Credit cards are the crack cocaine of the financial world
In an article that appeared today in the Financial Post, it was suggested that “poor people” as they called them do not spend money. Nothing can be further from the truth.
Specifically, and referencing my August 21st, 2010 post below, credit card debt is at a staggering level in which low income earners are the biggest users.
Here is an excerpt from my article that speaks to this directly;
“What is even more interesting given Dixon’s observation that “without an adequate income, low earners continue to turn to credit cards without the means to pay off their balances,” thereby creating what she referred to as “a vicious cycle” that prevents them from ever getting ahead, is the fact that banks continue to issue credit cards under these circumstances. Perhaps the banks need to check themselves into rehab as well, as a means of breaking their addiction to the money earned off the backs of consumer debt.”
In short this is not a unilateral or one way play, but instead is a dance between wanton consumerism which leads to spending beyond one’s means and, the greed of financial institutions to capitalize through charging high rates to low income earners. The addict and pusher relationship comes to mind here.
Or to put it another way, the rich stick it to the poor by capitalizing on what I refer to as the working poor (including middle class) propensity to spend beyond their means. And no, the majority of people who use credit cards are not using it to pay the hydro or put food on the table either . . .
It may be no shock that 94% of Canadians would feel better if they had a nest egg. But did you know that nearly 40% of Canadians are living paycheque to paycheque? As Scotiabank’s Saving Ambassador, award-winning television broadcaster Valerie Pringle is traveling across Canada to talk to Canadians about ‘saving’.
With catchy tag-lines such as “you’re richer than you think” Scotia Bank is now leveraging Canadian television news personality Valerie Pringle to tell us that we are also “dumber than we know.” (Note: see Larry Winget video at the end of this post.)
Okay, so maybe we are not so dumb, as Pringle even states in her video interview (click image above to view), that this program is “not here to judge,” but to help Canadians achieve “financial health.” But the real question is simply this, how did we get into poor financial health in the first place?
Perhaps one hint can be found in a December 31st, 2004 article by Susan C. Walker in FoxNews.com which was ominously titled “U.S. Consumer Credit Card Debt May Crash Economy.”
Referencing sources such as the New York Times, Walker indicated that the use of credit had taken off dramatically in the United States since 1990, with the number of people holding credit cards growing by 75% or from 82 million in 1990 to 144 million in 2003. But here is the real shocking statistic . . . the amount people charged during that same period grew approximately 350 percent, from $338 billion to $1.5 trillion.
And that’s only credit cards continued Walker, revealing that the average U.S. household owes mortgage debt, student loans and automobile loans, in addition to credit card debt. Hmmm . . . but to whom is this money owed?
The Canadian data paints an equally bleak picture.
Under the January 13th, 2010 headline “Canadians’ credit card debt jumps $2 billion,” Melanie Dixon writes that the “working poor are being plunged even deeper into debt by the credit cards they’re turning to in order to pay for the necessities of life.” Of course according to Dixon, it is the “low-income earners” that are the most “lucrative type of cardholders for credit card companies.” Talk about a feudal system capitalizing on the plight of the unwashed masses.
Herein of course lies the rub (and the irony) as they say regarding the Scotiabank infomercials. Specifically, and like the proverbial drug pusher, banks have played a seductive role in our becoming financial addicts through easy access to credit and questionable loan practices. But why?
As Walker also so adeptly pointed out in the December article, with “pretax profits for the credit card companies” having grown 360 percent between 1990 to 2003, and fee revenues an equally astounding 250 percent, do you think they (being the U.S. credit card companies or the banks behind them) want to “close that spigot voluntarily?”
Now without a doubt, the Canadian banking system is one of the best in the world. So while we were willing partners in this tango of fiscal irresponsibility, by employing the services of a well-known TV personality as a Saving Ambassador, the campaign is tantamount to the local drug pusher driving the addict to rehab.
Especially when the banks response to the recent data which show that Canadians with bills “more than 90 days overdue have increased by 53 per cent between September 2008 and September 2009, to $3.6 billion,” is to substantially increase interest rates for those who don’t pay in a timely manner.
What is even more interesting given Dixon’s observation that “without an adequate income, low earners continue to turn to credit cards without the means to pay off their balances,” thereby creating what she referred to as “a vicious cycle” that prevents them from ever getting ahead, is the fact that banks continue to issue credit cards under these circumstances. Perhaps the banks need to check themselves into rehab as well, as a means of breaking their addiction to the money earned off the backs of consumer debt.
Maybe a tangible goodwill gesture on the part of the bank would be to return a small portion of their staggering credit card profits to their Canadian cardholders as a way to jump start the process?! Now that would be news!
Larry Winget’s Big Spender – Why Are You So Mean
Use the following link to tune in to the on-demand PI Window on Business broadcast “The Failings of Institutional Advisers and How You Can Grab The Bull by the Horns!” featuring Larry Winget and Cenk Uygur