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Ursa Minor

The Credit Boom And Wage Payments

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Hi

I just wanted to try out a little hypothesis on you guys.

Years ago, many people (most?) were paid weekly, cash in their hand. Mostly people only borrowed to buy a house (with a mortgage) but credit cards, hire purchase etc was much less common than today. A lot of people subscribed to the idea that debt was generally bad.

Over time, we have moved to the position where most of us are paid monthly, and directly into the bank. (Is anyone still legally paid with cash anymore?) And at the same time there has been a rise in the amount of credit available to Mr Average, and the amount the average person is prepared to shoulder.

Now some of this is of course due to changing attitudes to debt, and a move from a delayed reward culture to "I want it NOW" culture. My hypothesis is as part of that changing attitude, switching from weekly to monthly pay makes us feel richer and consequently debt feels smaller.

e.g.

Scenario 1

Net Pay = £250pw

Debt payment = £50

Ouch! That feels like a big chunk out of a weekly wage!

Scenario 2

Net Pay = £1083.33pm

Debt payment = £216.67pm

Although the proportions are exactly the same (feel free to check my maths), I wonder if many people would feel like Scenario 1 had a bigger outgoing than Scenario 2?

Any thoughts?

Ursa Minor

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Hi

I just wanted to try out a little hypothesis on you guys.

Years ago, many people (most?) were paid weekly, cash in their hand. Mostly people only borrowed to buy a house (with a mortgage) but credit cards, hire purchase etc was much less common than today. A lot of people subscribed to the idea that debt was generally bad.

Over time, we have moved to the position where most of us are paid monthly, and directly into the bank. (Is anyone still legally paid with cash anymore?) And at the same time there has been a rise in the amount of credit available to Mr Average, and the amount the average person is prepared to shoulder.

Now some of this is of course due to changing attitudes to debt, and a move from a delayed reward culture to "I want it NOW" culture. My hypothesis is as part of that changing attitude, switching from weekly to monthly pay makes us feel richer and consequently debt feels smaller.

e.g.

Scenario 1

Net Pay = £250pw

Debt payment = £50

Ouch! That feels like a big chunk out of a weekly wage!

Scenario 2

Net Pay = £1083.33pm

Debt payment = £216.67pm

Although the proportions are exactly the same (feel free to check my maths), I wonder if many people would feel like Scenario 1 had a bigger outgoing than Scenario 2?

Any thoughts?

Ursa Minor

You knew where you stood in the cash society. When the cash ran out, you couldn't buy any more stuff, unless you got it on tick, which was usually a very local credit agreement.

I think the ease with which we make transactions has contributed to the fashion for debt. Who's got a cheque book that they actually use anymore? Some petrol stations won't even accept cheques any longer.

Gas bill? Direct Debit.

Council Tax? Direct Debit.

Petrol? Put it on the debit/credit card.

Other stuff? Put it on the store/debit/credit card.

How many cash enterprises are left? You can even pay for a round of drinks with a card - and get cashback.

Window cleaners, wheelie bin cleaners and maybe some odd-job types are the only cash industries I can think of these days.

Inland Revenue, of course, hates cash. Much easier to track numbers in accounts.

Off topic? Oops, sorry. Nah, it still looks lime 20% debt payment to me.

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i pay with cash or cheque as i dont have a credit card, i pay my phone bill with cash at the post office, even though BT keep saying that 'it would be so much easier foryou to pay by direct debit' really? or is it easier for them to get the money ? im sure it annoys some companies when i pay by cheque as they have to wait for payment to clear etc, but the way i see it is the money's in my account longer and i have more control when i want to pay them. B)

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i pay with cash or cheque as i dont have a credit card, i pay my phone bill with cash at the post office, even though BT keep saying that 'it would be so much easier foryou to pay by direct debit' really? or is it easier for them to get the money ? im sure it annoys some companies when i pay by cheque as they have to wait for payment to clear etc, but the way i see it is the money's in my account longer and i have more control when i want to pay them. B)

I much prefer cash but for some things (hiring a car for example) you have to have a credit card.

I know what you mean about bills - what makes me really annoyed is the fact that if you are on monthly direct debit with many utility companies, you get a discount, but if you prefer to pay your bill quarterly you don't. How crap is that?

UM

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Now which will be the first Government to withdraw cash and insist on computer transactions for everything?

Or that, of course, all transactions should be recorded on, let's say, something resembling an ID card.

Purely to ensure tax compliance of course.

No cash in circulation and want to sell something? Simple, you do the funds transfer either at the official Government transfer station or pay a charge to a commercial operator such as your local supermarket.

The cashless society with all transactions recorded is an Exchequer's dream come true.

Edited by Mushroom

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Guest magnoliawalls

Now which will be the first Government to withdraw cash and insist on computer transactions for everything?

Or that, of course, all transactions should be recorded on, let's say, something resembling an ID card.

Purely to ensure tax compliance of course.

No cash in circulation and want to sell something? Simple, you do the funds transfer either at the official Government transfer station or pay a charge to a commercial operator such as your local supermarket.

The cashless society with all transactions recorded is an Exchequer's dream come true.

If such a thing was possible - I suspect we would revert to more 'payments in kind'.

When I have visited developing countries people have always offered to trade goods with me - I've paid for food and mementos with pens, socks, hairclips, bracelets, books and necklaces.

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I hate paying for stuff in cash you have to go to the bank and get it out and you end up with loads of small change. Also using Internet banks is just so much easier unless you like spending your lunch breaks queing up behind 50 old people using the bank as a social gathering.

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If such a thing was possible - I suspect we would revert to more 'payments in kind'.

When I have visited developing countries people have always offered to trade goods with me - I've paid for food and mementos with pens, socks, hairclips, bracelets, books and necklaces.

Very possible of course but what I didn't suggest would be another official reason for this is that it would be claimed that the cashless society would impact on and reduce much property based crime.

That's how I'd spin it.

The drug dealer is going to find it hard to extract enough "in kind" from his/her customers.Similarly for prostitution.

How many paperclips do you give me for my £4000 car?

What do I trade the paperclips for?

Oh dear back to how it all started. The paperclip as a unit of currency!

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I just wanted to try out a little hypothesis on you guys.

Years ago, many people (most?) were paid weekly, cash in their hand. Mostly people only borrowed to buy a house (with a mortgage) but credit cards, hire purchase etc was much less common than today. A lot of people subscribed to the idea that debt was generally bad.

[...]

Now some of this is of course due to changing attitudes to debt, and a move from a delayed reward culture to "I want it NOW" culture. My hypothesis is as part of that changing attitude, switching from weekly to monthly pay makes us feel richer and consequently debt feels smaller.

[...]

Any thoughts?

Ursa Minor

I don't buy the "I want it NOW" hypothesis (i.e. that people have become more materialistic and showy in the last 10-15 years). 'Twas ever thus. Rather, I think changes in attitudes arise from the interplay of macroeconomic and psychological factors.

I think the attitude "debt is bad" was widespread in the pre-1970s era. It stemmed from the fact that whatever inflation was doing, the cost of borrowing was far above inflation. Basically, if the average working class person wanted credit they had to go to the equivalent of today's loan shark, charging very high rates. So debt really was "bad".

As time has gone on, two things have happened.

1) Increased competition, efficiency and economies of scale in financial institutions has meant that the cost of debt is fairly low relative to inflation. All things being equal, this meant that debt shifted from being "definitely bad" to being "a bit bad".

2) During the 70s and 80s, there was massive wage and asset inflation. For this period, if debts were secured on assets retaining their value long term, the consequences of debt shifted from being "a bit bad" to "not that bad at all" and could in fact be "good". See my earlier comments on the "Property Ladder" belief in other threads.

Today, the wage inflation is long gone. But this is where the psychology comes in: the attitude to debt, left over from the 70s and 80s is still around.

frugalista

Edited by frugalista

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Today, the wage inflation is long gone. But this is where the psychology comes in: the attitude to debt, left over from the 70s and 80s is still around.

frugalista

People born after 1980 love debt.

It's not a badge of shame, it's a thing to brag about.

Except when they get home to their mum and dads house and think "oh sh1t, how the fu*k am I going to make enough money to pay fill in the blank bill off? ebay some stuff - yeah, i'll ebay some stuff"

My heart bleeds for them.

Anyone still paying for last Christmas should be put out of their misery.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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