FOOL'S EYE VIEW
Debt & Pizza

By Stephen Bland (TMFPyad)
May 21, 2001

Every day, regular as the cuckoo clock in my hall, a proud product of Teutonic horological engineering which never fails to pop out and chirp the hours, plus once on the half hour, I receive through my letterbox a selection of literature. This forms two distinct genres, with various subclasses.

The principal classifications of these leaflets are food and money, and the primary subclasses of those are delivery pizza joints and moneylenders. The former tend not to be the main chains but the independents with alliterative names like Poncey Pizza, or alternatively descriptions reminiscent of the USA which more than make up for their lack of alliteration with their evocation of transatlantic culture.

Far more insidious than dodgy pizza, though, are the moneylenders. After all, a naff pizza if consumed with sufficient regularity may cause you to die of junk food poisoning but the kind of loans promoted by leaflets through your door are almost certainly death to your wallet, a much more serious matter than a mere threat to one's mortality. Junk loan fiscal toxicity, if you like. I normally shovel all these leaflets straight in the bin, but I have looked at one or two recently out of curiosity. A couple of them were from well known high street banks or their subsidiaries, but some were from loan brokers.

Why do people borrow money when they don't need it? I have many clients who are loaded. Yet to buy a new car for £15,000 one of them recently went out and leased it without asking me first. This is a guy who will trade £100,000 on one share without thinking twice about it. A man who makes money, stacks of it, in his own highly successful scaffolding business. £15,000 to him is nickel and dime stuff. I asked him why he leased the car when he could have bought it. The salesman convinced him it was advantageous, he replied. Well, so it is, I confirmed -- for the finance company. You end up paying 50% more over three years than if you had bought it outright, plus you are locked in to the thing.

My client, though, can generally look after himself financially. The leaflets through the door can be more dangerous with their indiscriminate targets, preying on the financially insecure to take out loans that they may not need. I understand that some people borrow money for things as frivolous as holidays rather than saving up in advance.

There is a school of thought that says that people should be permitted to be grown up enough to make their own choices without nannying. To a great extent I subscribe to this, and am not sure that people need to be protected from themselves more than absolutely necessary.

But when it comes to money it is clear to me that huge numbers of the population do not understand a lot of financial stuff and consequently are sold a lot of rubbish in many cases. I see them all the time in my business life and our own Fool boards are full of stories about people being persuaded to obtain financial products unsuited to them and which, if investment products, may be poorly performing.

So I would say that before borrowing any money -- and particularly if you feel encouraged to do so by a leaflet through the door, ad in the paper or the like -- think first whether it is really necessary. Would you have considered a loan for whatever you have in mind if the ad had not planted the seed in the first place? If not, then perhaps it is not that important. Why pay interest to moneylenders if you don't have to?

More: Get out of Debt Centre