As some of you may know, I grew up in Haiti, a very poor country in the Caribbean. When I first moved to the States, some of the glaring differences were shocking. The biggest one to me was the availability of all types of goods and services at all price points. Although I already knew that was the norm in any advanced society, it was so night and day with what I was used to that it still made for a big surprise. It took me a while to really grasp the idea that I don’t have to own a car in Boston or pay ridiculous amounts money for internet so slow you can barely open this very blog post.
The higher standard of living is also staggering when it comes to the tools we use for personal finance and banking. Most people in Haiti are part of what we call the “informal sector” which can be defined as unincorporated small business. Street vendors, taxi drivers, house keepers, etc all work and get paid in a very informal manner. Most transactions are all cash.
As a result, despite being used by a very small percentage of the population, banks do not play a big role in the average citizen’s personal finance life. Even the few that exist do not offer all the services that we take for given in North America. On top of that, functional illiteracy is a very big issue.
Such an unsophisticated lifestyle might lead one to believe that people over there have no idea how to save and invest. After all, how can they even keep track of what they have coming in when there’s no paper trail? Even in the most developed parts of the world, people struggle with managing money. Most would expect things to be way worse in the developing world.
I want to show you here how us humans are problem solvers by nature and hopefully convince you that with all the tools and resources that we have to make our lives better, we should avoid making excuses.
While I was on vacation at home last summer, my dad introduced me to one of the many tools people use in Haiti to make up for the lack of infrastructure and technology. It’s called a “sol” (translates to “floor”, no idea why). It’s the main saving and borrowing tool used by the unbanked, low wage majority.
Basically a group of let’s say 10 people would get together and decide to start a “sol”. They could be relatives, friends, or anything really. They would each contribute a certain amount on a predetermined schedule (ex. each person puts in $10 a week). Each period, one of the 10 participants would collect the entire pool. So if you’re the 3rd person in line, you would contribute $10 every week and collect $100 on the third week. If you’re 7th, you collect on week 7.
This system is effectively a savings account substitute if one goes last (10th in our case), putting in $10 for 10 weeks and collecting $100 on the 10th week. But why wouldn’t they just put $10 aside on their own in a savings account or a cookie jar like we do here in the US.
I asked my dad the same question. His explanation was that when you do not know how to read and write and don’t have easy access to banks, it’s even harder to create a budget and stick to it. In addition, the extreme poverty makes it very difficult to actually think about saving for the future. The “sol” is kind of like forcing yourself to save because you have to honor your obligations to a group.
Speaking of extreme poverty, it’s obvious that the people I am describing here will not qualify for any types of bank loans. The “sol” is also used as a substitute in that regard. If a person goes 1st, she receives $100 on the 1st week and pays $10 for the rest of the cycle. Thats’s effectively a 0 interest loan! Although I’m completely anti-debt of any kind, I can’t help but admire people finding creative ways to solve their everyday problems.
When my dad explained that whole concept, I became excited to share it with you guys and I hope you can see why. Despite all the advances in technology, we have an unfortunate tendency to regress as a society. I wanted to give an example to illustrate the exact opposite behavior, which consists of maximizing our resources no matter how limited they are or how difficult the circumstances.