Why Filipinos love to ‘give’

Former Manila Mayor Alfredo Lim has a favorite story about his first few months as a beat policeman.

Upon getting his first paycheck, he celebrated in what he thought was a grand manner. The next day, he realized he didn’t have enough money to tide him over until the next payday. He did what everybody in his station did. He borrowed money.

The first thing he did when he received his next paycheck was to pay the principal amount he borrowed plus interest. The second thing he did was to borrow again.

This went on for some time until Lim realized he was taking home less and less after paying off his loan and borrowing just a little bit more each time to meet his daily expenses.

The next payday, he paid off his debts and began living within his means, skipping meals and walking to and from his place of work to cut down on expenses.

Lim is an unusual case.

Part of the culture

"The Filipino likes to buy goods on credit or pay by installment. We have a name for this: ‘gives’, which is how many 15-day cycles it takes the buyer to completely pay for a product he already has in his possession," said University of the Philippines anthropology department chairman Michael Tan.

Tan traces the Filipino’s liking for installment purchases to two factors. One is poverty. The other is the wholehearted acceptance of the American consumer philosophy where buying more goods and services is equivalent to a better quality of life.

"Installment purchases are prevalent in all poor countries. When people do not earn enough to meet their daily needs, they will borrow or seek credit from the informal sector, either from professional lenders like the five-six operators or from sellers of goods like the sari-sari store," said Tan.

In the high-rise offices of Makati as well as in the factories of Valenzuela, everything from boneless milkfish to make-up to clothes is bought and sold on credit. The shortest installment period is two paydays; the longest is 10 paydays on five months.

Real gold jewelry, for themselves as well as for their wives or daughters, that can cost up to P10,000, are the most expensive installment purchases.

Because they need the money or the product right away, the interest rate charged is not a major factor in seeking credit. The interest rate is inputted into the purchase price. On the average, a pair of shoes priced at P1,000, payable in four payments, already includes a margin of P200.

The better deal

Realizing the Filipino’s penchant for installment purchases, banks have jumped onto the bandwagon, attracting customers with low interest rates and longer payment terms. The most convenient way to avail of installment is through a credit card.

"It’s a question of cash flow," said Citibank vice-president for cards marketing Cristina Teh-Tan. "An office worker in Makati who needs to pay the tuition of his child may not be able to pay the entire amount of P25,000 but can afford doing so over a nine-month installment plan."

These days, nearly everything–from appliances to tuition to weddings–can be paid through the credit card. Installment payment periods range from three months to 24 months.

"Credit cardholders can avail of the installment plan for purchases as low as P3,000," said Teh-Tan.

Strategic borrowing

For department stores like Shoemart, the bulk of installment purchases are big-ticket items like appliances during the Christmas season. Purchases are made either through the in-house card or through credit cards issued by commercial banks.

To promote usage, credit card companies offer zero interest deals where a cardholder will not be charged interest and can pay for his or her purchases from three to 12 months.

As competition heats up, the promotions are getting better. At least one, Citibank’s Paylite installment plan, has tied up with a store chain and offers below zero interest or a rebate on appliances purchased on installment and fully paid within six months.

"You can still buy wisely even when you buy on credit," said Teh-Tan.

"For example, why pay cash now when you have the option to pay the same amount over a certain period of time? Keep your cash where it either can earn interest while deposited in your bank account or can be used in emergencies. The most important thing, of course, is to monitor your expenses so all your installment purchases, taken together, are not more than your take-home pay."

Manila’s former mayor would have liked that advice.