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The miracle of credit

Imagine a man with his salary of 800 soles, married to a woman who has an income of 1200 soles. The purchasing power of this family is limited in 2000 soles. Imagine that this family does not have access to banking services, credit cards or any other type of credit. Considering that food and basic household expenses (water, electricity) represent 40% of family income, we would have a family that has 1200 soles of income for their other purchases.

Consequently, this family would have a purchase limit, forcing themselves to buy a household item per month. This month, a refrigerator, a TV the other and so on. This situation occurs because they do not have the possibility to take advantage of their purchasing power.

This situation, taking into account Keynesian theory, is bad for the economy

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By limiting the purchasing power of a family from its real income, we are forcing the market to produce less, hire less and generate less wealth. Over time this situation will get worse, creating inertia in the economy. To make matters worse, companies begin to produce more and more, in order to reduce their production costs and (theoretically) increase their profits.

Imagine now that this family has a credit line worth 10 times more than their purchasing power. That is, its purchase limit of 1,200 soles became 12,000 soles. What they could previously acquire in one year, they can now acquire in 1 month. With this we already have an increase in demand and the need to aggravate the supply of products in the market. Since companies need: produce more, hire more, people with higher incomes and access to credit lines to consume more. This becomes a miracle! However, many of these people, although they have a great tool (credit), lack financial education, which creates a greater problem for them.

All types of credit lines

All types of credit lines

Whether credit cards or personal loans – are aimed at harnessing the purchasing power of a person, so that he can consume more. This strategy was what saved the world after the 1929 crisis and the one that has continued to do so since then.

The problem is that we, semi-rational, mere mortals, are not prepared to take such a large purchasing power with responsibility, and if we add this to the lack of organization and financial planning, we have a time bomb that explodes every day in someone’s hand.

This miracle is still something incredibly powerful. For those who know about it, organize and plan the use of their money. Whereas today anyone can have a credit card, with it you can increase the limit of money destined for purchase in a great way. If you take into account the annual income along with the annualized credit limit, you will realize that it is very easy to build a heritage from nothing, with a purchasing power of 2000 soles. Now, for you to enjoy all that “power” you need to start your financial planning. And fast!

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