The Credit Economy

DESCRIPTION OF THE WORK

This piece is an opinion piece on the existence and use of the credit system, especially in Türkiye. It is based on my research and observations about how people engage in the credit system, their rationale for engaging and the outcomes of that engagement. The research from which this piece is written was conducted through interviews with various individuals and existing literature on the use of credit cards and the credit system within Türkiye.

Future recommendations question how sustainable the credit system is and will remain especially considering how users engage with it in the status quo. There is also the question of how the integration of artificial intelligence into the dissemination of credit will impact its accessibility and how it may improve the use of credit in the status quo. Some recommendations are the use of AI in risk assessment to analyze large data sets and assess credit risk more accurately. This reduces mistakes and financial wastes. AI can also be used to sustainably include underserved demographies that have been cut out due to reduced financial inclusion since it can analyze larger and more diverse sets of data within a shorter period of time while requiring minimal resources. Furthermore, its incorporation can be used to detect and prevent fraud. Reducing the environmental and financial costs associated with investigating fraud cases. Finally, AI based credit systems also reduce the need for paper-based documentation, this reduces and prevents deforestation while promoting green banking practices . 

THE CREDIT SYSTEM

Coming from a part of the world where to have purchasing power meant to always have cash on hand, I have a hard time grasping what it means to own property without having paid to earn the ownership title of that property.

Day in day out, the ability to live life on credit increases beyond our ability to conceive. From the ease of the creation of bank accounts to the ease of attaining loans using collateral we don't even own, we continue to plunge ourselves into an existence of cyclical existential financial insecurity. But we cannot perceive the existence of the credit economy without understanding the existence of the forces behind the creation of such a system and the forces for whom it is beneficial to hold such a system together.

The axis of the credit system is span on a wheel oiled by our continuous reliance on the system. The credit system (lending money or valuables at an interest) began with the church. Having gained our trusts as a safe haven to store money, the church began lending the money we saved. But you don't just give out money as a loan. How do you get it back? If you had it with you, you would have manipulated it to yield more money. So how do you make sure whoever takes the loan pays a debt equivalent to what you would have made had you had the chance to manipulate that money yourself? Collateral and interest were born as children of the need to answer these questions. The rest I am certain you are familiar with. The banking industry was then institutionalized as an independent descendant of the church, which leads us to today.

The banking system has transcended those two questions to a much more complex and nuanced one: how do we keep people hooked onto our services? Just like any other industry churned by the capitalist cog, the creation of an artificial reliance system is crucial. If banks only give out loans with reasonable interests and the collateral was not life threatening, then almost the entire population would have no need for the banks beyond using them as a store for our wealth and in some of our cases, our illegal activities; but I digress.

Here comes the credit economy then; so banks give you credit cards with what looks like free money. They promise you the interest rate will not cost you more than the loan you receive, and you have a long period of time over which to pay. To make it more enticing, they cherry drop the credit score system as an extra nudge for you to use the seemingly free money. The prospect of finally having access to the 'needs' and luxuries you’ve always dreamed of is so enticing that you can’t help but ignore your gut telling you this is too good to be true. So, you use the 'free' money. What you don't know is that these same banks artificially inflate the interest rates through the creation and use of perceived scarcity as a justification. So you may have been told you have 3 years to pay that 'free' money but by the end of the first month, your interest starts to accrue. An answer to the first question. Overdraft interest rates accrue daily at a rate that competes head on with the speed of light. By the time you realize, the amount you owe the bank is twice the amount of 'free' money you used from that credit card.

Now you have your 'needs' and luxuries met but there is always that looming thought at the back of your mind about how you need to work twice as hard to make twice as much money to be able to pay off a credit you never even asked for to begin with.

I've lived in Istanbul for almost three years now and luxury is no stranger to me though my experiences with it are not firsthand. I've come to learn most displays of luxury from individuals are mere performances for us onlookers. I've spoken to a few such people who display so much access to wealth on a daily basis and here's what I've learned.

Though most individuals walk around with the most luxurious and ridiculously priced apple products, they cannot afford those products. The inability to afford this kind of luxury this society forces people to want to acquire, however, stems from a decision made by the government decades ago. The use of credit cards, albeit without the credit system, began in Türkiye in 1968. in 1988, larger banks within the country introduced their own credit cards with the crediting option. Married to the ability to purchase on credit is the high interest rates imposed by banks on the debts people needed to take to either survive or in most cases entertain their fantasies. When complaints were levelled against banks for their extortionist interest rates, instead of encouraging people to take less credit, consumer unions pressured the state to make the banks lower their interest rates. Problem solution gap because according to Duvar English, “The total amount of credit card debt, which was 446 billion liras in 2022, increased 2.5 times by the end of 2023 and exceeded 1.1 trillion liras, according to Turkey's Banking Regulation and Supervision Agency (BDDK) data”. As established earlier, the existence of a credit system and its necessary evil companion, interests, within itself is not inherently harmful. The lackadaisical attitude towards spending money one doesn’t own is a much more potent evil to defeat. But I digress. With such pressure coupled with other factors, the government commenced its regulation of the credit card system.

But even these regulations did not provide solvency to the debt issue faced by consumers of credit cards. In fact, within this regulatory period a substantial number of individuals either took their own lives or the lives of people they knew because of defaulted credit card debt. Within the span of 3 years there were 41 deaths related to defaulted credits. And those were only the ones reported. Hence my comment earlier on how high interest rates were not the enemy, consumer behavior is.

Between 2003 and 2005, with the alarming rate of deaths related to the credit system, the government once again intervened. This time not only lowering the interest rates but also extending the maturity date of these credits. Also, rather than keeping the records of defaulters, they were given the option during this amnesty period to pay off the debt and have their records cleared. Leading us to today, a society within which the ease of getting credit cards is alarming and the potential to default is even more concerning.

Away from the technicalities, I'd like to focus the rest of this discussion on societal attitude towards credit. I arrived from Vilnius, Lithuania - where I did my Erasmus+ exchange program - in February, this year. During my ride to my abode, I fell into conversation with the taxi driver. He was complaining, just like many Turkish taxi drivers, about the deteriorating economy coupled with the inability to make enough to sustain a living despite toiling day and night. So, as a curious being, I asked him what his responsibilities were. He divulged that he was responsible for his younger siblings and parents. In fact, he had just bought new accommodation for his parents and a new iPhone for his brother. I grew more curious. Respectfully, how does a taxi driver make so much money to afford such expenses simultaneously? I asked. Then he mentioned something I had almost forgotten about: he had taken credit and was now in debt, so he needed to work multiple jobs and overtime to pay off the debt. I looked around the car and asked him if the second iPhone was for his brother. He responded in the negative. The man took credit card debt to purchase a second iPhone for himself when he was already using the iPhone released the year prior. So now he was in debt for a new phone he didn't need. I thought to myself, well it can't be that bad. He'll do extra shifts with the taxi business and pay off whatever debt he owed. However much luxury he wanted to indulge himself in was the least of my worries.

We continued talking about what I do for work as a student and how he's managed to survive so far. Then he divulged that he didn’t own the taxi he was driving to survive, it was also taken on credit. This man's entire life exists on credit. Per my analysis, he has a taxi on credit for which he has to pay for, he then made the conscious decision to add more credit and buy a new home and phone for his family, to top it off, he got himself a newer version of a phone when his old phone was still good. If you live in Türkiye, you'd know that purchasing an iPhone, much less the newly released, is not a thing for the faint hearted. By the time all the taxes have accrued, you'd find yourself paying twice the amount people in other countries would ordinarily pay for the same phone. So one needed to meditate and consciously decided to add more dept or one succumbed to the societal pressure and couldn’t think for themselves while making this decision. I am uncertain what his condition was, but he made a choice.

Two friends of mine also recently divulged that they were in more than 50,000TL of credit card debt. One from medical surgery after an injury sustained during his conscription in the army and the other expenses made  to sustain his choice of life. Regardless of what people choose to spend their seemingly free money on, from the age of 18 most individuals in this country can start accruing debt. Some earlier, because from my research, some parents open bank accounts for their 14, 16-year-olds with the excuse of giving them 'sigara para'(cigarette money). Today we are not talking about the smoking culture of the country, but such life choices also contribute extensively to the credit card debt pandemic. 

For many, it is not a question of whether they would take on credit card debt, it is rather a question of when they will take on that debt. Living life on credit can have social consequences as well apart from the financial consequences. There is the constant nudge at the back of your mind every time you use your credit card and the mental toll the negative figures in the bank account have on you as an individual. Day in day out, even your salary is not money you can rely on because when you are in so much debt, you are only waiting to be paid so that you can pay. It is a never-ending and unsustainable cycle of money-in money-out that many just do not know how to dig themselves out of. Whether it be out of necessity or reckless financial decisions, one thing is undisputable, credit card debts do have tangible and sometimes life-long lingering consequences.

Coming from a society where to own property means to have the cash to pay for and earn the ownership title of that property, it may be time individuals in credit card economies give a little thought to the callous attitude thrown around during consumption of money they do not own. It may not always result in the loss of a life, but it is a crippling existence of no peace knowing you are always in debt.  

SKILLSET REQUIRED

1. Writing and communication skills

- Articulation of ideas

- Storytelling

- Persuasive writing

- Descriptive language

- Grammar and Syntax

2. Analytical and Critical thinking skills

- Economic analysis

- Social critique

- Comparative thinking

- Problem solving

3. Research skills

- Historical research

- Data interpretation

- Cultural context understanding

4. Financial literacy

- Understanding the credit system

- Debt analysis

- Economic impact awareness

5. Interpersonal and empathy skills

- Listening and observing

- Empathy

- Cultural sensitivity

6. Reflective thinking

- Self awareness

- Evaluating impact

7. Storytelling and narrative development

- Personal anecdotes

- Engaging structure

- Connection to larger themes

8. Technical skills

- Formating and layout

- Data visualization

9. Debate and Argumentation skills

- Building arguments

- Addressing counterarguments

10. Emotional intelligence

- Balancing emotion and logic

- Addressing sensitive topics

11. Global and cultural view

- Cros cultural understanding

- Global perspective

12. Ethical awareness

- Moral implications

- Responsibility advocacy