Month: April 2020

Interest on Loans in the Modern Economy

Posted on by richabbaholyabba

19 Do not charge a fellow Israelite interest, whether on money, or food or anything else that may earn interest. 20 You may charge a foreigner interest, but not a fellow Israelite, so that the Lord your God may bless you in everything you put your hand to in the land you are entering to possess.

Deuteronomy 23:19-20

The above scripture goes to charging interest when we lend to others. As this is in the Old Testament context, it is arguable that it leaves much open to interpretation in the current dispensation. If Israelites were forbidden from charging each other interest but were allowed to demand interest from foreigners, what does that mean to us today?

Are we forbidden from charging fellow-believers interest but allowed to charge non-believers? Or should we operate in the same spirit as Jesus taught when he said:

43 ‘You have heard that it was said, ‘Love your neighbour and hate your enemy.’ 44 But I tell you, love your enemies, and pray for those who persecute you, 45 that you may be children of your Father in heaven. He causes his sun to rise on the evil and the good, and sends rain on the righteous and the unrighteous.

Matthew 5:43-45

By that standard, we should treat all people, believers or non-believers, alike and never charge interest on any loan. This becomes even more complicated in the modern economy.

What about lending to companies? After all, they’re not people; they are pieces of paper in a filing cabinet somewhere in the government archives. Do the same rules apply?

If a friend starts a company and that company needs some start-up capital, any loan made is to the company (a separate legal entity), not the friend. Could we charge that company interest on the grounds that it is not a real person?

Or, what if I took a 20% ownership stake in the company but then made the loan interest-free? In other words, my friend starts the company and gives me 20% ownership of the business. I then loan the money at 0% interest and the company pays me back over three years. At the end of the three years, I now have the loan repaid in full, no interest charged – but I now own a 20% stake in all the profits that company earns for the rest of time. 

Alternatively, I could sell my shares back to said friend at a reasonable price based on the company’s value at time of sale. Would we consider that money to be interest on the original loan? Technically, it is not.

It’s all about risk and there are subtle differences. If I charge interest on a loan, the debtor is obligated to pay back the principle (i.e. the amount I originally lent) plus the interest accrued over the term of the loan. Should they pay back my original loan but are unable to pay the interest, the debt remains and the creditor, me in this case, is entitled to attach the debtor’s assets to recoup the outstanding balance.

Conversely, if I accept shares in the company in lieu of interest, I take on some of the risk. If the venture doesn’t work out and the company fails to make a profit, the original loan is still owed but I am entitled to nothing beyond that. In such cases, the creditor is likely to ask for a greater share in the company to compensate them for the additional risk. Would we consider that a type of stealth-interest or fair compensation for the risk?

Of course, there are ways to mitigate the amount of value a silent partner might be entitled to. For instance, you might offer the creditor shares in the company but offer the borrower an option allowing them to buy those shares back for a fixed value at some future date. In this instance, the creditor is forced to sell at the agreed price should the borrower exercise their option after the loan is repaid. That way, no matter how valuable the company becomes, the creditor’s share is capped at the agreed value. Some might even consider this a form of interest even though, technically, it is nothing of the sort.

There are no easy answers and no specific passages of scripture either endorsing or forbidding these types of business transactions. In such cases, we need to let our conscience guide us

14 I am convinced, being fully persuaded in the Lord Jesus, that nothing is unclean in itself. But if anyone regards something as unclean, then for that person it is unclean….23 But whoever has doubts is condemned if they eat, because their eating is not from faith; and everything that does not come from faith is sin.

Romans 14:14 & 23

You would do well to read this entire passage, Rom 14:1-23 in context. The main thrust of the passage is about eating food that believers considered to be unclean. This may have referred to food that was unclean in terms of Jewish law or it may have referred to meat that had been sacrificed to idols in the pagan temples.

Paul addresses this and points out that it is a matter of conscience for each individual. He urges believers to act according to their own conscience and not to judge others who choose to act differently based on their conscience. In the absence of a specific directive from scripture, the body had to let their conscience guide them.

The crux of his message comes in vs 14; if anyone believes something to be sinful, then for that person it is sinful… and if that person acts against their own conscience and engages in an activity that they believe to be sinful, then they have sinned. Conversely, another person might engage in exactly the same activity with a clear conscience and God will not hold them in contempt.

When it comes to loaning money at interest or or structuring your business deals with others, it comes down to a matter of conscience between you and God. As long as it is legal and does not contravene specific biblical teaching, let your conscience guide you.

5 Things Your Pastor Won’t Tell You About Money

Posted on by richabbaholyabba

OK, I admit it. That was a cheeky title. But, hopefully, it got your attention. I’m not implying your pastor is trying to hide something from you. Merely that the average pastor is no more qualified to offer financial guidance than the average billionaire is qualified to preach a sermon on 1 Timothy 6:10.

Your pastor has made the study and teaching of scripture their life’s work. As such, they are eminently qualified to teach you the Biblical view of money which basically distils down to these points:

  • Money is temporal, God is eternal
  • Next to God, money’s importance is insignificant
  • Money is one of the biggest idols in modern culture and
  • We should give joyfully to God’s kingdom and purposes

Sure, they will acknowledge that money is an essential part of our lives in this world and that, as such, we should use it but take care that we don’t make it an idol. However, when it comes to the nuts and bolts of understanding how money works and managing it in our day-to-day lives, the average pastor is no no more knowledgeable than the next guy.

Here are a few things that financial advice gurus teach that pastors do not.

1. A “Pay yourself first” Mentality

As Christians, we may choose to amend this to a “Pay yourself second” mentality.

Your pastor understands kingdom investment (i.e. giving to the poor, missionaries, church ministry etc). They understand the scriptural notion of giving to the kingdom from the first fruits of your labor (i.e. tithes and offerings). This is kingdom investment, or storing up treasure in heaven.

The reason the Bible asks us to give of the “first fruits” is simple. If we left giving to God’s kingdom until last, there would never be anything left over. That’s because of our basic human nature.

The same rule applies when “paying ourselves”. This rule is best articulated in George S Clason’s book, The Richest Man in Babylon. One of the immortal lines in this book is when the money-lender says “… a part of all I earned was mine to keep.”

In this story, he advocates the idea of living on less than you earn and saving ten percent of all your income. Just as with our kingdom-giving, if we want to build up our savings, we have to do this before we start paying our monthly bills and expenses (i.e “Pay yourself first”). Otherwise, there will never be anything left to save.

Most of us think of everything we earn as ours to keep. This simply isn’t true. There is rent,utilities, insurance, food, clothing, motor vehicles etc. All these necessary expenses eat up our earnings. If left unchecked, they will eat up everything down to the last penny. This is why we should pay ourselves first, just as we give to God’s kingdom first. That way, when we run out of money, we are forced to look for ways to reduce our expenses, rather than choosing to erode our savings.

You will find few pastors who assert that saving is a bad idea or who equate saving with the love of money. But you won’t hear many sermons endorsing the “Pay yourself first” mentality either.

So what does it mean to “pay yourself first”? Simple. When you get your paycheck, pay your tithes and offerings. Then put another 10% into a savings account which is not to be touched. Then use what is left to pay your monthly living expenses.

2. To Make Money Work for You

Like most of us, pastors understand the concept of working for money. They are familiar with verses like “By the sweat of your brow, you will eat your bread…” (Genesis 3:19), or “The worker deserves his wages.” (1 Timothy 5:18).

However, they are generally less familiar with the idea of putting money to work in order to earn more money. They don’t understand the different asset classes or how to invest them. Nor do they necessarily understand the power of compound interest any better than the next person. Terms like dividends and market fluctuation are not a common part of the average pastor’s vocabulary. These are foreign, dare I say, slightly scary concepts to most people, pastors included.

Conversely, the people that appear to understand these concepts are generally wealthy investor types who seem to know more about financial instruments than scripture. Read, lovers of money. As such, pastors tend to do what most of us do; shy away from that which we fear or don’t understand and put up a “Love of Money” warning sign to scare off any inquisitive church members lest they fall foul of the beast. Much like the “Here be Dragons” illustrations in uncharted areas of medieval maps.

Like most of us, they fail to grasp that the pension / 401(k) schemes in which most people have placed their trust are engaging in the exact same investment activities as those alleged “lovers of money” who study the equities or property markets and manage their own investment portfolios.

It’s odd to me that we seem to view taking direct control of our financial destiny as somehow less Godly than paying a stranger to do it for us. The fact is, learning about finance and managing your personal wealth is not greed; it’s good stewardship.

The sad thing is, those pension / 401(k) schemes may very well come up short and, by the time we, their clients, find out, it will be too late to rectify the situation.

By investing your savings and making that money work for you, here and now, you can better ensure that you are in a position to support yourself in retirement and leave a financial legacy that continues to build God’s kingdom here on earth, long after Jesus calls you home to be with him.

3. The Power of Leverage

The Bible has much to say about usury and charging interest on loans. When it comes to this subject, your pastor is on firm ground as there is plenty of scripture on which to draw. Yes, there is room for interpretation on this and the complexities of lending money in the modern economic context might present challenges that create varying interpretations of scripture. Point is, there is scripture to draw from.

Conversely, the Bible has little guidance on the subject of borrowing at interest. However, the fact is that borrowing sensibly can leverage your investment’s growth potential by orders of magnitude. For instance, if you have $50,000 to invest, a 10% yield would give you an income of $5,000/year.

However, if you could borrow money at a 75% Loan to Value (LTV), you can leverage your returns by a multiple of four. In this case as little as a 5% yield on the overall amount would equate to a 20% (5% x 4) return on your original investment capital.

4. It’s Okay to Lose Money

Your pastor will, in all likelihood, have had to counsel congregation members who, through inexperience or naivety, have suffered devastating financial losses. The story is all too common; newly retired person lends their entire pension payout to a friend, family member or straight-up con-artist to help them in a new business venture that subsequently doesn’t work out.

These people usually don’t think of themselves as investors. Rather, they are good, trusting people trying to help someone in need. The failed ventures invariably result in big losses and the accidental investor seeks help and guidance from their minister when they realise they have lost everything.

Unfortunately, the pastor can only offer spiritual and emotional support in these situations. Even someone with the necessary financial savvy can’t lock the barn door after the horse has bolted; the money is gone. What do you say to someone who has lost their entire retirement fund simply because they tried to help a person in need? Small wonder your pastor is unlikely to say, ‘Go ahead and take the risk. After all, it’s only money.’

The truth is all investment involves an element of risk. As investors, we look for ways to reduce that risk by increasing our knowledge. Sometimes we win and sometimes we learn – and those lessons come at a cost. The investor mind-set has to be okay with losing money, otherwise the would never risk it by investing.

5. It’s Okay to Talk About Money

Talking about money is awkward. In many cultures, it is not considered polite to talk about money and, in Christian circles, it is often thought of as a worldly subject, not worthy of our spiritual calling. The mere act of bringing up the subject will probably raise concerns among your Christian peers that you love money more than you ought.

Pastors, in particular, find it a difficult subject to address. Those churches that are prepared to grasp the nettle and talk about money invariably do so in the context of giving money to your local church (i.e. their church). In light of the cynicism this generates from the general community outside the church, many pastors choose to go to the other extreme and not talk about money at all.

This is sad because money is such a fundamental part of everyday life. We can address the danger of drugs, alcohol or sexual immorality from the pulpit or in our youth services. As believers, it is relatively easy to remove ourselves from situations where we might be tempted by such lifestyles and choices. Don’t go to parties where we might encounter these temptations, choose our friends more carefully etc.

But where do we go to get away from the challenges that money presents in our lives? There is no opt-out alternative that the church can offer to take money out of the equation. It is an intrinsic part of our lives and, as such, deserves to be discussed, studied and understood in a Biblical context.

The Devil’s Greatest Trick

Posted on by richabbaholyabba

“The Greatest trick the devil ever pulled was convincing the world he didn’t exist.”

Charles Beaudilaire

This also became the catch-phrase in the popular 1995 cult film, The Usual Suspects starring Stephen Baldwin among others.

That quote is just as applicable to the love of money. So easy to spot in someone else but almost impossible to detect in one’s own heart.

It’s easy to point out the love of money in the entrepreneur. One who embarks on the journey in search of financial freedom. When a person begins investing and actively accumulating wealth in the form of assets they must love money, right?

Most people do not spend their lives building up an investment portfolio. Most of us simply climb on the hamster wheel each day and go to work.

We buy a house because this is a sensible investment and we work hard to pay off the mortgage. We trade up as our family (and our income) expands and move into a bigger home, buy a newer car, climbing the corporate ladder and piling money into our pension fund so that someday we can retire.

We enjoy the luxury of living in a home we can barely afford and revel in the security of a job that pays the mortgage even when we take our annual vacation or when we occasionally fall ill. We cross our fingers and hope that the money we pay into the pension fund each month will sustain us in our retirement.

All the while, we run up our credit card debt, acquiring new furniture, new computers and mobile phones for the kids. Or paying for our annual vacation, knowing that our next promotion or increase will cover these expenses in due course. When all else fails, we take our bank manager’s advice and consolidate our credit card debt into the mortgage. This reduces the monthly interest – and frees us up to reach into our wallet for the credit card once more to buy life’s next essential product.

We daren’t quit our job as this will bring the entire edifice crashing down and we daren’t leave work early to watch the kids’ school play or baseball match as this might cost us that promotion we so desperately need to keep the all the plates spinning. All to ensure that nobody ever sees how precarious our financial situation has become.

Of course, this seems less like a love of money than, say, building an investment portfolio worth a million dollars. Probably because it’s so normal. After all, most of our peers are in the same boat. How could it be wrong?

The truth is, this desperate need for job security is little more than fear of loss and the obsessive focus on consumer spending is little more than greed or desire for material gain. This is the love of money in its stealthiest form. Nobody plans for this life. None of us pictured this as living the dream back in our twenties. 

Rather, we started out with far nobler intentions. Then life happened and a series of rather sensible choices over time landed us in the predicament in which we now find ourselves. The love of money that once promised instant gratification has instead delivered a twisted form of serfdom in which we are little more than wage-slaves treading a hamster wheel from which there seems to be no escape.

Yet, when we examine our own hearts, what do we see?

We are not out buying private yachts. Instead, we are struggling to keep our heads above water.

Far from lusting after riches, we are barely able to make ends meet.

Chasing after wealth? You’re kidding! We are fighting for survival.

We hear a sermon about the love of money. We look around and see it everywhere. The rich and famous, Silicon Valley, Wall Street, the list goes on. Finally, we turn our attention inwards, seeking out the love of money our own hearts. And like that… it’s gone!

Make no Mistake!

Posted on by richabbaholyabba

You can deal with the love of money from a place of abundance, or from a place of lack. But make no mistake; you will have to deal with it.

Doing battle from a place of financial struggle won’t make your fight any easier or more noble.

Love of Money From a Place of Lack

I used to live in South Africa – the Southernmost tip of a continent gripped by poverty. A friend of mine ran a local ministry organisation that reached out to the homeless in Johannesburg’s inner city. These were some of the most destitute people in the country. 

At one point, my missionary friend came up with a brainwave. What if he could empower these homeless people in some way? Teach a man how to fish, so to speak. He got on the phone to some PR people at Coca Cola and asked if the company would be prepared to loan some small mobile coolers and donate the initial stock. The company agreed and his plan was underway. He selected some of the more entrepreneurial members of the homeless community to whom he ministered and gave them each a stocked cart.

He explained to them that Coca Cola had loaned them the carts and given them their first batch of stock. All they had to do was sell their stock by the roadside each day. Once they had sold all their stock, they could return and use some of their earnings to restock the cart at cost-price. The profit was theirs to keep. This would set them on a cycle to earn a decent living and they need never be homeless again!

The new entrepreneurs left with their carts, filled with joy at their newfound fortune – and never returned. After several weeks, my missionary friend managed to track a few of them down. Some found their way back to the homeless shelters, others to a local soup kitchen. Each story followed the same tragic theme. The entrepreneur had sold his stock and spent the money. Once the money was gone, he then sold the cart and spent all the proceeds from that. After the proceeds from the cart were gone, he found himself back on the street locked in the same cycle all over again.

love of money from a place of lack

The love of money had cost these men dearly. It cost them a valuable opportunity which then led to theft of equipment that was not theirs to sell. Finally, it reduced them to the very same bondage of poverty they had hoped to escape.

Utterly dejected, my friend went back to Coca Cola and explained what had happened. The carts were gone and his organisation did not have the money to pay for them. He asked the company if they would offer him terms so that he could repay the debt over a year or two. Graciously, the good folk at Coca Cola told him not to worry about it. They would happily carry the loss and cancel the debt. ‘Don’t feel bad,’ they told him. ‘We see this happen all the time.’

As I pondered this story, I realised those people are not so different from me and most of my peers. Yes, we may not be homeless and we can clearly see the folly of their actions. We can do this because we’re better educated and their financial dilemma is simpler than ours. We would never be so foolish.

But what about our own middle-class financial dilemma? Living from paycheck to paycheck with barely enough to meet our monthly bills. No matter how much we earn or how many promotions and salary increases we get, there is never quite enough money at the end of each month.

Let’s take some time today to examine our own hearts. I would urge you to consider how the love of money might be the very thing that keeps you locked in a cycle from which you long to escape.