Use Debt to Survive and Thrive
By: Olivia Marlene
Tags: Debt, Money Mindset, Financial Lesson, This Happened To Me, Money

My mom didn’t finish college due to having me early, so she ended up as a street vendor near our school. She sells fruits, juices, snacks, chips, and candies. When I was in grade school, I helped her set up her stall before I went to class. I help her sell whenever I have free time. By being with my mom while she does the hard work, I learned my first financial lessons as a child.

If you have read my past stories, you must be acquainted now with our hand-to-mouth existence when I was a child. My parents have no capability to save. So every start of the school year, my mom has to borrow from loan sharks some seed money to be able to buy the goods that she will sell.

The loan term consists of paying the lender daily a set amount such that the principal plus 20% interest is paid in 30 days. You heard it right; she borrows money at 20% monthly interest. In the Philippines, we call the loan scheme 5–6 because if you borrow 5k pesos, you will have to repay 6k pesos after a month. My mom used to borrow 5k pesos(around $100).

Maybe you are screaming now on how the hell my mom agreed on that 20% interest? She doesn’t have a choice because she doesn’t have any collateral and can’t show any financial documents that she has a fixed income to sustain her repayments. As I analyze now, the lending arrangement was also a big risk to the lender.

Maybe your next question is: how the hell did she able to recoup that unconscionable interest by selling on the streets? She did. And that makes it really interesting.

As a child helping my mom, I learned that she sells those packed candies and chips at a 20% mark up. If she buys a pack of candy for 100 pesos, it usually contains 120 pieces, so if she sells it at 1 peso each, she will gain 20 pesos per 100 pesos initial capital. For fruits, juices, and snacks that she cooks, the markup usually goes up to 50%. Those gains are daily gains. She is able to sell lots of her goods considering that she is in an area of high foot traffic.

For a conservative computation, taking into account the fruits that are not sold by the end of the week and those products that we eat while we tend her stall, we can say that she gains 10% per day from the 5k pesos that she borrowed. That will be 500 pesos per day multiplied by 20 days because she only sells on schooldays. So she has a 10k pesos gross income on that 5k pesos debt. She will deduct 1k pesos to repay 20% interest of her loan and 5k pesos for expenses (transportation in going to the market daily, packaging for the goods, municipal fees so she can be permitted to sell, etc.). It will still leave her with a 4k pesos net that we use for daily sustenance and school needs.

Once the loan is repaid at the end of the month, she renews the loan, and the cycle starts again. There will be lean months, especially during the rainy seasons, where she will not be able to sell, but she reserves some extras on the good months to still be able to pay her daily dues and keep her good credit standing. With her good standing, the 5k pesos that they used to loan her increased up to 20k pesos. That sustained me through college.

When I had my first job and assumed my siblings' school expenses, my mom was finally able to breathe and stopped borrowing money from loan sharks. Not until 3 years ago when she started doing the debt trick again but not with loan sharks anymore. She leveled up in using debt to her advantage by using her credit card, which has only 2% interest compared to the 20% that she juggled before. She also doesn’t sell on the streets anymore. But let me reserve that for another story.