Hostages of our own lifestyle inflation

In a public lecture, Thursday, Bank of Kigali Chief Executive Dr. Diane Karusisi addressed ULK students on how to manage their ‘lifestyle inflation’ by ‘spending on needs and saving on their wants’ a statement that initially left some youngsters confused. What is life-style inflation? To explain it plainly, just recall the time when you first moved from being a student to a full-time employee; despite getting by on a shoe-string budget in your previous life as a student, frugal on everything from rent to groceries and nights on the town. But once that first salary came, the joy of being employed kicking in, the things that were once luxuries while a student suddenly became “necessities” and your spending increased significantly as you acquired them; that financial transition normally leads to lifestyle inflation. A practical definition therefore, is a situation where, one’s spending increases when their income goes up; this tends to continue whenever you get a pay-raise, making it almost eternally difficult to get out of ‘consumer debt’ another term Karusisi introduced to the students. “Once you’re trapped in consumer debt, it becomes practically impossible to save for retirement or create real wealth in terms of assets; at this point, one is stuck in the rat race of working just to pay the bills,” she said. Well, many of us could already be running in this rat-race. The infamous and addictive ODs (overdrafts) and salary loans because they’re convenient means of financing our respective lifestyle inflation. Ironically, it is this behavior that also keeps banks in business. That is how a seven-figure salary will be no-more within a week; and by the fifth day of the new month, you’re eyeing the credit card or writing to the bank for a fresh OD; see your life in this? Dr. Karusisi was being generous and honest when she shared this kind of information because most bankers would never address such aspects of lifestyles because they are the cash cows driving consumer banking products. You need a wedding loan? Well, there’s a holiday loan too! However, for banks to fight the rising problem of bad loans it is important to be brutally honest with their customers and highlight the fact that, ‘excessive consumption of bank loans could kill, literally or figuratively. Help customers take loans they need and can afford to repay. We know stories of people who have committed suicide to escape the burden of debt; literally killed by debt. It is a fact the value of our Franc has depreciated against the dollar in yesteryears. This means that the volume of goods that Rwf1000 used to pay for, six years ago has reduced based on today’s market prices. So, we can somehow blame our financial woes on Franc’s depreciation. However, our financial woes to a larger extent could also be blamed on lifestyle inflation, a direct result of what we decide to spend on and how much we have paid for it. Picture a guy who earns Rwf800, 000 but pays Rwf400, 000 on rent. He wants a cool apartment to suit a perceived corporate class status but what they actually need is Rwf200, 000 a month apartment. But a convenient counter argument here could be lack of low cost rentals. I know. However, the point here is our ability or the lack of it, to differentiate between what we need and what we want, another key aspect Dr. Karusisi discussed with ULK students. Many of us sulk and justify the reason we can’t save is that by the time we are done paying the bills, there’s nothing left of their income. Maybe we should add savings on the list of our expenditure, basically, budget for saving; make sense? “Make a long list of everything you spend on in a month. Create two lists from it. On one side are the things you genuinely ‘need’ and on the other, those you just ‘want.’ Now, experiment by suspending all expenditure on ‘wanted items’ and strictly spend on ‘needed items.” Naturally, the things we need are those that that we genuinely can’t do without. While wants are those we can do without and life continues normally. But, while some things such as school fees are necessities; it is also vital to reflect on how much you’re spending on them. For instance, you’re currently paying Rwf500, 000 for your kindergarten son because you want him to go to a local ‘Ivy League’ school complete with an Ivy League haircut, you earn 900k and your partner is jobless; mate, quality education is a need but Ivy League status is a want! The absurdity of this is that, I am not any better than you because while my 31st birthday is in three days, I would struggle if somebody dragged me to PAC to account for my activities in the last decade. The ULK students have three to four years to reflect on Dr. Karusisi’s lecture. I say, they’re lucky. For us that are already running in this rat-race, it is time to take some hard decisions and break-free from the bondage of consumer debt by addressing aspects of our lifestyle expenditure. So, instead of celebrating my birthday, I will go on a ‘staycation’ to reflect on life ahead. Views, opinion, commentary pieces expressed in this article are those of the author and do not necessarily represent those of the New Times Publications.

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Hostages of our own lifestyle inflation