One of the things that always strikes me as unfair in our capitalist system is the disparate impact problem.
If you have money in this country, things actually get cheaper and more affordable. If you don’t have very much money, you are much more vulnerable to any economic swing. Let me explain.
A rise in gas prices from $2.50 to $3.00 a gallon means for a 15 gallon tank refill, this is a net $7.50 per tank increase; assuming you fill up the tank for your commute only twice a week, this is a fifteen dollar increase in your expenses, totally out of your control. If you make $150,000 a year, cutting back on a latte or two can make up for this; if you are only making $30,000 a year, this $60 a month and $720 a year takes a much bigger bite out of your salary, requiring much more corner-cutting, economizing, and sacrifice.
Banks have changed their policies on check cashing, removing the float or grace period people used to depend on. Banks have also raised penalties for things like bounced checks. If you bounce a check for your electric bill, that usually carries a penalty that can be as high as $30. If you didn’t have the money for the electric bill, that extra $30 puts you behind the eightball; couple that with an increase in gas prices, and things are going from bad to worse quickly. Yet, if you have money, you can often get preferred checking privileges and overdraft protection, making it essentially impossible to bounce a check. This means even if you have to economize a little in inflationary times, you are still okay and don’t take extra economic hits from the bank, if money gets a bit tight paycheck to paycheck.
Then there’s the problem with easy credit, allowing people to mortgage themselves up to their eyeballs, until their economic house collapses under the weight.
To this point, I saw Tucker Carlson speaking with a representative from John Edward’s campaign this weekend. They were discussing Edward’s plans to make credit card terms more reasonable for consumers. You can see the clip here. (Many thanks to Jim McCusker and red Lasso for making this possible).
The mistake the Edward’s campaign representative made was not telling Tucker Carlson that the real problem here is based on the lack of economic education we give people in school. We don’t teach kids about budgeting and how credit works. We are more than willing to tempt people with short term gains for long term pain, but that is not really disclosed, and it helps people accelerate a dive off a financial cliff.
Credit card companies send my nine year old solicitations for cards; they offer toys and prizes to sign up at airports and sporting events, not to mention on campus inducements for college students. I don’t think I’ve been to a bricks and mortar store recently that hasn’t asked me to sign up for their credit card, often with a substantial discount on current purchases if I sign up then and there. The credit game involves the drug dealer mentality- the first taste is free, but then, it’s gonna cost you, and cost you huge if you don’t understand the game as well as the banks. And people are looking at the thing they want then and there, not thinking about the long term affect n their credit score, whether this get today, pay tomorrow plan is really in their best interest. (And I know very few people who call their financial advisor or spouse before accepting one of these very tempting offers.)
I know I learned very little about financial management at home, and less in school. Money seemed to be a topic you just didn’t talk about in our home, and it meant I knew very little about managing my own money before leaving home. And I learned a few painful lessons early on in my life on my own as a result. They were important lessons in fiscal responsibility, one of the most important being short term gain needs to be carefully balanced against long term ability to pay, and the sacrifices it will entail.
During law school, I met with a financial planner with my husband; we set out long term goals for savings, investing, money management and the like. As a result, today, our financial ship is sound. We don’t live past our means, and we do what we can afford. We’re conservative in this way, and are unconcerned about keeping up with the neighbors. We research our big purchases with consumer reports, and are as cautious as if we had far less resources at our disposal, and we’re willing to spend a little bit more if there’s a big quality difference- quality lasts longer, and it’s worth the extra up-front cost.
Economic education is something we need to make a priority in this Country. If we don’t make it a natural part of growing up, we will continue to have problems with low savings rates, foreclosures and defaults on student loans and credit cards. Each economic sway, up or down, will continue to claim more and more casualties, until we make basic money management and economics part of education starting at Middle School or even earlier.
And in these days where overall recession and economic hard times are imminent, can we afford not to teach our kids about how money and credit works? I think not.