11/21/97

Account Overdrawn

The number of Americans filing personal bankruptcies last year surged past one million for the first time. There were 1,242,700 bankruptcy filings last year. The majority were personal propery liquidations or Chapter 13 filings, which provide a shield while debtors and creditors work out repayment plans from available income. -- Associated Press, March 5, 1997

These figures are especially puzzling in today’s low inflation, low unemployment economy which has also produced greater disposable income from a high-flying stock market. Furthermore, one of the consumer’s biggest ticket items, the cost of financing a home, has actually declined in many parts of the country, due to reductions in mortgage interest rates. Why, then, are so many households going belly-up?

Because credit is easier to get than a sunburn. You don’t even have to go out the front door for it.

Banks, department stores, and other companies repeatedly offer free credit by mail or phone to everyone on their mailing lists. Despite warnings from us, each of our teen-aged children fell prey to special credit card offers, which required no credit check, no current earnings and no adult signature. They intended to use their "plastic" sparingly, for the convenience of paying for midnight pizza delivery to their dorms, concert tickets or mail-order clothing. Charges expanded, however, to include long-distance telephone calls and airline tickets.

When our daughter got her first credit card bill for over $300.00 she nearly fainted! She wisely cut her card into tiny pieces (and got a part-time job). Our son charged past the credit limit on one card and promptly accepted another one, before he wised up and grabbed the scissors. It took him several months to get out of debt.

Bankruptcy no longer carries the social stigma it once did. Insolvent computer sophisticates can even file the papers over the Internet! But make no mistake about it. Once in bankruptcy, it takes ten years or more to reestablish credit. Some people are never able to clear their records.
It should be illegal to grant credit to poor credit risks, such as dependent students whose parents are footing the bills, the unemployed, and those who are already deeply in debt. Furthermore, the law should require those companies which continue to issue credit to high risk customers, to cover the debt themselves when bills aren't paid. Such a financial penalty would stop this practice immediately.

Society as a whole bears some responsibility to educate and socialize its young. Children are impulsive by nature; they want what they want when they want it. It takes maturity gained from experience to learn how to earn, save and budget money.

To the greedy credit card companies, I say, "Stop selling irresponsibility to our kids! Stop encouraging people to buy on impulse and pay for it for the rest of their lives!"
It's a lot easier to treat a sunburn.

Please send questions or comments to bbruno@snet.net.