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Some Shocking U.S. Financial News

“A penny saved is a penny earned.” (Attributed to Benjamin Franklin; one of the Founding Fathers of the United States, author, printer, political theorist, politician, scientist, inventor, statesman, and diplomat; 1706-1790).

Every once in a while I encounter a news item about personal finances of people in the United States. This IAE Blog entry briefly discusses two recent examples.

Savings

Sean William has recently written an article titled, Nearly 7 in 10 Americans Have Less than $1,000 in Savings (Williams, 10/9/2016). Quoting from his article:

Last year, GoBankingRates surveyed more than 5,000 Americans only to uncover that 62% of them had less than $1,000 in savings. Last month GoBankingRates again posed the question to Americans of how much they had in their savings account, only this time it asked 7,052 people. The result? Nearly seven in 10 Americans (69%) had less than $1,000 in their savings account.

Breaking the survey data down a bit further, we find that 34% of Americans don't have a dime in their savings account, while another 35% have less than $1,000.

Talk about living from hand to mouth! Certainly there are many families in America that live in poverty and have quite limited incomes. However, our social values, educational systems, and so on have combined to ill prepare a large percentage of our population think about and prepare for their current and future finances.

Quoting again from Williams (10/9/2016):

According to GoBankingRates' report, two factors are to blame for Americans' inability to save. First, some Americans are simply living beyond their means. With roughly 70% of U.S. GDP tied to consumption, and our society revolving around going out for entertainment, this isn't too surprising.

The other issue is that credit cards and alternative payment platforms, such as Apple Pay, have made it easier than ever to spend money. It's a lot easier to spend money when you're not dealing with tangible cash. This out of sight, out of mind mentality could leave Americans out of money when they need it.

Brief History of Credit Cards

Credit cards are currently nearly a “way of life” for a great many people. But, this represents a massive change from the past. Quoting from The History of Credit Cards (Woolsey & Gerson, n.d.):

As far back as the late 1800s, consumers and merchants exchanged goods through the concept of credit, using credit coins and charge plates as currency.

In the early 1900s, oil companies and department stories issued their own proprietary cards …. Such cards were accepted only at the business that issued the card and in limited locations. While modern credit cards are mainly used for convenience, these predecessor cards were developed as a means of creating customer loyalty and improving customer service.

It took until about 1950 for the relatively general-purpose credit card to become available. By 1951, there were about 20,000 Diners Club cardholders. Continuing to quote from Woolsey & Gerson (n.d.):

In 1958 [American Express] emerged into the credit card industry with its own product, a purple charge card for travel and entertainment expenses. In 1959, American Express introduced the first card made of plastic (previous cards were made of cardboard or celluloid). 

American Express soon introduced local currency credit cards in other countries. About 1 million cards were being used at about 85,000 establishments within the first five years, both in and out of the U.S.

Credit Card Debt in the U.S.

Many people deal with their credit cards in a financially responsible manner. However, I was shocked by Mathew Frankel’s article, Average American Credit Card Debt May Shock You (Frankel, 10/2/2016.) Quoting from his article:

More than 60% of [U.S.] households carry no credit card debt whatsoever, and of those that do, many pay it in full every month.

Using data from the U.S. Census Bureau and the Federal Reserve, ValuePenguin found that the average credit card debt for households that carry a balance [from month to month] is a shocking $16,048—a figure that has risen by 10% over the past three years. At the average variable credit card interest rate of 16.1%, this translates to nearly $2,600 in credit card interest alone.

I really find that hard to imagine. Many millions of Americans face credit card interest charges of well over $2,000 a month. Can you imaging yearly interest charges of $25,000 or so, just on your credit cards? When I read this article, I wondered: “What can our educational system do to keep so many people from falling into such a financially disastrous situation?” It seems to me that better financial education would help.

Next, I wondered whether our country should/could develop and implement “usury” laws and restrict borrowing to help prevent this current disastrous situation. While you are thinking about this, also think about Payday Loans. The interest rate on such loans is typically a number of times credit card interst rates. Right now the U.S. Consumer Financial Protection Bureau is in the final stages of implementing new regulations to help diminish this problem (Barnes, 10/12/2016).

What You Can Do

First, look in a mirror. I hope that you don’t see a person who has serious financial problems. Probably most readers of this IAE Blog entry have both the education and common sense to avoid the credit card, payday loan, and very insufficient savings problems described above. However, it is likely that many of you interact with students and other people who lack the needed education and common sense. As an educator, parent, or otherwise concerned person, you can identify people who can benefit from your education and financial common sense. Helping even one person avoid such financial problems could well make you feel good about yourself for a long time!

References and Resources

Barnes, S. (10/12/2016). Payday lenders defend their industry as a federal consumer watchdog prepares to hand down new regulations. Greater Baton Rouge Business Report. Retrieved 10/2/2016 from https://www.businessreport.com/business/payday-lenders-defend-industry-federal-consumer-watchdog-prepares-hand-new-regulations.

Frankel, M. (10/2/2016). Average American credit card debt may shock you. The Motley Fool. Retrieved 10/12/2016 from https://www.fool.com/retirement/2016/10/02/the-average-americans-credit-card-debt-may-shock-y.aspx.

Moursund, D. (5/1/2014). Hungry children—America’s shame. IAE Blog. Retrieved 10/13/2016 from http://i-a-e.org/iae-blog/entry/hungry-children-america-s-shame.html.

Williams, S. (10/9/2016). Nearly 7 in 10 Americans have less than $1,000 in savings. The Motley Fool. Retrieved 10/12/2016 from http://www.usatoday.com/story/money/personalfinance/2016/10/09/savings-study/91083712/.

Woolsey, B., & Gerson, E. (n.d.). The history of credit cards. CreditCards.com. retrieved 10/12/2016 from http://www.creditcards.com/credit-card-news/credit-cards-history-1264.php.

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