­tion to spend is ev­ery­where, es­pe­cially with the preva­lence of so­cial me­dia where you can t es­cape ads and ads are tar­geted.”

If we give in, we o en try to jus­tify our con­sump­tion. arah gives the ex­am­ple of peo­ple ra­tion­al­iz­ing us­ing credit dur­ing sales be­cause they think that in the long-run they are sav­ing money by buy­ing items at a dis­count.

DEFIN­ING THE ESSEN­TIALS

any pur­chases we make are vi­tal to im­prove our qual­ity of life—home ap­pli­ances, cars, and the roofs over our heads are widely con­sid­ered ne­ces­si­ties. In a coun­try where pub­lic trans­porta­tion is o en un­avail- able or in­con­ve­nient, we may ar­gue that a car is es­sen­tial. But where do you draw the line be­tween a “reg­u­lar” home or ve­hi­cle and a “lux­ury” one? t the very least, we can say that a er a hous­ing or auto loan has been paid o , the bor­rower owns a phys­i­cal thing. It gets trick­ier when we talk about non-phys­i­cal things—like the trend of ex­pe­ri­ence-based spend­ing.

ow do you de ne “es­sen­tial” and draw the line be­tween a need and a want? Jurdi points out that, “what may be es­sen­tial for one per­son may be a lux­ury for an­other. Some­one may ab­so­lutely need to take a va­ca­tion for his her men­tal and emo­tional st boulity.”

If a wealthy in­di­vid­ual wants to spend money on ridicu­lous amounts of lux­ury items, no one can stop them, but what about those who bor­row money to live the high life? ur cul­ture teaches us to live in the mo­ment, ex­cept that in the con­text of eas­ily ac­ces­si­ble loans and credit cards what it s ac­tu­ally say­ing is that we can spend now and worry about pay­ing later.

LOANS FOR ALL SEA­SONS

Leila s case il­lus­trates a rel­a­tively typ­i­cal debt cy­cle that shi s with life s chang­ing needs. oung peo­ple take on debt to get an ed­u­ca­tion, view­ing it as an im­por­tant in­vest­ment. eo­ple buy cars. With mar­riage they can feel obliged to have large wed­dings and buy homes. Start­ing a fam­ily in­volves count­less other ex­penses. any peo­ple get sucked in fur­ther and some­times use debt to cover pre­vi­ous debts at in­creas­ingly high costs. (See story on loan o er­ings, page ).

lie bou halil, head of the group re­tail prod­ucts depart­ment at Byblos Bank, notes that when it comes to per­sonal loans, there is a ten­dency to take more than one, which is ex­actly what hap­pened with Leila. New­ly­weds (like Leila) are choos­ing to cel­e­brate be­yond their means, even if that means start­ing their new life to­gether with a neg­a­tive bank bal­ance. f course, there are those that opt out; des­ti­na­tion wed­dings seem to be on the rise be­cause they o en end up cost­ing much less for the cou­ple, but are o en frowned upon in Le­banon.

Banks have also be­come more in­no­va­tive in their o er­ings, like NB s no­to­ri­ous plas­tic surgery loan from a few years ago. Though many ridiculed this prod­uct and by ex­ten­sion Lebanese so­ci­ety, Sarah, (also a pseu­do­nym), took out such a loan to get weight-loss re­lated surgery. She has no re­grets, say­ing she is much hap­pier, and main­tains she paid for the surgery in a smart way be­cause she used her monthly in­ter­est to pay in­stall­ments.

But to­day there is an even eas­ier way to spend. ore and more peo­ple are turn­ing to the credit cards sit­ting so con­ve­niently in their wal­lets. This more ac­ces­si­ble al­ter­na­tive is also more risky be­cause peo­ple are less likely to think about their de­ci­sions when us­ing them. re­quently peo­ple get a credit card for emer­gen­cies only, but then slowly be­gin to use them for day-to­day ac­tiv­i­ties. arah cites stud­ies which show that credit cards fa­cil­i­tate the de­scent into debt as they do not in­volve the phys­i­cal act of tak­ing money out of a wal­let and see­ing bills dis­ap­pear. Banks also make it very at­trac­tive to use cards by o er­ing re­wards points, travel miles, and other in­cen­tives—all gen­uinely good payo s pro­vided you pay o your debts on time.

RE­SPON­SI­BLE LEND­ING

Le­banon has a very rudi­men­tary sys­tem of credit scor­ing or as­sess­ment of con­sumers credit his­to­ries, when com­pared with S and other de­vel­oped economies. bou halil says banks use the c s of credit (see box page ) to as­sess bor­row­ers, but ex­plains ul­ti­mately the bank needs to do its home­work “ ou don t lend sim­ply be­cause you can get col­lat­eral from the bor­rower. Banks used to do this 0- 0 years ago. To­day banks are an­a­lyz­ing risk more and are more aware that you should lend based on ca­pac­ity.”

Jurdi notes that bank loans are o en mar­keted us­ing pho­tos of ex­otic lo­ca­tions, lav­ish wed­dings, and smil­ing beau­ties hold­ing shop­ping bags, prey­ing on the hu­man need for in­stant grati cation. ean­while, the copy reads 0 per­cent in huge font.

ow­ever, banks are re­quired, in ac­cor­dance with BDL ir­cu­lar 3 , to re­veal the to­tal cost of prod­ucts in ads, or the an­nual per­cent­age rate ( R), which in­cludes all the costs the cus­tomer will have to stump up when tak­ing a loan. While this num­ber is re­quired it is usu­ally in the small print and most con­sumers do not even know what it means.

ind adel, head of mar­ket­ing at BSL says, “Banks have the re­spon­si­bil­ity to pro­vide con­sumers with full dis­clo­sure on prod­ucts de­tails such as terms and con­di­tions, or the to­tal cost ( R) etc., in order for them to make in­formed de­ci­sions.”

B L s ead of ar­ket­ing and om­mu­ni­ca­tions Dana lay­wan says their mar­ket­ing depart­ment plays a big role in pro­mot­ing prod­ucts, es­pe­cially since com­pe­ti­tion in the bank­ing in­dus­try is erce. Less com­mon prod­ucts need to be com­mu­ni­cated to tar­get au­di­ences through spe­cial chan­nels.

adel add that they en­cour­age re­spon­si­ble spend­ing: “We ad­vise our cus­tomers not to get in­debted for ad hoc en­ter­tain­ment, but rather bene t from loans to durably im­prove their well-be­ing.”

LEARN­ING TO READ THE NUM­BERS

The prob­lem is most peo­ple who fall into debt mean well. They are emo­tional, vul­ner­a­ble hu­mans, as­saulted with more temp­ta­tion than they can han­dle and don t have enough in­for­ma­tion to make sound de­ci­sions. inan­cial lit­er­acy is vi­tal and it is a global chal­lenge.

Byblos Bank has been pro­mot­ing nan­cial lit­er­acy for years. In a re­cent sur­vey with peo­ple aged to ,

they found that 0 per­cent have no idea how much they spent in the last month, per­cent have no sav­ings, per­cent need ad­di­tional in­for­ma­tion about nan­cial prod­ucts, and 3 per­cent say their main source of stress is nan­cial trou­bles, more so than health, fam­ily, and ca­reer con­cerns.

ne of Byblos Bank s ini­tia­tives is a daily two-minute seg­ment on lo­cal T sta­tion LB I called “ akker aliyan” (Think inan­cially). It ad­dresses a spec­trum of top­ics in fun videos that are also avail­able on their web­site. These videos, along with reg­u­lar news­pa­per ar­ti­cles and the N S RT boot­camp se­ries, teach im­por­tant prin­ci­ples of bank­ing such as sav­ing, spend­ing, bor­row­ing, and in­vest­ing. Such in­for­ma­tion en­hances con­sumers boulity to make the right de­ci­sions and un­der­stand­ing the con­se­quences of bad ones.

any other Lebanese banks, in­clud­ing Bank udi, Bank Libano- ran­caise, Bank of Beirut, BL Bank, S BL, and Jam­mal Trust Bank, have had nan­cial lit­er­acy pro­grams in part­ner­ships with schools and other or­ga­ni­za­tions across Le­banon, such as The In­sti­tut des inances Basil ulei­han (a inance in­istry-run civil ser­vice learn­ing cen­ter), and the ed­u­ca­tional N INJ .

ll the ex­perts xec­u­tive Life spoke to for this ar­ti­cle agree that nan­cial lit­er­acy needs to start early on. Schools need to in­te­grate nan­cial lit­er­acy into the cur­ricu­lum, and what lit­tle is cur­rently be­ing done is not enough, says arah, adding that many par­ents are not aware of the im­por­tance of these skills. She is al­ready teach­ing her six-year-old son about money, giv­ing him a weekly al­lowance, train­ing him to save, and some­times bor­row­ing from him, re­turn­ing his money with in­ter­est. “If schools don t teach nan­cial lit­er­acy we will be rais­ing kids with re­volv­ing debts,” she says.

xperts also agree that nan­cial lit­er­acy needs to be taught on a na­tional level. ccord­ing to a 0 re­port by the rga­ni­za­tion for co­nomic De­vel­op­ment and oop­er­a­tion ( D), sug­gested rec­om­men­da­tions in­clude start­ing nan­cial ed­u­ca­tion early and ide­ally in school, strength­en­ing ba­sic nan­cial knowl­edge across the pop­u­la­tion, en­cour­ag­ing be­hav­iors to im­prove nan­cial re­silience, im­prov­ing con­sumer pro­tec­tion, en­hanc­ing the pen­sion sys­tem, and in­creas­ing nan­cial in­clu­sion.

arah clari es that “debt is not bad in it­self. It is bad when it is badly planned or used for non-es­sen­tial things, and nan­cial lit­er­acy helps you make that dis­tinc­tion.” lti­mately knowl­edge is power and our only way out of this nan­cial pan­demic is to equip our­selves and our chil­dren with the skills needed to nav­i­gate the con­sumerist mine eld, so we are al­ways ready to make in­formed, rather than emo­tional de­ci­sions about what to do with our hard-earned cash.

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