Here is a little financial story about Mr Smith.
About eleven years ago, Mr Smith wasn’t worried about his financial position. Times were good. He had a good job with decent pay. However, he had some minor debts built up and, as he thought it was a good idea not to be so in debt, he started to pay them off a bit.
The problem was his dependents liked to spend money. Lots of it. They had a luxurious lifestyle and they liked it.
Fortunately Mr Smith was doing well at work, he was getting regular pay rises (although he hadn’t got a promotion) so he gave all his extra new money to his family. Although he had started to pay off his debts he hadn’t cleared them. But that didn’t matter, he could afford the interest payments because his income was going up too.
Now in the last five years his family has been spending even more.. more even than Mr Smith’s earnings were rising, so Mr Smith had been taking out some more loans to cover all this extra spending. After all he figured, things are still good, I’ve got a good job and it’s manageable. I can pay it back in a few years. Besides, he didn’t want to let his family down.
Then the credit crunch hit. Suddenly Mr Smith’s income started to fall, and over the next few years it is likely to fall further. So here he is, a lot of big debts and a drop in income.
What would you do in this situation? Well Mr Smith’s solution was to borrow even more. Yes, that’s right – where most of us would rein in our spending and tighten those belts, Mr Smith’s solution was to borrow even more money.
Do you think Mr Smith is smart or stupid? And do you know his real name?