Nobody writes about that, probably because everyone from US thinks it's normal, and nobody from the rest of the world knows about it.
But that system is made to screw all the people who are not good at personal finances.
Or maybe (many) poor people are acting rationally given their economic circumstances.
See ["Reframing the Debate about Payday Lending"](http://libertystreeteconomics.newyorkfed.org/2015/10/reframi...) (a pop summary of ["Interest rate caps and implicit collusion: the case of payday lending"](http://www.inderscience.com/info/inarticle.php?artid=58089), DeYoung & Phillips), or other articles linked [this episode of Freakonomics](http://freakonomics.com/podcast/payday-loans/). These articles are about payday loans, not credit card debt, but (1) some (but not all!) of the same concerns apply; and (2) I suspect much discussion of “poor people” and “credit cards” lumps together these forms of debt anyway.
I've seen other comparisons of payday loans to banking services for low-wealth individuals. (I don't have these at hand. I think Bannerjee & Duflo's _Poor Economics_ may cover some of this.) The banking services and fees that middle-class individuals see aren't available to the poor, so it's easy to draw false conclusions if you're generalizing from your own circumstances instead of studying theirs.
I agree that “the system” is screwing poor people. It's less obvious to me that this is because the poor aren't good at personal finances (let alone that they're “stupid”), and therefore that education would largely address this – although, according to some studies summarizes in the DeYoung & Phillips work, it might make some difference.
- Poor people are stupid
- Poor people are bad at personal finance
- More/better education (government) will help
Did everyone suddenly forget all the un/underemployed college graduates we've got? Are they stupid, too?
Just a shocking lack of empathy here.
I think you'll find the HN consensus is that they're stupid (or were tragically misled) for going to college in a major other than computer science or engineering.
I don't imagine it will continue like this forever, obviously, but the labor market is tight enough that I know multiple people who changed tired for a living, were waitresses, etc and went through a bootcamp and now make a solid living as an engineer. For those who actually have Computer Science degrees, the demand is infinitely higher.
A PhD in English or French culture may make sense, but one must realize that professional opportunities outside academia are sparse and number of positions in academia is small.
The unemployment rate for CS grads in the UK is 10%, one of the highest. It's been up as high as 13% in recent years. The skills shortage is a complete myth designed to lower wages by inflating supply.
Because there's a glut of them.
I said the US credit card system puts people without insight into finances in a serious disadvantage. No sorry, it rips them off. And nobody is talking about it, because it seems everybody thinks it's normal.
Explain your credit score to a European for example, and you will be met with a blank stare or disbelief.
You know when US people use their credit card? Every day. You know when Europeans use their credit card? When abroad. And our credit gets instantly paid by our normal bank account. For us, a credit card is the same as a debit card but with a delay on it.
To me, that's just evidence of how backwards many Europeans are in their approach to credit cards.
You seem to have an attitude that credit cards are inherently evil. They're just tools, which can be misused (and put you into debt) or used for maximum convenience (accruing rewards and protections along the way).
I challenge you to explain why the easy availability of credit and a highly functional credit market is a bad thing instead of throwing out blanket statements like that credit scores are "crazy."
In Europe, fees are limited to far below that, and the European debit cards are limited to below 1% in fees.
You don't get rewards from credit cards in that situation. In fact, credit cards always end up losing you money.
Credit cards are the tragedy of the commons - if no one used them, everyone would profit. But as long as some use them, everyone gets an advantage from using them.
> I challenge you to explain why the easy availability of credit and a highly functional credit market is a bad thing instead of throwing out blanket statements like that credit scores are "crazy."
Because it is risk. You have insanely high interest rates, high fees, you have a massive risk, and the security is basically nonexistent.
To pay money online, you usually use a standardized API that uses proper cryptography, and signs with a key embedded in your device or your debit card on a reader.
With a credit card, you pay with a simple number that anyone can just steal, and if you don't take care, you're fucked.
You seem to deeply understand credit cards. There is practically no risk to using them. As a consumer, your fraud liability is zero and entirely shifted to the merchant.
Of course you should pay off the bill every month. I never pay interest, rewards more than cover any fees I pay (I average 4-5% return on credit card spend), and I really don't know what risk you're talking about.
If you have one with chip+PIN, as all in Europe, 100% of liability is with the customer.
So you have to check the statement every month, go through a lengthy process to appeal false charges, and end up not getting your money back either. Especially as you have to deal with your bank to get the money back instead of the CC company here, and the bank has a far easier process for reversing debit transfers than CC bills.
Thankfully I don't have chip and pin, yet another reason I actually vastly prefer the American system to European.
You seem to just be providing examples of why the European system is worse for consumers, not proving in any way why it's better.
You don't want CCs either. CCs solve security by having someone simply pay for every time a fuckup happens, instead of using cryptography to prevent them in the first place.
> In Europe, fees are limited to
> far below that, and the
> European debit cards are
> limited to below 1% in fees.
In the end, I always find the costs are broadly similar in the EU and the US.
Debit cards have much the same protections as credit cards in much of Europe. It's more likely that any benefits your bank wants to give you will come attached to your bank account (in return for depositing a certain amount of money per month) than that they'll push a credit card on you. Interchange fees are low enough (0.3% for credit cards and 0.2% for debit) that there's not much they can profitably provide, anyway - which means our prices aren't quite so inflated to cover the expense of serving credit card users.
Credit cards aren't bad, but the system of incentives that leads consumers in the US to believe they're the most rational choice is.
This sort of thing affects poor people more than it affects people who are eligible for a credit card with a good rewards program in the first place. I'm sure you really don't care that your potatoes are 2-3% higher in price than they otherwise would be.
i'm sure there are some people are responsible enough to never incur a finance charge from a credit card by always paying their monthly balance. I've never actually met one of those people. I used to say I was one of those people, but in reality if you had asked to look at my statement history I would have been embarrassed by how many times I ended up paying interest charges for things I probably shouldn't have purchased in the first place.
Two years ago my wife and I cut up our credit cards, closed those accounts and never looked back. Initially that change hurt my brain and went against everything I thought I knew was normal. It was one one of the best financial decisions we ever made.
Hi, I'm one of those people. Nice to meet you!
We use our (no fee) credit card for everything we can and pay it off at the end of the month. Initially we did this to allow as much of our own money, for the longest possible time to sit in our mortgage. We've never paid a cent in charges, fees or penalties.
You can save incredible amounts over the years just by shifting the time at which your money sits where.
Correct, credit card companies take a fee on the transaction, which is in turn baked into the prices of all consumer goods.
To pay the normal price with something other than a credit card is to miss out on what you're already paying for.
Yes. CC companies make money on every transaction (google keyword: interchange fee).
I am also one of those people that pays off my balance every month. In fact, I use an Amex charge card that is designed to be paid off every month.
If not using/having credit cards is what works for your family, more power to you. But don't assume just because I use a CC for my purchases I'm in debt or foolish. In fact there's a whole subculture of making money off of credit card offers (see /r/churning).
I don't think people are foolish for having credit cards. And certainly hope that my comment didn't paint credit cards or cardholders as evil.
I think there people like me, who grew up thinking that having a credit card payment was just how things worked. And if you wanted to splurge on something you could just put it on the credit card and pay it all off come tax return time. (Trust me I know how ridiculous this sounds, but this is what I learned growing up. I still see my friends and family continuing this insanity).
I did a quick Google search to make sure I wasn't completely off base here. According to the American Bankers Association Credit Card Market Monitor May 2016 report [http://www.aba.com/Press/Documents/ABA2016Q2CreditCardMonito...] 42.1% of Americans are Revolvers (carry a balance and pay interest) and 29.7% of Americans are Transactors who pay their bill in full each month.
This thread is about getting outside of the tech bubble. I consider myself to be blessed having grown up in a low income bubble, it was very humbling. I also consider myself even more blessed to be trending towards the tech bubble. These two bubbles are very different and I was trying to provide some context to that difference. Hopefully this helped provide a different perspective.
This is a really bizarre assertion: my bubble is such that I've literally never met someone (that I'm aware of, just as with your claim) who _doesn't_ pay their credit cards off in full each month. Hell, I don't think I've ever done anything but set auto-pay for my credit cards, and would turn it off on the rare occasion that I decided to use it as it was intended, as a liquidity buffer. (The difference between us being that I'm not narrow-minded enough to assume that this tells me something about credit cards in general as a product).
> Two years ago my wife and I cut up our credit cards, closed those accounts and never looked back. Initially that change hurt my brain and went against everything I thought I knew was normal. It was one one of the best financial decisions we ever made.
If you were having so much trouble, why not just use auto-pay from your bank account? I don't really understand this urge to universalize your inability to use credit responsibly to somehow claim that credit cards in general are a net negative. I don't mean "irresponsible" as an insult here: I don't keep desserts in the house because having to go out and get dessert when I want it is the most effective way for me to maintain my healthy diet in the face of my one dietary willpower weak spot (a wicked sweet tooth). But I don't justify my weakness by claiming that we'd be better of if dessert never existed[1].
[1] To be clear, I'm aware that the modern role sugar plays in most people's diet is unhealthy: I eat (non-fruit) sweets about once a week and I'm pretty happy with that level of consumption. To me, desserts are a delightful part of life, if you're adult enough to use them responsibly (excluding those unfortunate enough to have severely bad dietary habits from childhood: the deck is stacked against them physiologically).
I'm probably halfway in between the working class and the tech bubble. In fact I grew up near the poverty line. I have a lot of lower class "technical debt" that I am still working to replace. Most recently my wife and were replacing the non-existent financial skills that my parents and public education system imparted to me. All of that to be said, it's no wonder we have polarized experiences with credit cards.
I did a quick Google search to make sure I wasn't completely off base here. According to the American Bankers Association Credit Card Market Monitor May 2016 report [http://www.aba.com/Press/Documents/ABA2016Q2CreditCardMonito...] 42.1% of Americans are Revolvers (carry a balance and pay interest) and 29.7% of Americans are Transactors who pay their bill in full each month.
I'm not insulted because we we're absolutely being irresponsible with our finances. We didn't have a budget to flow, we we're not saving money for future purchases, and we were very much not in control of where our money was going.
> But I don't justify my weakness by claiming that we'd be better of if dessert never existed[1].
I don't think I was suggesting that credit cards should never exist or that they are evil. I was trying to contrast the fact that even when 29.7% of people are benefiting from 1% - 4% cash back, that 42.1% are not. And that the companies who offer these products are in fact making money on them. Because people like me we're going into debt using them. And in my case, I was buying crap I didn't need and really shouldn't have bought because I truly couldn't afford it. Otherwise I would have always paid my balance in full at the end of the month.
That's one hell of a bubble. Almost no one does this. Source: worked customer service for an issuer for 18 months, ~150 calls/day, saw a broad cross-section of the customer base, and it was a rare day in which I talked to a monthly PIF.
Not so incidentally, that experience is also the reason why I so assiduously avoid revolving credit. If you're comfortably upper-middle-class or higher and assured of enough liquidity to cover whatever balance you choose to carry, it's a game you can play and win. If you're not, you're subsidizing those who are, not least because you're ineligible for the low-rate, high-credit-line points card products that monthly PIFs tend to qualify for.
And even if you're in the former category, it's still a hell of a risk to take, because if anything happens that negatively affects your liquidity in a significant way, you're suddenly a lot more screwed than you would be if you hadn't been using credit the way you were. A few times, I dealt with people who had found themselves in just that hole. There were worse kinds of calls to take, but not all that many.
I am also in the “don’t know (many) people who do anything other than autopay in their credit cards” bubble.
I’m aware that many people struggle with credit cards, but they’re not in my social circles.
Yea... That's why I went out of my way to call it a bubble. The point of mentioning my bubble was that "I've never met anyone who doesn't carry a cc balance" isn't a sound basis for to making a claim about all credit card usage the way the parent comment was.
> even if you're in the former category, it's still a hell of a risk to take, because if anything happens that negatively affects your liquidity in a significant way, you're suddenly a lot more screwed than you would be if you hadn't been using credit the way you were.
I'm pretty sure you're messing up your math here. How could the addition of liquidity (plus deferment of payment by 30+ days) at zero cost possibly be making me more screwed, in the event of a serious liquidity crunch?
...until today!
Hi! I'm "magnetic" - nice to meet you!
It's not as uncommon as you think: many tools allow you to not miss payments nowadays, from email/SMS/push notification reminders to automatic payments.
If you have the money to afford what you buy on the CC, there is really no reason you should be paying any fees, unless you are sloppy with finances.
I believe you when you say you're hit with charges, but I also think you are the reason for it. Sorry! (nothing personal)
To acknowledge your point, I was definitely the reason for the interest charges. As I mentioned in other comments in this thread: growing up my parents didn't teach me much in the way of handling money responsibly. It took me almost 10 years of being an adult before I realized that I wasn't managing my money, but it was managing me.
Before two years ago I never created a monthly budget and stuck to it. The typical month looked like me spending way too much money in the first half of the month. Which led me to constantly checking my account balance in the second half of the month. When my checking account would start to get below about $200 I would shift spending over to my credit card. Next month I usually tried to pay it off. Sometimes I didn't and even worse sometimes it would take me a few months.
Its exhausting when I look back at all of the financial drama I dealt with until recently. Mostly because I never planned how my money was going to be spent with a monthly budget, but also because I bought stuff that I didn't need and couldn't afford.
The point I was trying to make with my original comment was: More people are likely to carry a balance on their credit cards than those who pay it off on time every month. I'm fairly certain the bubble I grew up in skewed my perception that everyone carried a balance on their credit cards. I knew people who said they paid it off every month, but when I asked them to be 100% accurate with that statement, they always backpedaled. At least I know of one person "magnetic" who actually pays their bill on time every month.
I am not so sure I know the answer to that, but I've had to "live on my own" at 16 as my parents were living abroad and I was living by myself in an apartment while going to high school. They'd give me a monthly "budget" and I had to manage the money to deal with life expenses. Perhaps this helped.
One thing I always strived for was to not purchase something unless I could afford it cash. I couldn't do it for my house so it was the only thing I really got a loan for, and even that I worked really hard to pay it off faster than the required schedule (which isn't necessarily a smart thing to do financially speaking, but it has a "peace of mind" value to me that is worth it).
The other thing that helped is that I'm not extravagant with purchases and - except for the times when I had a mortgage to worry about - my income would usually be high enough that I wouldn't have to go through mental gymnastics to figure out whether I should worry about the end of month.
So I developed a mechanical "pay the credit card in full at the end of the month" process, and that was it. The rest would go to savings, and once the savings had enough (a few months worth of living expenses), the overflow would go into more risky investments (like stocks, etc).
I don't like automated payment systems so I avoid anything that gives automated access to my money to a third party, but I do like reminders for bills, and most online banking systems will provide reminders to you in due time and let you pay your stuff online easily.
I also try to keep the amount of accounts to a minimum: I have very few credit cards and bank accounts. It simplifies the management of money.
Lastly, I am from Europe, and the credit card madness isn't something I was exposed to when I grew up, so when I came to the US I didn't feel like I needed a CC. It was hard to get one in the beginning anyways, since I didn't have any credit history.
I live in Spain, and I've seen a similar situation in other countries except in Germany.
"Trust me on this one folks, raisin oats are not a major purchase. ...and you're holding up the f*cking line, too!" (talking about people paying with CCs on a queue in a retail store)
"Nobody should be paying a bank 18% of interest for Tic-Tacs."
Not sure how accurate he was but IMO your parent commenter was expressing a sentiment that is relevant to these quotes.
In my country paying with a CC or a debit card is at least a 2 minutes dance and it gets awfully annoying for everybody on the queue.
One of the reasons why several months ago I moved on to buy stuff from local smaller stores that offer delivery at home and allow me make the order from their website -- no phone involved. And I am investing in local businesses, too, so it's a double win.
Back on topic, why exactly is paying with cash slower than with a CC? Very curious.
Paying cash requires either the customer or the cashier to count out correct change, which generally takes longer than the above. Hand-writing a check takes even longer, though maybe partly because it is mostly elderly people doing it these days, and they tend to perform all activities more slowly (not that they can help it or that there's anything wrong with it).
*Small businesses sometimes still have older credit card machines that are a bit slower, but the number of these I encounter is fewer and fewer.
Not happening in my country. The general attitude one could extract from the glacial pace of upgrading around here is "well, it works right? why would we spend money on touching anything?". This, in addition to pretty experienced and fast cashiers leaves me with the opposite impression you described.
Back to Carlin's quote -- are the CCs really working against your interests (pun half-intended)? I heard about the mythical 18% extra on small purchases several times. Is that actually true? Are you actually gonna get $1.18 off of your CC if you buy something for $1.00?
I personally see the incentives to borrow a hell of a lot of money to buy a house or a college education as much bigger issue.
https://www.economist.com/news/economic-and-financial-indica... : Household debt to personal income, 2012; the United States is below the OECD average and very much below some northern European countries.
https://data.oecd.org/hha/household-debt.htm France and Germany seem to be the only major economies much lower than the US in household debt, and the US deleveraged after 2008; it is now in the same ballpark.
http://www.businessinsider.com/eurostat-data-on-household-de... That's a hell of a URL, and the pictures are funny.
https://data.oecd.org/hha/household-net-worth.htm#indicator-... On the other hand, if you look at household net worth as a percent of disposable income, the US looks better than any OECD country except for Japan, Belgium, and The Netherlands.
Now, this is household debt, which includes mortgages as well as consumer debt. I haven't found any data that separates out the latter.
A European may not be familiar with a credit score, but they're more than a little familiar with credit.
Yeah, I'm not sure "good at" is the right framing. It's an arms race between asymmetric competitors. When exploiters have much more time and money to hone their exploitation, I don't think the problem is really with the exploited person.
Personal finance is rarely offered and never mandatory, yet we collectively bare the burden of financial ignorance. The same applies to other subjects like statistics or civics.
The American high-risk model on the other hand is definitely one that isn't long-term sustainable, but it wins out in short term, until another crash happens.
2/3rds of state legislatures are actively hostile to basic tenets of science, let alone the government teaching "effective American citizenship".
We just recently legalized malpractice for financial advisors. The rules preventing them from screwing their clients out of their retirement savings were spun as hurting consumer choice. Imagine how it'd be spun if there was a movement for public schools to teach "effective citizenship".
Do you have reference?
[1] https://www.forbes.com/sites/jamiehopkins/2017/02/03/trump-s...
What is your credit score? If you are from US, you probably know. If you are from somewhere else, you are probably staring at your screen saying "what???".
Shops giving out their own credit cards... crazy.
It's not that you can't do it, but that trading potential future earnings for money now is so damned practical that it's hard to ignore.
American society is setup to find someone, anyone to pin a problem on, even if it would ruin that person, just to ensure that "everyone" doesn't have to think or worry about it existing. It is writ large a tragedy of the commons, where everyone thinks the specific wrong they experience is unAmerican but everything else is a failure of rugged individualism and bootstraps.
Those levels of debt are unsustainable on a macro level. Some bank somewhere won't get paid. Then we'll have 2008 all over again.