Do you ever feel like there is a vast conspiracy to make everyone a debt slave? Credit is not inherently good or evil. It’s just that good-hearted, overly optimistic people can really can get into trouble when the world knocks them on their keister. Think about it: everyone who uses the credit system is making a bet that things will be as good or better in our future.
When I was a young adult, I took out roughly $100K in grad school loans. I was making a bet that, after receiving that silver-plated education, I’d make enough money to pay back the debt plus interest & make enough to live. It worked for me, but what if it hadn’t? That’s a lot of debt! It was a BIG gamble, and it wouldn’t have panned out if a few things in life had cut in the other direction.
When we buy homes, we take out loans based on our already-accrued downpayment and a multiple of our annual salary. We’re making a bet that we’ll maintain or increase our earning potential. And, if not, that we’ll be able to sell the house for the value of the loan. See all those realtor lockboxes? Let’s just say that this gamble hasn’t worked out for a lot of people.
When we buy a car on credit, we take out a loan making the bet that we will be able to make the monthly payments, in addition to the cost of ownership (gas, insurance, repairs over the life of the car). And, if not, that we’ll be able to sell the car for the value of the loan.
You’ve heard of this new Cash for Clunkers program, right? The top selling new car is the Ford Focus. Edmunds says list = $16K. Minus $4500 for the clunker trade-in. That means roughly $11.5K of debt at 6.38% (national average) interest rate for 48 months = $243/month. Soooooo… you’re telling me that poor people in this economy can suddenly swing a $243/month payment & keep it up for 2 years? Hmmmm…. I’m having some difficulty believing that this program really benefits poor people. I think maybe it IS a good thing for some folks, but perhaps some of these gamblers are making a bad bet. This economic “recovery” is incredibly tenuous. I’m still hearing about new layoffs and job losses. Maybe this isn’t the time to be doubling down & betting on a rosy future!?!
Contrast this way of being in the world with: saving up and the concept of lay away. When you save up for something, you don’t have to pay service fees or interest. Put it in a cookie jar and enjoy the total cost savings associated with delayed gratification. Lay Away often has a small fee associated with the service (at Kmart the layaway fee is $5) you pay scheduled payments and get the item at the end. If things change and you can’t or don’t want to pay, all you are stuck with is a $10 loss. I actually think that the return of Lay Away is really, really good for society.
Isn’t that a lot more SANE? What if we set up programs that funded bank accounts and promised funds if people achieve the targeted saving amount? If you really want to help poor people, that seems like a better way to do it. This other way just helps car companies, credit companies, banks, and all the people who make money off of bankruptcy filings.
Really, I’m not an ideologue. I’m not a partisan. I’m not reciting the Fox News anti-C4CProgram talking points. I want to help poor people. I want to stimulate the economy. I also want to stimulate savings. Can’t we all just think a little differently about how to do it?
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