THE GOLDEN ROLE: What is the importance of debt?

SHARE   |   Sunday, 12 April 2015   |   By Nelson Letshwene

One of the things that get measured in an economy is the size of debt. We measure business debt as well as household debt. We worry when household debt goes out of hand and starts to exceed business debt. Is debt really that necessary? Can we really live without debt?
Banks and lending institutions have a big role to play in the development of our economies and societies. Without them rolling out debt, a lot of industrialists would not have been able to innovate, invent, and improve lives.
Think of an industrialist like Henry Ford. If the banks did not advance him the money to build a motor manufacturing factory, we would still be walking or riding donkeys to work. If the banks did not advance loans to General Electric, we would still be burning wood for light, destroying our forests in the process. If textile manufacturers had not borrowed money, we would still be running barefoot and topless. If there was no money lent to Microsoft, Apple and Google, we would still be whistling and shouting at each other to get each other’s attention.
So yes, debt is necessary.  
Without debt individuals would not be able to own homes at the rate that they can with debt. They would not be able to drive and own cars and furniture. They would not be able to pay for their children’s education, which is an important investment in the future of their offspring.
When does debt go out of hand? Business debt goes wrong when it is given to incompetent entrepreneurs who confuse business money with personal money. Debt goes out of hand when it is given to people who cannot afford it. It goes out of hand when individuals start depending on it for survival. It goes out of hand when it is used for consumables like food and clothing. It goes out of hand when individuals use their houses like ATMs, cashing their equity for consumables. It goes wrong when there are no proper standards for measuring the adequacy of debt for each household.
It goes wrong when financial institutions are disconnected from each other and are not communicating with each other about each client. It would be good if they had a central system where they can check each client before they advance the money. Not just the credit bureaux which keeps a record of black listed people, but a system which can check the adequacy of debt per individual before they loans are advanced.
Generally debt goes wrong in the hands of people who have no financial education, and cannot distinguish between their own money and other people’s money, and their abilities to repay loans. 
As long as we use money on our planet, debt is not going to disappear. It is too important for enabling developments. What we need therefore are better systems of managing debt. We need a financially educated society from business to individuals. We need legislation and supportive systems from government.
Yes debt is important, but education about debt and money is even more important.
To your success! For suggestions and comments email me on This email address is being protected from spambots. You need JavaScript enabled to view it.. Follow the blog on or follow me on twitter @101silverline

Related news