The 'Democratization of Credit' Is Over -- Now It's Payback Time
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Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#2This: "Most of the credit cards she had were maxed out by 2004. She would sometimes just let the bills pile up and not pay the minimum."
..then this: "Last fall, wanting to buy gifts for her mother and sister and clothes for a young niece, she applied for credit and was rejected at Macy's and Dress Barn, finally getting a card with a $250 limit at the Children's Place." is what's called living beyond your means. Credit != free money.
Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#3This:
"When a utility to which she owed $300 offered to settle for less, Ms. King says, she declined, because she was told an overdue bill takes longer to come off a person's credit report when it is settled for a partial payment."
Probably has something to do with this:
"she lost the shoe-store job in January, and then learned that a prospective new employer had rejected her after running a credit check. Fearing that her credit record would trip her up again and again, she resolved to fix her financial mess." and other bits and pieces like it.
I wonder if this kind of heightened awareness of credit scores, service to help people repair them, using them as a proxy for other things and such invalidates credit scores as a measure of creditworthiness.
What happens if the "market" suddenly loses faith in the idea of credit scores as a measure of default risk?
Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#4This: "Most of the credit cards she had were maxed out by 2004. She would sometimes just let the bills pile up and not pay the minimum." ..then this: "Last fall, wanting to buy gifts for her mother and sister and clothes for a young niece, she applied for credit and was rejected at Macy's and Dress Barn, finally getting a card with a $250 limit at the Children's Place." is what's called living beyond your means. Cred…
We take financial education for granted, but many in the bottom tier have no understanding of monetary management. They jump on the opportunity to spend the money because they lack the simplest comprehension of financial obligation and a balanced budget. This isn't to say their actions are valid, but rather to emphasize the dire need for financial education amongst our youth.
Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#5This: "Most of the credit cards she had were maxed out by 2004. She would sometimes just let the bills pile up and not pay the minimum." ..then this: "Last fall, wanting to buy gifts for her mother and sister and clothes for a young niece, she applied for credit and was rejected at Macy's and Dress Barn, finally getting a card with a $250 limit at the Children's Place." is what's called living beyond your means. Cred…
We take financial education for granted, but many in the bottom tier have no understanding of monetary management. They jump on the opportunity to spend the money because they lack the simplest comprehension of financial obligation and a balanced budget. This isn't to say their actions are valid, but rather to emphasize the dire need for financial education amongst our youth.
I don't think having no understanding of monetary management is strictly a bottom tier problem, the resent financial problems have exposed plenty of people in the middle and upper tiers as well. Lack of money management education is really a problem across the board.
Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#6I mean, really, saying that many people have been living beyond their means is correct.
But one has to wonder why it is that we have all of these people who have been living beyond their means. Is there an element of culture to it?
We are practically beaten to death with the idea that we /must/ spend to be living lives that are worth living. Work stupid hours to get rich so you can spend that money on...?
That's the whole point of YCombinator, isn't it? Start a startup, work really miserably hard, sell it for a bajillion dollars. The subtitle, of course, is that one you make the money your life becomes perfect and you can retire (by 30) to some tropical island ending in a soft consonant.
But think about it a bit, this woman who is 36,000 in debt and persons trying to win the startup lottery are driven by the same set of ideologies.
Her desire to naively spend money on olive garden and a lot of crap that she didn't need was driven by the idea that it would make her happy.
The difference, i suppose being, that she spent money that she will never have, and the entrepreneurs never have the money that they will never spend.
This is some sort of misery cycle, I think... I really don't see how it is that we can (as a society) break it without completely reformatting society.
I don't necessarily think that we should have to live in a utopian dream world where there aren't dumb schmucks who spend themselves into debtor's prison (human stupidity is infinite...), but it seems like the driving force behind everything nowadays is this false God of Consumerism and Market Economy. I don't think that the other opposite is going to be right either. People who do good work should be rewarded, but there must be a happy medium in this obvious insanity.
Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#7Based on a back of the envelope calculations I don't think the article's premise is plausible.
Just take the housing market, for example. Suppose people thought that housing prices would grow at the rate of inflation for the next 10 years... suddenly the prospect of whether to continue making payments on the next 10 years of a 30 year mortgage looks rather stupid. So these homeowners will be inclined to sell, driving prices down and leading to more sales, etc.
The above housing market deflation is precisely what the Fed wishes to avoid, so we can bet that monetary policy will be geared very specifically to prevent it, not just through interest rates, but through other actions that are done specifically to prop up housing prices.
In order to keep housing prices high, cheap credit will need to continue to be available to lower/middle income people...
We're already seeing the idea of "credit as a right" from policymakers... notably in the area of healthcare reform... even conservative economists have advocated things like a "healthcare credit card" issued by the government. Credit card companies are being treated more like providers of public utilities than as private businesses, etc.
All this suggests that credit will be more democratized (and politicized) than ever... it is, I think, the extension of traditional Keynesian economics to include the "time shifting" aspect of credit, but with all the same goals otherwise.
Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#8Earlier quoted context omitted.
We take financial education for granted, but many in the bottom tier have no understanding of monetary management. They jump on the opportunity to spend the money because they lack the simplest comprehension of financial obligation and a balanced budget. This isn't to say their actions are valid, but rather to emphasize the dire need for financial education amongst our youth.
I don't think having no understanding of monetary management is strictly a bottom tier problem, the resent financial problems have exposed plenty of people in the middle and upper tiers as well. Lack of money management education is really a problem across the board.
Having an understanding and making smart decisions don't always go hand in hand. I suspect many people know what they are doing is bad for their financial health but simply don't have the will power to do the right thing in the near term because the adverse consequences only come years down the road.
Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#9This: "Most of the credit cards she had were maxed out by 2004. She would sometimes just let the bills pile up and not pay the minimum." ..then this: "Last fall, wanting to buy gifts for her mother and sister and clothes for a young niece, she applied for credit and was rejected at Macy's and Dress Barn, finally getting a card with a $250 limit at the Children's Place." is what's called living beyond your means. Cred…
We take financial education for granted, but many in the bottom tier have no understanding of monetary management. They jump on the opportunity to spend the money because they lack the simplest comprehension of financial obligation and a balanced budget. This isn't to say their actions are valid, but rather to emphasize the dire need for financial education amongst our youth.
Isn't lack of education across the board a big part of the reason many people are in the "bottom tier" to begin with?
Re: The 'Democratization of Credit' Is Over -- Now It's Payback Time
#10[deleted]