Monday, March 21, 2005

Thanks, Mom (and more)

Debt. It's something that everyone has an opinion on, but most people--myself included--are loath to talk about it. In fact, I have very strong feelings about debt, specifically consumer debt. But I also realize that my thinking processes and gut instincts have been crafted by the world in which I grew up, a world in which my mother divorced my father mainly because he was spending out of control, and because they had to borrow money from everyone they knew to pay off their creditors. From the time I was four (when they split), I was picking up strong signals from my mother that few things in life were worse than going into debt. She wasn't cheap, but she was frugal: I never had designer clothes when I was a kid, she always drove an old, beat-up but dependable car, and we had a roommate to help pay the bills. But just five years later, by the time I was nine, we were firmly ensconced in the middle class. All her debts (mortgage aside) had been paid off. I also consider myself lucky in that my mother talked to me about money. She explained that you could live within your means and yet still spend somewhat extravagantly on what was most important to you. For her, it was travel. We may not have had any fancy disposable goods, but we sure did travel a lot. When we traveled, we didn't stay in fancy hotels (in contrast to my dad, who always made sure he and I stayed at the nicest property in town); sometimes we even stayed in dorms and hostels. But she took me all over, and I loved every minute of it.

In talking to me about money, she also made sure I knew that credit cards were for convenience's sake only. In other words, if you couldn’t also pay for the item by cash or check at the time of purchase, you simply did without. She also pleaded with me to start building good credit as soon as possible. She pushed me to get a credit card (just one) while I was in college, when the offers would be crammed down my throat. She told me to avoid cards with annual fees, but she never told me to avoid cards with high APRs. The reason: she trusted that I'd never carry a balance. In retrospect, I suppose that's a lot of faith to put in an 18-year-old. But I think she knew she had sufficiently guided me with respect to money.

And none of this is to say that I always spent my money wisely. My second semester of college, I spent through my checking account with about 2 weeks left of classes. At this time I had a credit card. I could have charged what I needed and carried a balance for a little while until I got home and started getting paid at a summer job. But I was terrified to carry a balance. Instead, I sold my textbooks back to the store early, trusting my notes to carry me through final exams. With that, I had enough cash to make it through the rest of the semester (ate a lot of .60 mac & cheese, and Ramen noodles).

So it is with this (irrational?) fear of debt that I come to the table for discussions on the latest bankruptcy laws Congress will likely pass, all of my concerns about financial dependence packed neatly in the baggage at my feet.

The Post had very good, easily digestible articles here and here, and had some profiles of individuals here, here, and here. Although I do not think that the current legislation is the way to fix "the bankruptcy epidemic," as I've heard others call it, I think that there is something to be said for legislation that makes it more difficult for some individuals to wipe away debts. It's not like credit cards reap a windfall when consumers file for Chapter 13, rather than Chapter 7. Even in Chapter 13 restructuring of debts, a credit card company might get 35 cents on the dollar.

That is not to say that my sympathies lie with the credit card companies. Some would say that 20% APRs are so high as to be unconscionable. And the credit cards do court anyone with a pulse, regardless of means or understanding of how the credit industry works. Michelle Singleterry had this great quote on the push for this current legislation: "[T]he Republican-led Congress is intent on making the federal government a collection agency for the credit card industry."

I also know that many people who file Chapter 7 or have huge debts got that way because of medical conditions or sudden disabilities. Given my deep-felt beliefs that health care should be free to those who cannot pay for it, you can guess which side I come down on: the credit card companies, or the people who had to shell out thousands of dollars for expensive medical treatment for themselves or for their loved ones? Yeah, not a tough call at all for me.

But, though I am no friend of the credit card companies, I'm not as sympathetic to the debtors (with the exception of those with medical bills, as I explained above) as some of my political ilk. I do think there is something inherently wrong with charging something that you know you cannot pay for when the bill comes due. I think that, likewise, there is something wrong with charging something with--to use a legal term (sorry)--reckless disregard for whether you can pay.

I know this has all been rambling and without coherence, but I'm sick and am too tired to think or write logically right now. If any of you have read any books on consumer debt and/or bankruptcy and would recommend them, please let me know.


Blogger Phantom Scribbler said...

Au contraire, Angry Pregnant Lawyer. This was a thoughtful and thought-provoking post.

I was raised with a similar fear of debt, credit card debt in particular. I'm loath to criticize, because I know I'm coming from a position of privilege -- and because if God forbid anything ever happened to Mr. Blue and I had to support the family by working at Walmart I'd probably have to eat those criticsms real fast. But ... I can't help but think of all the things my parents and grandparents did without until they could afford to buy them outright.

Then again, social norms were different back then. They didn't feel that they were doing anything unusual in doing without. I suspect that people today would feel much more deprived compared to their peers.

3:36 PM, March 21, 2005  
Blogger Laura said...

I have a lot of consumer debt. More than I'd like. I had the opposite upbringing to you. No one talked about money; we always seemed to have it. My father used his credit cards a lot.

I did not get into my consumer debt entirely by buying things I couldn't wait for. Mostly I spent the money on groceries and cash advances for other bills. Not really smart, I know, but when you have no income and no savings and you've really tapped out your relatives, sometimes this is the option you go for. It's an easy way out.

I think what we need to do is educate people more, not just about how bad credit card debt is, but what they should be doing to help themselves when things do get bad. I didn't have a house to borrow against and at least I knew better than to do a payday loan. What do people do? We weren't unemployed (well, I was at home with a child); it was just that my husband's employer didn't pay him a salary in the summer. I'm not sure what the answer is, but the credit card companies certainly think they are, making it very easy for people to use them to get what they want/need.

BTW, we don't use our credit cards anymore and we talk to our kids all the time about money. They see us budgeting and making decisions about what we can and can't buy based on our budget. I hope to be debt free in about 2 years.

4:18 PM, March 21, 2005  
Blogger Angry Pregnant Lawyer said...

Geeky Mom, you make an excellent point: we need consumer education about what to do to get out of debt once we get in it. I definitely didn't understand the workings of credit debt when I was younger--if I had, I probably wouldn't have been so paranoid about charging $100 worth of groceries that I would have been able to pay off in less than 2 months.

And you mentioned payday loans--that topic gets me all pissed off. Thank you for rekindling my anger...

10:47 PM, March 21, 2005  
Blogger Elizabeth said...

You asked for some reading suggestions...

The Two-Income Trap is definitely worth reading. The authors argue that by and large it's not consumer spending that pushes families over the edge, but housing costs and medical expenses. And families have almost all of their income committed, with little cushion, so when something goes wrong, credit cards are the only safety net available. They refer to credit as a "lead parachute."

Also take a look at the LA Times series on economic insecurity:

4:38 PM, March 22, 2005  

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