Credit card "debt trap"

Several decades ago, Singaporeans concretized the criteria for happiness and success, encapsulated in "5C" which later spread to neighboring Southeast Asian countries: Cash, Credit card, Car, Condominium, Country Club.

If you have the second C, you are in the 50% of happy and successful people in Singapore. If you have the fourth C, you are in the 20% and if you have the last C, you are in the 10% of the wealthiest and most successful people in Singapore.

This concept has now changed, when the second C - Credit Card, is no longer a standard to evaluate the owner's income or financial capacity. Singaporean Generation Z is quite indifferent to credit cards, not only because they now have more efficient and convenient electronic payment tools, but also because their understanding of financial management is clearer, their awareness is more complete about the Good, the Bad and the debt trap (the Ugly) of spending now and paying later, with exorbitant interest rates once they fall into the debt trap.

My two daughters have not applied for any credit cards, either directly under their names or using supplementary cards of their primary cards, with the permission of their parents or relatives. They only use debit cards from their personal accounts with a certain daily limit. They even lecture their parents on how to use cards properly, ignoring the fact that their father was a senior officer at a bank for more than ten years.

On the good side, a credit card is first and foremost a more convenient and relatively safer means of payment than cash. The biggest advantage is that it allows the cardholder to easily access a pre-issued amount of money from the bank, especially in an emergency. The amount of money depends on the creditworthiness of the user, and in Singapore, it is usually four times the cardholder's monthly salary. The cardholder can use a large sum of money immediately, then choose to pay the bank back in full at once, or divide it into smaller payments to reduce the short-term financial burden. For example, if your car breaks down before your payday, you can still get it repaired so you can use it soon, pay for the repair with your credit card, and then pay off the debt to the bank later. To attract users, banks often issue credit cards with three incentive policies: giving rewards points, giving cash back or giving free air miles - which are considered practical for cardholders.

On the bad side, unlike debit cards, credit cards are not linked to any of your bank accounts. The money provided in a credit card is essentially a special bank loan, with interest rates much higher than normal loans, along with late payment penalties and very high interest, from 26% to 75% and calculated daily. That means this loan increases every day and accumulates into a huge debt for the cardholder. In addition, there are other costs such as a fairly high annual usage fee (in Singapore it is 100 SGD - more than 1.8 million VND), cash withdrawal fees and exchange rates (if using the card abroad) that are very disadvantageous to the cardholder.

The scary thing is that credit cards tend to encourage users to spend too much, and once this habit is formed, it is very easy to fall into the debt trap (the Ugly). When you have a large amount of money (four times your monthly salary, for example), you will have illusions about your financial ability and easily spend beyond your ability to pay. This credit card debt, due to the very high interest rates, accumulates daily, making it difficult to escape. When credit card holders cannot pay their debts to the bank, they will face the possibility of being sued, declared bankrupt, or seek illegal loan sharks to deal with the consequences.

The story of a customer's debt from 8 million VND to over 8 billion VND in Vietnam still has a lot of unclear information, so it is impossible to conclude whether it is right or wrong. However, such specific cases are valuable lessons that should be widely disseminated in Vietnam, where information and knowledge about financial management are not really taught in schools, the legal system to protect consumer rights is not complete, and acts of taking advantage of customers' trust to commit fraud (such as selling insurance instead of saving) have not been properly handled. In the relationship with banks (such as financial institutions with specialized jargon, complicated and difficult-to-understand contracts), customers easily become the weaker party, disadvantaged if disputes arise.

Young people, like my children, still take advantage of the benefits of bank cards and avoid their pitfalls, thanks primarily to valuable lectures on financial knowledge in the curriculum from high school to university, as well as extensive communication through the mass media.

I believe that young people in a consumer society like Vietnam also need to access financial management knowledge right from school, first of all to protect themselves, and then to build a healthy society in terms of financial relations.

Credit cards are like double-edged swords, sharp and sweet, you should not play with the knife if you do not know how to hold the handle.