UPDATE:
This post has been updated to reflect errors by yours truly. Changes are shown in italics. Deletions are struck through with a solid black line. My apologies for the mistakes.
Steven D
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We’ve been in a “trickle-down” mode with respect to economic policy since the Reagan era. What has it gotten us? Income inequality, say liberals and progressives, but what does that buzzword mean in real terms? It’s easy to say that wage growth has essentially stalled or reversed course for the poor and middle classes over the last 40 years, but that statistic is hard to grasp. It’s difficult to look at aggregate numbers and get any real sense of the economic damage done to most people by neo-liberalism and its adherents in both parties have wrought.
But here is one statistic that should shock people: The average (not the median) amount of credit card debt for indebted American families stands at $15,000.
As the economy improves, more Americans are borrowing money to pay for purchases.
Thirty-seven percent have credit card debt that equals or is greater than their emergency savings, says a survey released today by Bankrate.com.
“These numbers mean that three out of every eight Americans are teetering on the edge of financial disaster,” says Bankrate’s Greg McBride.
The average credit card debt for U.S. households is more than $15,000, according to the Federal Reserve.
So, over a third of Americans have more credit card debt (not all debt, just what they owe on their credit cards) than their savings. The average amount of credit card debt of for US consumer households that carry debt and this includes as of the US Census, 69% of all US households everyone: rich, poor or somewhere in the middle of those two extremes is FIFTEEN FREAKING THOUSAND DOLLARS! Here’s how the numbers break out from 2010:
In March 2010, the last date at which the data can be reliably estimated, we found that:
The median American household owed $3,300 of consumer debt;
The average American household owed $7,768 and
The average indebted American household owed $17,630.
And from 2014 as to all household consumer debt:
U.S. household consumer debt profile:
Average credit card debt: $15,611
Average mortgage debt: $155,192
Average student loan debt: $32,264
Hell, the total personal debt Americans owe is in excess of ELEVEN TRILLION FREAKING DOLLARS!
Which is a sign the majority of middle class and below people are not in a good situation when it comes to saving for their retirement, their children’s education, or just a rainy day. And what advice to accounts and financial advisers have for these people?
“From a purely financial standpoint, it makes more sense to pay down that high interest rate” before you start to save, says Kelley Long, member of the American Institute of CPAs.
Borrowing money with a credit card is usually very expensive.
Well, duh. Except what do you do when you can’t pay your rent or your mortgage and still feed your kids? What happens when you can’t afford to pay your medical expenses if you have a high deductible policy, unless you use credit cards (or dip into whatever IRA or 401K savings you might have – at a significant penalty for doing so I might add)? What happens when that company you joined suddenly goes belly-up, or worse, decides to improve it stock price by lowering its expenses by firing a significant number of its workers, including you, Mr. or Ms. USA? How do you pay down your credit card debt then?
By the way, guess who is using all this consumer credit card debt to create more derivatives. Would it surprise you if I said the usual suspects?
The world’s total notional value of derivatives contracts was around $500 trillion prior to the financial crisis in 2007, a number which has since gone up to a staggering $710 trillion according to the BIS.
A recent survey of this derivatives minefield looks something like this:
Five banks in the US account for over 90% of all US outstanding derivative exposure – the same usual suspects of too-big-to-fail (TBTF) banks which all blew up and had to be subsequently bailed out in 2008. Each one carries more than $40 trillion in derivative exposure.
I suppose we should just trust them not to screw up the world economy like the last time, because obviously they clearly learned their lesson, right? Well, not exactly.
Banks are lending to companies and individuals at the fastest pace since the financial crisis, helping propel profits to near-record levels.
U.S. banks posted $40.24 billion in net income during the second quarter, the industry’s second-highest profit total in at least 23 years, according to data from research firm SNL Financial. The latest profits are just below the record $40.36 billion recorded in the first quarter of 2013. […]
Banks set aside less money to cover soured loans, helping to boost profits. At the same time, overall loan growth increased at its fastest quarterly pace since the financial crisis, topping $8 trillion in total loans outstanding for the first time since SNL began tracking the data in 1991.
Gee, ain’t that just peachy. Too bad the “We the people” aren’t considered too big to fail. On the contrary, considering our politics, it seems we will never be important enough not to be given the short end of the economic stick. In short, we are almost always allowed to fail, and the only question these days seems to be how much should we be made suffer for the mistakes of our betters.
This much debt for most families= a financial death trap. They reach the point where they start robbing Peter to pay Paul and the cycle continues, until there is no more Peters. Lot of stress.
Huge amount. And that contributes to poor health, high medical costs, high rates of depression and consumption of drugs and alcohol, etc.
However, all of those are symptoms. The cause cannot be discussed.
Have you checked the rate for personal loans? Might as well take that cash advance from the credit card.
How many people are taking cash advances to pay the rent or mortgage? I used to do that when I was unemployed.
And few of those in that thirty-seven percent have any savings at all, much less “emergency savings.”
Before credit cards (and student loans) became easy to obtain, ordinary people had a better grasp of their personal finances. Understood that savings meant money in the bank to cover foreseeable future required expenditures such as new tires and not a 2 for 1 at a fast food joint. Understood that as basic living costs rose that a wage increase was necessary to just keep afloat. A time when keeping up with the Jones was a sin and not necessity.
I’m a fierce advocate of public policies to protect everyone from financial predators. And public education for basic financial literacy. However, good public policies and education can only do so much for those inclined to want, want, want what they can’t afford.
While technically correct, this is wrong:
High credit card debt and no savings is more the result of bad personal financial management habits and unrealistic ideas of what a certain level of income can purchase. Both encouraged by the banksters and consumer retail industry. Unless people first rebalance their spending priorities by putting savings at the top and fully commit to paying off the credit card debt (and not use them again) and car loans in the least practical period of time, the bad habits remain.
It is so damn easy to get moralistic about credit card debt. But the rapid escalation in credit card debt is from families who have had unemployment or family medical crises and in order to pay off critical cash payments have used credit cards to pay for everything else. The when the crisis is over, there is either a reduction of wages and salaries or chronic medical costs.
And, the kicker…regardless of payment performance the algorithm for your financial situation guarantees you are permanently in the 20% interest rate (or higher) category. And that gets compounded.
There are a lot of families who have long ago paid off the principal of their credit card debt and are just paying down the compounded interest.
What happens when these folks lose income to the chronic austerity?
Republicans have already screwed farmers but the farmers haven’t made the connection yet. The cut in food stamps has caused slack demand for grain, which is causing tenant farmers (and some of these have large operations) to want their landowners to lower rents.
The credit card industry is going to be a victim of getting exactly what it wanted in deregulation.
The really scandalous private debt is the large business debt the regularly gets walked away from through bankruptcy and reincorporation. Mittens pulled a few of those deals himself. And that leverage is huge right now.
One of the side benefits of a free market and insurance managed health care scheme. A system that only a small minority in this country would be willing in to junk in favor of a socialized health care system that would eat up less than 12% of GDP. USians prefer the casino risk to medical care.
USians in “freedom to work” states are proud of having that status even if the freaking jobs get off-shored to any third world hell hole.
Oh, sure a majority of USians may grumble about low taxes for the wealthy and deals corporations and banks get to avoid paying for their failures, but they’re going to continue rejecting any politician that dares not to worship capitalism, the US war machine, and the sky god that sent his son down to save us from something.
Yes, because as Ronald Reagan’s General Electric Theater made clear, there are people who will throw a brick through your window if they think you are “soft on Communism”. Except today’s enforcers don’t threaten you with the vision of bricks. As folks regularly find out on Twitter.
Once upon a time there were laws forbidding usurious debt payments. Of course, once upon a time, there were debtors prisons. I’m not pleased with either.
I think that it was the Mayans, who in one of they’re many cycles, gorgave all debt. Started fresh. Maybe that’s and LSD flashback or something but it seems to me that that’s a very good idea. Sorta re-leveling time to time.
‘Cause people make bad decisions and life sometimes is shit and not roses.
Not so long ago that we didn’t have debtors prisons and most states banned usury. The public’s acceptance of credit cards and the 1978 Marquette National Bank v. First of Omaha Services Corp. decision cut into those state bans. Congress followed that decision with the 1980 Depository Institutions Deregulation and Monetary Control Act that began the unwinding of Glass-Steagall. Although a few provisions in it were good, deregulating loan interest rates wasn’t. (Democrats always fail to note that it was Carter and Clinton that took down Glass-Steagall.)
In light of these facts, quite obviously, the right thing to do is weaken Social Security.
Or we could stop voting for morons…
The high average indicates a small percentage of households are hopelessly underwater(yes there are circumstances and that sucks), but most of the increase has been in non-revolving debt. I.e. consumers have replaced their monthly cash and check spend with credit cards.
There are valid reasons for this, and ranting about the banksters isn’t going to change consumer behavior, so maybe some practical consumer protections that could be enacted would be worthwhile, or… ya know what, just keep on yelling at the clouds.
Yes, I have two cards, one on which I make my regular monthly purchases, i.e. food, gas, clothing, and another on which I make my internet purchases. I haven’t paid interest since I paid off my unemployment debts, about seven years ago. Paying with the credit card is much more convenient than trying to pay with a check and much safer than cash. I used to use Paypal on-line but after they pestered me to give them my checking account number they always to direct debit the account instead of using the Mastercard, so I just use the Mastercard instead. Twice I’ve had on-line billing disputes and the card issuer (a TBTF bank, I’m ashamed to tell you which one) always sides with me. I’ve been right but there’s another consideration. namely what is TBTF bank going to do? Side with Joe Schmoe midsize company that can’t afford to boycott TBTF bank? Or fight them for that matter. Or are they going to side with Mr. Wilderness that charges $1,000 to $2,000 per month generating swipe fees that could just as easily go to another TBTF bank?
I don’t deal with them for checking or mortgage, however. I’ve been burned. I use another TBTF bank for that. That second bank is stupid and venal, but they have a branch with actual humans in it that always correct the automation mistakes. I’ve been with them for twenty-five years (since they took over the smaller bank that had my mortgage) and they’ve had a fine time getting fat on my checking account. but loans only. I don’t tolerate any fees.
No credit card for me. I should get one, though, to build some sort of credit. I’ve got a decent credit score from paying bills on time and from paying off student loans, but I paid them off too quickly; the banks don’t like people who can pay off loans fast. Those fuckers always called me to “refinance” and “consolidate” my loans. I said, “Can you give me an interest rate lower than what I already have? I know you can’t, so stop calling.” I have my aunt and grandmother to thank for that, they co-signed my loans and I had a really low rate (private loans, btw) of 3.5 to 5%, depending on the loan. Meanwhile, my federal loans were the highest at 6.8%, and as such I paid those off first.
Anyway, I’m thankful for not having to be put in a place where I need one as a necessity. Over-learned that lesson from parents; they’re still swimming in their credit card debt from a decade ago.
Actually, they can. They love to give you those teaser loans for balance transfer and sometimes offer zero or near zero interest for a year or more (it boomerangs if you don’t pay it off early). When I was unemployed I once kited three of these offers passing from one loan balance transfer to another, winding up with the original bank (rhymes with ‘shitty’). No wonder these dumbbells needed a bailout. They even refinanced their own mortgage 1.5% lower on no closing cost no-docs loan (while I was unemployed, mind you). I’m not only a Software Engineer, I’m a jackleg Financial Engineer.
As an old programmer, I assure you reality doesn’t count. only what the file shows counts.
Well I mean I never really put bank against another bank, or shopped around. I didn’t because I knew I’d get these paid off ASAP before it even mattered.
All I know is that they called me, typically at the beginning of every quarter, “Hey we can get you lower interest!” Each time they ran my numbers, it always came up with significantly higher interest rates (usually around 8%). So yeah, not gonna refinance to a higher interest rate.
Didn’t matter much anyway. They got about a 6-10% return over a 6-7 year period. They’d have been better off buying treasuries; at least those hedge against inflation.
Oh yeah, you’ve got to watch them. But get a card, use it make purchases that you would anyway and pay promptly. Pretty soon you will have a good credit number and they will start begging you. Play their game, but it play it your way.
Another tip. Wear a suit and tie. I still wear my Navy crew cut (can’t be bothered with style) and US Navy black oxfords (actually Bates Lite cop shoes, they’re great on the feet). I go to the bank with the gray pinstripe suit that I used to use interview in, a conservative Van Heusen dress shirt and tie, the very picture of Mr. Republican. I don’t know your ethnicity. I’ll concede it helps to be white. It shouldn’t, but it does.
Perhaps our “betters” as you refer to them Steven aka the “makers” make what they do by taking from the “takers”. The big question seems to me to be, when the makers have taken everything from the takers, what engine is left to drive our “free market” economy??………anyone??
When the “takers” can no long make enough for the “makers” to take even a tiny slice of what the “takers” make, total dispossession, famine, and death for the “takers” ensues. That’s fine with the “makers.” Reduces the numbers of “takers” they have to bother taking from.
Perhaps those calamities may not be as selective as the “makers” assume?
While anything is possible, family fortunes are better insulated from general social/environmental/economic calamities for three generations than they are from a family wastrel. Family fortunes are most often eroded by the sheer number of descendants that require the splitting of the fortune.