Disturbing financial statistics

[MrsPete]

I get being twenty three years old and living paycheck to paycheck with some debt. It takes time to build savings, and its generally expensive to go out and start living on your own after college. (Though as I'm sure Mrs. Pete would point out, you don't need to buy your work warddrobe at Nordstrom and your kitchen stuff at Williams Sonoma - its possible to get a darn good work warddrobe consignment or from T.J. Maxx and its possible to furnish an apartment from friends, garage sales, second hand stores, and a trip to Wal-Mart). And if you chose to start a family early, its going to take a long time before you really get on your feet and have financial stability (unless you get lucky and win the lottery or something).

I don't get being 60-odd years old and having a mortgage. My goal is to hit retirement age with as few expenses as I can manage - no mortgage, no credit cards, no car payments and newer transportation that is fuel efficient sitting in the garage to get me through the next 15 years (I figure with neither my husband or I working, I can get 15 years out of two cars, we won't be driving them nearly as much!). The idea of still paying for these when my income takes a hit because I'm retired scares me. The idea that I retire and start bagging groceries because I still have a mortgage and credit card payments scares me more.

I also don't get people who are 23 and have no savings and debt from getting going, and then think nothing of charging $2000 on a credit card to spend a week in the Spring in Cancun.

Yes, that's exactly the kind of thing I"d say! I'd say you have to live within your means, regardless of what they may be. If you're just out of college and you're earning peanuts, you have to accept family hand-me-downs of furniture, you have to build up that career wardrobe using creative means instead of plastic, you have to spend only what you have! Spending tomorrow's resources today only means that tomorrow's not looking so good.

I agree that almost all just-out-of-schoolers are probably living paycheck-to-paycheck; what else can they do? They've had no time to build up an emergency fund. But by living moderately, it's possible to build up a financial cushion without sacraficing today's fun.

My retirement goals are very similar to yours. I am in one of the few jobs that still pays a traditional rest-of-your-life pension. My husband and I have been saving for retirement since our very first profesesional paychecks, and we should be comfortable by the time we get there. Right now we live in a large house that's well-suited to our family's needs. When the kids move out, we expect to downsize to a nice townhome and travel frequently. One we retire, we'll probably keep only one car (we did this for the first three years of our marriage, and though it was necessary, it really hurt to add a second one). But I don't see how those things can happen if we retire carrying debt!

 

[DMRick]

I don't get being 60-odd years old and having a mortgage.

While this wouldn't cover all who have mortgages, I know several people, myself included that have a refi..however, we got that money very low..the lowest in years and years, and reinvested it. We have made way more back, than we borrowed. So those figures may include people like us, who use money to make money.
Even if we were to sell the home we have now, we would not pay cash for a new one, if we find a mortgage for several %'s less than what we traditionally make on the money we would have to use.

 

[MrsPete]

I think part of the blame should lie with the credit card companies/banks. There isn't a day that goes by that I don't get something in the mail offering me another credit card. When these offers are thrown in people's faces, it makes it harder for people to resist. I tear them up and throw them away, but I think many people think there is no harm in having many different credit cards.

I don't know. Personal responsibility must come into play. I mean, I know what I can and can't afford. Ultimately, it is MY responsibility to know when to say NO. Companies can offer cards, but they can't force the consumer to 1) accept the card, 2) use the card, 3) rack up more debt than they can afford.

However, if you are blaming the credit card people who send things in the mail, you also have to blame stores like Target and Kohls. EVERY TIME I shop there, the cashier asks, "Would you like to save 10% by applying for a store credit card?"

 

[MrsPete]

I saw an episode of "60 Minutes" attributing credit card debt to several suicides amoung college students who just felt overwhelmed and left notes behind stating that, most of these young people had debt less than $5,000.00.

I remember a boy who committed suicide in college. It was April -- just before exams. I heard later that he knew that regardless of how well he did on his exams, he was going to flunk out of college, and he couldn't face going home and telling his parents.

I've often wondered if he ever considered it from their point of view: Would they have preferred a son who "didn't make it" in college or a dead son. I sure know which one I'd choose.

 

[disneysteve]

I think part of the blame should lie with the credit card companies/banks.

In general, I tend to disagree with blaming the credit card companies. As MrsPete said, it is your (general, not specific "your") responsibility to know how much you have and how much you can afford to spend. But I do think there is one exception where the CC companies really are at fault: college kids. IMO, a credit card company should be legally barred from granting a credit card to an individual with zero income and thus no means to repay any debt acquired. How can you possibly be a good credit risk if you have no money?

Of course, personal responsibility is still a factor. If you have no income, you shouldn't be applying for a CC. And if you happen to get one, you shouldn't use it to buy things you can't afford. But face it, college kids aren't well known for their personal responsibility and I think the CC companies really prey on them in a way that just shouldn't be allowed. And the schools are at fault too because they allow the CC companies to set up shop on campus (mainly because their is some financial incentive for them to do so).

The college kid/CC issue is relatively new. When I was in college in the 80's, my friends and I would always apply for CC's at the mall because they gave you a free gift for applying. We took the gift and knew there was no way we'd be approved since we had no income. Today, however, they approve everyone. I don't know when or why the policies changed, but I think they need to change back.

 

[HenDuck]

I think it's only going to get worse. Parents aren't going to teach their children better financial management because it's the 18 - 24 yr olds who are starting to become the next generation of parents. I think we have to start educating children about this. I really think financial management classes should be integrated into schools.

I agree completely with the above statement. I think kids, especially high school and college "kids" should be taught real life lessons about fiscal responsibility.

I also personally think the government should regulate the credit card and mortgage companies and not allow them to offer irreponsible loan and/or credit products - such as interest-only mortgages, high CC limits, those "0% pay-off checks", etc.

JMO.

Good post!

 

[grlpwrd]

I agree completely with the above statement. I think kids, especially high school and college "kids" should be taught real life lessons about fiscal responsibility.

I also personally think the government should regulate the credit card and mortgage companies and not allow them to offer irreponsible loan and/or credit products - such as interest-only mortgages, high CC limits, those "0% pay-off checks", etc.

JMO.

Good post!

Yet debt is the American way. Look at our deficit....

 

[hsmamato2]

Disneysteve- I always enjoy your posts, and have to say- I agree this time too! I also like your username- my dh loves disney trips, just won't admit it...

 

[EthansMom]

I see "entitlement" as being a real problem in our society.

I know grown adults who traded in their 2 year old minivan (upside-down on the loan) because it needed $1000 in repars. Of course, they traded it in for a $50,000 SUV that they have to lease because they can't afford to buy it.

I know a couple of 20-somethings who still live at home with Mom and Dad, have no jobs, don't go to school, and have no idea how to survive in the real world because they've never had any responsibility their entire lives.

I've heared adults say, "Oh, I deserve the....big house, fancy car, Disney World vacation, designer clothes, etc..." and I've heard adults say, "Oh, my dear child, absolutely needs a $2000 ATV, a $250 IPOD, a $300 cell phone, a brand new BMW, etc..."

Our culture has spiraled into an out-of-control marketing frenzy where it's all about the fast fix. Nowadays, everyone "needs" a computer, a t.v., a cell phone, a car.... And they don't just "need" a computer, t.v., cell phone, or car that will do the job. Oh no, everyone "needs" the newest, fastest computer, a flat-screen plasma t.v. with Bose surround sound, a cell phone that takes pictures and video, and the newest, fanciest, most expensive car with leather interior and all the other bells and whistles.

Like others, I think that the credit card companies, banks, and other lenders are partly responsible. I think that the government should enact some laws to dictate tighter restrictions on lending: fewer "high risk" loans, elimination of many of the exotic mortgages, and limits to the interest rates that can be charged by credit cards. If lenders stopped the more outrageous lending practices then people who live beyond their means would have to cut back on their spending.

 

[jeancbpugh]

I think part of the blame should lie with the credit card companies/banks. There isn't a day that goes by that I don't get something in the mail offering me another credit card.

Again, this is JMHO, the crime is letting people hurt themselves when there are ways to curb the abuse.

My youngest son started getting credit card offers when he was three years old (probably from frequent flyer accounts).

I don't like the idea of protecting people from getting credit. Better we teach our children to have some self control and some awareness of consequences. JMO

 

[Feralpeg]

In general, I tend to disagree with blaming the credit card companies. As MrsPete said, it is your (general, not specific "your") responsibility to know how much you have and how much you can afford to spend. But I do think there is one exception where the CC companies really are at fault: college kids. IMO, a credit card company should be legally barred from granting a credit card to an individual with zero income and thus no means to repay any debt acquired. How can you possibly be a good credit risk if you have no money?

Of course, personal responsibility is still a factor. If you have no income, you shouldn't be applying for a CC. And if you happen to get one, you shouldn't use it to buy things you can't afford. But face it, college kids aren't well known for their personal responsibility and I think the CC companies really prey on them in a way that just shouldn't be allowed. And the schools are at fault too because they allow the CC companies to set up shop on campus (mainly because their is some financial incentive for them to do so).

The college kid/CC issue is relatively new. When I was in college in the 80's, my friends and I would always apply for CC's at the mall because they gave you a free gift for applying. We took the gift and knew there was no way we'd be approved since we had no income. Today, however, they approve everyone. I don't know when or why the policies changed, but I think they need to change back.

I agree with you. It should be a matter of personal responsibility. From the statistics on credit card debt in this country, that is obviously not working. Should we let people continue to spiral into debit? Maybe. I just think people would be less likely to do so if the credit were a bit harder to get. I know several people from where I used to work that had credit problems. A couple of them ended up with Consumer Credit Counseling to pay off the debt. One of them declared bankruptcy. I was totally shocked when I found out that they could get credit cards back from the same companies with very little problem soon after. We can say all we want that people should take responsibility and should teach their children to say no. IMHO, it isn't going to work. As long as it is easy to get credit, it will be abused. And in the long run, it is those of us who don't abuse our credit that end up paying for the others. The credit card companies continue to make huge profits. Costs for credit abuse are passed on to everyone. That's my opinion, I don't pretend to know everything or have any great answers to the issue. I just think it will continue to become a worse problem.

 

[crisi]

While this wouldn't cover all who have mortgages, I know several people, myself included that have a refi..however, we got that money very low..the lowest in years and years, and reinvested it. We have made way more back, than we borrowed. So those figures may include people like us, who use money to make money.
Even if we were to sell the home we have now, we would not pay cash for a new one, if we find a mortgage for several %'s less than what we traditionally make on the money we would have to use.

Now that one I get. Using other people's money to make money, and just putting your home up as collateral. For someone with good finances to start with, who is making relatively safe investments, its about as riskless as it gets.

 

[crisi]

In general, I tend to disagree with blaming the credit card companies. As MrsPete said, it is your (general, not specific "your") responsibility to know how much you have and how much you can afford to spend. But I do think there is one exception where the CC companies really are at fault: college kids. IMO, a credit card company should be legally barred from granting a credit card to an individual with zero income and thus no means to repay any debt acquired. How can you possibly be a good credit risk if you have no money?

Of course, personal responsibility is still a factor. If you have no income, you shouldn't be applying for a CC. And if you happen to get one, you shouldn't use it to buy things you can't afford. But face it, college kids aren't well known for their personal responsibility and I think the CC companies really prey on them in a way that just shouldn't be allowed. And the schools are at fault too because they allow the CC companies to set up shop on campus (mainly because their is some financial incentive for them to do so).

The college kid/CC issue is relatively new. When I was in college in the 80's, my friends and I would always apply for CC's at the mall because they gave you a free gift for applying. We took the gift and knew there was no way we'd be approved since we had no income. Today, however, they approve everyone. I don't know when or why the policies changed, but I think they need to change back.

Its a shared responsiblity. If I had my way, the new changes to bankrupcy laws would have come with usury caps for credit card companies. Look, you want to loan someone who is a poor risk money - great. You just can't charge them more than prime +10%. Nor can you charge them more than 2% of their account in late fees or service fees in any month. Stop making it so darn easy for credit card companies to take the risk that Sally doesn't pay by making it up charging Bruce 23% interest! Tighten the credit by lowering the interest rate and forcing the companies to take less risk. Fix BOTH ends of the problem. All we've done now is given the credit card companies even less risk.

 

[imsayin]

I tend to disagree with blaming the credit card companies. As MrsPete said, it is your (general, not specific "your") responsibility to know how much you have and how much you can afford to spend. But I do think there is one exception where the CC companies really are at fault: college kids.

I had credit cards when I was in college (and a job), and I had to charge my last semester's tuition. Fortunately, I have always been a good money manager. I was not taught financial responsibility by my parents, I guess I was born thrifty. That said, I will teach my kids financial responsibility, which includes not getting credit cards until they know how to handle them.

I can't fault the CC companies, just as I can't fault McDonalds, Phillip Morris, Budweiser, etc. I just have to add it to my long list of parenting issues. To me it always comes down to parenting, common sense, and hopefully a child that listens.

 

[dvcgirl]

I see "entitlement" as being a real problem in our society.

I know grown adults who traded in their 2 year old minivan (upside-down on the loan) because it needed $1000 in repars. Of course, they traded it in for a $50,000 SUV that they have to lease because they can't afford to buy it.

I know a couple of 20-somethings who still live at home with Mom and Dad, have no jobs, don't go to school, and have no idea how to survive in the real world because they've never had any responsibility their entire lives.

I've heared adults say, "Oh, I deserve the....big house, fancy car, Disney World vacation, designer clothes, etc..." and I've heard adults say, "Oh, my dear child, absolutely needs a $2000 ATV, a $250 IPOD, a $300 cell phone, a brand new BMW, etc..."

Our culture has spiraled into an out-of-control marketing frenzy where it's all about the fast fix. Nowadays, everyone "needs" a computer, a t.v., a cell phone, a car.... And they don't just "need" a computer, t.v., cell phone, or car that will do the job. Oh no, everyone "needs" the newest, fastest computer, a flat-screen plasma t.v. with Bose surround sound, a cell phone that takes pictures and video, and the newest, fanciest, most expensive car with leather interior and all the other bells and whistles.

Like others, I think that the credit card companies, banks, and other lenders are partly responsible. I think that the government should enact some laws to dictate tighter restrictions on lending: fewer "high risk" loans, elimination of many of the exotic mortgages, and limits to the interest rates that can be charged by credit cards. If lenders stopped the more outrageous lending practices then people who live beyond their means would have to cut back on their spending.

I totally agree with your post. All you have to do is look at the current form of Black Friday to see just how crazy our culture has gotten with respect to spending. I know that there was always a "black friday" in some form when I was a kid. There were always sales on the day after Thanksgiving. But today, it's become an absolute spending event.

I do think that the government may have to impose some sort of laws regarding banks and credit cards. They are simply too easy to get and many Americans are using them to finance a lifestyle that they simply can't afford. Again, Black Friday comes to mind.

The government talks lots about their concern over Americans not saving for retirement, but first we need to figure out a way to curb our spending. If we can't get this consumer debt under control, the savings part will never happen.

Some private companies are starting to do some positive things, like opening 401Ks automatically for their employees. They'll have to "opt out" in order to get out of it...which is quite easy to do. But since 25% of people have no money in 401Ks because they simply don't sign up, maybe they'll realize that they can live without that money if it's taken automatically.

 

[G8RFAN]

I used to teach Junior Acheivement to High Schoolers and my favorite exercise was to do a make believe budget with what car they want and where they want to live what weekend lifestyle they would like to have, etc. and work backwards into how much they needed to make just for their monthly cash flow to "break even". It was a big eye opener for 99.9% of them. In reality, many people try to make that shortfall by using revolving debt to support their lifestyle. Bad bad thing to do. My favorite saying from Anthony Robbins is that people are motivated by either inspiration or desperation.

 

[disneysteve]

I had credit cards when I was in college (and a job)

Totally different story. You HAD an income. The CC company could reasonably say that if you used your card, you could afford to pay the bill.

What is happening more and more today, however, is CC companies set up a table at the campus center (with the school's approval) and sign up students who have ZERO income. The companies figure that mom and dad will bail out the kids when they rack up debt that they can't afford to repay. If not, the CC folks still win because they charge sky high interest rates on the balance being carried. I'm all for personal responsibility, but this just doesn't seem right.

 

[gottaluvdis]

Good post! I'm no where near any store today. I figure the deals will be around until Christmas and I refuse to go to a store on emotion, get caught up in the frenzy, and then end up buying items I neither want nor need. I like to take my time and really think about my purchases. I plan to buy quite a bit online with a lot of research ahead of time (and only from sites that offer free shipping). I heard today that the average family spends $1000 on Christmas presents. We don't even come close to spending that much.

I've always looked at CC companies as the enemy - they certainly don't have my best interest at heart. I use the Disney Visa and pay it off every month. I also use a few store cards and pay them off as well. They're not getting interest from me. We have one old (nearly 200,000 miles) car for which my husband gets an allowance (he's in sales) and a 2005 Ford Escape that we put a good chunk of money down on as well as a trade. We never lease and we can afford the payments on the Escape (and have been paying off more than required each month to get rid of the loan sooner). I don't like owing $$ to anyone. We've paid off half our mortgage and plan to pay the other half off early. We're lucky that our house cost about 1/3 of what the others in the neighborhood have been going for (especially lately). We just remodeled our kitchen and paid for it with cash. We have to get the wood floor refinished, but since we ran out of $$ on the remodel, we're saving to do the floor and get the carpets replaced in the spring.

We have a 401k, a roll-over IRA, money market accts etc. that we save into and never draw from. We're teaching our daughter about money as best we can - she has her own savings acct at the bank and we make her put a % of any money she receives into that account. We were brought up in upper middle class families, but neither of our families worried about "keeping up with the Joneses", which is why I don't think we worry about it. Our DD9 wears hand me down items (name brands) from my friends' 2 older daughters. Once she doesn't think that's cool anymore, we'll be having her pay for part of her clothes. She won't have a cell phone for a long time (and she'll pay for at least part of it when she does). She has no phone or TV in her room and won't until she moves into her own place.

That being said, it sure isn't the same as it used to be. We both work full time (almost - I'm about 30-36 hrs per week). Neither of our companies offer pensions and we won't be covered for life by our either of our companies medical plans when we retire like my father and mother in law have been for the past 17 years. We could get by on one salary, but we'd rather sit well financially. I realize that's a personal decision and since we have only 1 child, it's easier for us than a lot of people when you factor in child care costs. It's tempting to get the latest and greatest ______ (fill in the blank), but I've seen my father lose his entire retirement when his airline went under in the early '90s (he's a pilot). He's nearing 65 and is still working and will need to for a while because of that mess. You just never know.

 

[crisi]

I used to teach Junior Acheivement to High Schoolers and my favorite exercise was to do a make believe budget with what car they want and where they want to live what weekend lifestyle they would like to have, etc. and work backwards into how much they needed to make just for their monthly cash flow to "break even". It was a big eye opener for 99.9% of them. In reality, many people try to make that shortfall by using revolving debt to support their lifestyle. Bad bad thing to do. My favorite saying from Anthony Robbins is that people are motivated by either inspiration or desperation.

I love that exercise. And its so worth doing! Having teens imagine their life and they tend to imagine it with stuff - so define the stuff.

 

[disneysteve]

I figure the deals will be around until Christmas and I refuse to go to a store on emotion, get caught up in the frenzy, and then end up buying items I neither want nor need.

Great point. No matter how low the price is, it isn't a bargain if you don't need the thing. You may save $50 by buying it, but you'll save $150 by not buying it.