Wednesday, 13 November 2013

Wonga - Do we need to be saved?

Politicians are questioning our ability to make the right choices but that is not the real problem.

Criticism of Wonga recently reached a new nadir with the rather ridiculous claim by Ed Miliband, the Labour Party leader, that children have been “targeted” throughTV ads.  There does seem to be something unethical about a firm which charges almost 6,000% interest on loans.  However, this hasn’t prevented Wonga from prospering.  With wages stagnating for many people, there is strong demand for extra cash at times of need even if it does come with a big chunk of interest payment.  Yet, many in the media have been critical of a culture of borrowing with Wonga as the new pied piper (see my previous blog on Wonga).  Are Wonga’s loans useful in times of trouble or a snare for the unwary?

One of the key elements of a capitalist economy is that firms will sell any product where profits can be made.  This drive for profits pushes companies to innovate and create things that we didn’t even know we wanted.  The short-term loans from Wonga are one such product allowing quick access to cash that was not previously available.  Their popularity suggests that many find such loans useful, but it also prompts concerns that people are not making the smartest financial decisions.  Politicians among others target the source of supply (the firms offering the loans) rather than the source of the problem which is too complicated to deal with.

This paternalistic way of thinking is the basis for government action on a range of our “bad habits” from smoking (where policies have worked out for the best) to alcohol and fast food (which have been controversial).  Government policies such as these which try to modify the behaviour of adults sometimes seem like a replacement for a decent education system.  The world is growing in complexity and we are faced with an increasing range of choices at the same time as education is becoming increasingly focused on test results.  This leaves teachers with little time to teach important life skills such as a healthy diet or financial literacy.  Politicians could do us all a favour by asking the bigger questions rather than jumping on the latest bandwagon – if only there was a way to improve the behaviour of politicians.

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