Borrowing always brings risk with it - both for lenders and borrowers. Lenders, of course, cover theirs by pricing it in: the riskier the loan, the higher the interest rate they charge. They're also ready to add on fees when anything goes wrong.
But what about us borrowers? It's a bit unfair. We often take out loans without gauging the risk that comes with them. Situations change, and down the line we might not be in a position to pay the debt back. What happens then?
In what will be probably a world first, the Commission for Financial Capability (the team behind Sorted and this column), has just come out with Debt Empire. It's a gaming app that teaches debt lessons by letting people play at being the loan shark.
Wait, debt what?
Yep, you heard that right - a game where you build an empire of loans and rack in even more cash when they go pear-shaped. You may as well let people play Darth Vader to learn about the dark side of the Force.
I'll admit I was taken aback by the idea at first. Wouldn't such a game just teach people how to be predatory lenders? Will we raise a generation of sharks?
It took me about a day or so to realise what a brilliant idea this is. This was mostly spurred by seeing how much my kids are learning through games and understanding that we need to push some buttons to get people savvy about debt.
It's way too risky not to.
Eyes wide open about borrowing
Which brings us back to the risks we run as borrowers. Debt is like playing pass the parcel, but it's no gift. Many times with debt, we're left holding the bag if anything goes wrong. That's not to say we shouldn't be borrowing, but we need to get wise about what we're getting into.
Take student loans, for instance. The idea is that we go into debt for education that increases our future earning power - which is a savvy use of debt. Yet there's risk that comes with it, and it pays to know what that is before we sign up.
The economy is changing, and the earning power from a qualification may not necessarily be there in the future. The job we've trained for may not be available. And what if the degree we've chosen turns out just not a good fit for us in practice? It's all on us.
How about credit cards? Sure we may know that they need to be paid off in full each month, taking advantage of the interest-free period, but who does that? Surveys show only a little more than half of us.
When something unexpected comes up, we can easily run up our credit card balances to get ourselves out of trouble. Especially if we haven't the buffer of an emergency fund in place, that's the risk we run. It's a pricey one.
Play on the dark side of debt
So in order for people to know more about the risks that come with debt, it's time to get gaming. What happens when things go wrong for borrowers, like missing repayments? Or having a shoddy credit file? Or defaulting entirely?
If you're a lender building your debt empire, you're ready to price up and load your borrowers with extra costs. Establishment fees, extended warranties, payment protection insurance... That debt gets heavier and heavier, but it's all on them.
My kids are going to be great loan sharks.