Individual financial suicide? That is truly an easy thing to do if you are not careful while living in Turkey. There are two dangerous patterns here: credit cards and easy bank loans.
There is no doubt that credit cards are a vital part of living here. It is not very surprising since, for years, Turkey was plagued by very high annual inflation rates. When I arrived in 1999, it was 64.9 percent.
At that time, even though I was happy to be able to hold my first million, it was a scary indication of how terrible the economy was since that million was only enough to buy a few loaves of bread. Carrying a large sum of cash to buy things with was not the smartest thing to do, so people had resorted to using credit cards in place of cash. At that time, the concept of buying your things using what Turks call “taksit” (monthly installments) was a very wise thing to do since prices increased almost every time you entered a store. That was why it was better to buy things before their prices increased and then divide the payments over several months. Türks got used to this concept.
As years went by, the concept of taksit kept on getting better. Originally just three or four monthly payments, business owners have now made deals with banks to allow their customers to extend their monthly payments over 12 months (or even more). It was indeed a good strategy to attract potential customers and encourage people to buy more.
However, the inflation rate has gotten much better, decreasing from 64.9 percent in 1999 to 9.8 percent in 2007, and prices do not increase as often as they used to. Therefore, the reason why installment plans became so popular nine years ago is no longer applicable. But the concept of buying on installments has been in society for so long that people, including myself, simply see it as a part of life. It is a good thing, too. If you need to buy a fridge, for example, but do not have enough cash, what do you do? Paying for the fridge on a monthly basis over 12 months is definitely the best way to go about it. How many people do you know who can afford to pay the lump sum?
Unfortunately, those who are not careful pay for everything -- from their groceries to their clothing to their household expenses -- in installments without budgeting. Buying one thing after another on credit, even though the amounts may be small, some people eventually find themselves in debt with their bank, barely able to make the monthly payments. As a result, some resort to making only the minimum monthly payment on their credit cards to make ends meet, but they continue paying for future purchases in installments and end up stuck in the trap of skyrocketing interest. This is a good thing for the bank, naturally, but it is definitely a bad situation for the credit card user. So how do you get out of this?
Ah, that is easy, people might say, get a bank loan. I just can’t believe how easily loans are given out to people here in Turkey. By just sending a message with Turkish ID numbers, for example, one can get an easy loan. Almost all banks are giving loans very easily to people, at times causing me to wonder, “Don’t Turkish people realize that these loans and these monthly payments are, after all, debt? Why go from one debt to another?”
Many have fallen into this financial trap. Easy monthly payments and easy loans are good only when you know how to budget your expenses. The fact that they are debt does not change, and in this global financial crisis, who can say that we will still be in the same financial situation we were a month ago? Will we be able to make all the payments in the future? We need to be careful. No matter how fascinating it is to make small monthly payments each month on things we buy, we still need to carefully consider what we can and cannot afford. We have to ask ourselves, “Do we really need to buy this?” Just be careful. Plan your needs to avoid ending up in a financial mess. Going bankrupt is not worth it.
14 November 2008, Friday
SIMAH ZAİM İSTANBUL
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