On Sunday, The New York Times published a series of articles on The Debt Trap, exploring the surge in consumer debt and the lenders who made it possible.
The main article profiles a Philadelphia woman who made some bad choices, bought into the myth of easy credit, and now finds herself struggling with insurmountable debt. “I regret not dealing with my emotions instead of just shopping,” she says. Through compulsive spending and an unaffordable mortgage, she set herself up for failure — an unexpected medical emergency delivered the knock-out blow.
But borrowers are just one half of the problem. The other part is a financial industry willing to grant more credit than borrowers can possibly repay. Banks know better than the consumers how much debt a person can afford. They have sophisticated statistical models that allow them to predict just how profitable these long-term relationships will be. They want to take on people with debt. It’s easy money.
Stories like this seem to provoke two conflicting responses:
- Some people argue that banks and credit card companies are predatory, doing what they can to lure people into a life of debt slavery.
- Others say that the responsibility lies solely with the borrower, that each person in debt gets that way because of personal choice.
I believe both sides are right. I also believe both sides are wrong. This isn’t a black and white issue. It’s complex. People end up deep in debt because they aren’t able to manage money and because the banks know this and are hoping to land lucrative customers. From the article:
“Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset,” said Julie L. Williams, chief counsel of the Comptroller of the Currency, in a March 2005 speech that received little notice at the time.
Lenders have been eager to expand their reach. They have honed sophisticated marketing tactics, gathering personal financial data to tailor their pitches. They have spent hundreds of millions of dollars on advertising campaigns that make debt sound desirable and risk-free.
Our current credit crisis exists because everyone involved was looking for easy money. They wanted to get rich quickly. Banks see perpetual borrowers as an evergreen revenue source. Borrowers look upon credit as “free” money. This combination, as we’re seeing, is a recipe for disaster.
Yesterday at I Will Teach You to Be Rich, Ramit gave his take on the NYT article, writing:
Should we just stop spending so much? Of course we should, but that’s like saying we should all lose weight by making better choices. Easy to say, extremely difficult to do. I’m hopeful that the current environment calls for a restructuring of our priorities. I hope that we get conscious about our spending and start prioritizing saving over spending. With extended hardship, this will become more likely. We all need to be conscious of our finances, but we’re playing in a world with the deck stacked against us.
Is the deck stacked against us? Maybe. But most of us have the power to change the hands we’re dealt. Make smart choices. Spend less than you earn. Don’t buy stuff you cannot afford. Establish an emergency savings account. If you believe you have problems with compulsive spending, get rid of your credit cards. Practicing good money habits can give you a winning hand, even if the deck is stacked against you.
Though banks may be willing to issue you a new credit card or to raise your limits, you do not have to take them up on their offers. They’ll happily lead you toward a life of debt; it’s up to you to take a different path.
For more information on this topic, visit these articles from the archives:
- How to get out of debt
- A review of Maxed Out, a film about the the credit industry
- The giant pool of money: Anatomy of the subprime mortgage mess
- The secret history of the credit card
[The New York Times: Given a shovel, Americans dig deeper into debt]
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Very back to basics, in a good way.
I think it’s easier to overspend than is realised, I can’t be the only person in the world whose response to feeling miserable is to go shopping. I don’t spend more than I can afford just more than I’d like, and I know that one idea is to stop seeing non-spending as less fun than spending. If only knowing and doing were one and the same thing. Any ideas anyone?
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Actually I think the deck has been firmly stacked in your favour:
- Low interest rates, without the consequent inflation, because of
- Dollar Hegemony and
- Petro-dollars keeping us gas prices low
etcetra
The change is that this seems to be ending, along with the dollar’s status as world reserve currency.
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The deck has been stacked in our favor for so long that we don’t know how to live any other way. Our entire culture is based on consumption. The coming recession will not only change our spending habits, but it will also change our culture so fast that we are going to have culture confusion. We are going to see many people confused and emotions are going to run high.
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I completely agree with J.D. that the issue is very grey. In some ways, yes the creditors are at fault by extending credit to less than ideal candidates but at the same time credit issuers do not benefit when someone gets so over their head that they miss payments or go into foreclosure (in the case of housing). There is no money to be made off of someone who cannot make their payments.
On the other hand, it is very simple for a person to calculate how much debt they can take on, and are ultimately the ones who should shoulder the brunt of the blame for their situation. People are always worried about keeping up with their friends and neighbors so they spend. Some like in the case of the woman from Philadelphia shop compulsively as a mechanism to cope with stress and avoid dealing with emotions. Others just have no concept of the value of a dollar nor do they understand the long-term effects of their overspending.
There is not cut-and dry answer to this dilemma, however the best solution is education. Starting from a young age, the more knowledge you provide someone, the better they will be at making rational and responsible choices in the future.
I have written a couple entries in my blog that deal with both of these issues in the past:
http://letsblogmoney.com/2008/06/23/are-credit-issuers-to-blame-for-the-nations-problems/
http://letsblogmoney.com/2008/06/17/start-teaching-your-kids-early-to-build-a-strong-financial-foundation/
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Yes
And the dangers is there that a populist leader will come along who will promise the impossible: “you can have your SUV’s back!”
and blame those previous leaders who, though ineffectually, did try to be constructive in solving the economic problems “It’s all Al Gore’s fault!” …
And to be honest I think this is the most likely outcome. A bit like your analogy of getting a whole nation to diet, I think to avoid some kind of internicene strife will involve asking everyone to *grin and bear it*.
fat chance.
Ed
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JD-great post though I did have some issues with the article. And Ramit’s post sure had a strong edge to it!
I agree that both the lenders and borrowers are both responsible. The lenders are predatory and their behavior is wrong. But that doesn’t take away the borrower’s responsibility.
I firmly believe we only succeed when we take control of our lives. Doing it for them will only enable the problem and make things worse on the long run.
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Our problems run deep into our culture and I agree that there is plenty of fault to go around. One of the things I kept hearing during the big runup to the mortgage crisis that drove me crazy was the phrase “get cash out of your home.” They made it sound like you were just getting access to cash that was already lying around. When in reality you were BORROWING MONEY against your largest (and maybe only) tangible asset. It’s just an example of how marketing has contributed to the problem.
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The banks are just simply out there to get money. They are running a service, it is completely our decision how we use that service (credit cards). I don’t believe banks want to see people in debt slavery, they just want to make some money by providing a service.
People CHOOSE to step into debt slavery because they decide not to educate themselves and decide to spend more than they can afford.
But it is great that sites like yours and all the other financial blogs out there are beginning to offer ordinary people an easy way to learn about managing your finances.
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It is totally crazy how much credit banks and such are willing to give out. My husband and I bring in about 55K per year combined, and you should see the credit card limits we’re given. We don’t have any credit card debt, but if I wanted to, I could amass tens of thousands of dollars of debt given the credit limits on my cards.
I do agree that people need to not just blame the credit card/mortgage companies…just because you get approved for x amount of dollars doesn’t necessarily mean that you can afford to incur that amount of debt. And blaming the financial industry for your blind following of their approval amount is pretty lame, in my opinion.
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This is not really related… but is there a budget calculator out there somewhere? It doesn’t have to be specific, more like if you make 10k you should spend 1k house and 1k elsewhere… that is a very very cheap example.
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If someone gives you a loaded gun do you have to fire it? No of course not. Same thing with credit. I don’t think the banks are too much to blame for all of this credit. You and I are.
We live in a land blessed with choices yet in a our own selfish ways we choose everything for us and for the here and now. Now that price of that choice has come due. Don’t cry about it you literally dug your credit grave you have to crawl out of.
I think the issue is behind the credit. Why do people send so much? Why can’t we stop? Because in North America we have a huge number of very unhappy people who are now just realizing all this stuff didn’t give us more than a minute or two of happiness. We focused on spending money and it gave us pain. Instead we need to focus on using money toward what really works for us. Live your life for you, not for an iphone.
Tim
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Great comments so far, but I really do think you folks are underestimating the power of advertising. Kris and I were talking the other day, and we both agree that the number one thing people can do to save money is to reduce their exposure to advertising.
Yes, we must each accept responsibility for our choices. But marketing is designed to subvert our will. It’s good at it. Advertisers know exactly how to manipulate masses of people. On an individual level, it’s important to resist this manipulation and to develop the skills necessary to make smart financial choices. But the financial companies share some complicity for this crisis. They’re doing their damndest to get people to borrow and spend.
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I really don’t like the NYT’s graphic on how much debt you have (comparatively). For instance, my only debt is my mortgage. Is debt on a 15 year fixed mortgage bad debt? No. The problem debt isn’t mortgages/trad student loans. It’s CC’s, car payments, and other revolving debts.
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@J.D.: I do agree with your thoughts on advertising, but with television, magazines, the interenet, radio, billboards, it’s difficult to avoid it. There are many people in this country who will buy just about anything they see being marketed, especially if it is endorced by a celebrity/athlete or someone else they “respect” or want to emulate. I guess that’s why so many companies have huge marketing budgets like TD Ameritrade with Sam Waterston, Cadillac with the various actors, Nutrisystem with Dan Marino, Don Shula, et al., etc.
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I had two responses to the original Times article. First, I was insterested that the profiled woman said she started buying things from tv shopping networks while laid up sick. I also spent a lot of time in bed recovering from various aspects of my cancer treatments — and I ended up watching every episode of every version of law and order; lots of american movie classics, and doing double-crostics. Shopping channels didn’t attract me…. but I can’t tell you why one person finds them soothing and someone else doesn’t.
Secondly, it occured to me that that while I may be good at controlling major spending, I do have the same itch to spend — even if it’s only food extras or a new pair of socks. being able to “shop” seems very much ingrained, not just a response to advertising. Trolling a used book store and buying a postcard or a paperback mystery, can, fortunately, feel like shopping for me, or buying a candy bar or an iced tea — so as long as I budget some walking around money, I’m insulated from really spending…
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Credit Cards also offer rewards and build credit. I think if someone has a problem overspending they should lock up their credit cards except for one with a low credit line, mine is 1000, but 500 will do. These cards sometimes offer as much as 5% cash back on all purchases, shop around for offers. Pay off the locked up cards and keep them, it will increase your credit score, keep raising the credit lines on the locked up cards, this will also increase your score. Never use them. One day you will want a credit line for buying a house or something of this nature. If you treat your low credit line card like a debit card and pay it off every month you will be fine and increase your credit score while potentially getting 5% cash back(almost like having a running cd on your purchases that you HAVE to make like on gas and food). If that is really too hard, enroll in bank of america’s keep the change. They do the trick that JD mentions but also match 100% for the first three months and then a percentage thereafter. After you save up a certain amount, look into opening and account with etrade or ING, both offer excellent savings rates for their savings accounts as well as strong cd’s, though at this point in time you’re better off just leaving it in the savings as the CD offers are way too low to justify locking up your money for a year…
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There are circumstances you’re born with that often dictate your spending/saving pattern as an adult. I think a lot of people inherit bad financial behavior from their parents. On the flip side, some people inherit the tendency to take advantage of others whenever possible. This combination of greedy lenders and vulnerable consumers is what lead to the credit crisis. It is part of American culture. It will be generational unless we act to change it.
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Take a look at the movie Maxed Out to get a good idea at how predatory lenders are. I’m also in the personal resposibility camp, but I live in a very poor and ignorant city. And its not the only poor and ignorant place in this country. There are many, many people in this country who do not understand the credit and lending process – some of them are mentally incapable of it. But the banks and lenders go after these people the hardest. The ones who are most likely to default are the ones who give them their greatest profit margins through fees and extra charges. It’s a catch-22. Seriously, check out the documentary – it’s pretty good.
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JD wrote:
“Our current credit crisis exists because everyone involved was looking for easy money. . . . Banks see perpetual borrowers as an evergreen revenue source. Borrowers look upon credit as “free” money. This combination, as we’re seeing, is a recipe for disaster.”
Partly this is a result of poor math education in the schools. Instead of doing problems with Train A and Train B, why can’t we teach the effect of compound interest earned and paid?
When I see a car for sale with “$2000 cash back”, it drives me insane. You are borrowing money and will be paying it back at the same rate as the rest of the car for the same term.
Another dumb thing we do is feel happy when our new house has carpets, fresh appliances etc. We are going to be paying for those carpets and those appliances for 30 years, and their useful life is 15 at most. When the buyer looks at the next refrigerator, he should be thinking of the ghost of the first refrigerator, now long since in the dump.
Buy the house and buy the appliances and carpets yourself. Never put anything on a mortgage/car payment/lease that will last for less time than the length of the payment.
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My perfect scenario looks like this:
The banks loan money based on how much a person can afford to borrow, as they used to do long ago. The individual is completely responsible for the repayment of the loan according to the terms to which they agreed.
As for advertising, I agree with JD. It makes it hard to spend responsibly, and I don’t consider myself a weak person. I don’t buy the latest electronics or new cars, but life is easier when I limit my exposure to ads. You can’t think you need things if you don’t know they even exist.
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I see three fundamental problems in the current system:
1. Lack of personal finance education.
2. Complexity of consumer lending arrangements.
3. Lack of individual responsibility.
There are other systemic issues such as the seperation between those who originate loans and those who end up holding the default liability but the above would solve a lot of problems.
I believe there should be a set of federal laws governing consumer lending so that any borrowing contract (including credit cards) would be a simple single page and be governed by a fair set of laws. Then you could focus on the interest rate and term of the debt. Fancy lending arrangements get people in over their heads.
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1. Personal Finance should absolutely be taught in High School for a minimum of two years before graduation to make sure the points are really driven home. One or two general classes are pretty much useless.
2. Amen to your comments regarding spending less than is earned, not buying stuff for the sake of it, etc.
3.What is the solution to lenders who prey on the young and/or financially clueless?
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@MoneyBlogga: Unfortunately, there is no way to answer your third point. How can you legitimately establish a guide to seperate the clueless from the informed? And even then, someone who has a wealth of knowledge in one area may have none in others. Simply being young does not make someone prey. In fact, it has nothing to do with age as much as it does with economic situation & income levels, education, and location which currently defines who is prey for such lending tactics.
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@JD
“Kris and I were talking the other day, and we both agree that the number one thing people can do to save money is to reduce their exposure to advertising.”
This I totally agree with you both. I don’t watch TV on TV. I rent the DVD copies of shows from the library. No ads and I get to watch an entire season in a week. I can not understand why anyone would waste their lives in front of that box to watch a show filled with ads.
I only have one magazine I read and I don’t get the paper (I read online instead). I also have gotten very good at not looking at ads while online.
Avoiding ads does help I will give you that. Yet in the end you are in charge of your own self. You must decide I don’t care about ads. Don’t look at them unless you have to.
Tim
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I think there’s plenty of greed and stupidity to go around in terms of who’s to blame for the current credit crisis. (I don’t remember if JD talked about the NPR This American Life story about the mortgage crisis, but I think it’s downloadable, and I recommend it.)
JD said:
Kris and I were talking the other day, and we both agree that the number one thing people can do to save money is to reduce their exposure to advertising.
I agree that having Tivo speed past all commercials and reading mostly news and health magazines has made us less ad-driven, but that’s just one small part of the advertising we’re bombarded with every day.
This is what I’m trying to teach my kids:
If someone is trying to sell you something, it isn’t about you and isn’t about your best interests. They don’t care about you — they care most about themselves and getting you to part with your money.
It’s a game:
– If they make you buy something you didn’t want or need before you saw the ad or item, they win.
– If you ignore the ad or do research and a lot of thinking and avoid buying the product unless you really want or need it, and can comfortably afford it, you win.
I have my work cut out for me.
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Bill Moyers in his Journal series just did (7/18) an episode examining these issues that you all might find interesting. You can watch a video of it online at http://www.pbs.org/moyers/journal/index-flash.html
Barb
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It might be a lack of education, but no one has yet drawn a relationship to addiction propensity, and it’s relationship to advertising. For some people it’s cigarettes for the new millennium. Easy to get started, very hard to quit. For others they can control, or perhaps not give into in the first place, their desire for something they can’t (yet?) afford.
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Hi. I’ve been watching ‘In Debt We Trust’ and ‘Maxed Out’ and ‘Debt Land’ off and on, as well as the Frontline piece on credit cards.
So much of our society requires us to have debt, even irresponsible debt, in order to do simple things like rent a car, reserve a hotel room or an airline flight or obtain a mortgage.
After my credit disaster years ago as a new parent, I stopped living on credit and learned to live within my means. But that presented certain problems, too, as I attempted to pay off my debt. I was told my credit score would not improve that way, that I needed to add ‘good debt’, and that utility history (paid for years on time, etc) and rental payment history would not be considered.
I felt almost compelled to get a small credit card ($250 limit) and just charge gas only on it and pay it off at the end of the month. It’s weird, how our society works, but it’s an unfortunate fact.
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Does it bother anyone else that we, the public, are now referred to as “American consumers”? Whatever happened to being citizens?! I think this subtle propaganda keeps people thinking that they better spend, spend, spend to do their part for the economy.
We can all see where that kind of thinking has led us now.
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@Kris
We are all both: consumers as well as citizens. When it comes to business matters we are classified as consumers because that is what we do: consume products and services. It is not derogatory in context, actually quite accurate. In other senses such as politics and location we are citizens.
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@ Kris – I suspect they are referring to citizens who are consumers, vs citizens who aren’t (ie, the ones who aren’t the target audience).
Regarding the article – there was a review in Science magazine recently about a book which looks at what the authors call “libertarian paternalism”.
The gist is – we are all ultimately responsible for our choices, but what we fail to realize is that choices are influenced by choice architecture. That is to say, the same person will make different choices depending on the way the decision process is structured. Hence, instead of making easy-credit opt-out, we should make it opt-in. Make the responsible choice the default choice.
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I know people with excellent salaries who are in debt because they choose to spend-”oooh, it’s a sale”, “I need”, “I deserve”. One person with two cars or a family where everyone has a car including the teens so they can drive to school – even though there is a public school bus. People who “need” a new care very few years or keep redoing their houses with credit. People who keep buying because they are bored. I don’t have a shopping channel- no cable. Do I sound mean- ok, but I don’t want to pay for well-off people who can’t control themselves or their children.
I feel badly for people who have to have two or three poorly paid jobs to have a place to live and food and occasionally get medical care.
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Canadian Dream-I totally agree about the ads. The problem is, you have to have the self-control and wisdom to make the choices in the first place that will keep you from being exposed to ads. I hardly ever watch TV or listen to the radio and so I rarely see/hear ads. But, most Americans aren’t willing to give up those things, especially the TV.
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In response to plonkee:
It’s very easy to overspend, anyone can come up with infinite wants, there is always more, more, more to buy! Beyond the debt you will get less and less satisfaction from those additional things. You also miss out on the satisfaction of having enough!
I have a few suggestions to try: Start by being thankful for what you have. it’s human nature to take the things we have for granted, but if you take the time to look at all of the things you have I bet you will be amazed how much you really have.
If you are feeling miserable, more things are really not the answer. Those things don’t care how you feel! Instead try seeking out other people. What is more satisfying spending some time with friends/family or buying another thing? You could also volunteer at a hospital or nursing home as helping others with serious problems is a great way to help yourself too. You would be doing something worthwhile, which is a great way to build your self-esteem. Also, Seeing other people’s problems can help put your problems into perspective.
-Rick
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Would you have attended a class on personal finance?
I wrote more about this here.
It’s great to call for better personal-finance education, but this is a huge problem that millions of dollars go into each year — and yet, there haven’t been any measurable results.
How about more practical solutions that we can implement today?
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I read an interesting article several months back on how the debt cycle travels with us through life.
Robert Manning, author of “Credit Card Nation,” studied the financial spending habits of Americans across generations to discover what influences the spending in their specific age groups.
People have to endure behavior modification to get on a budget and stop using credit.
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I’m personally a big fan of personal responsibility. I think you should have to account for your own actions. We’d rather blame the evil banks and what not. It’s silly.
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Before I say anything I will state that I am the posterchild of bad credit at the moment. I had to hit rock bottom before I did anything about my spending, cc’s etc. I accept responsibilty for my actions, and I am not looking to weasel out of paying the money that I owe.
That said, its really difficult to work with creditors who lump you into categories based on something you “might” do.
What other industry can enter into a contract with you and then decide they don’t like the terms so they can change them?
Is it fair for a cc co to pull your credit, and decide, based on the report and not on the business that you have conducted with them for 4, 5 or even 10 years, to decide, well we think you are going to not pay us (even tho you have Never not paid them in 5 or more years) so we are going to raise your interest rate from 9% to 26%.
Yeah, you can blame the person who was given the cc, just like you can blame smokers for getting addicted to cigarettes that were deliberately boosted with nicotine specifically TO GET YOU ADDICTED. Anyone seen the CC commercial where half a dozen people go through the line quickly with their paypass card, then one terrible person wants to pay cash or write a check and just ruins it for all the people in line behind her. Who is the real bad person here? The one going on faith that the cc co would not give you credit if they think you can’t pay it, or the person stupid enough to believe it?
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re: exposure to advertising – It’s all very well and good to say “I don’t watch TV, so I don’t get exposed to as much”, but have you taken a good look around? If you go to the movies, after paying $ for your ticket and more $ for your popcorn and drink, you then get to sit through ads for cars and soft drinks before finally seeing ads for more movies. Finally, after all that, you get to see the movie – which is full of carefully chosen placements of various products. The hero drives the new Behemoth 7, and he saves the world on his HAL computer, and then he celebrates by having a coffee from StarPeets… You come out of the movie to find ads stuck under your wipers. The buses you pass on the way home are covered in ads, the benches at the bus stops are ads, there are billboards everywhere… Heck, even some of the small local food joints have a page of ads in their menu. Every day I go home and throw out at least half of the items that arrive in my mailbox – weekly flyers for all the local grocery stores, pizza ads, other food joints, big sale at the tire store, the Walmart flyer, eyeglasses, dentists, need a lawyer? and so on.
Going to a sporting event? Staples Center, 3Com Field, Qualcomm Stadium, Heinz Field, etc. In Nuremburg, Germany, the Frankenstadion has been renamed to EasyCredit-Stadion. (How’s that for topical?) Don’t forget Houston’s Minute Maid Park, formerly known as Enron Field… Instead of the Sugar Bowl, it’s now the AllState Sugar Bowl – there is also the AT&T Cotton Bowl, AutoZone Libery Bowl, Brut Sun Bowl, Capitol One Bowl, etc. Going to the beach? Wow, it’s crowded with all the folks watching the Hawaiin Tropics surf contest. Need I go on?
I recently bought a tub of coleslaw from the deli at my grocery store – when they printed out the little weight/cost sticker to slap on the tub, it came with an ad attached to it. The grocery cart I push around has several ads on it even.
Advertising is pervasive. The only answer is to be constantly aware and vigilant, otherwise, you WILL be assimilated!
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@Ramit
Yes, it is easy to say that many children would avoid attending a class on financial education/responsibility. On the other hand, how would you know unless you try and actually have it arranged in such a way that it related to them? Have you ever heard of the courses where the class gets to learn about investing by actually getting “seed” money and actively investing and following the market? From the people I knew who had such a class the response was overwhelming positive. Besides, isn’t it better to try and fail than to not try at all. Personally I believe it is the parent’s responsibility to start the education at home (see my response #4 for my blog entry).
@Michele:
Depending on how old you are, you simply cannot blame the tobacco companies. For the past 20 years, warnings have been posted on packs of cigarettes, educational campaigns have been wages touting the effects of smoking, and even more simply. the effects are more widely know and recognized than they were in previous generations. If you feel that you want to have credit available to you, but do not trust yourself you can always have the limit reduced to an amount you are comfortable with. As far as ignoring your past history, there are two ways to see things.
1. Yes, you may have been a loyal customer, who never paid late or missed a payment and it is unfair of them to increase your rate based on your credit report.
2. It is no secret that once a person starts slipping in one area, it will most likely start spreading, meaning that if you start mising payments on one or two cards, the trend is like to continue on until you start missing payments on that particular creditor’s card.
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@ Eric
When someone is in trouble, the answer is to charge them more? Doesn’t that just cause more trouble, thus creating a self-fulfilling prophecy? I’m just sayin’.
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@ Michele
I’m not sure about a prophecy, but it does make sense from a business standpoint. When people are in debt, the most common advice is “pay off the highest interest rates first”. Credit issuers know this and if they are justified in raising your rates (ie: late/missing payments or significant increase in credit risk) the chances are that they will be paid first, and they will recoup more of the money that they lent in accordance with that increase.
I don’t take sides, because I understand that both lenders and borrowers are at fault to varying degrees. All I know is that in certain instances it is a part of doing business.
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I agree with this article up to a point. That point being the thousands of college aged “adults” that the credit card companies target right on campus. We, as a society, in our homes and our schools, do not teach our children how to handle finances in the real world. My parents were children born in the wake of the great depression. They were raised on the motto, “Waste not, want not”. I was raised with “save for it,then buy it”. My children are inundated with ads that tell them they can have it all and have it NOW. You can have it all and have it now, but you’ll have to pay for it sooner or later, one way or the other.
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@JD
check out:
http://www.chrismartenson.com/crashcourse
I think you’d really like these.
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Yes, the deck is stacked against us, but if we Americans were willing to do the hard work necessary to reduce our debt AND change the national attitude toward debt, we could turn this country around.
But it has to be a full effort to scale back on everything from food, to house size, to college costs, to national debt and deficit.
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I am a firm believer that “you” are the only thing standing between you and the life that you would like to be living. Fate will not hand you what you want – be it lower debt or a higher savings account balance – unless you help yourself.
I have asked for extensions on my credit card before, but I only asked for the amount that I needed, $200. When the lady asked me if I wanted to raise my credit limit to the full $700 that the company was willing to give me I told her, politely and firmly, no. I only wanted what I needed at the time … and it has saved me a lot of money over the long haul.
You have to be a smart consumer to avoid the predatory ways of the credit card companies and the consumerist tendencies of our society. It’s time for this country to find a method of relieving stress that doesn’t involve running up your credit card bill at the mall.
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@ Ryan, post #7:
“The banks are just simply out there to get money. They are running a service, it is completely our decision how we use that service (credit cards). I don’t believe banks want to see people in debt slavery, they just want to make some money by providing a service.
People CHOOSE to step into debt slavery because they decide not to educate themselves and decide to spend more than they can afford.”
The whole notion of Central Banks is to ensure debt slavery to them so they remain in control. The government is a slave to them because the central banks LOAN money to the Gov’t with INTEREST. The only way to pay back the interest is with more money borrowed from Central Banks at interest. They have all the power since they issue/print the money in the first place.
Repeat cycle.
http://zeitgeistmovie.com/
Watch this free documentary, and give it serious thought.
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For those who keep talking about a personal finance class in high school, it needs to be COLLEGES, not high schools, who push for change. I took a very basic personal finance class by default in high school due to lack of classes I needed being offered at that time. I was probably the only one in their who graduated let alone went to college. We went over how to balance a check book ect. (I had already had one for over a year – responsibly.) However, if I could have taken a class towards my college math requirements that was on investing or another version of high end personal finance it would have been a lot more beneficial. Basic personal finance should be started in elementary school, just like any other subject we expect people to be proficient in.
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@ Michelle,
Just as a clarification: Banks cannot use the length of term that you have been with the bank as a means for giving credit. Doing so would be in violation of the Fair Lending Credit Act. Fair Lending means that a financial institution must give equal consideration to all applicants on a standard that can be applied to all applicants. Because some applicants will have a longer history than others with a particular financial institution, it would give them an unfair advantage over other borrowers. Therefore, a set standard needs to be applied across the board, which entails FICO, employment history, type of employment, income history, and debt to income ratio. These can be applied equally to any applicant that comes into the financial institution for credit.
As a side note, my wife works at a financial institution, and she is amazed at how many people do not understand the basic concepts of credit and how it is given out. People need to understand that all of the aforementioned stipulations are used in giving credit, so even if your FICO is 800, it doesn’t mean much if your DTI ratio is 80%, you are unemployed, or the asset that you are borrowing against already has 125% combined loan to value (CLTV).
The ignorance, combined with the spendthrift ways of many, leads to a personal financial disaster. Is it really that hard to understand that if you have 600K in equity in your house, but have a fixed income of 1200 per month, that no lender will give you the 600K your house is worth? Is it that unimaginable to understand that if you owe 600K on a house that is worth 500K, you can’t borrow money against it, even with a 790 credit score?
People need to learn the basics, and education as early as Junior High should be considered mandatory. Without the base tools of understanding, it isn’t that hard to understand why so many people are in the financial situation they are in.
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While I believe this to be an issue of personal responsibility, it is also one of education. Knowledge is power.
If a person wants to drive a car, a motorcycle, fly a plane, practice medicine, be a police officer, etc…he must be educated about and tested on what he’s doing before he can do it. Some people are disqualified, others excel. In areas where society can be impacted (and using credit IS one of those) – at the minimum, there should be some sort of class and exam.
My personal opinion is that this is being handled like sex education and religion. The schools will give the high level overview but it’s “up to the parents.” While I can appreciate that to a certain extent, many children are not being taught this in the home. In fact, schools are probably teaching more in the area of sex education than they are financial management.
Though I cannot say that I would not be in the mess I am today if I’d taken a class, I can say with some certainty that I would at least have understood the “basics.” I was raised in a house where money was not taught and I am still learning.
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