Thrift as a family value
In the wake of the financial meltdown some startling statistics have come to light. The “average” American has nine credit cards carrying a whopping $17,000 among them. This, I assume, doesn’t include what Mr. or Ms. Average owes on a house or a car.
No wonder we’re in deep doo-doo. What if we lose our jobs or have a medical emergency? What do we have for backup? Whatever became of saving for a rainy day or a vacation or to replace a worn out car?
That’s what credit cards are for. Right? Well, that’s what we’ve been told for about four decades. We started out with Diners Club, which promised to save us money at restaurants and hotels, or American Express, which at least made us pay up the total every month. That was a good concept in that it offered convenience without the prospect of indentured servitude. If you weren’t likely to have the money in three weeks, well, you just didn’t spend it.
Visa and MasterCard made it possible to overspend one’s income every month and pay back only a small percentage of the debt. Americans went on a shopping spree that spawned a whole new job category: financial crisis counseling. Meanwhile, the credit card companies hired lobbyists to pressure Congress into tweaking lending laws to help borrowers dig themselves in even deeper. Read the small print on the slick insert that comes with the bill. And don’t forget to read it every month because terms change at the whim of the lender.
To add assault to usury, the companies then lobbied for laws to make it much more difficult for the average American to file bankruptcy. Still, the enticements to borrow more come with every statement.
In a misguided effort to extend homeownership to millions of workers who were barely able to pay rent and weren’t saving even loose change, Congress amended lending laws to lower down payments from 30 percent to virtually nothing; monthly payments covered interest only, so balances never went down. Adjustable rates kicked in after two or three years and the homeowner’s dream became a nightmare.
Ah, things were so simple BC-before credit cards. We started saving for holiday gifts in June, salting away our pennies in Christmas Club savings accounts. Come December, we withdrew the money and divided the total among our relatives.
Kids started saving for their first car somewhere around age 12. Allowances, odd jobs, birthday checks from Grandma all went into the car fund. When you reached 16 and passed Drivers Ed, maybe there wasn’t enough to buy the car of your dreams. Then you made a choice. Buy a cheaper model or share rides while you save more. Simple.
My older sister and I had what might be called a privileged childhood. We had a great deal of stuff, most of it gifts. We lived in a big old house and had fancy birthday parties with clowns and ponies. But whatever we thought we wanted, we could plan on waiting for it. Instant gratification wasn’t in our parents’ vocabulary.
Then one day the axe fell. Finances would be tight for a while, we were told. Details were sketchy, but the movie business, which had thrived during the Great Depression, was now having its own depression. Father was taking a cut in salary and losing his studio pension. Long before IRAs and 401Ks. Déjà vu, anyone? I remember him telling us we shouldn’t plan on inheriting anything. We should figure out how to make our own way. And we did. It was a good lesson in money management but without warnings about credit.
So, at a time when I was on my own and short of cash, I fell for the credit card pitch. Buy now, pay later. I needed to replace the worn-out drapes that came with my new house. There was a huge sale on shutters, so I figured I’d be saving money buying on sale and paying with credit. In the end, the interest was more than I saved on the price and I vowed never to do that again.
Years later, Visa started sending checks that you could write for anything at zero percent interest. Somewhere buried in small print it said any payment would be applied to the zero-interest balance first. I didn’t see how that applied to me because I’d been paying my bill in full every month. I should have known. First I got a late charge, then my interest rate doubled. I learned the hard way that it’s impossible to pay your new charges on time if they automatically credit the other balance first. I cut that plastic card into tiny pieces.
If we survive the current tsoris, some of us might return to our grandparents’ values of thrift. Save first and spend cash. In the end, we’d all have more by earning a little interest instead of paying it for the privilege of instant gratification.
I’ll even bet we’d cherish those things a great deal more for the waiting.
Consumer credit is becoming so yesterday. Visa and MasterCard, eat your hearts out.