Tuesday, June 10, 2008

Hip to be Square

A record-high 55% of all Americans say their financial situation is worse than it was a year ago. This is the first time in Gallup’s 32 year history of answering this question that a majority of Americans gave this negative assessment.

Stagnating wages, high fuel costs, mortgage crisis, weak dollar and rising unemployment may make Americans feel their own micro-economic situation is gloomy but how much of this pessimistic self-assessment is of their own doing?

Article here looks at the debt-culture in America and points to 3 specific anti-thrift institutions as providing the mechanics for the massive personal debt this country has accumulated: credit cards, pay-day lenders and lotteries.

“Between 1989 and 2001, credit card debt almost tripled, from $238 billion to $692 billion. By fall of 2007, the amount of revolving consumer credit had reached $937.5 billion, a 7 percent increase over the previous year.”

“Unlike fast food, however, fast cash isn’t cheap. It typically costs the borrower the equivalent of an annual percentage rate (APR) of 300–400 percent. Payday loans contain another financially unhealthy feature, as well: They are structured so that it is hard for the borrower to repay the loan in full. Instead, many consumers end up with little choice but to pay special fees to “roll over” the original loan into the next payday, a practice that can lead to chronic dependency on expensive credit.”

And how about this for painting a picture of government-sanctioned predatory fantasy pedaling?

But aside from the actual “how-to” there also needs to be a reason why. Political humorist and satirist, P.J. O’Rourke recounts growing up poor in Ohio with an abusive and alcoholic step-father. Despite a financial situation that always had them on the brink of losing their home, Mrs. O’Rourke insisted that the children keep the front lawn trimmed and tidy, the drive-way and porch swept and the house clean and uncluttered so that a general sense of order and respectability pervaded the household. Why? Shame. Shame that kept the neighbors from knowing they were poor. Shame that if the neighbors did know they were poor, then there be at least a pride that would not allow the family to appear as if they had descended into squalor.

This appears to be very much missing in today’s culture where running up personal debt on credit cards and on loans for various toys and the house you’re going to “flip” almost seems a right of passage. And when you finally get pinched…. No biggie… bankruptcy, baby – everybody’s doing it.

And the government does nothing to dissuade this reckless and cavalier behavior by spending hundreds of billions of the couple pictured above's dollars to excuse the same of people who had no business owning a house in the first place.

Regulation iwo of capping interest rates that credit cards and lenders can charge may help but what it all really boils down to is a fundamental change in the culture and mindset of the American consumer and like Depression-era kids knocking back a slug of Castor oil, that shot of restraint and terpitude for today's big spenders does not appear to be on the near horizon.

H/T: New York Times' David Brooks


Anonymous said...

The charges on Payday loans can add up, if someone doesn’t pay on time. Other than that, it’s a good option for someone that doesn’t want to get caught up with credit cards debts. They can also help in a tight situation, its quick, and most places are open longer hours than banks.

Dean said...

Breezie, the article points out the positive benefits of lotteries, credit cards (and credit, in general) and payday lenders for reasons with which I would generally agree.

The extension of credit is a natural byproduct of the capitalist system and which allows for the opportunity, for example, of a young family whose parents are not yet in their prime earning years, to purchase a house as a long-term investment.

Its a flaw of our human nature, though, to take these mechanisms and abuse the privilege because of greed, sloth, envy, etc.

Thanks for stopping by and thanks for commenting.

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