Bankers & The lifestyle Prison

Sam**, works in one of the multi national bank as a relationship manager, handling corporate clients in the manufacturing sector.  According to his friends and family this is a very prestigious job. Sam is 32 years old and not yet married. To someone looking at Sam’s life from the outside in it may look like he was happy and had no reason to be anything other than delighted with his success, the evidence of which appeared in his job title and lifestyle. I have also spoken to and talked to many bankers and many of them can identify with the dilemma presented here.  Despite their favourable earnings, many bankers suffer from bad use of debt and have become the key target market for shylocks. This problem has become so bad that some banks will not lend to employees of other banks, simply because they know bankers tend to have a debt problem. It is ironic because these are the people who manage billions of funds and give others financial advise.  Society expects them to have their finances order but the truth is for many of them, all is not well in that department.

When he joined the bank, he was very excited at the new career and financial prospects. A month into his job, the image pressure that is associated with being a ‘banker’ started weighing in on him. It started with subtle things like where he would be invited to have drinks on Friday night with his colleagues. Then conversations would take place in the office about maintaining the right image to appeal to the right clients and attract the right internal promotions. So Sam started spending up.  Took part in the Friday night entertainment, started wearing the right brands.  But this was not enough because at first he was doing it on the basis of his salary i.e. spending within his income. One day he was going for a meeting with his boss and they had to use Sam’s car, which was a Toyota at the time.  By the time they got back, his boss had indirectly hinted that he ought to be driving something else.  Who doesn’t want to impress the boss? This is where he started using the banks’ credit facilities to fund his lifestyle.  Bankers can borrow at between 4% – 7% per year, rates that are extremely attractive so it becomes very easy to start borrowing. Sam started off by using this cheap credit to buy a car – a similar car to the one his boss was driving!  He decided to move house to the ‘image correct neighbourhoods’ and because of lack of savings he borrowed to move and completely furnish his apartment. After all, his colleagues would regularly entertain at their houses and he knew his turn to do so was coming up soon. With all this, Sam did what he thought had fixed his image with his peers – he had the right car, right house and had now gotten used to the upgraded entertainment.

Pressure from others simply planted the seed for the real problems that manifested when Sam started putting this pressure on himself.  He no longer had to be told by anyone but he felt he needed to have the latest phone, tablet, plasma screen TV, be seen at the international rugby matches, give money to family etc. He started believing he needed these things to prove he was successful, progressive etc. The list for how he could use his money was endless and he felt powerless to stop spending.  It became an addiction and this addiction always needs to be fueled by something new. Unfortunately his ability to keep borrowing at the bank ended.  The bank would only allow for his repayments to be 50% of his salary and he had reached that limit.  He could not maintain his lifestyle on the remaining 50% so rather than not going out for drinks he started borrowing from small lenders who would charge 3%-8% per month. Sam’s problems were completely lifestyle driven and there was no saving or investment that had been made.  He got so identified with this “successful banker image” that he would borrow undercover to maintain it.  It got to a point where 70% of his income was consistently paying off debt and he was borrowing every month.

This is not sustainable. He started loosing sleep and his work performance deteriorated because of the stress of making these payments whilst trying to keep up with everyone else. Sam has now had to take a hard look at himself.  He has committed to selling some of the things to clear some of his debt.  He has also realised that the car did not actually help him progress as he thought but when his performance deteriorated, that was noticed more than the big car. He cooks and has significantly cut down on entertainment.  When he started making some of these changes, there are people who dropped off his social circle but interestingly some people at his place of work going through the same thing approached him ‘secretly’ for help. Your job can be a prison or it can be resource for you to fulfill the vision you have for your life. Don’t make lifestyle the only result of your work as that puts you in prison. Many fall into the trap of using credit the way Sam did whilst they are a few who have used it very wisely and invested.  The fundamental difference between the two groups is whether they succumb to the pressure or not.

Waceke Nduati

Waceke runs a program on personal financial management. Find her at waceke@centonomy.com| twitter @centonomy| www.facebook/centonomy

Question and Answer

Your article on Unit Trusts was spot on.  I have invested in Unit Trusts but I never knew how they worked. I have been debating on whether to remove money from what I know thanks to your article is an ‘Equity Fund’. What should I take into consideration.

Thank you for your comments. Your consideration would be the same as if you had directly invested in the stock market. Are you in profit at the moment?  What was your initial investment vs. the value of your units now? You can get this information from the fund manager you invested with. Secondly do you need the money for something now or can you continue letting it grow in the long term?  To answer this you need to do research and understand the expected direction of economy and consequently the stock market.  If the direction is expected to be positive and you don’t need the funds immediately you may consider leaving them in. Another aspect to consider is whether you prefer to actually invest directly in the stock market.

Why do the prices of the unit trusts change in value. Why is the price change different between the different organisatiosn that offer these Unit Trusts?

The prices change because the value of the underlying investments the Unit Trust has made change.  For example an Equity fund has invested in shares.  The values of these shares fluctuate everyday. So this fluctuation must also be seen in the pricing of the units.  If the shares went up in value, the units will go up in value and vice versa.  It will be different because the different investment managers make independent decisions and may have invested in different shares.

Waceke Nduati

Email your questions or comments to Waceke her at waceke@centonomy.com| twitter @centonomy| www.facebook/centonomy