Interlude: Give me some credit

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on September 2, 2019 - September 08, 2019.
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I am in my early thirties and have been working for almost 10 years. I have never owned a credit card, nor do I plan to. I think I am reasonably tuned into the mechanics of credit cards, but I have never understood the rationale for wanting one.

The concept of borrowing from tomorrow to pay for today has always seemed strange to me, even for emergencies or other unforeseen expenses. I think the reason for this is that since I started working, I have developed a kind of low-grade anxiety about never having enough money.

This was completely out of character for me because I was never particularly thrifty growing up. My parents worked very hard to take care of us, so we never really struggled for money. But for some reason, once I graduated into full-time employment, I put money away with a vengeance.

I would typically channel anywhere between 15% and 20% of my salary into a rainy day fund which, now that I think about it, has helped me skirt around the need for an emergency credit card. In addition, I have a fast growing basket of very low-fee investments. I was adamant about investing in low-fee assets with no holding periods, sales charges or withdrawal fees. This way, my investment accounts could double up as additional emergency liquidity with minimal cost implications.

Emergencies aside, there is the “good credit history” rationale. People take out a credit card to build a favourable credit history, presumably by demonstrating that they can pay off credit card debt quickly and consistently. Many do this so they can take on loans from banks in the future. “I do not swipe it on big expenses that I know I cannot afford,” my friend once said, as he swiped a brand new card on a RM900 booze bill.

We were second-year college students working call-centre gigs for some extra pocket money. Do not get me wrong, I was grateful for that treat, but taken aback by that conversation. So, building a good credit history means running up a monthly debt on things you can just as easily buy with cash? Improve my credit by impairing my credit?

Credit cards generally give you a spending limit of a few times your monthly salary and truly, the prospect of that seemingly unfettered freedom is dangerously tempting. But if the conventional wisdom is to never spend more on your credit card than you can afford (what a person can afford being typically linked to his income in most cases), then how necessary is it really for a person to have a spending limit of a few times his monthly salary to begin with?

A couple of years ago, I came across a financial term on the internet. At first, I laughed it off as financial blog clickbait. But imagine my surprise when sometime last year, the word ended up on Investopedia’s glossary of financial terms. The word in question is “deadbeat”.

Trust me, it is not what you think it means. Ordinarily, it refers to a person who does not follow through on his responsibilities. Like a divorced parent who does not contribute child support payments or a friend who conveniently forgets that it is his turn to buy the drinks.

But in the payment cards business, deadbeat is an unofficial, derogatory term for people who diligently pare down their monthly credit card bills without carrying over any expenses, thereby never racking up those lucrative interest charges.

It feels strange that an otherwise responsible paymaster should be labelled a deadbeat by his credit card provider. Isn’t this what every creditor in the world wants — a good paymaster?

But this is not a question of good and bad. This is just the way of the world. We are wired to want good things for ourselves. There is absolutely nothing wrong with this.

However, we sometimes want things we have not strictly earned, by which I mean things we truly cannot afford on our present income. But to me, satisfying these wants on credit is akin to merely peeking through a window into a life that is otherwise closed off.

I do not think I am content with just sticking my head through the window. I want to own the house at some point. I want to be the one earning the big interest someday. And maybe, just maybe, I would like to buy a round of drinks for some old friends. In cash, of course.