”If you allow yourself to think you can lose a little money, you will end by losing a lot”
One of the features of capitalism is that people are contracting loans, borrowing, to carry out economic activities. Some are making investments, planning, or hoping to obtain a profitable functional system that would cover their current expenses, debts, and obtain a satisfactory surplus for the invested work (along with the money). It is known that, if you only recover your investment, it means you work for free. Others spend, covering consumer goods and services that do not bring other material capital, but the satisfaction of certain experiences. Ultimately, what may initially seem like an expense can eventually prove to be an investment, and what may initially seem an investment can prove to be an expense. The second one happens more frequently.
Capitalism has developed as an economic system in the modern and contemporary age in the account of Protestantism, which supported social well-being based on credit. Thus, for Protestants, taking money with an interest is not such a judgeable action. This is the historical truth. Ultimately, both Catholicism and Orthodoxy have accepted the capitalist system as it is, taken as such, as the environment in which lay people carry out their worldly activity.
However, two sayings are still dominating as judgments above those who dare to take loans (it also depends for what): “bite off more than you can chew” and “run behind the cart”. Thus, there are a few stereotypes in the social preconceptions, rooted in the cultural characteristics of some people more than in the religious tradition:
- It is a good idea to get a loan to buy a house for the family so that you would “have a roof above your head” and have family safety and stability, even if, in this case, the house is not yours, but it belongs to the bank, and you cannot legally rent it to turn your expense into a potential investment. In fact, all material possessions are transient goods.
- It is a bad idea to get a loan to go and splurge on vacation abroad, especially if you don’t attend the Holyday High Mass on your days off. You only remember about God when you get sick or somebody dear to you dies.
- It is a bad thing to get rich (i.e. accumulate the profit) without giving anything to the poor.It does not matter that in the prophets it is written that towards the end of time the rich will become poor and the poor will die, the important thing to remember here is that it is easier to be poor than the rich and virtuous. From here and to some who think they are superior to others through their poverty is just one step.
- It is a bad thing to believe in your material wealth and spend time working for material success to the detriment of your time for family and for God.
- “Better poor and honest” (rather than “rich and guilty”).
What you will not hear too soon from credit institutions or from Church however regards the economic virtues more viable than restraint (i.e. spending cuts): financial education, saving, and investments. These are desirable behaviors that involve some effort. Who is willing to make these efforts and why? Certainly not those who believe that “money is the devil’s eye”, they are exempt from the risks of such efforts due to the “morality” they acquire.
The currently working young people grew up in a time of restraint, when parents said, more or less justified: “we don’t have any” or “there isn’t”, even when it came to what was needed for survival, health, and normal development. As compensation, because products and services are abundant because they are cheaper, better, and more varied, the mental and material brakes of buyers can easily disappear. The instant satisfaction of needs and wishes is facilitated by the means of payment and funds available for a loan (with an interest). As long as you are an honest person, you don’t steal from anyone and work for what you get, nobody should judge you for the way you spend your money, right? And yet, that happens. I wonder why.
At the same time, worrying for tomorrow, the ancestral insecurity of some plays an important role in limiting savings and increasing costs: if you still have money, it is good to have that, and that, for any event, even if it’s about some expenses whose utility can only be evaluated post-factum. A common example seems to me flashlights with rechargeable batteries or worse, where you can’t even charge the battery. Especially those who remember or whose parents lived the nightmare of frequent power cuts during communism, need precaution: “What do we do if there is a power outage?” Typically, what happens is that the power provider restores the power supply within a few hours, and such problems occur quite rarely. And if an energetic mini-apocalypse follows, it would be good to have a solar charger for the flashlight batteries (and some candles as well). Most flashlights use chargeable cells or batteries (there are also those with dynamo, which you have to turn or press a button on). However, chargeable cells need to be charged and batteries become discharged and if they are left in electronic devices for years on end, they become decayed and can damage them. If you run out of electricity for a few days, where do you recharge your flashlight batteries? In the event of a power failure, until the city man reaches the closet where he threw his collection of flashlights bought on sale, he rather uses the flashlight of his mobile phone and/or lights up some candles (unless they have a negative connotation for him as meaning complete poverty).
A psychological dimension that occurs in the context of how individuals manage their money is tolerance of uncertainty. Uncertainty manifests itself in the form of “I don’t know what can happen”. However, uncertainty is an effect that depends on monitoring and planning.
Thus, for example, a financially conscious citizen who applies minimal monitoring of his expenses knows that, although some expenses are not monthly but occasional (let’s say they occur once or twice a year, it is not known when). For example, a wedding, a baptism, a repair/replacement of a damaged object or mechanism, a small illness, small urgent loans to other people, presents on special occasions, economic opportunities that must be turned to value in a short time (special offers, discounts), peripherals and accessories for electronics, software, fast transportation expenses (such as taxis or airplanes). Although they cannot be estimated sooner than a few weeks or months, they will certainly occur, so that, although they cannot be included in one’s monthly budget, they will definitely appear at least once in the annual budget. So in all honesty, they are not unpredictable, but they are very predictable… for those who know how to make a realistic budget (which is the result of a minimum financial education).
Those with a high tolerance of uncertainty will not become demoralized when occasional expenses occur and they will probably make savings. Those with low tolerance of uncertainty will seek to make provisions, even concerning unlikely events happening in the future.
Another psychological dimension is availability versus aversion to risk. Those who have a high aversion to risk will prefer to make prudent choices about the possibility of losing. Those who have a willingness or appetite for risk will engage in several investments and will consider that money needs to circulate, and they shouldn’t necessarily make savings.
So, there are 4 possible combinations due to the two dimensions, which generally explain the spending/investment behaviors.
(keep reading ↓)
Low tolerance of uncertainty and aversion to risk.
There is the guarantee of consumed expenses because “the scalded cat fears cold water”. The result is that this consumer will fill his house with more or less useful trifles, whose utility, in case of need, is directly proportional also to how orderly they are managed. He doesn’t make any savings or investments, but fears or even panics when anything else besides the monthly expenses affects the budget. There is a great likelihood of contracting loans because no “chewed bite” is too big to protect oneself from the “scalded cat”. These people never manage to get a psychological comfort related to money, and they will always run “behind the cart” without understanding how their own way of thinking sabotages them. There is a high probability of stress and overcompensation. They may believe that everything depends on them. If there is also a hoarding disorder in this component, most likely the consumer will accumulate so many possessions that he will stumble upon them and will not be able to have at hand what he needs when required.
High tolerance of uncertainty and aversion to risk.
This consumer will prefer to save and possibly make plans (plan B, plan C) and it will not be a surprise even if really unexpected expenses occur. However, he has no appetite for investments and is likely to remain in the dominant consumer position. He can be a client for loans that he moderately chooses for medium and long-term plans because he prefers not to “bite off more than he can chew”. He may have the belief that life is unpredictable, but even if he cannot control everything, he will be able to find resources to manage if he does his homework to a certain extent. He may think that he that gapes until be fed, well may gape until he is dead.
Low tolerance of uncertainty and appetite for risk.
Certain opportunities are seen as a game of chance. To a certain extent, he who has these psychological inclinations prefers to make his own decisions as to which unexpected things are covered with priority (e.g. through savings) and he tends to keep his money or to accumulate it, but only as long as a certain level of comfort is fulfilled. He may have the conviction that he deserves to make some efforts until he “has it in the bag”. He may contract loans, possibly through a broker, but only after pretty thorough documentation on the details. Sometimes, if he doesn’t have a sufficiently well-documented overview, he may “bite off more than he can chew”.
High tolerance of uncertainty and appetite for risk.
These are usually the genuine investors, who often find the opportunity for a profitable return to be worth the risk of taking calculated risks out of their comfort zone.They don’t like to save much, because this is a form in which money is devaluated by inflation. The earned profits must be invested further to produce even more. It’s not a problem if expenses increase as long as revenues increase as well. Successful investors are convinced that he that gapes until be fed, well may not gape until he is dead. Following some failures that they don’t understand as lessons, they may fall into any of the other 3 categories. However, those who are successful, manage to provide the capital that people can use in all 4 categories.
Therefore, the way that each chooses investments or savings, i.e. loans or their own money, heavily depends, among others, on the following:
- level of tolerance regarding uncertainty (virtue or economic sin);
- attitude towards risk (virtue or economic sin);
- how is the unexpected defined (virtue or social sin);
- the level of education and financial culture (virtue or economic sin);
- the prejudices that they and others choose to have about the way they choose to use money (virtue or social sin).
Ideally, the state should encourage investments and financial education, because these, employing the business taxes, can increase the base of expenditures from which the state has to support those who make bad financial decisions (social virtue) and decrease the dependency of the other categories on the money received from the state (economic virtue). The classification of certain costs as expenditures or investments is not only made in terms of intentions but after a time, based on results.
Text Copyright © Marcus Victor Grant 2016-present. Translation by Cristiana Brezeanu and Marcus Victor Grant of the article “De la virtuți sociale la virtuți economice“, that was initially published in Romanian on October 31st, 2016 on Economia Online and on April 5th 2022 on Discerne here. Copyright © Marcus Victor Grant, all rights reserved.
Graphic copyright © Diana Andreea Bădrăgan, 2015-present
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