December 2007

You know Duncan Bannatyne. Okay, not the name perhaps, but you know the man. The accent.

Come on, you remember – the scary one on BBC2’s Dragon’s Den? The bloke who sounds moments away from thumping the next entrant who wants £100,000 for a 10% stake in their snake charming business?

The great triumph of Bannatyne’s Anyone Can Do It, the new paperback edition of which I’ve just read cover to cover, is that it transforms its subject from a man you’d avoid outside a pub to a man you’d love to share a pint with.

Bannatyne – perhaps we should call him Duncan, which sounds more human, less like an enforcement robot out of Robocop, and so suits the person in this book better – is certainly not the first Scot from a dark corner of Glasgow to be hastily judged by his consonant dropping speech-cum-warcry. Hell, to sensitive English ears even the posher denizens of Edinburgh can sound like they’re giving you ten seconds to run for it.

But in Bannatyne (Duncan’s) case, first impressions couldn’t be more misleading, as this revelation of a book makes clear.

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Your debt makes other people rich. You’re only borrowing from your future self, who will be poorer, less financially secure, or lead a less abundant life because you had to have it now, before you could really afford it.

You can’t save while you’re in debt, and like a weed it grows and grows. Kill it!

The only exception is debt you take on for investment purposes. Unless you run your own business, such ‘acceptable investment debt’ nearly always begins and ends with an affordable mortgage to buy property.

Borrowing to invest in shares is too risky. The market goes up over the long-term, which might make it seem like a good idea. But shares are volatile, and the market could easily go down over the 3-5 year time period of a personal loan.

You don’t want to have to sell your shares when they’re down to repay your capital – like that you’ll end up poorer than when you began.

Very occasionally debt might be acceptable if you need to buy something to earn more money, and you really can’t save it up.

For instance, you may need specific training to upgrade your job, or perhaps you want to buy an ice cream van to whip up a fortune. (Don’t laugh, it worked for Duncan Bannatyne.)

You’ll have to use your judgement here. Buying a fancy car with debt to impress your boss certainly doesn’t count!

But let’s be honest, we all know the kind of debt I really mean – excess clothes piled up using store cards, overseas holidays put on the credit card, a dozen sundry items bought over a week on the ‘never never’ as our grandparents ironically called credit.

This kind of debt – the kind of non-mortgage debt that most people take on – will make you poor if you’re not doing very well already, and it will stop you becoming rich if you are.

Too extreme? Everyone has debt, you say – surely millions of people can’t be wrong?

I disagree. I think the popularity of debt is down to:

1. Relentless emotional marketing by retailers to persuade us that we must have things we never knew we needed and most probably don’t.
2. Relentless emotional marketing by financial firms, who tell us we can have those things – now.
3. People being too impatient nowadays to save for anything.

Perhaps I sound old-fashioned, but I believe we need to relearn some of these old ways of thinking.

Financially, debt makes no sense in my view, whatever economists tell you about balancing ‘consumption over a lifetime’ or similar wealth-sapping baloney.

In reality:

• Debt makes everything much more expensive
• While you’re paying off debts you’re not saving and investing
• Debt saps your efforts to make more money
• You’re not getting anything ‘free’ when you buy on credit, you’re only borrowing from your future self, who will be poorer as a result of your debts

Let’s look at each of these in more detail.

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