Issues we can’t afford to ignore
by David Benzion · 06/10/2008 7:05 amStartling facts from David Brooks this morning:
Over the past years, Americans have been more socially conscious about protecting the environment and inhaling tobacco. They have become less socially conscious about money and debt.
The agents of destruction are many. State governments have played a role. They aggressively hawk their lottery products, which some people call a tax on stupidity. Twenty percent of Americans are frequent players, spending about $60 billion a year. The spending is starkly regressive. A household with income under $13,000 spends, on average, $645 a year on lottery tickets, about 9 percent of all income. Aside from the financial toll, the moral toll is comprehensive. Here is the government, the guardian of order, telling people that they don’t have to work to build for the future. They can strike it rich for nothing.
Payday lenders have also played a role. They seductively offer fast cash — at absurd interest rates — to 15 million people every month.
Credit card companies have played a role. Instead of targeting the financially astute, who pay off their debts, they’ve found that they can make money off the young and vulnerable. Fifty-six percent of students in their final year of college carry four or more credit cards.
That last one is real simple to solve–adjust the laws so that if you’re dumb enough to loan money to a college student, you’re on the hook if they don’t pay you back. (Of course, the credit industry gives politicians a lot more campaign contributions than does the American Association of People with Common Sense, so don’t hold your breath.)
As Brooks goes on to note, much could be done–such as…
rais[ing] public consciousness about debt the way the anti-smoking activists did with their campaign [and] creat[ing] institutions that encourage thrift.
Foundations and churches could issue short-term loans to cut into the payday lenders’ business. Public and private programs could give the poor and middle class access to financial planners. Usury laws could be enforced and strengthened. Colleges could reduce credit card advertising on campus. KidSave accounts would encourage savings from a young age. The tax code should tax consumption, not income, and in the meantime, it should do more to encourage savings up and down the income ladder.
The think-tank report that prompted Brooks’ column is summarized in a free article by Barbara Dafoe Whitehead in The American Interest.
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Those household under $13K spending 9% on lottery tickets are also buying beer and cigs at the same time. Many of them do a large % of their “grocery shopping” at convenience stores too.
Common refrain from new young employees is that they “can’t afford” to be in the 401K program at work, even when the company matches up to 6%. Same employee has a new car, expensive apartment, TV as big as a picture window, eats out for lunch every day and parties hearty every weekend.
Whatcha gonna do?
BTW, I’ve never actually bought a lottery ticket..
little mike
Actually when the lottery ticket sales started at the convenience stores the sales of beer fell down.
And I have bought no lottery tickets also. There are easier ways to squander my money.
It seems I read that Universities sell mailing lists of their students to credit card companies. Maybe the Universities that do so could be on the hook for defaulted crdit card accounts of their students.
Adopt the FourAlarm retirement plan… Stay healthy, fit, and treat everyone like your best friend. Then go outlive everyone around you. There’s a good chance you’d benefit by being in their will.
We saw first hand the way lottery advertising can mesmerize some folks into buying every week, totally oblivious to the odds of winning anything above a few dollars. My late Mom was convinced that the lottery was her “insurance” for old age (she was in her late 70s at the time) and insisted on weekly purchases. Fortunately we were able to llmit it to $5 a week, which she could afford. The more mentally debilitated she became the more the lottery was her “insurance.”
Bless the kinfolk/caregivers who cope with and manage to limit this syndrome in their elderly relatives who are totally convinced they will win big if they just buy enough.
Correction: limit
I think the development of newer and better products entices people to buy more. The gadgetry entices the young kids and their parents give in to their wants. They are not satisfied with their current usable cell phone, they want the newer, better model. This applies to almost anything electronic. I’ve seen my sister’s kid go thru about a dozen cell phones while he is still in college and I’m still on my first one. It’s this unlimited credit that is out there which compounds the problem. Before you know it your in debt over your head. I think schools ought to be required to teach some fundamental bookkeeping and economics to these kids.
#7 adee
That’s what Jeff Foxworthy says. “normal” people have a 401k; rednecks play the lottery (at least when they’re not investing in commemorative NASCAR plates).
We started our children handling money at a very young age. Lovely Daughter charmed the credit union folks when she was making deposits into her account when she could barely see above the counter. I will never forget her calling the bank one month when they charged her a service charge - an error SHE found! They did it again the next month, so I took her in one afternoon when she got out of school early. My 8-year-old was so serious - and was treated seriously - by Rita at the bank as Lovely laid down her bank statement and pointed at the offending entry.
Handsome Son fell ravenously upon his statement each month to see how much interest he earned. He is very sensitive to money (though he’s not always the best steward of his funds).
We’ve had long talks with our kids at the table, in the car, at work - talking about investments, business operations, how interest works for/against you…if we were to die tomorrow, they would have at least a beginning understanding of how finances work.
Unfortunately, there are a lot of kids being raised to think the government is their bank: that’s where their money comes from, right? Their parents don’t know any better or they don’t care.
And it is these people, who know nothing about how money works, who grow up thinking it’s okay to want our money, since they’ve never been taught to manage their own.
slash <== 0 credit cards.
I don’t buy anything unless I have the CASH to pay for it. I refuse to buy a new car, they are just stupid expensive, and drop in value so quickly you can hear a thunderclap. I’m as happy in T-shirts and jeans as can be, and not one of them says “Harley-Davidson” on it. I will buy tools, socks and underwear without flinching. I’ve broken up with women that refused to act responsibly with their finances. It shows a lack of character.
Most of this was beaten into me by my father and godfather before I could outrun them. I’ve passed the lesson on to any of the youngsters in my family that will listen.
Financial responsibility is a personal choice. In this culture of “victim-hood” we live in, how can you expect people to take any responsibility for anything?
But, if you do give someone money, you are risking (gambling) your money, and if you lose, you should just lose. Screw bailing out lenders.
Responsibility cuts both ways.
There’s nothing wrong with a tax on stupid people or poor people either for that matter. Stupid people and poor people don’t pay enough taxes anyway. We for sure don’t need the government to decide to step in and start making new laws capping rates and limiting who can play, how much, etc. That just wouldn’t be “fair” now would it?
The lottery is essentially a tax on poor/stupid people. We need a mandatory high school course on money management. Topics should include effects of compound interest (even though many kids can’t do basic math), debt, credit ratings, etc.
But yes this is an important topic and unfortunately it gets overlooked far too much.
12 - It looks like we agree on something.
The state of Texas requires a course in macro economics, however micro is optional. so you learn all these economic theories and what not that i found interesting but have very little practical application.
In theory, that’s correct. In practice, the non-stupid, non-poor people end up subsidizing their bad decisions through higher income/sales taxes.
Once again, and this is getting scary, I agree with houstondem. Money management should be a required course in high school.
#11
I have always told my kids “If they want me to wear a shirt with their name on it, they better pay ME for the advertising space!”
I think every adult in this country should pay Federal taxes or no one should. Even if it’s only a token amount, it should be required. There are too many people who do not see where Federal money comes from and see Federal money as coming from a limitless pool of money.
Withholding should also be ended. People should have to actually write a check to the Treasury every month or quarter.
Hey why don’t we repeal the authorization for the Lottery? Who’ll take a stand to that?
#18 Native
Hear! Hear! I totally agree!
Without paying in to the government, they are not vested in the proper handling of their funds, nor do they scrutinize their leadership in light of anything other than “what can you give me?”
“Debt is dumb. Cash is king and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice.”
–Dave Ramsey
I highly recommend his Financial Peace University (FPU). It is a 13-week course that teaches everything from compound interest, to how to get out of debt and what type of insurance you need. He also has a course for kids.
#19 Sorry Cajun, I’m not much of a gambler, but I do occasionally (three or four times/year) like to play Megamillions or Texas Lottery. Usually its when a group of friends get together for dinner and we all pitch in a buck.
But my mortgage is paid off!
#21 sherri
Most debt is dumb. Paid-off mortgages are not necessarily the best thing. If I have a mortgage at 5.5% that is tax-deductable (effectively lowering the rate to the upper 4%’s), I can better utilize the money I would spend paying it off in a brokerage account that averages about 10%.
Just prove something I figure out working at the food bank and volunteering at meal on wheels. Alot of people that are poor just have there priorities all messed up.
I did not have cable or satellite, every house, I was delivering food to that could not provide for themselves did. Most had a big screen, guess you need something to do while you don’t look for a job all day waiting for us saps that work pay for them.
19, I’ll stand with you on that. Have you talked to your state rep and senator about it? We all need to. The lottery is evil and needs to be ended. But be warned, the gambling lobby is huge - you have no idea how many state politicians are in their bag.
18, NA, witholding has got to be one of the biggest scams ever. If people actually had to write a check to the IRS for their taxes you’d soon have riots in the streets. Oh, how I wish witholding would be ended, but as long as we have these confiscatory tax laws and the IRS it’ll never happen. They know most people are only concerned with how much they take home.
4, NA, I’m also with you on that. I am deadly serious when I say that what the credit card companies do to hook college kids ought to be against the law. They make it so incredibly easy for kids to get credit - and they know once they’ve got the students hooked they’ve got them for a long, long time. And they know that they’ll be paid, because most of the time the kids come from good familes that don’t want to see their kids credit record ruined for years. And colleges that sell lists of their students to credit card companies - that absolutely makes my blood boil! My 3rd (and youngest) is a senior in college and I know for a fact how many kids get caught in this trap. I’m fortunate that none of mine were (very badly).
This easy credit, “get it now” stupid attitude is much of what’s wrong with our economy now. Maybe a little pain now will be cleansing in the long run. But the credit card companies definitely need to be reined in, they are able to get people addicted to their “drug” far too easily with hardly any repercussions for the damage they do.
Paying the piper has always been a *itch.
#13, #16 - What good would it do to teach a course in money management to stupid people? That might seem stupid in itself, which would then lead to the question of who really are the stupid people. How about just 2 years of committed government service of any kind (military, peace corp, bussing tables, pealing potatoes, etc.) just out of high school (grad, drop-out, or whatever). That would probably teach more than a money management class - and it could all be funded with lotto ticket sales.
#27 It may not do much for the stupid people but maybe we could catch some of the ignorant ones and “learn” ‘em.
#28 - now you’re talking.
I don’t know if it’s a matter of “stupid”. It’s more a lack of motivation. Read that as “lazy”.
With a free public education, there is no reason for stupid people, unless they choose to be ignorant. With libraries full of information on finance, management, history, foreign language, art, science - a college graduation is waiting for anyone who wants it. And all I see the teenagers in the library being interested in is MySpace.
Some of these people could be motivated if they can break the shackles of the handout mentality. I won’t put the website here, but there IS a speech I’d like to hear on another site that discusses these issues.
But human nature being what it is…there will always be a class that would prefer to sit on their collective a$$es and wait for handouts. And there will always be a group of people who choose not to educate themselves OR discipline themselves.
So you want to encourage personal responsibility by seizing people for two years and giving them a job regardless of merit?
#31 bramanti
Peeling potatoes or working on a road crew doesn’t seem to me to require too much intellect or skill. Those who apply themselves to these tasks could then be promoted to tasks that better fit their abilities. Those who don’t, get to dig ditches for a couple of years.
Ms. Malone seems to be a prime candidate for road crew work:
http://www.nbc15online.com/news/local/story.aspx?content_id=b8619bb7-adfd-4c09-b59c-9df40291edd4
#23 NativeAmerican
I would argue (respectfully of course) that you could get the same tax deduction by giving the same amount of mortgage interest to a tax-deductible charity or church without the risk of debt.
My gosh, if you end the lottery-what is HISD or other school districts going to do?
#35 Raise our property taxes more than they already plan to.
#36, if that’s the case -PLEASE DON’T TAKE AWAY THE LOTTERY, LET THE POOR AND STUPID BUY THEM IF THEY SO CHOOSE TO.
21 and 23
Everybody would rather be debt free of course.
But Ramsey’s program (for example, no revolving credit card debt) actually harms your credit score, and Ramsey admits this. Further, there is a lot of disagreement with some of his investment advice from other investment specialists.
Also, Ramsey can be a jackass.
#4 - so do the high schools.
38 - If having no revolving credit card debt actually hurts your credit score, then that sounds to me like a scam.
Most young adults aren’t ready to handle revolving credit.
My husband’s grandfather paid cash for everything for years. There came a day when he needed to apply for credit and had no credit history. He then applied for and received his first credit card in years. He LOVED it! It kept track of all of his expenditures, and he paid it off in full each month.
But then, he was the exception! My daughter has a credit card - ONE - and she uses it judiciously and manages her credit. Handsome does not have one yet, but we have talked about getting one for him, for emergency use.
Again, it is education and discipline, both of which are lacking in our youngsters. Blame the parents.
16
I think we should raise taxes on all stupid people. Imagine the increase in revenue.
Mind boggling.
Then let’s push to have the lotto money go DIRECTLY to education, instead of dipping into the General Fund first. That’s how it got passed here to begin with.
I’ve still not forgiven Anne Richards . . .
42 Shannon, have you been to a gas pump lately? They ARE increasing taxes on stupid people . . .
#34 Sherri
That is true, however you would not have the money in your pocket either. For example:
Assume a mortgage at 6% with $100,000 and 10 years remaining and an additional account with a cash balance of $100,000. Assume also an effective tax rate of 25%.
If you pay an extra $100 per month, you would shorten the term by about 13 months. After you paid the loan off, you could invest what you would have paid as a loan payment each month in a fairly stable S&P500 index fund that averages about 10% per year. At the end of the 10 years, you would have a net balance of about $15,000.
If you would have invested the $100 each month in the same fund instead of applying it to your loan, you would wind up with a balance of about $17,500 in your investment account.
This is an example of the lost opportunity cost due to the differential in your loan interest and what you could have made on the money.
Simple welfare SAVINGS plan:
simply MANDATE and REQUIRE a CLEAN urine specimen to collect one DIME!
For Gawdsakes they make us working folks do it just to have a JOB! Why NOT the people that don’t do JACK except show up with their collective hands out?
n.b. - I tried to include taxes, etc. in both returns and payments, but likely made a few arithmetic errors. I also rounded a little here and there, but the above still holds true.
#46 - I agree 100% If you have to have clean pee to work, the same should apply for getting paid not to work.
#42 Shannon
There is no reason to punish stupid people. There is no cure for stupidity. However, ignorance knows no bounds and is in far greater supply. I offer the much more lucrative Texpat’s Ignorance Tax System*. This initiative would analyze the intelligence, education (real & formal) of all Americans. The choices they make would be audited based upon the differential of their knowledge and the level of stupidity they engage in. We start with Noam Chomsky, Michael Moore and George Lackoff moving on to Olberman and Streisand. The projected revenues are staggering and, of course, I’ll be in charge, but will agree to work for $1 a year.
*Acronyms are armed and dangerous
TexPat, where is Al Gore?
TexPat, I always like the start work for $1 a day, and double it every day. At the end of 31 days you would be making over $1 billion a day, and have amassed over $2 billion.
Al’s out selling indulgences.
#51
The object of my tax is to levee those who are not stupid, but do and say things that are stupid anyway. The more education and credentials they have, the more tax they pay for acting like an idiot. We are working feverishly on the appropriate algorythms at Texpat International Headquarters even as I write.
We are not sure if Gore falls into the stupid category or is actually intelligent. Further research must be done in this area. Tipper is not stupid so she may qualify for the onerous and burdensome People Who Have Stupid Spouses Tax Bracket.
“…rais[ing] public consciousness about debt the way the anti-smoking activists did with their campaign [and] creat[ing] institutions that encourage thrift.”
Yeah, maybe that could work for the next administration. Then they would quit telling people how giving them a tax cut and running up the national debt is a good thing. Maybe the next president will tell the public that he will cut taxes once the legislature cuts spending. Otherwise, he is going to veto any bill which ads to the national debt!
A National Geographic article in the last couple of years indicated the average student graduating college did so with approximately $3,000 in credit card debt. It took me to approximately age 45 to acquire that much - Home Depot - no interest for a year, and that was to remodel. And we paid it off way early. The national debt and deficit are not a problem because so many people run their personal lives the same way as the government.
We need to teach our children from 5 years old on the value of hard work, budgeting, and saving/investing. If we bring up a child in this mode of thinking they will be far less likely to frit their lives away, tolerate governments who squander our national wealth, and they will be much more likely to become leaders for all the right reasons.
How do they know this? I don’t doubt that more poor folks buy lottery tickets, but this sounds like one of the three kinds of lies to me (statistics).
If they didn’t spend it on lottery tickets they’d be driving to Louisiana to gamble. A fool and his money are soon parted.
Personally, my goal is to LOWER my credit score by getting completely out of debt and never borrowing money again. I think most of us are brainwashed into thinking we will be living in tents without a FICO score. Not true.
“The borrower is slave to the lender.” Proverbs 22:7.
“Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.” Romans 13:8.
I’m personally sick of being slave to Countrywide, Chrysler Financial, VISA, MasterCard, etc.
Dave Ramsey is worth millions and has a FICO score of zero and zero debt. I’m taking the advise of the rich guy and the Bible.
46: my number for the bottle lottery came up yesterday. I agree with 100% “NOT CLEAN, NO GREEN”
#59/46 While that sounds like a good idea on the surface, what you are actually endorsing is the ability of government to require people to waive their 4th Amendment protections as a condition of receiving something from the government. Once those rights are waived, why stop at searching for “dirty” urine? We could also subject anyone receiving government assistance to surprise searches of their property too! Gee doesn’t that sound like fun?
A program as potentially successful as the one you propose could also apply to people to get grants or guaranteed loans for college, veterans benefiting from the GI bill, any small companies or major corporations that get any kind of “tax break,” and the list goes on and on.
Sorry, but this is not a good idea.
Sherri, when you have a high six figure portfolio, own your home free and clear, and have virtually no debt, and you can prove it, you can just about get a loan for anything you want, even if your credit report is just about a blank page. If you avoid credit card debt and pay out any loans or mortgages early, that will get you want you want. Self sacrifice is the key to getting there. Brown bag it. Make your meals away from home a rare treat. Watch what you eat at home. Stay as healthy as you can. Rent a DVD instead of going to the movies. Take care of your car. For most purchases, if you can’t pay cash for it don’t get it. Make sure you have at least six months savings. Turn off the electrical devices. Turn up your A/C before you leave in the morning. Combine errands. There are a gazillion other things. It just plain boils down to common sense. Leave within your means.
#61 Big45Iron,
Great advise! Thanks. Much of what you said I am already doing (no eating out, turning up A/C, etc.) I’ve been amazed at how much God has blessed me since I’ve been more mature with finances. By cutting costs and working lots of overtime, I’m proud to say I’ve paid off almost $11,000 worth of debt since the first of this year.
#62
Yew rock!
It’s amazing what a little personal discipline and fortitude will do.
Here’s a great video on how to avoid debt, compliments of Steve Martin and SNL:
http://consumerist.com/consumer/clips/snl-skit-dont-buy-stuff-you-cant-afford-252491.php
Sherri, what’s amazing when you pay that off is just how much of it was interest charges. One thing I can tell you for sure is there is nothing that beats a 401K. No other program is going to give you your return on investment.
Even if you only put in $200 a month, if your company matches 50%, and you make a 3% return on it, in 10 years it’s up to $42,300. Plus there is your savings in taxes. Take out that $100 per month matching, and you would only be up to $28,700. Hard to beat that.
Oh, Sherri, the credit cards companies will hate you. I’ve had to get downright nasty with them to cancel a card.
66. Easiest way is to report it stolen and when they want to send you a replacement say no or don’t validate it. Wells Fargo Bank wanted to charge 25.00 to close a checking account. Free checks, so I wrote a check for all but 25 cents. Got letters for months about them wanting service fees for the reduced balance.
For Christmas, I am planning on giving out a “Frugal Tips” manual. I am compiling info from all sorts of websites and books with shortcuts, frugal tips, and home recipes for all sorts of cleaners. It will cost me only my time, paper, and ink, and I’m hoping it will help my tribal siblings achieve a little more financial independence.
I have already given up the dryer sheets; I can make a bottle of fabric softener last months, if not > year, my a/c gets turned up every day (although I insist on being comfortably cool at night - my sleep is precious), leftovers are the dinner menu at least once a week, and I hang dry my clothes whenever possible. There is so much more I could do, but I have to gradually work it into my lifestyle as I find time. My children, however, are used to delayed gratification. That is probably the best gift I could give them.
#60 BOB42: I am required for to accept random testing as a condition of employment. Welfare receiptiants would sign the same agreement. If they don’t want to sign, OK, no test - no check. If they want welfare, sign the agreement. If I do not want to accept random checks I am free to get another job. If they don’t want random checks they can get a job. My feeling is they have already sold their dignity for a free check so they could look at this as selling their sample.
#64: excellent, too funny
#69 canuk
I’m inclined to agree with you. I’ve had to get more drug tests than I can remember. My concern is that this would turn into a “camel’s nose under teh tent” that would end up being what bob42 is talking about.
#70: One could rationalize that like prisoners, when one choses to live off the taxpayers you agree to give up some rights, don’t want to give them up…get a job. Might not be a bad plan for elected officials. : )
If the welfare recipients are using drugs, why would we care. Again, are we asking the government to put strings on the doles, or just passing out the dole. If you start conditioning the dole on the recipient maintaining certain behavior standards you risk losing his/her vote, and we wouldn’t want that now would we? No, let them stay home with a snoot full and make more welfare recipients and keep that cycle rolling.
Payday advances play a necessary role, providing hard-working people with a reasonable, well-regulated option for meeting unexpected or unbudgeted expenses and other short-term financial needs. The payday advance industry exists because we offer our customers a product that is more desirable than the alternatives. Consider the fees for alternatives to payday loans, a $100 payday advance fee is on average $15; overdraft protection is on average $29; late fee on credit card bill is on average $37; bounced check and NSF/Merchant fee is on average $55.