Money (illustrative)
Money (illustrative)Flash 90

There is a distinct difference between how Israelis and Westerners borrow money and buy things that they can't immediately afford. Western countries such as the USA, UK and Europe tend to sway towards loans and temporary "cash" type finance. Israelis however see to have no desire for "quick cash" and have stuck to their guns, using the well-established and recognized route of the everyday credit card.

Using credit cards is something that the world has become accustomed to. However, consumers in Europe and the UK in particular are finding new ways to access greater sums of money on a temporary basis. From unsecured loans and short term monetary arrangements with companies they are unfamiliar with, to the now well-recognized "Payday Loan," there is no shortage of options of companies who will lend nominal sums of money for huge returns through interest repayments.

Payday loans and short term loan industry that are now all too common in the UK and Europe are American inventions, having been thought up and brought into play in the 1880s. Meant for the manual laborers who lived "hand to mouth" and from "payday to payday," they served an important purpose. They allowed workers and their families some breathing space until the next payday: usually at the conclusion of the working month, at which point the loan would be repaid.

Israelis though for the most part have shunned this practice and the industry as a whole. However, that is not to say that Israelis are not living on credit in a similar way to thousands of people in Europe and the USA.

The difference is that Israelis have for the most part stuck with what we are all very familiar with – credit cards and accounts on credit.

With average salaries in Israel being lower than the UK and USA and with the rising cost of living throughout the world - which is particularly high in Israel - the Israeli public have, like all others, had to find sanctuary in a favored form of credit. Even if the queues in Israeli supermarkets are easier to skip, the price rises are more difficult to navigate around.

Travelling the length and breadth of Israel you will see teenagers with brand new iPhones, children on the latest electric bicycles and young adults with an up to date Apple Mac laptop. But how can they afford this in a time where basic costs are rising?

The answer is that through monthly budgeting for the minimum repayments necessary to keep a credit file afloat, Israelis are in fact able to buy luxury items otherwise inaccessible to them.

The advantage they have is that as part of credit agreements with the large card providers, as long as minimum payments are made, the card can keep being used.

There are however also disadvantages to this method. First and foremost, it teaches the next generation that living on credit on a permanent basis - that is, not necessarily living within your means - is acceptable. This is a dangerous slope and can lead to piling amounts of debt.

Another disadvantage is that a great disconnect between work and reward may start to appear. Rather than having to save up for something special, causing the buyer to value it more, items and luxuries, be they holidays or electronics, can be purchased in a few clicks, plastic in hand. This in turn can for some stifle the aspiration to better their careers in the future.

A great advantage that the credit card industry has though, is that having been around for so long, it is universally and globally recognized and is regulated as such, protecting the most vulnerable.

When it comes to the Western "payday" model though, there are disadvantages to be considered too. Yes, there will be a greater connection between the borrower and the value of the loan, as it can be provided in the form of hard cash. However, the amounts of interest that tend to be added are astronomical, with many companies charging interest that equates to more than 1000%.

Moreover, even though the UK’s Financial Conduct Authority (FCA) have regulated the industry, there is still a lot of room for loan sharks to move in to, exploiting the vulnerable, which thankfully can be a bit more tricky in a society that shuns such quick and immediately accessible finances.