New rules on credit card minimums...

[disneysteve]

Explain to me why on earth the banks would allow a limit so high for someone who has such a low income.

Because Congress said they can, so they do. I think it falls under the heading of predatory lending.

 

[punkin]

I'm all in favor of personal responsibility, as you all know, but the legal allowances afforded the banks and credit card companies are absolutely obscene.

YES YES YES

 

[deltachi8]

Explain to me why on earth the banks would allow a limit so high for someone who has such a low income

A person doesnt have to use the limit. However, the real issue is the way people are taught to use credit (or not taught). I am a big proponent of teaching mandatory personal financial management classes in high school and college.

Its not the perfect answer, but it will help. We need to be able to teach valuable life skills as well as math and science. These life skills - money/credit use, etc use to come at home, but that has been lost as each generation (speaking generally) gets further into debt.

 

[disneysteve]

A person doesnt have to use the limit. However, the real issue is the way people are taught to use credit (or not taught). I am a big proponent of teaching mandatory personal financial management classes in high school and college.

Its not the perfect answer, but it will help. We need to be able to teach valuable life skills as well as math and science. These life skills - money/credit use, etc use to come at home, but that has been lost as each generation (speaking generally) gets further into debt.

I agree with you, but again, the system has changed grossly in favor of the lenders. The type of financial management education you mention simply wasn't necessary years ago because there was no easy credit like there is today. Most people didn't have credit cards and, if they did, had pretty small limits. There just wasn't the opportunity to get into debt trouble like there is now. Heck, look at all the check cashing stores that offer "pay day loans" at rates approaching 500% interest! Any day now, we'll start seeing all the commercials for the "instant tax refunds" which are really super high interest short term loans. These products didn't exist a generation ago. We constantly hear stories of people with 30K or 40K of CC debt. That simply wasn't possible 20-30 years ago because you couldn't get that much credit if your income wasn't sufficient to repay it.

None of this eliminates the need for personal responsibility and just supports the need for education that just wasn't needed years ago.

 

[Chicago526]

Heck, look at all the check cashing stores that offer "pay day loans" at rates approaching 500% interest!

Oh, I hate those check stores! We have dozens off them in my town, most of them right across the streat from our river boat casino. Coincedence? I think not! I can't imagine being so desperate for money to do a payday loan. I'd take on a 2nd or 3rd job first! But the type of people who use them are not the type of people who are educated enough to know they're being ripped off. These places are no better than loan sharks, if you ask me!

 

[Cheshire Figment]

Heck, look at all the check cashing stores that offer "pay day loans" at rates approaching 500% interest! Any day now, we'll start seeing all the commercials for the "instant tax refunds" which are really super high interest short term loans.

While I was in college (67-69) I worked part time in a pawn shop. Since I was an accounting major, when Regulation Z, which required providing Annual Percentage Rates, went into effect he asked me to prepare a chart we could use it indicate the APR on each loan we made.

When I made the chart one assumption I made was that each item would be redeemed on the 30th day to avoid going into another month. The rates were such so when you borrowed $23.00, the APR was down to 200%. If course, most people paid off the loan in less than a month so the effective APRs were much higher.

Last year I was toaling to someone who works as a housekeeper and mentioned that I do Income Taxes professionally, usually complex individuals (I am a CPA). I was shocked when she told me she was charged over $100 to get her tax return done. She had a basic 1040A prepared (and no state income tax in Florida) with no numbered or lettered schedules and received her "refund" in two days. She is computer-literate and could have gotten a minimum tax package for under $0 and had her refund direct deposited to the bank about three weeks after mailing.

 

[Chris]

I do agree that it is personnal responsibility and I also agree and think that the CC companies and the banks need more regulations. For example between two of my CC my credit limit is $23,000 I never asked for an increas, they just kept coming and on top of that I was a full time student and wroking part time. Explain to me why on earth the banks would allow a limit so high for someone who has such a low income

It is very easy for people to get in trouble and not even realize it until it is too late and with banks doing things like I mentioned above it is no wonder why there is so much debt in this world.

One *funny* story, I have been a SAHM for nearly 11 years, yet about 10 years ago, I was given a CC w/a 5000.00 limit initially. It is now up to 27,500.
I actually closed it and got the Disney CC but amazing that it went that high!

 

[drakethib]

Credit Cards are the devil.

Momma from the Waterboy

 

[disneysteve]

Credit Cards are the devil.

I'm not sure if that was a joke or not. If you were serious, I definitely disagree. I think credit cards are a very valuable financial tool and I couldn't imagine going through life without one (or 2 or 3). I don't know how people manage without them. And using our rewards cards earns us hundreds of dollars a year in rewards - free travel, free Internet access, cash back. I'd never give that up.

 

[minnie1928]

Last year I was toaling to someone who works as a housekeeper and mentioned that I do Income Taxes professionally, usually complex individuals (I am a CPA). I was shocked when she told me she was charged over $100 to get her tax return done. She had a basic 1040A prepared (and no state income tax in Florida) with no numbered or lettered schedules and received her "refund" in two days. She is computer-literate and could have gotten a minimum tax package for under $0 and had her refund direct deposited to the bank about three weeks after mailing.

I've run into the same thing and it just astounds me. I'm also an accountant so I get the usual load of questions around this time of year. Then the person will say that they have their taxes prepared. My own parents would pay about $150 to have their fed & state done! At the time, they weren't even itemizing deductions! My taxes haven't been that basic since High School! But I think there is this "fear" out there that filing taxes is this highly complicated, immense thing. Really, all you need is $20-$40 and a pc and you could do it in less than an hour (most cases). Or, like my parents, all they needed was a pencil and a calculator .

 

[MrsPete]

There just wasn't the opportunity to get into debt trouble like there is now. Heck, look at all the check cashing stores that offer "pay day loans" at rates approaching 500% interest! Any day now, we'll start seeing all the commercials for the "instant tax refunds" which are really super high interest short term loans. These products didn't exist a generation ago . . . None of this eliminates the need for personal responsibility and just supports the need for education that just wasn't needed years ago.

I think the situation "we" are in today grew from a number of problems:

Easy credit to anyone, of course, is a huge factor; it's allowed people to live beyond their means and use up tomorrow's resources today.
Increased incomes (Why save? I'm getting another paycheck next week; so is my husband.)
Increase in inexpensive goods (Food and clothing, for example, are less expensive proportionally than they were a generation ago.)
Increase in availability of luxury goods and services that didn't exist a generation ago (computers, ipods, cell phones).
Increase in material expectations, largely fueled by the media and the entertainment industry.
Predatory lenders who offer "solutions" for those who've failed to save.
Predatory advertisers who insist that you must buy today, today, today because there will never be a better price.
A sense that "we deserve" nice things; in actuality, we deserve to be treated fairly and we deserve the chance to work hard and succeed -- we don't deserve a new car or a vacation.
And right up there at the top of the list of today's financial woes is the sense that being debt-free has become impossible in our world, so just go ahead and finance whatever you want.

I entirely agree that personal responsibility DOES matter. It's up to each of us to know our limits and live within them -- and to teach our children to do the same thing. However, I think we need some regulation on some of these industries that are clearly taking advantage of the young, the poor, and the financial idiots.

 

[disneysteve]

Increase in availability of luxury goods and services that didn't exist a generation ago (computers, ipods, cell phones).

Actually, it isn't so much the Availability of luxury goods but moreso the Affordability of them. There have always been luxury items available but they were out of reach of the average consumer. That's no longer the case.

There is a wonderful book called "Trading Up: The New American Luxury" that delves into this topic. The authors really explore how we have all adopted what were formerly luxury items in our lives. For example, buying a $4 Starbucks coffee instead of a $.79 donut shop coffee. Or driving an entry level BMW instead of a loaded Buick. Or taking a Caribbean cruise instead of a Jersey shore vacation.

Things most of us consider luxuries have become affordable in a way they never were before and folks are spending on them like never before.

 

[dvcgirl]

Actually, it isn't so much the Availability of luxury goods but moreso the Affordability of them. There have always been luxury items available but they were out of reach of the average consumer. That's no longer the case.

There is a wonderful book called "Trading Up: The New American Luxury" that delves into this topic. The authors really explore how we have all adopted what were formerly luxury items in our lives. For example, buying a $4 Starbucks coffee instead of a $.79 donut shop coffee. Or driving an entry level BMW instead of a loaded Buick. Or taking a Caribbean cruise instead of a Jersey shore vacation.

Things most of us consider luxuries have become affordable in a way they never were before and folks are spending on them like never before.

Right Steve, I agree that luxury items have become more affordable. But I think this is why we're in so much debt as a nation. Perhaps people can afford a *couple* of these items, but not the entire lifestyle. Easy credit has made many feel that they can afford that lifestyle, if they can make that minimum payment.

 

[MrsPete]

Actually, it isn't so much the Availability of luxury goods but moreso the Affordability of them. There have always been luxury items available but they were out of reach of the average consumer . . . Things most of us consider luxuries have become affordable in a way they never were before and folks are spending on them like never before.

I agree to some extent: Cruises come to mind. When I was a kid I watched Love Boat and knew that cruises existed, but I didn't know anyone who'd ever been on a cruise -- even my grandparents, who were fairly well off, didn't do such things. If a kid had ever said he'd been on a cruise, I'd have thought it was a lie. Today they're more affordable -- well within the reach of upper-middle folks like myself. My kids went on their first cruise while they were still in elementary school; they're not unusual in our community.

On the other hand, we also have LOADS of stuff that simply wasn't available "back in the day". When I was a kid, literally no one had a cell phone -- they didn't exist. Home security system? Do you mean the dog? When a high school friend's family got a VCR, I thought it was the height of luxury -- I'd never seen such a thing before. Today kids have ipods, Gameboys, hand-held video players, and more. These weren't luxuries when I was a kid -- they were non-existant. Shoot, we thought we were something when we got an Atari for Christmas; it was our big present that year -- all five of us sat around waiting our turn to play pong and thinking it was the greatest thing ever.

So I think it's a two-part thing: yes, yesterday's luxuries are today's standards AND there's a whole range of new stuff out there to buy.

The book sounds interesting. I think I'll go look for it at my favorite bookstore: ebay.

 

[disneysteve]

Perhaps people can afford a *couple* of these items, but not the entire lifestyle. Easy credit has made many feel that they can afford that lifestyle, if they can make that minimum payment.

Absolutely. The book quotes various people making not-so-big wages but who choose to buy certain luxury items. One guy made 30K but bought a 3K set of Callaway golf clubs. Lots of examples like that. These folks weren't necessarily in debt, though. They just found one area that was really important to them and spent freely in that area even though they may live simply in other areas.

DW and I are certainly like that. I see a lot of ourselves in that book. For example, we bought new cookware 2 weeks ago: Calphalon triply stainless. We paid $400 for the set of pots and pans. But we both love to cook and do it frequently and can really notice and appreciate the difference between the professional quality cookware and the stuff the average family is using from Target or Wal-Mart. Did we NEED to spend that much? Of coure not. But, if you look in our pantry you'll find lots of store brand grocery items. The kitchen drawer has a whole file of coupons. And our closets are filled with clothes from Target, Wal-Mart and other discount stores. So we may splurge in one area that really matters to us but be very thrifty in other areas to compensate.

The trouble only comes when people decide to splurge in too many areas and fund that luxury lifestyle with credit.

 

[dvcgirl]

Yes, I agree. We are also like that. We pick and choose our "luxury items" while overall remaining fairly frugal with our purchases. But I will say that there's a difference between a young woman making 30K and spending 10% of her gross income on golf clubs and a physician and his professional wife splurging on those $400 pots and pans . But I see your point.

 

[MrsPete]

DW and I are certainly like that. I see a lot of ourselves in that book. For example, we bought new cookware 2 weeks ago: Calphalon triply stainless. We paid $400 for the set of pots and pans. But we both love to cook and do it frequently and can really notice and appreciate the difference between the professional quality cookware and the stuff the average family is using from Target or Wal-Mart. Did we NEED to spend that much? Of coure not. But, if you look in our pantry you'll find lots of store brand grocery items. The kitchen drawer has a whole file of coupons. And our closets are filled with clothes from Target, Wal-Mart and other discount stores. So we may splurge in one area that really matters to us but be very thrifty in other areas to compensate.

This is exactly how my husband and I spend. We don't hesitate to spend on what matters to us, but we choose those things carefully. Most of our splurges are long-term purchases (for example, he just bought me some really nice kitchen knives, which I love -- not cheap, but a good value considering the use they'll get), whereas we are very frugal with temporary purchases (kids' clothes, groceries, etc.).

Buying cheap isn't always a bargain. I remember when I was expecting my first child, I had a very limited budget for my maternity clothes. Most of my things came from a consignment store, but I bought a few new things. One was a tee-shirt from Target. I wore it ONCE, and it shrank to nothing in the wash -- I literally was never able to use it again -- oh, how that hurt me. Today I'd rather have a quality used item rather than a cheap-o item.

When it comes to our kids, I'll drop $100 for a year-long membership to the science/nature museum in a heartbeat, but I won't spend an extra .50 to have a notebook with Sponge Bob's picture on the front. I'm trying to instill in them the idea of getting the best value for your dollar.

 

[disneysteve]

When it comes to our kids, I'll drop $100 for a year-long membership to the science/nature museum in a heartbeat, but I won't spend an extra .50 to have a notebook with Sponge Bob's picture on the front. I'm trying to instill in them the idea of getting the best value for your dollar.

LOL! This sounds very familiar. This conversation happens a lot in our house.

I remember years ago we were at a meeting from our Disney collector club. The couple hosting were quite well off and lived in a gorgeous home with a large inground pool, a built in barbecue grill station and a large pool house with kitchen and showers. DW and I had recently purchased our brick outside of MK and were showing our certificate and photo of the brick. The host's son asked why they couldn't get a brick and dad said, "We can't afford it." We all pick and choose what we can "afford."

 

[ducklite]

Absolutely. The book quotes various people making not-so-big wages but who choose to buy certain luxury items. One guy made 30K but bought a 3K set of Callaway golf clubs. Lots of examples like that. These folks weren't necessarily in debt, though. They just found one area that was really important to them and spent freely in that area even though they may live simply in other areas.

DW and I are certainly like that. I see a lot of ourselves in that book. For example, we bought new cookware 2 weeks ago: Calphalon triply stainless. We paid $400 for the set of pots and pans. But we both love to cook and do it frequently and can really notice and appreciate the difference between the professional quality cookware and the stuff the average family is using from Target or Wal-Mart. Did we NEED to spend that much? Of coure not. But, if you look in our pantry you'll find lots of store brand grocery items. The kitchen drawer has a whole file of coupons. And our closets are filled with clothes from Target, Wal-Mart and other discount stores. So we may splurge in one area that really matters to us but be very thrifty in other areas to compensate.

The trouble only comes when people decide to splurge in too many areas and fund that luxury lifestyle with credit.

This was a very good post. My DH just bought a set of golf clubs--I told him to do that rather than me buying him a Christmas gift. We could afford those Calloways, but instead he got a "no name" set for about $600 from a local guy who makes custom built clubs based on your swing and style. There's just no reason for him, a twice a month golfer, to have that much money invested in clubs, and he's thrilled with the set he had custom built for a very reasonable amount of money.

I have the Calphalon One cookware. Like Steve, I also like to cook and have found that the Cal One is simply superior to my old Wal-Mart brand pots and pans--and I expect it to last about 20 times as long--so larger initial investment, long term same cost. It truly does cook the food better. I also have a pantry closet stuffed with lots of store brands. Things like flour, sugar, canned veggies, some soda and cereals, it's all the same. I do buy name brands if I have a coupon and they will be cheaper that way. I buy in bulk when things are on sale--last night I ran into Publix to buy a gallon of milk, and the first thing I see is buy one get one Froot Loops. Guess what? I came out with the milk and two boxes of cereal. I didn't need the cereal this week, but next week when it's not on sale, I'm covered and I'll use that budgeted money to buy something else at a deep discount--it's "Snowballing to ultimately cut your grocery bill in half". There are weeks when nothing I use is on sale, and because my pantry is stocked with items I've bought in bulk when they were on sale, I go to the market and leave with milk and a few other essentials that are either perishable or never go on sale. In the long run I save a TON of grocery money that way.

I do buy mostly name brand clothes, but I buy on sale or at outlets, and seldom pay full price for anything, and I also buy very few clothes anymore--I'd rather have six great outfits by my favorite label bought on clearence than 20 from discounts stores--for the same cost. I also buy clothes that don't need dry cleaning, except DH's suits. Neither of us do Starbucks--maybe once or twice a month we'll grab coffee and a donut at Dunkins on a Sunday morning. As Steve said, it's all in priorities.

Where we splurge is travel. We like to travel first class, otherwise we'd just rather stay home.

I have a friend who her and her husband constantly have to keep up with the Joneses. Unfortunately they make maybe $50K a year between them, owe everyone and their brother (last I knew they had some $40K in judgements against them) and see nothing wrong with spending $5000+ on a vacation or $3000 on a widescreen TV (both of which they did last year on a $50K income--see a problem here?) Well, it's all come back to bite them now, as they have decided they want to buy a house. They thought that as long as they pay their current bills ontime for a few months, they can get a mortgage. Boy was she floored when yesterday I told her that they would have to have all the judgements and collection accounts paid in full before they could even THINK about getting a mortgage. Based on their current income, even if they stopped buying anything but the absolute essentials (and cancelled the $100+/month cable bill ) they would be lucky to have that all paid off in about seven years, maybe longer as it keeps accruing interest. But that was the choice they made, and now they will ahve to live with their decision.

And that's what it comes back around to, personal choice and personal responsibility. Of course there are sometimes very extenuating circumstances. But 99.9% of the people who get themselves dug into debt do so because either they have no control over their spending or they live beyond their means. Neither one of these is a valid excuse or reason to complain about higher monthly minimum payments IMHO, as those people shouldn't have been spending the money to begin with. Dance classes for Suzie are not a neccesity. All the pay channels on cable is not a neccesity. Food, housing, heat, basic transportation, and medical care are. In fact, they are about the only things that are true needs as opposed to wants in this world. And if you can't make ends meet and provide for those items, then somethings wrong and you need to reassess your entire life.

Anne

 

[ducklite]

When it comes to our kids, I'll drop $100 for a year-long membership to the science/nature museum in a heartbeat, but I won't spend an extra .50 to have a notebook with Sponge Bob's picture on the front. I'm trying to instill in them the idea of getting the best value for your dollar.

OMG! This is so funny! My husband and I laugh at ourselves sometimes when we find ourselves nickel and diming to sae $.30 on something, yet the day before we had purchased a luxury item.

When we built the new house, I bought most of the furniture at Ethan Allen, over the course of two years. I did it that way for two reasons. First, I refused to spend money I didn't have on furniture--I did charge it all to get points, but if I didn't have the money in the bank to pay for it when I ordered it, it wasn't ordered. Face it, as long as you have a sofa, bed, and table and chairs, do you really need more?

But the second reason was I waited for each peice to go on sale before I purchased it. I figure I saved probably $3-4000 by doing this. That's a substantial amount of money. So while I might ahve seemed like a dork ordering a piece or two every month, in the long run the dork was the person who just walked in and bought it all at once and paid full price for it.

Anne