Interest irresponsibility

An investment in knowledge pays the best interest.

- Benjamin Franklin -

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A few weeks ago, I had breakfast with a friend who works for a bank in debt collection; she chases people who have failed to pay credit cards, personal loans or mortgages.

We were talking about society, morally, ethically and financially, and how far off the rails it seems and I mentioned gambling as an example. There seems to be a new online/mobile betting app every day and I wondered how people manage to pay for it considering the rising cost of living.

My friend said, credit. Yep, I figured.

Clearly some are able to pay for their habit [addiction?] however she told me of the incredibly large number of people in credit card debt, which they're unable to repay, due to Ladbrokes, Bet326, Sportsbet, Neds, BetR, Moneyball, BoomBet, Dabble and so on. - There's many many more betting apps besides those also.

Apparently, users do a cash transfer from their credit card to the betting app of their choice, sometimes multiple aps, and away they go, often proceeding to lose it and doing another transfer and so on in an endless cycle.

The interesting thing, and most people probably don't know this, is that the cash transfer isn't classed as a purchase and so interest is charged immediately rather than there being a 55-day interest-free period like there is on purchases. Hmm, that means a $100 transfer incurs interest charged at around 22-24% from the moment it's transferred. Yep, that's going to add up, and not in a good way.

I knew that cash transfers from credit cards are not considered a purchase and so that interest rate is charged immediately, but transfers to betting apps not being deemed a purchase was new to me; it makes sense though.

I don't gamble and on the odd occasions I did in the past it was a special occasion thing like when I'm in the casino in Monte Carlo or some such thing; even then, I have a limit €100 usually and once it's gone I just walk around soaking up the atmosphere. When back home in Australia, I never gamble. So many people do though and with the situation with the credit transfer thing...it's no wonder people get themselves into credit-debt trouble.

My friend also said they get people paying their mortgages and loans with their credit cards in exactly the same way and, that's not deemed a purchase either, so interest is charged immediately, at credit card rates, so 22-24%. Considering the variable home loan interest rate is around 5% currently it doesn't make a lot of sense to be using funds to pay it off that incur 22-24% interest right?

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The conversation flowed on and away from nutbags who have no financial sense, or responsibility, but the thoughts lingered afterwards.

The cost of living in Australia is skyrocketing, with consumer goods and services up month on month and mortgage interest rates climbing. I know many are struggling and a lot of them are working on how to mitigate the impact.

I remember saying a couple years ago that this will happen and that the smart people are the ones preparing for it...I prepared, even though I'm not even that smart. Still, many are trying to work around it in innovative ways now and doing something late is better than doing nothing at all. Many are still doing nothing and I wonder what life will look like for them moving forward.

The gambling situation, well that's often an addiction that people need help to overcome...financial irresponsibility isn't an addiction though, however consumerism probably is.

The sad thing is, the answers, knowledge and understanding around simple financial matters like credit interest are all readily available. It's easy to blame the banks for making credit too easy to obtain, I blame them for it for sure, but what happened to people taking responsibility for themselves, purchasing habits and financial situations? Is it the banks fault people spend when they should not? Does the bank force a person to gamble their money away or buy things they don't need? Nope.

What's your thoughts on the matter?

Do you feel society is too quick to blame banks for the financial woes it brings upon itself? Have you been caught out with credit debt and not understanding the way interest on credit works? Do you have irresponsible spending habits that hold you in credit debt? Feel free to comment on this topic if you would like, I'm interested to hear your thoughts or experiences.