Last week, the Treasurer outlined the financial realities facing our Parish. In doing so, the Treasurer highlighted that for a period of at least 10 years the Parish has been spending more than it has been taking in.laid out a plan to get the Parish back to financial health . It calls for more members of the Parish to give more.
The Rector has requested that I lay out such facts, which may help us all understand, what may or may not be the capacity of our parishioners to give more.
It is logical for a discussion on economic matters to begin with the size of what is commonly called "The Economy". You may think of the Economy as a PIE which is large enough for everyone IN THE Country to get a slice and for the Government to get an extra-large slice. For those who wish more specific, a formal measure as shown on the handout under the column headed "GDP - Constant Dollars".
1. TWO GENERATIONS
In an effort to develop a shared view as to where we are and how we got here, I shall go back to 1970 and break the review into two time frames or generations, so to speak. Say 1970 to about 1990. Then 1991 onward.
The handout does not provide information for 1970 to 1980, partly because during parts of this period there was no Department of Statistics or Central Bank to produce the data. However a Report from The Inter-American Development Bank provides the details that between 1970 to 1979, the size of the Economy grew by an average of 3.3 per cent. Then when we look at the handout you would notice that between 1980 to 1990 The PIE grew again, - each year, except in 1981. AND while the PIE did not grow in 1981, it did grow by over 6% each of 1982 and 1983.
Economically, by and large 1970 to 1990 were relatively good years.
2 A NEW ERA - BEGINNING IN 1991
Things changed in 1991. In fact, 1991 was a particularly brutal year. The average income of all persons in the country fell -more than 5%; the steepest decline in any prior year, OR SINCE.
3 WHAT HAS BEEN THE REALITY IN THE POST 1991 ERA?
Thus over a period of some 24 years FROM 1991, the average income per person actually grew - from about $20,000 to about $22,500 today. This represents an increase of about 14%. After allowing for the government's share of the PIE, the increase was about 8% over the 24 year period to date.
An increase of 8% over 24 years may not be seen as great but it does suggest that, on average, if we chose to maintain the style of life as they were in 1991 we would have been able to do so, since we are dealing here with dollars AFTER increases in the cost of living.
On average, "We, The People" chose not to do that. Some of the reasons included changing times. For example, in 1991 there was no cable service available and cell phones were not in wide use. But when they became available, in large numbers, we chose to make considerable use of each.
Some of the life style changes reflected changing habits. For example, the laundry mat increasingly replaced the clothes line. Fast food for many became a preferred option to cooking. Some changes were matters of taste - for example, we just knew we preferred a different brand of vehicle from the one we were comfortable with in 1991.
Whatever the reason for each change in lifestyle, none appeared to be about cutting back; about thrift or putting away something for a rainy day. Every change created a need for more money. This has created a challenge because while the income levels of today could have maintained us at the levels of 1991, (even AFTER increases in the cost of living), they cannot meet the changes in lifestyle and behavior patterns to which we have become accustomed since that time.
So, on average, we each have become comfortable with spending more than we earned. Year after year. Indeed, many persons have become oblivious to what prior
generations had proven and taught - when our OUT GO consistently exceeds our IN-COME, our UP-KEEP will become our DOWNFALL. Put differently, we simply cannot forever spend more than we make.
4 How Did We (As Individuals) Go About Meeting the Shortfall Between Our Level Of Income And The Choices We Made?
The answer is that we borrowed.
A huge amount of the new borrowings was strictly for what became widely known as "Consumer Loans", which are different from say mortgage loans or business loans. Consumer Loans are generally for personal uses, such as cars, and furniture, as well as activities which what one bank even calls "summer madness".
Tragically, therefore, there are persons who took out these consumer loans and today cannot even remember what they did with the money - certainly they have nothing meaningful to show for it.
A second tragedy is how much has been borrowed. The official record discloses that total consumer debt in 1991 was about $271Million or about $2,000 for every working person. By the end of 2014, the level of consumer debts had increase to almost $2.3 Billion Dollars or about $11,500 for every working person. Thus, from 1991 to 2014, our average income after taxes increased by about 8 percent but the level of our consumer loans went up by almost 500 percent.
That is based on the official records. But the official records are not the complete record. The true position is worse. How is this possible? Because there are businesses and / or persons who make consumer loans but do not report to the Central Bank. They are simply unregulated.
How did this explosion in consumer credit really begin? In 1991 to secure a consumer loan, government policy was that you had to have first saved something. Specially, if you wanted to borrow $1,000, you had have at least $350 of your own. Beginning in 1992 or early 1993, the Government decided that this policy was a "harsh restriction". So the need for any deposit was eliminated. You no longer had to save anything.
Then the Government went further. The Government:
Liberalized the practice of granting authorizations for "salary deductions".
Allowed the standard authorization to be effective for as long as you worked for the Government.
These policy changes have changed the practice of banking in the country. For example, for the bankers, the process of evaluating risk changed. Essentially it has been reduced to "bring a signed letter from your employer and come for the money." No more need for land papers as collateral. No life insurance? No problem. The Lender will in effect give you some life insurance and add the cost onto your loan payment. No medical examination necessary.
The absence of an expiration date on the salary deduction letter is also quite strategic. While an initial loan is for a defined period of time - (say three years), you have the ability to go back and "consolidate" other bills or "top up" your loan by stretching out the period of time you have to repay. The original salary deduction letter remains in effect. This can go on until you begin to approach the age of retirement. Then the free flow of loans must stop because by the time you retire you must owe the Bank nothing.
Everything has been made so easy. Getting a loan has become so quick.
More and more, the borrowers would never even ask the cost - that is the rate of interest being charged on the loan or the charges being added to the loan. Imagine the same people who spend great time going from food store to food store looking for the best deal would go and borrow money without even asking the price. Once the lender said that the loan is approved, the rate of interest is irrelevant. So is the level of fees being added. This is truly irrational. But irrational conduct is so common. No wonder rates of interest on consumer loans are commonly more than twice the rates charged for mortgage or business loan.
The consequences from the behavior which followed the policy changes is difficulty to overstate.
All of this conduct, this irrational behavior is not without serious consequences. Let's consider a few examples:
(a) For Individuals It Drastically Worsened Their Financial Position
On average, the typical person employed in the Bahamas is paying some $200 per month in interest and costs to borrow and maintain the consumer loans. This approximates 12% of the average available income per person. This is before any reduction on the amount owed on the loan.
(b) Lack Of control Over Our Income
Lenders insist on salary assignments because experience would have satisfied them that without it, many loans will never be repaid.
This is an important consideration, because, initially, the stated Government policy was that the maximum amount of a salary which could be paid via an authorization for "salary deduction" was 45%. Over a period of time, even that policy has changed. How?
A new policy was introduced to allow something called "exemptions", for "emergencies". The idea is to show that the policy is compassionate. But there is no need for the borrower to do anything to prove " the emergency." Thus the hole called "exemptions," has become so wide that, in practical terms, the policy of limiting the percentage of salary which can be assigned has been virtually abandoned.
Need proof? Consider this - I am advised that when the government prepares payroll, 72% goes to finance houses and not directly to the employee.
Think hard about that. The typical Government employee is actually seeing only 28% of his or her income. From that they must pay for groceries, cooking gas; utilities, costs related to vehicle and education for children. In many instances even rent. Worse still, to get to AN AVERAGE of 72%, it means that there are some borrowers where far more than 72% of the salary is assigned.
In so many individual cases, the capacity to tithe is simply not there. Even if there is a degree of desire to do so.
(c) Cascading Impact On Families And Friends
Often, to secure a consumer Loan, a borrower needs someone to "stand with them". This concept of "stand with" is different from a wedding where when the wedding reception is over the obligation ends. Instead, with lending, use of the term "stand with" disguises the reality that it is a legal guarantee - meaning that if the borrower does not pay then the person who "stood with" the borrower is obliged to do so.
Sometimes the guarantor is a brother or a sister or a dear friend. The first time he or she really appreciates what he or she did is when he or she receives a demand for payment from the lender. Then what does that brother or sister or dear friend find when he or she approach the borrower? Often that Ronnie Butler was right - many of us are "bad pay and we gat bad ways".
Relationships are ruined.
Sometimes it becomes more complicated because the guarantor had not told his or her spouse, and what started as one person's challenge spreads to potentially destabilize multiple families.
(d) Other Impact On Intimate Relationship - Married or Not
There is evidence that more and more families are experiencing new levels of instability.
This is not just from divorce, and physical separation. Some is from the reality of where persons stay together physically out of the imperative that there is no-where else to go. But, even as they remain under one roof, they simply refuse to co-operate one with the other. Quite often, this is what can be called "cutting off one's nose to spite one's face".
Why?
Because, sooner or later this lack of cooperation translates into financial hardship. For example, it is now normal to see pages and pages of houses being advertised by various banks. Not all of the circumstances are because either or both persons are not working. Sometimes both persons are working and the foreclosure is the simple consequence of - "he (or she) stopped stop paying your part of the mortgage; so I stopped".
And there are other types of issues. Even where there is no marriage. Imagine, two people living together. One works for the Government, and so he or she can provide a salary assignment. The other person works at a company which strictly refuses to provide a salary deduction. So the couple agrees that the Government employee would get loans in his or her name and they would live on the cash income of the other. Then this relationship goes "on the Rocks" and so the Government employee is in a real difficult spot.
(e) Diversion Of funds Away From National Building Possibilities
Another serious consequence of this explosion in consumer borrowing is that it is diverting funds away from any activity which could possibly offer the prospect of building the country in a sustainable way. This has enormous long run implications for the country.
Lets consider a few illustrations:
(i) Mortgage Foreclosures
For decades, persons were able to secure mortgages WITHOUT A SALARY SSIGNMENT. Why? Because mortgage lenders ASSUMED that the value system of the borrower was such that the borrower would see the payment of the mortgage as a very high priority. The Bank placed a degree of trust in the behavior pattern of the borrowers, no doubt based experiences.
Consumer lending has changed this. By getting the salary deduction the consumer lender has stepped in the front of the mortgage lender (and indeed the Church) - leaving it to the borrower to decide how to make do with that portion of the salary which is left after the salary deduction.
No less a person than the Chairman of a substantial consumer bank has said that many consumer borrowers have decided to pay their cable and cell phone bills before paying their mortgage. The premise is that it would take time for the bank to get them out of the house but the cable or cell phone could be cut off immediately.
(ii) CONSUMER LOANS vs LOANS FOR BUSINESS
Put yourself in the shoes of a banker. You have two loan applications before you.
Customer A - he has a signed salary deduction letter on the file and wants an additional sum. The interest rate is 18% .
Customer B - is a young Bahamian who has produced a business plan which is well thought out. If proceeded with new jobs will be created. She has collateral because her parents are supporting the initiative. Your assessment is that given the risks an interest rate of about 7% would be reasonable.
What do you think happens?
More and more bankers are giving the money to Customer A. Each such decision continues a spiral. Dreams of young would be entrepreneurs who are convinced that they can help build the Country are being shattered. Additionally, is helps to retard the notion that self help and self reliance are important to the concept of nation building - leaving us increasingly dependent on foreign investors. And that has further impact because more and more it has become clear to the foreign investors that we are dependent on them - leaving them positioned to demand more and more in the way of policies which would otherwise be seen to be contrary to the interest of the Bahamas.
This are serious matters.
5 We The People Are Making Matters Even Worse Still.
There are matters beyond the explosion of consumer credit which is making the economic realities facing the average citizen/resident even worse.
I will identify but two:
(i) An ongoing refusal to "face facts" - specifically that he or she has a new reality. Let's think of the family where one person has lost the job. Weeks go by and there is no new employment prospect in sight. Even in the face of the clear evidence of reduced income, so many persons refuse to be intentional about adjusting life style to match the new reality. This is even when some reasonable options exist. For example, this may include the practice of sending children away to college rather than to seek to enroll them at COB or BTVI.
It is beyond the scope of this presentation to seek to prove why so many folks refuse to "face facts". However, it is reasonable to raise the question as to what role does "Pride" play? I raise the question on Pride essentially to stress that it often also has financial implications.
(ii)The second issue which is a major, major challenge to individual financial well-being is gambling. Publicly, there are no figures to prove what is happening but logic would suggest that the proliferation in the number of web shops is in response to consumer interest. In this context I note that I happened to have served as the Commissioner of Racing when last horse racing took place here. There was, and I suspect remains, considerable evidence that increased gambling means increased poverty. Gambling breeds poverty.
6 THE WAY FORWARD
While I have no doubt that giving is a condition of the heart ;about core values and faith ,my brief for this presentation is the focus on financial matters. However, the linkage between finances and personal conduct is real.I once heard Archbishop Gomez define discipline as "deferred gratification". When one can defer gratification it becomes easier to live within one's means ; there is less compulsion to buy things one does not need to impress people one does not even like.
Thus, I raise a question for which we should ask experts in other areas to help us answer, precisely because the accurate answer has enormous financial implications -- what can we learn about ourselves when we can look at thousands and thousands of persons who are fully employed by the Government and discover that on average some 72% of their your salary has been assigned to various financial houses? What does it say about the discipline among us all?
I do make a specific suggestion with respect to public policy. That is to suggest that the time has come for us to engage in a serious national dialogue designed to revisit the appropriateness of the policy changes which were introduced in or about 1992 and which support this incredible level of consumer lending which has happened since. Such a national dialogue is likely to make it more apparent that the responsible leaders of the consumer lending industry are indeed open to changes. Responsible lenders know that what is today happening in the overall consumer credit market is not ideal for borrowers or the country and thus, in the long run, not ideal for the lenders taken as a group.
Ever as this call is made for a national discussion on relevant matters of public policy, what must not be avoided is the recognition that the answers to the most basic questions cannot be answered on our behalf by any experts. The most basic questions must be answered one person at a time. And each person must ask the question to himself or herself - questions like am I prepared to accept responsibility for my choices? Am I prepared to look inside for cause rather than outside for excuses. Am I pursuing behavior patterns, including reckless borrowings, which are destroying my capacity to do what I really would wish to do, including providing greater financial support to my Church?
Ideally, honest answers to questions like these offer:
i) The prospect of your deciding to listen more closely to and to take more seriously what we all hear in this place.
ii) The prospect of a clearer understanding of the nature of wealth and poverty. Specifically, wealth is better measured by how LITTLE one needs as opposed to how MUCH one has.
Last week we prayed for an expanding economy. Presumably the belief is that an expanding economy will increase the capacity of our parishioners to give more. While that may be true, I suggest that the next time we add a request for greater levels of self -discipline for more and more of us.
An answer to that prayer will do wonders for us all which in turn will do wonders for the restoration of the financial health of our Parish.
