A banker has warned Jamaicans against borrowing to supplement their income, which he said could quickly lead to a tragic addiction to credit.
The comments were made by Ryan Parkes, chief of business banking and public sector engagement, at JN Bank, while speaking to teachers recently at an investment seminar organised by the Jamaica Teachers’ Association (JTA) at the Mandeville Hotel in the Manchester capital.
“It is a fact that the salaries of our teachers and others in the civil service, particularly the police and nurses, are not comparable to the work load they carry, with the average entry-level teacher earning a net salary of about $90,000 per month, or slightly more than a million dollars after taxes annually,” Mr Parkes related.
“This makes living difficult for many teachers who, like everyone else, have bills to pay; rent, in most cases to finance, because so many are struggling to afford homes of their own; and they have children, who they need to nurture with what little they receive. Therefore, there are some teachers who borrow to supplement their incomes,” he explained.
The business banker said, as result, some persons develop a habit of borrowing, which leaves them saddled with debt to the point where their net pay is zero dollars.
He advised teachers and other professionals to, instead, develop a discipline of frugally managing their finances, despite its size.
“Wealth is a discipline, not something only a few people are born into, as we often seem to think,” he underscored to teachers. “It takes focus and stick-to-itiveness to harness wealth, and many people who earn less than you do have achieved it,” he assured them.
He acknowledged that it was good to borrow, however, he stressed that credit should be used to invest only in assets which will provide a return at some point; or, can be liquidated to repay the debt.
“Borrowing to supplement your income is not a sustainable measure; and, it will lead to an uncontrollable habit that, will result in very negative outcomes for you, in the long term,” he warned.
Earn from your talents
Instead, he urged teachers to look at ways in which they can expand their income, by using their talents and skills to earn more. From engaging in private tutoring to cooking and décor, underscoring that, there are many ways in which people can use their talents to earn more.
“Many of our English teachers could also earn from proofreading for the media and publishing companies, for example; or, from ‘writing speeches’ for persons in the private and public sector, who have to engage in public speaking from time to time,” he recommended.
“There are so many ways in which you can earn, if you just spend a little more time to think about it,” Mr Parkes advised.
He urged teachers to start the journey to wealth creation by adopting and vigorously applying the 80/20 rule, in the management of their salaries. The rule calls for people to: Save ten per cent of their income; tithe or give ten per cent to charity; and use the remaining 80 per cent, to cater to their obligations and other expenses.
“Begin by paying yourself first,” he said. “Set aside your 10 per cent in savings, prior to doing anything else, so that you don’t even have to consider using it. Put it into an account to which you have very limited access, so that it becomes inconvenient for you to touch those funds,” he advised.
And, he recommended that they consider channelling that 10 per cent into a fixed, long-term savings account; mutual funds, or another form of equity investment at any deposit-taking institution, such as a bank or credit union. He said choosing an instrument that provides maximum returns, such as mutual funds, would be good.
He also encouraged investing in the stock market, which he noted is performing extremely well and could provide excellent returns in the long term.
“Let’s say that the opening price is $5 per share, and you would have invested $10,000. On that basis, the value of your stock would then be $50,000. Over time the value of the stock will appreciate; therefore, in about six months or one year, your $5 would become $7; therefore, your investment in the stock would be valued at $70,000; and you would have accumulated $20,000 as a gain on your investment,” he explained.
The business banker urged teachers to make a habit of budgeting the remaining 80 per cent of their salary.
“To get the most out of your income, you will also need to sharpen your financial eyesight and acumen,” he said, as he encouraged the educators to read more financial literature to raise their consciousness about money management.
“Take the time to explore prices and shop where you can get bargains, or consider alternatives for goods that won’t cost as much, but will provide the same function, taste and quality,” he advised. “You should live within your means, no matter how much money you think you have. Don’t try to fit into other people’s lifestyles.”
He also highlighted the benefit of life and health insurance, to protect against sudden life challenges, which can impact on wealth.
Use a credit card
Mr Parkes said that while it is beneficial to have a credit card, it must be managed wisely to avoid exacerbating debt.
“There is no point in getting a card that provides travel miles, if you don’t travel very often. Using a credit card with a limit and rate you can manage, which helps to build your credit worthiness. A credit card, if you stop to think about it, is really a free loan if you use it wisely.” he said, highlighting that it must be serviced on time, and not used to purchase items which you could not pay for, if only cash was available.
And, speaking about credit, Mr Parkes said more persons should become up-to-date with their credit worthiness.
“Credit reports are real things these days and they can affect your capacity to borrow. You should check your credit report, at least once per year, to know how lenders may perceive your risk; and also, to ensure that the data which the bureau has on your profile is correct,” he advises.
He told the educators that once they achieve financial stability, they should consider raising their level of investment, pointing to real estate as one good option.
“As your financial position improves, move on to thinking about ways in which you can invest your money. Not in a new car, or any other depreciating asset, but in some real estate, whether a piece of land or house; or perhaps stocks and bonds. In other words, consider only assets that will provide you with a yield or other assets, which will grow in value over time,” he maintained.