I just returned from a week or so of travel. When I collected my mail, there were two things that struck me. First, 80% of it was trash and went immediately in the dumpster. Second, there were at least 8 letters from credit card companies with checks that would allow me to write myself a "loan" against the credit card.
I am at a point in my life where I really have no debt--just a mortgage. Over the years I have opened various Mastercard and American Express accounts striving to get the best rate. Although I don't use these, I have never closed the accounts. Also, I always insisted that my wife have credit in her name and she has a few cards as well. Thus we get a lot of these credit card "checks" in the mail. But, we only use one CitiBank Mastercard for all our expenses and pay it off monthly. The interest rate on the Mastercard recently went up to a ridiculous rate despite the fact that we have a glowing credit rating and put a lot of money on the card (although we don't carry a balance). I do not have the desire or the need to write myself a "loan" from a credit card. But, I thought, this offer is really not intended for people like me. It is more intended for those who live paycheck to paycheck and the temptation to write yourself a "loan" for that plasma television you want is just too tempting. But, if I am correct, is this not the exact same issue that got us into this recession in the first place--the sub-prime market?
We in America have had life too easy for the last 3 decades. I remember that when my grandparents needed to make a big expenditure (e.g., car, refrigerator), they would begin saving money and, when they had enough, they would go and buy it. Similarly, they might put something on layaway--regardless, they paid first. Our society wants immediate gratification--often by purchasing things they cannot afford. I had a friend who once sold cars. He said that a certain segment of the population would come in and buy a car they obviously could not afford and their only concern was the down payment (they cared little about the monthly payments because they did not really intend to pay these).
But, here is the rub. With the current bailout we are reinforcing the behavior. We taxpayers are paying for the bad decision making of people unrelated to us. Kids need to learn at an early age that they don't need the latest iPhone or a PlayStation 3. But, I understand where they get it. They continuously watch television commercials that show lawyers stating that they can get money for their clients without much effort on the part of the client (playing to the lottery mentality). Then, there is that horrible J.D. Wentworth commercial that shows people yelling out windows, "It's my money and I want it now!" These people had come by money from a structured settlement (that is, money will be paid to them over a number of years). This money was put into a trust or structured settlement to protect them from their own greed. Sure, J.D. Wentworth will give them a lump sum payment (of course, taking a healthy cut for themselves). Within a short time their structured settlement will be history and they will look to good old Uncle Sam to bail them out. I put my family through hell for medical school and residency. Although I took student loans, I paid them back within 3 years of graduation (for I was raised with the idea that owing money is bad and dishonorable).
This is all so wrong at a most fundamental level. Credit is like a medication--used appropriately it can help. Used inappropriately, it can harm. And, the banks have not learned their lesson. They are extending credit to people who can't afford it and are now taking a greater annual percentage. It is just wrong and things will get a lot worse before they get better.