Joel (not real name) was hard pressed for money to pay his children’s school fees. He was also out of regular employment at the time. When he suggested borrowing against the family car, Joel’s wife advised him to instead sell the car in order to raise money for the fees and other family needs.
Joel heard what his wife said but he decided not to listen to her because of two things. First, he was a man, moreover coming from a part of Uganda that gives a lot of clout to the male species, and he could not bring himself to be advised by a woman. The second reason was that Joel loved the car so much and he could not imagine selling it to another person.
Instead of selling, Joel opted to borrow money and staked the car as collateral security. Since Joel did not have a steady job, the money lender pegged his interest rate at 30 per cent per month. The lender also explained that he could not include the interest in the agreement so instead the transaction was documented as a vehicle purchase agreement. Joel brought both the car and the logbook and handed them over to the lender for safe custody until he had repaid the loan.
The loan amount was Shs1,500,000 and the interest was compounded. After borrowing Joel never got any income for four months and the outstanding loan grew to Shs4,284,150. At that point, the lender asked Joel to either pay up the outstanding amount in full or sign the car transfer form and like a sheep sent to the slaughter, he signed. That is how Joel sold the family car at a giveaway price.
With the wisdom of hindsight Joel now realises that he made many wrong turns in that borrowing expedition. The first mistake was not listening to the advice from his wife. Selling the car for Shs10 million would have been smarter than letting it go for a loan of Shs1,500,000. Unfortunately, Joel’s challenge or problem of failing to listen to financial advice from his spouse is not an isolated happening.
Many married men do not bother to discuss financial issues with their wives and end up with empty pockets at the end. Some men would rather keep their land titles with a drinking buddy while the hapless wife is kept in the dark.
The other mistake Joel made was borrowing money when he was not certain about the repayment source. He had no steady source of income at the time of borrowing and yet he went ahead to contract a loan with a compounding interest. Even though the lender gave him four months that did not help Joel in any way, if anything it just dug for him a deeper financial hole to fall in.
The third mistake, which Saddam Hussein would have called the mother of all mistakes, was that Joel never saved. When he had a good job with a good income he never thought about saving for the rainy day. Whenever his income went up, Joel immediately increased his expenditure but he never thought about increasing his savings at the same rate.
The reason why money lenders cannot find enough money to satisfy their clients is that many people are like Joel; they do not save up for school fees or weddings or birthing expenses. It is not uncommon that when a wife goes into labour, the husband is not by her side simply because the fellow is hoping from one money lender to the next in the bid to raise money for the hospital bill. You wonder why in the seven months since he got to know about the baby why he did not save money, a little each month.
The writer is the team leader of Akamai Global, a business and finance consulting firm.