I was reading an article on CNN yesterday titled "The next credit crunch". I got to thinking about the situation our society finds itself in currently and how we got here. Property values are falling, people are losing their homes. Everywhere pundits and analysts are looking to assign blame. Looking at my own financial history and my own trials therein, I come to a conclusion that seems some what self evident to me. We are ALL to blame for this mess.
First a little back ground. I got my car when I was in the Air Force, I think it was some time in 1987. It was a brandy-new 1987 Mercury Lynx (a Ford Escort with better trim!). My parents co-signed the loan for me as I was only 18 with no credit history. I remember the payment was $228.01 a month for 60 months. It worked out to a 10% interest rate which isn't that bad for a car loan. I remember my parents cautioning me that I needed to be careful and to be sure I made the payments on-time and monthly as they could not afford to make them if I didn't. The veiled threat was that their credit would take a big hit if I didn't live up to my responsibilities. As I was an enlisted man in the Air Force my paycheck was pretty much guaranteed for another three years. As I lived on-base in the enlisted dorms and filled my belly at the base chow hall, my only real financial responsibility was the car, the requisite insurance and gas! So it wasn't much of a strain at all.
No sooner had I made a few payments then the credit card offers started rolling in. VISA Mastercard. I thought it would be a good idea to have one in case of unforeseen emergencies. So I applied and for whatever reason I was declined, it may have been insufficient credit history. My parents again stepped in and co-signed. Within a month I had a VISA card with a $1500 limit and an 18% interest rate.
At first I was very judicious with its use. Only using it once to repair a broken driver's side window on my new car. Over time I started to notice that many of my fellow airman had really cool stereos in their rooms including those new fangled CD players. I was still playing my cassette tapes that I made from LP's in high school. I coveted a new stereo system! One day i went to the Cherry Hill Mall in New Jersy close to where i had been stationed. On a lark I wandered into a store known as 'Silo' similar to what a 'Circuit city' or 'Bestbuy' is today. in retrospect, it is all too clear to me that the salesman saw me coming! He showed me the latest stereo receivers, CD players and dual cassette decks. I was probably salivating! I selected a modest receiver, a CD player, a dual-cassette desk and Bose 301 speakers. The total price was in the neighborhood of $1000. i was about to lay down my new plastic, when the salesman said, and I think to this day there was an echo with it: "Hey! why don't you apply for our own charge card! You wont need to put the balance on your VISA." I agreed instantly and my application was approved almost as quickly. Less than a half hour later I was on my way back to the dorm with a car full of state of the art audio gear.
Thus began a long almost 15 year saga of the abuse and misuse of credit.
I have never declared bankruptcy, but I have come close.
Now whose fault is it that this happened to me?
I fully accept that my own nature, my coveting of toys and things that I wanted more than contributed to my abuse of credit. But, why in the modern age is a concept of 'time value you of money' not a required bit of education? Consider that most Americans have no concept of how long it will take to payoff $1000 dollars at a 21% APR while making minimum payments of say $35. The answer is 40+ months! You end up paying more than $400 dollars on top of that original $1000.
These things were NEVER made clear to me at anytime in my youth nor early adulthood. Why is that?
Clearly, I am guilty of coveting that which I didn't have. I wanted many things! Most kids and young adults do.
But what cost is too much and how many things are enough?
Why is it we live in a society that doesn't require that its children LEARN basic finance along side the math to do calculations and the ability to read fine print?
My own little admittedly cynical view is that the powers that be in this society aren't interested in a population of educated people who can see that if they laden themselves with high-interest debt they'll be working to pay that debt for a very long time further enriching the already wealthy!
I see advertisements in print and in various other media showing off the latest Iphone, the latest Ipod, the newest car...all squarely aimed at those who can least afford them. In the western world we have created this stew, this unholy realm of gross consumerism fueled by people who are conditioned to covet that which they don't have and are convinced that they must need. I see my own children falling prey to this virus. I have an 11 year old telling me that his friends all have cellphones. Why does an average 'tween' need a cellphone? I did just fine without one! What does he possibly have to say to anyone that can't wait till he gets home to the essentially free 'land line'....other than"Mom or Dad can you come and get me?"
The article I referenced speaks of a people using credit to 'pretend' to a standard of living that they are ill equipped to sustain. Now, even that ocean of free and easy credit is drying up. What will be the consequence of all that principle coming due, with no other resources to pay it off?
I am at the point in my life where I am now looking for a house for my young family. My past credit woes while not a extreme detriment have made it more difficult. I often wonder: If the society I live in had chosen to educate its children about 'time value of money' and basic economics how different would our current circumstance be?
The flip side is how many things are enough? How much of these material possessions do you get to take with you after you draw your terminal breath? The answer is ZERO, bupkus, zilch, nadda! You will leave with that which you came in with.
So what's really important?
R.
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