Economist Chen Zhiwu: Young people can enjoy it, but they can't be satisfied with "exquisite poverty"

(On December 1, 2020, in the Tiandi Commercial Block of Wuhan City, Hubei Province, the milk tea brand store "Tea Beauty" opened, and a large number of citizens came to punch in and taste the early days.) Photo/Visual China)

Chen Zhiwu: Young people can enjoy it, but they can't be content with "exquisite poverty"

Reporter/Huang Xiaoguang

Published in China News Weekly on January 11, 2021, No. 980

Since the birth of consumer finance, the associated controversies have never stopped. In recent years, the tragedy caused by young people falling into online lending has been staged continuously, which has made the negative impression of public opinion on borrowing and consumption more and more intense. For individuals, should they spend future money, and how to borrow and consume rationally? For countries, does the advanced consumption of young people stimulate economic growth or bring financial risks?

In the view of Chen Zhiwu, a well-known economist and director of the Asia Global Institute of the University of Hong Kong, guiding young people to consume and use financial products correctly can not only promote personal development, but also promote social prosperity and national economic growth. In an interview with China News Weekly, he encouraged young people to use financial tools to optimize consumption and investment at different stages of life according to "a lifetime's income". At the same time, he is committed to correcting public misconceptions about consumer finance.

"Borrowing money to consume can also be done within the limits"

China News Weekly: Some people say that the pressure of the post-70s and post-80s comes from mortgages and car loans, and the post-90s and even post-00s young people are burdened with consumer loans. Does this intergenerational change seem obvious to you? What is the economic interpretation behind it?

Chen Zhiwu: Very obvious. For the post-40s, post-50s and even many post-60s, borrowing money to consume or even invest is not allowed. The post-70s and post-80s concepts have been adjusted and they can accept mortgages to buy houses and cars. After the 90s and 00s, even daily consumption will borrow money.

This change has a lot to do with the development of the financial market and the increase in income level, which ensures the supply of credit, and the increase in income level brings credit demand. The older generation has no financial support, so through the "raising of children and prevention of old age" to achieve "inter-period investment" to ensure that the investment in children can be returned in old age. Nowadays, people can buy insurance products and make financial investments in their prime to ensure the quality of life in old age, and even overdraft future money in advance when they are young.

China News Weekly: Why are it mainly young people who borrow and consume?

Chen Zhiwu: This is a very normal phenomenon, in fact, the main body of consumer finance is young talents in line with the laws of economics. I often say that when people are young, they have the greatest desire to consume, but the lowest income; in old age, their desire and demand for consumption are reduced, but they accumulate the most wealth. For young people, borrowing and spending helps to avoid this embarrassing situation, reconciling the contradiction between "demand now" and "money in the future". The role of the elderly is usually that of the provider of funds rather than the demand side.

I am now 58 years old, looking back at myself, when I was twenty or thirty years old, I just started working and starting a family, I need to spend money the most, if there is a way for me to transfer some of my future income to spend at that time, it will definitely be more ideal for my lifelong life arrangement.

China News Weekly: The Douban group "Alliance of Debtors" gathers more than 30,000 young debtors. There are critics who believe that the younger generation consumes too blindly and impulsively, do you think they are ready for credit consumption?

Chen Zhiwu: First of all, I emphasize that everyone needs to take responsibility for their own actions, and not over-borrowing and destroying a lifetime of credit is the bottom line. It is true that some young people have broken through this bottom line because they have no experience and lack of sense of responsibility. Even so, society should not blame them too much, but should allow them to make mistakes and bear the consequences, and henceforth be more responsible for their actions.

Under the premise of keeping the bottom line, we must believe that the parties can make rational judgments most of the time. In fact, many of the advanced consumption is a wasteful expense in the eyes of outsiders, but for the parties themselves, they are actually investing in human capital. Borrowing money is not a bad thing as long as you are not overly indebted. Many elders are very afraid when they hear about consumer finance, borrowing and spending, as if borrowing money violates the familiar financial principles of living within the limits of income, thrift and thrift. In fact, after the financial market, as long as the money borrowed by young people does not exceed the total discounted value of income in the future, it is still in line with the principle of living within the limits.

China News Weekly: You once wrote a book called "24 Lessons of Wealth" specifically for young people. At present, young people use the word "exquisite and poor" to ridicule themselves, how do you think about this lifestyle or consumption concept?

Chen Zhiwu: I encourage young people to use financial tools to optimize consumption and investment at different stages of life according to the "income of a lifetime" and live a more ideal life as soon as possible. Consider 40 years old as a watershed. Before the age of 40, even if you are a moonlight family or even a monthly owener, it may be an arrangement to maximize your happiness in life; after the age of 40, you must ensure that you save at least 20% to 30% of your income every month.

At the same time, I hope that young people will look more positively at "exquisite poverty" rather than staying in self-ridicule. Like Buffett said, at the age of 50, you can't lie down and make money, that's too unsuccessful. Young people can enjoy but can not be satisfied with "exquisite poverty", need to continue to improve in their own professional field, improve the probability of career success.

In the American experience, borrowing and spending has not destroyed Americans. Conversely, studies have shown that more young people and families are developing better financial discipline because of their monthly payments, and the culture of financial management is also formed under the pressure of monthly payments. Therefore, the pressure of the monthly payment is not necessarily a bad thing, and borrowing money to spend to a certain extent will force young people to work harder to make money. For my own part, I was in debt for more than a decade after my PhD, but I didn't sleep well because of it. For me, being in debt motivates me to be self-motivated.

"The best way to address usury is not to ban"

China News Weekly: There are many chaos in the current consumer loan market, such as replacing interest with various credit assessment fees, service fees, and handling fees, charging higher penalty interest for default and late fees, and adopting violent collection methods. How do you see these phenomena?

Chen Zhiwu: Looking at this problem cannot stay at the emotional level, but needs to be understood from the perspective of economics such as supply and demand and contract risk. You mentioned violent collection. What level of collection is acceptable? What kind of debt collection is legal? For example, telephone harassment, if this is also prohibited, even if the borrower has money, he has no interest in repaying the money, and if he does not pay back, he is protected by public opinion and the law. As a result, lending companies are bound to pursue higher interest returns to compensate for the risk premium.

Restricting lending and collection in disguise has brought more unstable factors to society. For a long time, it has been widely believed in society that usury is the concept of "exploitation", and it is easy to conclude that the way to eliminate usury is to overthrow the lenders. Based on past experience, this not only does not help solve the problem, but it also makes the problem worse. Lending transactions are forced underground, the supply of funds is reduced, the risks and costs of financial transactions are raised, and ordinary people pay higher interest rates, and there is no other choice.

China News Weekly: For consumer loans, how should we find a balance in encouraging development and controlling risks?

Chen Zhiwu: First of all, we need to make a conceptual adjustment, turning those accusations into calls for the protection of the rights and interests of lending institutions. If we are in favor of protecting investors in the stock market and other capital markets, then the same should be true in the lending market. The best solution to usury is not to ban private lending or to bring down lenders, but to protect their rights and interests. In this way, the cost of funds and interest returns can be reduced, and the problem of usury can be truly solved. On the contrary, if the rights of borrowers are blindly protected, it will bring too much moral hazard, and those who can repay the money will not be willing to repay, forcing the lending institutions to increase their efforts to collect debts.

For industry issues, norms need to be established at the operational level. The People's Bank of China and the Banking and Insurance Regulatory Commission need to make great efforts in formulating rules, such as how to publicize consumers, how to disclose information on loan products, and which means are legal or prohibited when collecting debts, and should be clearly stipulated.

China News Weekly: What is the significance of consumer finance for China's economic growth? In your newly published book "The Logic of Finance", many people have a wrong understanding of the logic behind finance and wealth, what are the performances in the field of consumer finance?

Chen Zhiwu: First, let's talk about the situation in the United States. At the beginning of the 20th century, the industrial revolution made the manufacturing capacity of the United States continue to increase, but the people's consumption power did not keep up, so there was overcapacity, especially in the automotive industry. In this context, consumer finance has developed greatly, giving full play to the potential of consumers and enabling the RAPID development of the US economy.

Today's China, and the United States at that time have many similarities, the economy is facing transformation, the social growth structure needs to be adjusted, it is necessary to shift to the service industry, let consumption play a more important role in the economy, consumer finance is of course indispensable. In fact, China's economy has also benefited from consumer finance in many aspects, especially the pulling effect on the large household consumer industry. The first is the real estate industry, where we all see the benefits of home mortgage lending; the second is the automotive industry, where cars are the second largest consumer goods besides houses. Next, there are mobile phones, computers, and even the clothing industry, etc., where personal consumption is considered a personal investment in many places.

Today, Because the Internet has opened up private finance in China, many transactions that were originally underground have moved to the Internet. It's not surprising that some of these problems arise, and participants need to learn as they go. It would be wrong to deny the contribution of the lending company because of a few cases. The media and regulators must not enlarge individual cases, or even ban consumer finance in this way, which is a help to the whole society and will make the groups that really need financial support unhelpful.