Obama tied the lack of consumer protections by Congress it to credit card companies’ lobbying efforts, which far exceed the limited lobbying budgets of consumer groups.
Entries from June 2008
Obama Calls for Tighter Credit Card Restrictions
June 23, 2008 · No Comments
Categories: credit card clarity · middle class squeeze
Is Generation Y dumb, arrogant or simply uneducated?
June 20, 2008 · No Comments
The headline above was effectively the title of this piece I saw on MSN Money today. Can I choose none of the above?
Its author was doing her best expose of why Gen Y is having trouble paying its bills. Unfortunately, her article paints Gen Y as a bunch of clueless young people who couldn’t budget their way out of a paper bag.
Truth is, Gen Y is smart and responsible. We aren’t powerless. The answer to the question “Why Generation Y is broke” has less to do with our brains and will than it does with the unique economic challenges we face. The interviewee in the MSN Money article doesn’t typify the generation. Check out this description:
When [Sophia] Wallace graduated with a student-loan debt of $60,000, she found herself overwhelmed to the point of financial paralysis. She tore through a $5,000 loan from her dad as bills stacked up. She had no idea where her money was going — despite making what she defines as a good salary. The sense of powerlessness crippled her.
When friends recommended she hire an accountant, Wallace packed a FedEx box with bills, receipts and mail and sent it off.
“He wrote me a letter that said, ‘You’ve got to get your life together! Most of these bills aren’t even open.’ It was a really humbling thing,” Wallace says. “But the next time, all my receipts were on a spreadsheet. No one had ever taught me to make a budget or balance a checkbook.”
I’m willing to bet that the majority of Gen Y isn’t as “powerless” as this poor sap who was had been waiting for 28 years to for someone to help her balance her checkbook. The reason Gen Y is broke is because the economy is throwing Gen Y unique challenges that other generations has never experienced.
Check the statistics: Gen Y is being squeezed through a vise that the Baby Boomers and Gen X never experienced. 25-to-34 year-olds averaged $4,088 in credit card debt in 2001, 55 percent higher than it was for the late baby boomers in 1989. The costs of a college education has increased nearly 1.5 times in this decade alone, nevermind the costs of getting through college. And something like 25 percent of a Gen Y’s income right out of college goes to servicing their debt, both credit card debt and student loan debt.
Granted, Gen Y ran up some of their credit card debt funding their road trips and booze, but most ran it up because the things we need — education, health care, gasoline, housing — costs so much more than it did for the baby boomers.
To add to this, the average job tenure is decreasing. Whereas the typical baby boomer spent her entire career at one or two firms, the typical Gen Y’er will change jobs 4 times by the time she’s thirty, and may end up changing careers multiple times during her working life. In addition to learning new skills to adapt to this uncertainty, the typical Gen Y has to manage how to carry her health care and retirement accounts from job to job during that time.
This task of managing one’s career and the attendant health care, retirement, and student loan debt issues is a challenge that no other generation has had to deal with before.
True, some of Gen Y are irresponsible and will throw all their unopened bills into a shoebox, never to look at them. But I disagree strongly that Gen Y has to choose between being dumb, arrogant, or uneducated. The game has changed so drastically and we’re figuring out the new rules as we go.
[whew that was a rant!]
Categories: Gen Y in debt
Fungible.
June 19, 2008 · No Comments
That word describes credit card debt and the trillions of dollars that Americans cash out of their homes in the form of home equity withdrawals and refinances.
That is, banks often encourage consumers to use their home equity to pay off mounting credit card balancers. In doing so, borrowers convert unsecured revolving loans (their credit cards) into debt secured by their homes, effectively using their homes like an ATM.
Such was the story on the front cover of the USA Today yesterday, in an excellent piece by Kathy Chu and Byron Acohido. A parallel story was also shown on ABC News with Charlie Gibson.
Since 2000, banks have rapdily increased the credit limits on credit cards sent to “subprime” cardholders. These same customers were often encouraged to consolidate this debt into their mortgages when they refinanced.
And with home values coming down or leveling off in many metro areas, the end of the buy-everything-you-can-and-charge-it era might be over. Or, at least we’d hope that bank regulators would actually keep an eye on it from now on.
I’ll use this excerpt from Adam Levitin on creditslips to take it home:
http://www.creditslips.org/creditslips/2008/05/credit-card-deb.html#more
But for so many people tapping into the home piggybank in recent years, we would be seeing far higher levels of credit card debt (and defaults). Now that the home piggybank is empty, credit card defaults are running up fast. But credit card debt is actually much lower than it would otherwise be, but for the home mortgage bubble. And while a default on a credit card doesn’t cost you your home, the interest runs up much faster than on a mortgage.
To the extent that we’re already concerned about the level of credit card debt in the US, shudder to think what it would look like without the mortgage bubble. Maybe consumers would have purchased fewer flat screen TVs and less gas for the car and milk for the kids if they had to pay for it with high cost credit card credit rather than with low cost mortgage credit. But I suspect we would still have seen a lot of the same spending, so instead of facing a foreclosure crisis, we would instead be facing a much more pronounced version of the credit card debt problem. The future would be here now.
Categories: credit markets · middle class squeeze
Blogs on QVisory’s website offer financial, career advice for Gen Y
June 19, 2008 · 1 Comment
Here’s a piece of good news. The group “Qvisory” understands the challenges facing young Americans — due to the rapidly changing nature of job ladders, so many of Gen Y will change careers many times during the course of our working years, and change jobs even more. During the course of that time, we’ll have to change our health care plan, retirement plan, and financial services to keep up with these job changes.
Qvisory’s role is to help young Americans have a plan to keep these pieces together. Baby boomers had it differently: the career ladder was intact for them, and many spent their entire working days at just one or maybe two companies. Gen Y’s career ladder will look more like the board game Chutes N Ladders, where you have to move to a different company to advance, and maybe take a step back in pay to get the health or retirement benefits you need.
Therefore, Gen Y will have to do a lot more resume writing, career monitoring, networking, and management of health and retirement than ever before. Enter Qvisory: its extensive list of bloggers offer advice to Gen Y’ers who are navigating through this maze, in addition to dealing with credit card debt, student loan debt, and the like.
Categories: Uncategorized
Obama would institute a five-star rating system for credit cards
June 19, 2008 · 1 Comment
Obama made a speech on Jun 9th in Raliegh, NC on the economy, and dedicated a few words to discussing credit card debt. In it, he endorses the idea of a credit card safety rating system — also as seen on his campaign website.
Here’s the excerpt from the speech:
“Finally, we need to help those Americans who find themselves in a debt spiral climb out. Since so many who are struggling to keep up with their mortgages are now shifting their debt to credit cards, we have to make sure that credit cards don’t become the next stage in the housing crisis. To make sure that Americans know what they’re signing up for, I’ll institute a five-star rating system to inform consumers about the level of risk involved in every credit card. And we’ll establish a Credit Card Bill of Rights that will ban unilateral changes to credit card agreements; ban rate hikes on debt you already had; and ban interest charges on late fees. Americans need to pay what they owe, but you should pay what’s fair, not just what fattens profits for some credit card company and they can get away with.
The same principle should apply to our bankruptcy laws. When I first arrived in the Senate, I opposed the credit card industry’s bankruptcy bill that made it harder for working families to climb out of debt. John McCain supported that bill – and he even opposed exempting families who were only in bankruptcy because of medical expenses they couldn’t pay.
When I’m President, we’ll reform our bankruptcy laws so that we give Americans who find themselves in debt a second chance. We’ll make sure that if you can demonstrate that you went bankrupt because of medical expenses, you can relieve that debt and get back on your feet.”
Categories: credit card clarity · media and culture
