Category: Credit

Essay on the 2008 Credit Crunch

Before the havoc wreaked the markets in the United States and across the globe in 2007, the world’s economy was booming and expanding, growth rates of output significantly increased. Surprisingly, this expansion started to stop when the housing prices which has seen an increase over the years began to fall. Some economists were of the view that the fall in the pricing of houses would not result to a credit crunch, although it can decrease the spending of customers. Their view was that the Federal Reserve Board could cut down interest rates to escape a decline in growth of output and a hike in demand. Nonetheless, other argued that a reduction in rate of output may not be enough to cease output to fall and a rise in demand.

Financial institutions and banks already sold these securities that were backed by assets to banks and people who interested in investments. Due to the complexity and complications associated with the assessments of the valuations of these securities banks became reluctant in lending to each other, due to uncertainty of the quality of their assets to prevent default when repaying. IndyMac the largest mortgage lender in the US collapsed and was taken over by the government. Issues got worse as Fannie Mae and Freddie Mac who had ownership about $5.1 trillion of the US mortgage market became financially incapacitated and was taken over by the government in 2008. The problems continued as numerous banks found themselves burdened and this resulted to the insolvency of a leading investment bank called Lehman Brothers. This resulted to the credit crunch popularly known as the ‘Great Recession’.

Events That Led to the Credit Crisis

The two key macroeconomic factors that accounted for the credit crisis in the US were the US growth model in relation to the effects it had on making demand and distribution of income model and the global economic engagement of the US model. The US growth model can be referred to as the neo-liberal growth model that cut off the medium by which wages should grow with productivity and replaced it rather with borrowing and a persistent increase in asset pricing. This saw a sudden growth in the business sector and that motivated households to manage their spending with debt (Palley, 2009).

The global financial crisis which had its origin in the US housing market began in 2007 with a pervasive decrease in the US houses prices and other EU nations (Thakor, 2015). The blend of the global macroeconomic factors and US monetary policy created an environment for financial institutions to enjoy a lengthy period of sustained profitability and growth. This led to an elevation in perceptions of skills in managing risk (Thakor, 2015) and this motivated financial innovation. The financial innovation was directed towards information technology which made all securities tradeable and marketable and this sparked the expansion of subprime mortgage market. This made banking connected with markets (Boot and Thakor, 2014). This made the government thought very well of its citizenry by enacting a legislation that stipulates that 30% and later increased to 55% of mortgages purchased by mortgage guarantee companies should come from the low- and average-income earners (Schoenbaum, 2012); this epitomizes subprime households. Nonetheless, there were no proper systems to track the financial records of these firms and individuals the loans and mortgages were awarded to (Kolb, 2010). Because banks reduced the interest rates to the minimum level, household capitalize on it and purchased more than they could afford (McKinsey,2008). Nonetheless, many defaulted in the subprime mortgage sector; this is because numerous debtors in the housing sector were not able to pay their debt obligations (Gennaioli and Vishny, 2012). By October the aggregated weight of these events had caused the crisis to spread in Europe and other economies (Thakor,2014).

The housing asset bubble is an upward price movement which largely depends on persistently borrowing excessively and persistent fall in the level of savings so that the people will demand more. This will cause spending to continually increase at a constant level. The severity of the 2008 credit crisis in the financial sector and its effects on economies was too pervasive and break up the entire financial system due to excessive use of debt financing, there were no savings and people borrowed to a level that they could no borrow anymore (Kolb, 2008; Palley, 2009).

Effects of the Credit Crunch

The ripple effects the credit crisis had on numerous markets and the United States economy cannot be underestimated. Both the stock and money markets experienced a huge loss as result of the financial crisis. The financial crisis cost the US an estimated 40% to 90% of one year’s output, an estimated to $6 to $14 trillion which is equivalent of $50,000 to $12,0000 for every US household (Attikson, Luttrell and Rosenblum, 2013). Also, investors lost confidence in the capital market and they stopped investing. This caused bond yields to fall and stock prices’ performance fell eventually (Johnson, 2013). Due to easy credit with relaxed underwritings standards, booming house priced, and a low interest rates household debt significantly increased (Mian, Rian and Sufi 2013). Moreover, highly levered households cut down consumption and the prices of houses and stock prices of household reduced (Mian, Rian and Sufi 2013). Unemployment rose, stock market decreased by approximately 50% in the mid-2009 and GDP reduced significantly. The growth of the economy can be linked to its rate of unemployment. Whenever the growth of the economy falls, unemployment increases.

The Effects of the Credit Crisis on the African Stock Market

The 2008 credit crisis created a severe impediment to the progress of the African stock market. Even though the crisis emanated from the US subprime mortgage, it transmitted to other economies which led to a fall in the sentiment of investors (Umar and Sabri, 2019). South Africa and Nigeria have the largest stock markets in the region representing about 89% of the total market capitalization (Boamah et al., 2017). Since the US economy contributes about one fourth of the world’s GDP, a decrease in their economy would impact economies across the globe (World Bank, 2016). Stock markets are globally related, and this accounts for the transmission of the effect of credit crisis to the African stock market. Many economies experienced a massive depletion in wealth (Srivastava, 2015). The credit crisis resulted to a massive fall in exports, imports and the flow of foreign direct investments to economies in Africa, accompanied with a significant decline in market capitalization and national indices (Boamah et al., 2017). There was a shrank in the South Africa’s stock market (Majapa and Gossel,2015) and the value of Nigeria’s market capitalization reduced significantly by about 96% (Boamah et al., 2017).

Regulatory Changes to the Financial Crisis

One would have thought that the US savings and loans and banking crisis in 1980s and early 1990s should have been an avenue for both the UK and US regulators to learn regulatory lessons in restructuring the system to reduce failures (Eisenbeis and Kaufman, 2010). The 2008 credit crunch is most likely to happen again if the blunder and errors made are not perfected and appropriate measures are not being staged to protect financial sector and avert it from reoccurring. The US government created the Financial Stability Oversight Council (FSOC) under the Dodd-Frank Wall Street Reform and Consumer Protection Act to avoid reoccurrence of the credit crisis. The enactment of this legislation is designed to eradicate some of these informational gaps, risks and safeguard rights of consumer (Acharya and Onucu, 2011). Under the auspices of the Dodd-Frank Act, the Consumer Financial Protection Bureau is safeguarding households against being short-changed by these mortgage firms and creditors and stops lending associated with great risks (Thakor, 2014). Also, the US government set up the Federal Depository Insurance Corporation as a measure of regulating and reducing risks and ensure a sanitized banking operation for people who do business in the money market funds.

Conclusion

Warren Buffet, one of the world’s greatest stock investors, once said: “Never let go off money”. Having envisaged the impending crunch, I would cease investing by withdrawing my money from these investment banks. In addition to this, I would have sold my real estate properties earlier before investments banks were still mortgaging despite the general decline in the housing market. Furthermore, the benefits associated with the liquidity in the forex market and its corresponding substantial amount, forex traders would have had favorable circumstances to benefit in the direction of either the bullish or bearish dependent on the market’s technical benefit. The Euro to the Dollar technically broke down from its bullish medium within period commencing by early August, 2008 subsequently extending to twice peak at its high around 1.60450 within the period commencing early July, 2008. A bearish would have made profits in this circumstance. Moreover, because real estate properties’ values dived at a fast pace and supply increased, it would have been an appropriate period to procure the real estate properties with the surplus gains earned from the forex market at absurd prices and later sell them for a quick profit after the brouhaha in 2008. Conclusively, having envisioned the severity of the loss in the stock market, I would have moved my funds into bonds and cash. Nonetheless, I would revert my funds back into shares when the outlook improves.

References

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Social Credit System in China

In the United States, citizens take their credit scores seriously since they can affect how they live their lives. They show the creditworthiness of people to lenders who then decide if these banks or credit card companies should provide people with loans if needed for purchases. In China, the government takes these scores more vigorously and instead of taking out loans, these scores are decided based on the honesty and integrity of their citizens. If a citizen is behaving correctly in society, they are rewarded with discounts on energy bills, rent items without deposits, and provide a citizen with more matches on a dating website. If a citizen behaves dishonestly, they can be banned from taking a flight, get their dog taken away, and be blacklisted, which is the lowest position possible .

The Social Credit System and Its Main Features

The State Council of China, in 2014, published a document called ‘Planning Outline for the Construction of a Social Credit System’ claiming a radical idea that would forever change China. The plan explained that the citizens of China were to now be constantly monitored and evaluated depending on their daily activities whether their activities are positive or negative (Botsman, Rachel). From this, a citizen score, ranging from 350 as the lowest to 950 as the highest, would be generated. This provides information to other citizens showing if somebody is trustworthy (Campbell, Charlie). The score would be publicly ranked against the 1.3 billion citizens of China and will determine everything in their lives. Some examples include their eligibility for a job or where their children will go to school. By 2020, every citizen will have to participate whether they approve of this system or not (Botsman, Rachel).

Before the social credit system, cash was the biggest payment method used in China where only 1 in 3 citizens had a bank account. Since China went from extreme poverty to being the world’s No. 2 economy, they never had a chance to develop credit history (Campbell, Charlie). Therefore, people would be able to default on loans and sell counterfeit goods with little to no repercussions. In 2015, the government allowed eight companies to run a test trial to see if this system is possible (Campbell, Charlie). According to the Chinese government, the biggest goal they wanted to accomplish would be to “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step” (Elgan, Mike).

With over 200 million surveillance cameras that uses facial recognition, they detect when citizens are not being compliant with China’s rules and regulations. Both private companies, one being Sesame Credit, and the government, can collect data of citizens and use this information from their databases and rate citizens accordingly (Marr, Bernard). Alibaba, an online shopping site, collects purchase data from its 1 billion users and judges them according to the types of products bought. If a citizen purchases video games, they are perceived as an idle person and therefore get a lower score. On the other hand, if a citizen purchases diapers, they are considered to be a parent and therefore show they are responsible and so get a higher score (Botsman, Rachel).

Around 80% of Chinese citizens who partook in a social credit survey either somewhat or strongly approved of having this system implemented in China. The wealthier and higher educated citizens are believed to be the ones who strongly approve of this system. They believed these changes promote good behavior and protect them from fraud and bad businesses (Marr, Bernard). While citizens believe the system is great, the Chinese government believes that students and households with low income will be able to benefit from the system. They will be able to raise their citizens score and therefore acquire better jobs which will improve their quality of life (Botsman, Rachel). A professor from the Capital Normal University in China, Wang Shuqin, stated that she supports the government implementing this system and refers it to “China’s social faithful system”. Since citizens are now able to verify the creditworthiness of each other, business contracts are more than likely to be kept and little to no risky moves can be done (Botsman, Rachel). Therefore, the economy will be able to expand, be more competitive, and no businesses will be hurting the process.

Although this system promotes honesty and integrity, black markets give rise for ways that citizens are able to manipulate and boost their citizens score. Chinese citizens can pay hackers to change their score and sometimes, hackers can steal information and sell them for their own benefit (Botsman, Rachel). The government intends to limit free speech since they believe that when a citizen “spreads rumors’” about the government, they should be penalized. Therefore, citizens aren’t able to practice freedom of speech online and in person as this can lower their citizen score (Campbell, Charlie). Since the Chinese government publicly shames their blacklisted citizens, many believe this will lead to abuse of power. The government has the ability to expose and punish people with low social score which doesn’t give fair treatment, or due process, to all citizens of China (Zeng, Meg J.). In some provinces, they display citizens using screens in public areas to shame them while other provinces will remotely change your dial tone to say “the person you are calling is a dishonest debtor” (Zeng, Meg J.)

Ethical Analysis

Hedonism discusses that a life is good if it’s filled with pleasure and free of pain. A good life involves happiness, which can improve one’s welfare and quality of life and that by limiting unhappiness in our lives, it shall reduce misery. With the social credit system, Chinese citizens are able to improve their scores, which can lead to more happiness in their lives. Since they are able to acquire more with a higher score, citizens would strive to become the best, so they can take advantage of the good benefits. On the other hand, hedonism may limit autonomy, which gives the power to control our own lives with free choice. Using paternalism, China imposes limits that infringes on citizens liberties against their will but for their own good. Though paternalism can provide happiness, it still limits free choice which in turn could make citizens miserable. Many citizens may feel they are not able to be their own authentic self since the government, to an extent, is controlling them. Hedonism would most likely agree with China implementing this system because good behavior and trustworthiness can promote happiness since the government’s goal is to eliminate fraud and reward the citizens who are contributing to society.

Consequentialism preaches that people should do as much good as they can that best produces good overall results. A moral theory under consequentialism would be act utilitarianism, which states that well-being is the only thing that is essentially valuable. Consequentialism would most likely agree with this system since the government believes it will improve the well-being of others. With the system, low-income citizens and students are able to rise above and be able to show that they are credible and honest, which will help them rank higher in society. Since the system affects all Chinese citizens, it produces the greatest good for the greatest number. Every citizen has the advantage of acquiring the highest score possible, which will maximize the goodness in society. On the other hand, consequentialism wants us to measure well-being where somebody adds up all the benefits a choice produces, add up all the harm it causes, find its balance, and then determine if the balance is worth the action. Since Chinese citizens are given a score based on their daily activities, it seems unfair to judge citizens vigorously based on their actions. Sometimes people can’t decide all the good and bad of an action before they commit it since it would require time before resulting in a conclusion.

The Kantian perspective, which follows deontological ethics, believes that it’s not about the consequences that arise from actions, whether they be right or wrong, but about the motive that is carried out by the person. Since this is the case, China’s social credit system goes against Kant’s perspective. With the system, the government does not investigate why somebody did what they did, but bases a citizen’s score on whether they did the right or wrong act. Therefore, this would not be fair for citizens who have a low score for a reason. For example, if a citizen were to have a death in the family and become depressed, they might buy alcohol and resort to drinking heavily. Buying alcohol will significantly reduce the citizens score and therefore limit them and buy other products they may need like purchasing a plane or train ticket. If the government were to see these transactions, they would not care that he was drinking to suppress his feelings.

Conclusion

In 2014, China decided to implement a social credit system for its citizens that will reward citizens for being trustworthy and honest and discredit citizens for being dishonest. Six years later, the system is close to completion that soon, everyone living in China will have to partake in the social credit system. The reason for this system in China is due to citizens not having bank accounts therefore others do not know if they are trustworthy. Personally, I believe this social credit system is a good idea because if you are a citizen with a good score, you are able to be rewarded with benefits that will improve the quality of life.

Essay on Carbon Credit

The world, as we know it now, has witnessed a gigantic transformation from the discovery of chemicals and gases to the current situation when the same have become a threat to life on the planet. This transformation has resulted in, perhaps the greatest untackled issue of modern life that is, climate change. Climate change highly owes its existence to the uncontrolled massive emissions of greenhouse gases, especially carbon. When more and more quantities of greenhouse gasses are exposed in the environment, a greater amount of heat gets trapped in the planet’s atmosphere. This results in a threatening increase in the world temperature, thus destabilizing the climate. In 2019, 36.81bn tons of carbon was emitted into the atmosphere. China is the world’s largest emitter of greenhouse gases in the current time period. It emits twice as much as the United States of America, which is the second largest emitter of CO2. The United States is followed by India, Indonesia and Russia. India being the third largest producer or carbon, emits 7% of the world’s total emissions.

World leaders realized that carbon was increasingly becoming a hazard to the global environment and was not an issue faced by any one nation. In 1997, the Kyoto Protocol was adopted by countries. The mission aimed at reducing CO2 emissions and other greenhouse gases from the atmosphere. As a result of this protocol, carbon banks or carbon trading systems was introduced. In 2001, 191 countries ratified the protocol. A carbon bank is an individual, non-profit organization aimed at carbon sustainability. To achieve this goal, a carbon bank gives out carbon credits to those businesses, industries and even countries that emit carbon dioxide more than the prescribed amount.

A carbon credit is a term given to any tradable certificate or instrument that gives a permit or right to the holder to emit carbon. These carbon credits are purchased by institutions who emit more than what is authorized. For example, a business that generates 100,000 tons of greenhouse gas emissions a year. The government passes a law to limit emissions to 80,000 tons. Now the firm can either reduce its carbon emissions or buy carbon credits to offset the excess, from carbon banks legally authorized to sell credits. Thus, a firm has to pay a price in order to produce more than the permitted amount of carbon, like the World Carbon Bank Finance Unit created by the World Bank. One Carbon credit gives a sanction to produce one ton of CO2. According to the Environmental Defense Fund, that is the equivalent of a 2,400-mile drive in terms of carbon dioxide emissions. It can also be said that these credits are like fees or penalties for producing excess amounts of carbon. This mechanism is used by carbon banks to discourage production and thus reduce the carbon release.

Carbon credits are broadly divided into two types: voluntary emissions reduction (VER) (these credits are created by voluntary institutions through scientifically developed programs) and certified emissions reduction (CER) (these credits are mandatory credits tied to verified projects).

The exchange of carbon credits is known as carbon trade. This carbon trade can take place between individuals, firms and even countries. The world’s biggest carbon trading system is the European Union Emissions Trading System (EU ETS).

In order to purchase carbon credits, each credit requires a price value. The system of allocating prices of carbon units is known as carbon pricing. The current price of carbon is $20.81 USD. Market factors of demand and supply play a significant role in the determination of these prices. Moreover, prices are set by mainly by two methods:

• Emissions trading systems (ETS) cap and trade system: This mechanism caps the total amount of carbon emissions and these caps are reduced every year at a rising scale. Firms who do not produce very high amounts of carbon dioxide are permitted to sell the credits they did not use for themselves, to those businesses who emitted large amounts. This is how demand and supply are generated in the Carbon Market.
• Carbon tax: carbon tax is one of the most efficient methods of carbon pricing and reducing carbon emissions. These are directly imposed taxes on the production of carbon. A total of 25 countries worldwide impose taxes on carbon including the EU, Canada, Singapore, Japan, Ukraine, Australia, Sweden, Chile, and Argentina.

Recently, the implementation of emission trading for environment’s benefits has been on the rise at different scales. This arrives with three remarkable merits on specific arenas: environment, economy and public policy. Environmental efficiency related advantages of this policy seem to be irrefutable. Not only does it ensures the transparency of emission reductions targets, but carbon trading also increases the chance of realizing mid to long-term committed ambitions through imposing a cap to ward the approach off pernicious external factors. In addition, economy can take advantage a lot from the adoption of this instrument. With the flexibility in buying and selling allowances, an entity obtains much eagerness in mitigating their emission, as well as golden opportunities to generate greater revenues and attract other financial streams, remarkedly as to small and medium-sized companies/countries. Such incentives are likely to bring the low-carbon industry into sharp focus, thus paving way for the uprising of decarbonization and colossal advancements in technology with less carbon footprints. In terms of society, emissions trading system will probably do wonders for societal well-beings.

The operation of emissions trading has also coincided with many real challenges, however promising such an avenue is. Case in point, the validity of old CDM (the Clean Development Mechanism) credits under the Kyoto Protocol’s market could translate into a surplus of credits, as in many cases they have not yet been issued although companies have managed to limit pollution. The public has come to cast doubt on the actual environmental efficacy of such an ambitious scheme as a result. Additionally, double counting is another hindering factor, when a country that sells carbon credits still declare its emissions reduction after the deal has been signed, which represents the need for a more watertight set of rules to reach a consensus.

Meanwhile, determined efforts will have to be made if nations worldwide are to guarantee the achievement of initial climate targets, as well as restricting aberrant motives that act as a preclusion to raising ambitions. The entitlements of local stakeholders also require meticulous consideration, while at the same time governments should exert themselves to prevent detrimental impacts on the environment and committing to sustainable development objectives.

Analysis of Credit Creation Limitations

While banks would prefer an limitless potential for creating deposit to make bigger profits, there are many limitations. These limitations make the system of developing deposit non-profitable. The barriers of the deposit advent technique will be discussed in this essay.

Amount of Cash

Affects the advent of credit with the aid of business banks. Higher the money of business banks in the shape of public deposits greater will be the savings creation. However, the quantity of money to be held by means of business banks is managed by way of the central bank. The central bank may also amplify or contract cash in commercial banks by way of buying or promoting authorities securities. Moreover, the deposit introduction capability depends on the charge of amplify or limit in CRR by using the central bank.

CRR

This refers to a reserve ratio of cash that wants to be kept with the central financial institution by business banks. The principal cause of retaining this reserve is to fulfill the transaction desires of depositors and to ensure the safety and liquidity of business banks. In case the ratio falls, the savings introduction would be greater and vice versa.

Leakages

Imply the outflow of cash. The credit creation process may go through from leakages of cash. The one-of-a-kind types of leakages are mentioned as follows:

• Excess Reserves. Takes area typically when the economic system is moving towards recession. In such a case, banks may additionally decide to keep reserves instead of making use of dollars for lending. Therefore, in such situations, credit created by means of commercial banks would be small as a giant quantity of cash is resented.
• Currency Drains. Imply that the public does now not credit score all the cash with it. The customers may additionally preserve the money with them which impacts the savings advent with the aid of banks. Thus, the potential of banks to create savings reduces.

Availability of Borrowers

Affects the deposit advent through banks. The credit score is created through lending money in structure of loans to the borrowers. There will be no savings advent if there are no borrowers.

Availability of Securities

Refers to securities against which banks furnish the loan. Thus, the availability of securities is fundamental for granting loans in any other case credit creation will no longer occur. According to Crowther, “the financial institution does now not create money out of thin air; it transmutes different forms of wealth into money”.

Business Conditions

Imply that credit score advent is influenced via the cyclical nature of an economy. For example, credit score introduction would be small when the financial system enters into the melancholy phase. This is because, in the despair phase, businessmen do not prefer to make investments in new projects. On the other hand, in the prosperity phase, businessmen strategy banks for loans, which lead to deposit creation.

Restriction by the Central Bank

If the banks have massive deposits, they can create more savings and if they have small deposits then their power of credit score introduction will be limited. While we recognize the commercial financial institution has the monopoly of word issue, if the central financial institution increases the volume of money the deposits of business banks will expand and they will make bigger the quantity of savings in the inquiry. On the different hand, if the supply of cash decreases, the volume of savings also decreases. Anyhow the savings advent strength of the industrial financial institution is immediately affected by way of the policy of the central bank.

Habits of the Customers

The electricity to create credit by using the business banks is very a lot influenced by the habits of the people residing in that country. If the humans are ordinary in using the cheques then the quantity of credit will enlarge on the other it will be contracted.

The Cash Ratio

Every bank keeps adequate money reserves for assembly the cash necessities of its customers. The financial institution will no longer allow its money ratio to fall beneath a certain minimum level. When this stage is reached then the bank will now not increase the money.

The Collateral Security Available

The bank advances loans to the debtors towards some type of collateral security. If these are now not handy then the electricity of deposit introduction will be restricted.

Conclusion

Despite its limitations, it can be concluded that credit score advent by way of industrial banks is a tremendous source for generating income. There is a negligible chance of the loans turning into horrific debts. The hobby charge that banks cost on loans and advances is increased than the interest that the bank gives to depositors for the money deposited in the bank. Hence, we can say that the obstacles of credit introduction function through shifts in the balance between liquidity and profitability. If the banks are unwilling to make use of their surplus dollars for granting loans, then the financial system is headed in the direction of recession. If the public withdraws money and holds it with themselves, then it reduces the bank’s energy to create credit.

Essay on Money, Credit and Financial Literacy

Financing is a skill that should learn by everyone. The management of finance is about taking good care of the money for investment, savings, and putting it in the right place. Based on invertopedia.com, finance is a broad term that describes activities associated with banking, leverage or debt, credit, capital markets, funds, and investments. The main resource for it is money and this revolves around it.

Finance literacy is another term associated with savings and credits. It is about knowledge and education in handling finances effectively for long-term purposes. This involves one’s knowledge of finance, and the other one is the application of it for the purpose of financial stability. The use of resources. This kind of knowledge is allowing citizens to be mindful before entering a decision that involves money.

However, in the time of the pandemic, financial resources and stability challenge the capacity of individuals. As savings and credits are part of the financing, they are among the hardest hit. Savings means the money you are able to keep from your salary, profit, and anything from your daily finances. Credits are about borrowing or lending money from someone either in a bank or cooperative and to someone’s own money that is payable for a certain time based on an agreement. This is why it is relevant to the country for the past year due to the uncertainty caused by the pandemic.

The pandemic has brought so many challenges for many people across the globe, they are losing their jobs, selling their property, and many more. Savings are spent on daily needs, and many decide to lend and borrow money from banks. People engage in loans so that they can have money that can be used for daily necessities and can be used for business purposes as a new form of income source.

Based on statistics from statista.com, during the last quarter of 2021, banks received the highest trusted savings institute with about 68.9 percent. This showed that banks are most reliable when it comes to savings. The most preferred by many and can give assurance that money is safe and not a scam. Money borrowers are trusted to lend money in banks. During this time, it increases due to a lack of jobs and works for sustaining the needs of every citizen. Through BSP, banks extend their help to lenders, especially in this crisis. Small business owners are one of those that do loans for the continuity of their business, which helps them to earn money for daily survival.

This time, finance literacy is very important. Lenders and borrowers should be mindful in choosing where to borrow money and to budget everything of the money being borrowed. Before that, they have to be mindful as well and think twice if they really need to borrow money or not. Even people who save money have to decide on the right bank where their money is secured. The country’s challenge right now is sources, and money is a problem. People have two options: use their savings, if they have any, and credit money. However, thinking about credit is very not the best idea because of a hard life, how can someone pay for it if they have not worked? Choosing to lend is their option. Luckily many cooperatives and banks offer low-interest loans suited and can afford by lenders, especially with the pandemic that is still happening in the country.

The development of financial literacy is very important. Addressing this by the government is necessary. Policies are being made into simple citizens undergoing loans and lending. Educate every citizen on how to handle finances and smart decision-making when it comes to saving and credit. Young people have to armor at a young age the importance of financial education for them to acquire capabilities and stability sooner they engage in financing money on their own.

Summing up, financial education is necessary for everyone. This is a great skill to be learned at a young age. Savings is the best to be ready for any financial adversity. People have a source of funds for their daily needs and necessity. Even can result in a more adaptable person during a crisis because money is important. However, credit is optional if no choice for a source of funds, yet choosing the right cooperative or bank is a must for quality lend, like a low-interest rate. Saving and credit is about money. Finance literacy is being mindful of money. Through the application, we can avoid uncertainty in finance once we experience again another pandemic or crisis, instead, people are more financially ready what ever challenged them in terms of money.

Financial Problems Cause Divorce Essay

Will divorce ruin my credit?

Divorce can affect many aspects of your life, but one thing you may not have considered is how it affects your credit. To begin with, what is credit? This is the ability of a customer to obtain goods or services before payment based on the trust that payment will be made in the future. There are factors to consider when talking about credit and divorce. Divorce may or may not affect credit depending on several factors.

If you have any joint credit accounts or mortgages with your ex-spouse they have to be paid. After being through with the court proceedings for the divorce, the judge may have ruled out that your ex-husband or wife has to pay a certain amount after the divorce.

You must ensure that you are following up to ensure this is happening, especially if you find that your spouse is not as concerned as he or she should be, since this may affect you in the future. The problem is that you will not have the motivation to pay bills with assets that belong to you. The most unfortunate thing is that if these bills that are in your name do not get paid, then your credit will suffer.

So, if you know your name is on the account you should work hard to ensure they are paid even though probably your ex-spouse was the one who was supposed to make payment. You and your ex-partner may be on talking terms and may agree that you will both honor your financial deal till you are done, but if that’s not the case, you can pay the bills that your ex-partner is not paying regardless of who is responsible, just to avoid it ruining your credit.

After doing this, there are measures you can take to recover your money such as reporting non-payment to the court since your ex-spouse went against the divorce agreement.

Divorce can sometimes be chaotic or messy. A messy divorce may cause you to spend a lot of money on your lawyer making you unable to pay your debts. In other cases, one partner might have been the breadwinner, which in most cases is the woman.

This may bring a lot of trouble since the dependant spouse will have trouble covering bills on his or her own. Being insolvent and the scenario of being left with no one to depend on may ruin credit since it may lead to delayed payments or over-reliance on credit cards.

Payments should always be on time to avoid hurting or ruining your credit due to late payment If your current financial situation makes it impossible for you to pay your bills on time, your credit score may decrease.

If you are in such a situation and wonder what you can do, there are ways in which you can be able to get money to pay your bills. For one, you may find other means of getting employment, working overtime, freelancing, or hustling which will help increase your income or decrease your expenses.

If you are used to living a lavish lifestyle, then you will have to minimize expenses on luxuries such as spending your weekend in a hotel or traveling to other countries, to clear bills. Other options may be moving in with your family or friends, or selling your apartment or car to get stability.

There are cases in which couples will never be friends anymore. They may split up causing a lot of drama however others split up peacefully. Disappointment may cause one to do things that he or she has never done especially to the person who he or she once loved.

If your ex-partner is bitter and annoyed due to the divorce and has access to your accounts he or she may go and take a debt in your name. This is a common phenomenon, especially with the partner who is legally allowed to access the account since he or she is not responsible for payment.

This can be frustrating since your partner may exploit and frustrate you and get away with it just because he or she is legally recognized. The bad thing is that this may happen if that is the only money you have left. You will have to repay the debt that was not taken by you.

Failure to pay the debt may ruin your credit score. The best thing to do after a divorce is to remove your ex-spouse from your credit accounts to make it an individual account as much as you can as early as you can. It is said that prevention is better than cure.

People also say that divorce may cause distress and affect your mental health. You may tend to think that your ex-partner is good and reasonable and will take the divorce positively so there is no need to eliminate him from your credit accounts only to realize that he has a lot of anger in him so it is good to take precautions.

You may decide not to sell the family home. To move the house or property into your name, you may have to refinance the mortgage where the first loan is written off. This can lower your credit score since it requires hard earnings – without support from your ex-partner, earnings may be a challenge.

On the other hand, if you do not refinance, you and your ex-partner will have to clear the mortgage repayments. If you are the person who moves out, you may have a hard time qualifying for a second mortgage to buy a new home.

Once your accounts are separated from your ex, your creditor may decide to lower your limit if he discovers you’re now making much less money. That change can affect your credit score and can cause you to reach your maximum limit quicker than usual.

So, will divorce ruin your credit? Yes, if you have joint accounts, dependent on your spouse or your spouse’s name still exists in your credit accounts after divorce. If the above factors do not affect you then divorce cannot ruin your credit.