By The Prophet of Life
Alarming economic statistics have come out recently detailing how the majority of American households have less money saved than credit card debt. Many of these households are headed by people in their peak earning years from 30-64 years of age. There is also a new phrase coined to capture this alarming trend: Stagnant Household Incomes. I believe that this trend is not limited to within the borders of the United States but extends into many other nations. If you are from another nation and if, after reading this article, you notice this trend in your nation as well, please leave a comment and let us know.
Those families with stagnant household incomes still have dreams but those dreams are deferred. They are unable to get ahead in life. A significant part of their paychecks go to paying down credit card debt. Although many of their incomes have not risen over the past seven years, inflation has crept up as regular monthly bills, gas, food, utilities and other regular purchases necessary to carry on the business of living, now consume a much larger percent of their income.
Families with stagnant household incomes don’t have savings because they don’t have anything left over to save. Their solution to the emergencies in life that eventually hit all of us is to go deeper into credit card debt. They pay more to carry that credit card debt because people with high income to debt ratios pay more for credit than people who aren’t as dependent on credit cards. Many of these families pay an average of 18-23% on most of their credit cards and some cards may be as high as 32%! Interest rates that high all but insure that the bill will never be paid off.
It wasn’t always this way. The 1940’s saw the invention of the charge card. A charge card is a card which the user charged a meal on and paid in full at the end of the month. Then in the 1950’s came the revolving charge card for larger purchases. A revolving charge card allowed the user to pay part of the charge but let the rest revolve over a period of months until, little by little, it was paid off. This morphed into the credit card in the 1960’s. A credit card allowed the user to pay the debt in full or carry some or most of it in exchange for paying a small interest rate. The interest rate was capped at 5%. Millions of Americans became addicted to credit.
In the 1970’s then U.S. president Jimmy Carter, in an effort to get Americans to quit their credit card addiction cold turkey, allowed the raising of credit card interest rates, under the assumption that people would rather pay off their bills and curb their credit card usage than pay exorbitant interest rates. It didn’t work. America got rid of indentured servitude in the 1800’s but it is back with a vengeance today as millions of Americans are indentured to credit card companies.
Economists are now worried. Credit card companies and the banks that own them have made record profits off of consumers. These same consumers, however are not buying as much as they used to. When businesses have fewer customers, they order fewer inventories. They lay off workers. The factories that make and companies that transport the things businesses sell lay off workers. All of these layoffs push more and more households into stagnant, or even worse, non existent incomes. The household consumer, the engine of all economies sputters to a halt. In time what began as a stagnant household income become a stagnant national economy and then, a stagnant world economy.
We could be looking at another global economic meltdown. This vicious cycle can be stopped. The suggestions / proposed solutions I am going to make here are specific to America but if, in fact Stagnant Household Incomes are a trend in your nation, consider them as a starting point to begin the conversation on how your nation will create a solution specific to your nation’s particular needs..
I believe it will take Government action. First, develop national objectives for saving money and limiting credit card usage. Then, pay incentives for educational institutions that offer courses which teach consumers how to follow the objectives. Finally, offer a large tax incentive for all consumers who take approved classes. This will work in the long run.
To solve the problem in the short term, pass laws which lower the amount of interest credit card companies can charge consumers and processing fees they can charge businesses and increased the amount they must pay for savings. Make policy changes in Fair Isaac, which drastically reduce credit scores for consumers whose income to debt ratio is more than 30% of annual income (for other than home financing & homeowner repairs / maintenance) which should be excluded. Laws and policy changes such as these will discourage borrowing and encourage saving.
Granted, these proposed solutions may seem harsh. Those who are against Government interference in The People’s Right to go into indentured servitude will be against it as will banks and credit card companies. Without education and government assistance, America and perhaps even the world could be headed for a global economic meltdown.
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