Cyprus’ youth talk money: Should I get a loan?

By Razmik Sargsyan

Most people get it wrong about debt. In my age group, at least, people can be divided into two distinct groups. Those who are extremely cautious about borrowing, and those who are overly relaxed about it.

But who is right?

I view personal finances through a corporate lens. I ask myself: if I were a company what would my balance sheet look like? Would I invest in it?

This type of thinking has allowed me to change my understanding of loans from a mere burden to an instrument. And it’s simplified my decision-making about taking a loan down to just one question: Will this loan create future benefit for me?

Let’s look at an example.

A company that takes out a loan to pay its employees might not look as attractive as one that borrows to invest in a new factory that will double its output.

Similarly, a person who takes a loan to fund consumption may end up financially worse off than someone who borrows to get a certificate that will double their salary.

The instrument is the same. The use case is not.

And this is the conclusion I’ve reached: get a loan only if it will bring you future economic benefit.

But what about emergencies, you ask? What if I need to take out a loan because of an unpredictable circumstance over which I have no control?

Well, in that case, the answer is a concept called BYOB. Be Your Own Bank.

It’s an idea that could be an entire article of its own. But, in a few words, it’s a way of thinking that makes your savings account act like a lender of last resort.

BYOB helps you give yourself an interest-free, flexible duration loan that you can use for these types of circumstances – and not stress over it. Basically, it’s like an emergency fund you can borrow from, but must repay.

These thinking frameworks might not be perfect. And my perspective expands with age. But they’ve simplified my thinking just enough to make responsible financial decisions.

‘Cyprus’ Youth Talk Money’ is a Cyprus Mail series developed in collaboration with the University of Cyprus as part of the Financial Literacy Initiative, supported by XM. New student articles are published every Tuesday.

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Razmik Sargsyan is a fourth year student in the Department of Accounting and Finance at the University of Cyprus