Ep 53. Credit: It's complicated �‪�‬ Crypto IRL

If you are like me, then you were a little awkward in college. Here’s an example of an interaction I had on campus as I walked from my dorm to class.
Pretty college co-ed: “Hey! Do you want a free t-shirt?”
Me: Uh! (Awkwardly looks away. Runs in the opposite direction.)
Don’t hurt me🤕
It’s complicated.
Let’s flash back a few months before this awkward interaction.
So many thoughts rushed through my head as I packed my bags. I wondered if my American professors would understand my Nigerian accent. I wondered if I would easily make friends, maybe meet a nice girl. But then my mother rocked me back to earth as she exclaimed “Please stay away from credit cards o!”. Apparently, someone’s son was drowning in credit card debt. I guess he thought the money was free.
In Nigeria, less than 3% of consumers have access to credit. It’s a stark contrast to the US, where 83% of adults have credit cards (Federal Reserve). My mum’s friend’s son had recently relocated from Nigeria to the US for college. He was woefully unaware of how to manage credit. He would stop and chat with the pretty college co-eds waving free t-shirts in front of the gym. Eventually, he signed up for a couple of credit cards. Then it all went downhill. He didn’t stand a chance.
And so I stayed away from credit cards.
The case for credit 💳
But my views have evolved. I no longer see credit as a tool for self-destruction. Rather, I see credit as a tool - it’s neither good nor bad - it’s just a tool. If used properly, credit could help people build wealth and live healthier and happier lives. But if used improperly, it could lead to financial ruin. Credit is a double-edged sword.
Living in Nigeria meant you paid cash for everything. The words “mortgage”, “car loan”, “student debt” and “credit card bills” were not in our vocabulary. No one had credit! And so you paid 100% cash when you bought a house or a car. The lack of credit also meant that no one had a credit score. So if you wanted to rent an apartment, you would have to pay 1-2 years of rent upfront. Needless to say, many of my cousins lived with their parents well into their late 20s and early 30s.
Can you imagine if the US had the same setup as Nigeria? There would be untold pain. According to the National Association of Realtors, the average new home buyer in the US paid just 7% of the total purchase price as a downpayment and took out a loan for the rest. Similarly, according to Statista, 85% of new car purchases in the US are financed. Collectively, Americans owe more than $1.2 trillion in car loans. In Nigeria, the total is closer to $0.
The ability to thoughtfully take on credit could save lives. Many hospitals in Nigeria require full payment before treatment is rendered. Too many people have needlessly died while family members frantically rushed to raise funds to pay for life-saving treatment. It’s desperately heart-wrenching.
The ability to take on mortgages could help many families own their homes and start building multi-generational wealth. Construction loans also enable investors to deliver more housing units to eager customers.
Access to credit could enable a business owner to grow and sustain their business. Businesses might need loans to purchase raw materials to fulfill large orders. Businesses could even offer credit to customers, enabling them to buy more products. Credit could provide the runway a growing entrepreneur needs to take off.
The list could go on. The bottom line is that access to credit could help grow the economy while enabling people and businesses to lead more prosperous lives. If this is true, then why do only 3% of Nigerians have access to credit?
Problems dey 🚧
My sense is that credit penetration is low for a couple of key reasons:
* Structural: Nigeria does not have a well-established credit score system. In other countries, credit scores are linked to a national identity number ex Social Security N