Life and debt

Do we live to spend or spend to live?

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.