Comment by mmsimanga | Hacker News Reader

Comment by mmsimanga | Hacker News Reader

I can't read the article seems have suffered HN effect. Speaking as a black man in Africa which is somewhat different to the US I do agree with the title. Africa is different because the first educated generation is my parents generation who are 70+. Off course they are exceptions. My parents who were teachers coming from pure village setup didn't have any mentors. No one explained mortgage to them, they learnt that in school but no uncle, grandparent, cousin or anyone in their circle had ever had a mortgage. It was a new world to them. That generation did well. They lived the village principles, spent a lot of money educating whole villages and taking care of everyone because they the ones who worked. My parents couldn't teach me about money, they don't understand that debt is okay as long as you have a plan to pay it back. In their mind it is a bad idea. I have thus grown up risk averse and it took a long long time to understand how the business world works. Its fine though because you cannot learn these things in one generation. I am generalising but most of my peers don't understand VC funding and startups. My daughter will definitely have a much better understanding of the world as I can pass onto her. These things take generations. Extremely few businesses have been run by African's from one generation to the next. The world is changing, our grandparents were subsistence farmers, our parents were born in villages and still had cows and we were born in cities and towns. A fair number of my generation don't know what to do with a cow and my child's generation are born in town to parents who are professionals as in IT developers, lawyers, accountants and so on.

Your grandparents may not have been able to teach your parents about mortgages, taxes etc. but they were able to teach them about discipline, conscientiousness, hardwork, thrift etc. These count for something. This situation is not unique to Africa, there are (white) Americans (especially from poorer places like Appalachia or even just outside of the big coastal cities) who don't grow up familiar with credit cards, venture capital or the notion of going to college etc. and have to figure these out for themselves as adults (see for e.g 'Hillbilly Elegy or 'Educated' by Tara Westover). Of course they're not quite in the same bucket but my point is there are age old 'qualities' that can go a long way to help make up for lack of specific knowledge.

Absolutely agree that grandparents were able to successfully impart useful life lessons. This is why I allude to the fact that our parents generation educated whole villages because they were hardworking (implied), generous and selfless.

This is true, coming from a middle class family employed by government, i can attest most things like this are passed down from family. I have been lucky to have come to Us at the beginning of my career, though, so it has been mostly easy to figure out.

Debt is part of wealth building.

Thanks for sharing this. I'm inclined to agree with your observations/reflections. Moreover, I suspect this might be common to the post-colonial experience [fn0] , if we account for: (a) what life was like under colonial rule; (b) how stratified such societies were before/after independence; (c) the forms of government (statist or plutocratic/military regimes) that replaced the colonial structures. These points and your overall observations ring particularly true when I consider the case of people (usually older generations) I've met from India (and South Asia generally) with the risk averse, at times counterproductive frugal, mindset that the Nehruvian state encouraged. [fn1]

[fn0]: Here, I may be incorrectly inferring your origins to be in a former colony.

[fn1]: For Indian readers, I hope this comment doesn't initiate a partisan discussion. :-)

Yes from former colony and still reside in another former colony on the African continent. I am staying away from commenting on government influence just commenting as a person and my observations. Government is a whole other conversation.

FWIW, I strongly believe debt is never ok. It can be ok in the same way a hospital surgery is ok (you have no choice). Mortgages are not sustainable either. Just because the practice has been popularized in the west for centuries,it does not make it a sound practice.

It is possible to buy a house with money you saved. This also makes a lot of sense when the house will be passed on to the next generation (like it is done in africa).

Debt is spending your future cashflow for short term gains. Cash flow/liquidity is much more important than equity and net wealth(short term). I'm sure you know the old principle of "being poor is expensive" and "you need money to make money". Debt takes away your liquidity, the small things/"broken windows" you will always need to care for become neglected. Unplanned emergencies ruin your plans,etc...

At a national level, you should know how many african nations have borrowed endlessly and still gotten nowhere. Even after debts are forgiven and stable peacful times last decades.

Accepting debt is accepting a parasite. Havig a plan to pay it off is essentially saying you have a plan to kill the parasite before it kills you. Similar to how people think "it's ok, I can quit" before getting hooked on drugs.

YMMV.

>Debt is spending your future cashflow for short term gains.

No, debt is spending your future cashflow to increase your future cash flow.

>"you need money to make money"

Yes. This is where debt comes in.

>Debt takes away your liquidity

No it increases it. Debt lets you turn an illiquid asset like a building or accounts receivable in to immediate cash.

> No, debt is spending your future cashflow to increase your future cash flow.

No, with debt you gain capital now. Future cashflow is not guaranteed oe even expected in most cases (e.g.:how will a mortgage generate future cashflow? Rent your house,hope future rent value is higher?). You might get more cashflow in the future if your debt was for a good investment. But even then, until you pay off the debt, your future cashflow will have your debt payments subtracted from it, even if you have positive cashflow after that, your argument only makes sense if the that cash flow is more than your existing cashflow (possible but rare).

There is a big difference between calculated debt made for a business investment and debt (however calculated) made to aquire equity or to afford goods and services.

> Yes. This is where debt comes in.

No, this is where revenue stream comes in. For a salary man, this means getting promotions and saving up. For a business person, this means making profits and increasing profit margins. In both cases what you can "afford" is liquid cash , not loans.

> No it increases it. Debt lets you turn an illiquid asset like a building or accounts receivable in to immediate cash

It does turn it into cash, but you're getting into debt to spend that liquidity right away. Who gets into debt for long term liquidity? If your business is modeled to grow then you should see increasing profit margins over time, this profit is what should sustainably provide liquidity. Your future decisions are not made in fear of missing bank payments. You will always need more cash, so whatever revenue you will make in the future will always go to banks since you're always getting into debt (unless you have remarkable discipline). If you get into debt because an unexpected event requires you to have more immediate liquidity than what you have, I think that's fine. But my position is that you shouldn't plan on getting into debt from the begining.

Not interested in discussing consumer debt. Poster made it clear he was talking about learning how the business world works.

No leveraging with debt is not rare. Every small business owner I know uses debt. Some quick googling tells me the average for small businesses is $200k in the US.

You don't need remarkable discipline to manage it. It's pretty simple math. Fear doesn't need to come in to it. I'm not recommending everyone go out and redline their company with a ridiculous gearing ratio.

I get what you are saying. I agree with most of it. There is a time and place for debt. When you need to expand an existing growing business. A business one has started with their own money, validated it to work and would like an extra piece of equipment to scale up. Debt for the sake of debt is indeed a problem. As for government debt I think that is off topic for this particular thread. That's a whole other story.

VC investment is not debt, I have no problem with trading equity for investment.

It is slightly different for business than people since a business loan is more on a case by case basis than consumer loans. With consumer debt, entire markets are restructures with consumer's ability to get loans in order to afford goods and services.

> Mortgages are not sustainable either. Just because the practice has been popularized in the west for centuries,it does not make it a sound practice.

> It is possible to buy a house with money you saved.

...with decades of savings. Until you have those savings, how is paying rent to a landlord preferable to paying mortgage interest to a bank?

It wouldn't be that expensive if the practice of mortgage wasn't so rampant. It's worth what people are willing to pay for it. And like i said, if people lived with their family longer,even after marriage and houses were passed along generations more, there would even less demand driving down the cost. Not too many decades ago, all you had to do is save up a few years (US) to buy a house, am I wrong? It costs an arm and a leg now because the default way is debt and people will take on a million dollars of debt with $30k/yr income if someone gives them the loan. So the driver of housing prices is not people's income but bank's willingness to loan -- that's why it costs decades ,one spectacular example of why debt is not "ok".

Pierce the abstraction.

A builder spends 2000 hrs this year making your home. You pay him back 420 hrs annually over 5 years.

Some debts are just fine.

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