Individual Responsibility and Consumer Debt

Debt has been with us since the beginning of civilisation. Some of the earliest examples of written language, Cuneiform tablets relate to debt, and the first recorded debt systems began in Sumer around 3500BC. Debt actually pre-dates coinage, which appeared in 600BC. People have been experiencing problems with debt for just as long. In 3500bc, farmers would often become so indebted that they would have to sell their children into bonded labour.

Throughout history management of insolvent debtors has swung from blaming and punishing insolvent debtors to blaming and punishing creditors. In the 1800s debtor’s prison was a common way to treat people who were unable to pay their debts.  Israeli Kings dictated that debt must be forgiven every 7 years. Roman Leaders periodically forgave debt.  Jesus threw the money lenders out of the temple. Currently the pendulum has swung towards blaming and punishing creditors.

The current credit system paradigm puts the responsibility for assessing how much a borrower can afford on the creditor. While simultaneously, privacy restrictions limit the information available to creditors to assess affordability. Creditors are left with little regress for defaulting borrowers. They can default them, pursue a garnishee or a writ for levy of property. However, bankruptcy Law allows a person earning up to $1040 after-tax per week to pay nothing towards their debts.

In order to shift the pendulum back, some amount of responsibility must be placed back on the individual. Creditors cannot be made completely responsible for the determination of what is suitable for an individual. The author suggests that some kind of financial license should be necessary in order for an individual to qualify for consumer finance. Basic financial literacy should be established before extending onto subjects like personal budgeting, retirement, banks and the financial system, money maths and interest calculations, risk, tax, contract and consumer law.