【summary】
The trust principle is a concept based on the premise that the other party will keep their promises in economic activities and financial transactions. Many economic activities are supported by credit, including bank loans, stock markets, business-to-business transactions, and even everyday deferred payments. This is one of the basic principles essential to understanding modern economics.
Conclusion
The economy is not driven solely by money.
In fact, "trust" is more important than money.
What is the credit principle?
“Transacting with the belief that the other party will keep their promises in the future”
means.
Without trust, many modern economic activities would not be possible.
Thinking about trust principles using familiar examples
For example, consider borrowing a home loan from a bank.
Banks lend tens of millions of yen.
At that time,
- Will you really pay me back?
- Do you have stable income? *What is your past repayment history?
Check.
Banks lend money to
Trust that “this person will repay”
Because there is.
The economy is built on trust
The trust principle is used in all situations.
| Transaction | Credit details |
|---|---|
| Bank loan | Will be repaid in the future |
| Credit card | Pay later |
| Stock investment | Companies disclose information and create future value |
| Purchasing corporate bonds | Returning interest and principal |
| Sell on credit | Pay at a later date |
In other words,
Much of the economic activity
"Even if you don't have money now, you will be paid in the future"
It is built on trust.
Why is trust important?
Increase money flow
If all transactions were to be made only in cash, economic activity would be severely restricted.
By having trust,
- Financing
- Installment payment
- Investment
- Corporate activities
becomes active.
As a result, it leads to economic growth.
Funds can be used efficiently
Businesses use credit to raise funds.
for example,
- Factory construction
- New product development
- Recruitment
etc. first and repay with future profits.
This system supports economic development.
What happens when trust is lost?
If credit principles collapse, the economy will be greatly affected.
For example, in the financial crisis,
*Banks will no longer lend and borrow from each other
- Investor withdraws money
- Companies will be unable to raise funds
Problems such as this occur.
When credit instability spreads, money stops flowing through the market.
Relationship between investment and credit principles
Investment is also a world of trust.
When buying stocks,
Investors are
"This company may disclose information and generate future profits"
I believe that.
When buying bonds,
"Issuer will repay as promised"
I believe that.
For stocks, the focus is on expectations for future profits, and for bonds, the focus is on evaluation of repayment ability.
Both assume trust in the other party and the market system.
Points that beginners tend to misunderstand
Trust = not personality
In economics, trust is
- Income
- Financial status
- Achievements
- Ability to pay
It is judged based on objective factors such as
Trust becomes an asset
Trust is an invisible asset for companies.
The more trustworthy a company is, the more
- Financing available at low interest rates
- Easy to attract investors
- Increase in business partners
There is an advantage.
Trust is lost quickly
Building trust takes time.
but,
- Accounting fraud
- Default
- Scandal
If something like this happens, it will be lost all at once.
Framework for investment beginners
To understand the credit principle, it will be easier to understand by looking at the following flow.
信用
↓
資金調達
↓
投資
↓
事業成長
↓
利益創出
↓
信用向上The higher your credit rating, the easier it is to raise funds and the easier it is to grow.
summary
The trust principle is a concept in which economic activities are conducted based on the premise that the other party will keep their promises in the future.
There are three important points:
- The modern economy is built on trust. *Bank loans and investments are based on credit.
- Economic activity stagnates when trust is lost.
Beginners in investing can gain a deeper understanding of economic and financial mechanisms by looking not just at a company's profits and stock prices, but also at ``does the company have the trust of the market?''