Online installment loans have taken the subprime market by storm
bloomberg.com
bloomberg.com
But for MOST people, the cost of fixing it is functionally infinite. They literally do not have even a few hundred dollars to, for instance, replace a tire.
Yeah, the interest on these is predatory, but then what are these lenders supposed to do? Many of the people getting these loans WILL default on them. Yes it would be great to offer these loans at a reasonable interest rate, but they are unsecured loans. The only collateral is the clients credit score.
It’s easy for all of us with our comfy tech jobs to hate on these, but to me that feels like kicking the poor while they are already down. Yeah, they know the loan is bad. They probably don’t have any other options.
Instead we should be looking at ways to make it so that giant unpredicted expenses don’t happen at all. That means cheaper transportation options, cheaper access to healthcare or preventitive care, predictive diagnostics, etc.
It helps nobody to point out how foolish the poor are.
Or maybe fix it from the other end: reduce inequality so fewer people are living paycheck to paycheck and can actually build savings to use for unpredicted expenses.
I like seeing electric bicycle shares, I like seeing community-based, high density housing with shared kitchens and bathrooms, I like predictive diagnostics and telemedicine (although the FDA is fighting it).
Much better than making people dependent on those who control the mechanisms for allegedly limiting unexpected expenses; that's just a plan for increasing social control available to elites. High density housing with shared kitchens and bathrooms sounds like a dystopian hellhole designed to strip people of their dignity, and that's something you think is a good thing? We already saw tenement buildings in the 19th century.
We didn't even have the minimum wage 100 years ago in the United States. How are you going to deride people for not offering solutions, then, when they offer viable solutions, attempt to magically will-away history?
These ideas aren’t new. The idea of taxing the wealth even more is ALSO not new, and we already have tried it and had it fail. (France has tried this, as well as other European countries, with usually disastrous results).
Even if you could magically trap all of them in the US and wealth tax them away, it’s a meaningless drop in the bucket. Seize all of the money from everyone with 50 million+ in the US and you don’t even have enough to pay for Medicare for all.
You can argue about taking down the rich (they have too much power, your jealous, etc), but don’t for a second pretend you’re doing it to uplift the poor.
And what mechanism do you propose? Just a 100% tax on any gain over X%? Do you realize how easy it would be to then just sell at that threshold and invest in something else?
[1] https://en.wikipedia.org/wiki/Land_reforms_by_country
[2] https://en.wikipedia.org/wiki/List_of_nationalizations_by_co...
Net worth is not the same as resource allocation. This isn't the 1500s where you could plunder a castle and pillage their stores of grain. Bezo's net worth has very little to do with the distribution of housing, food, and medical care to poor people.
Does he consume more housing, food, and medical care than average? Absolutely. Are his consumption levels even remotely similar to his absurd net worth? Absolutely not.
But I wouldn't scale this up. I would lose more money and wouldn't be benefiting any existing relationships by doing so. The social benefit of the few dollars lost does not scale, and thus the reasoning behind existing unsecured microloans to friends does not scale.
Look at how society works in countries that are better than your own at this. What is the fundamental differences in politics, media climate, labor market laws, health insurance education. Then vote for a politician or party that tries to improve things in that direction.
I don't think there are technological quick fixes. The solution to "people live paycheck to paycheck" I think is e.g. improving employment security by e.g. not having healthcare tied to employment which keeps people in low paying jobs. Ensuring everyone can organize so employers pay more, and so on.
* strengthen union membership (union jobs pay an average of 13% better for the same work, and that's with union membership at an all-time low in the US), * reduce the ability of money-holding industries like these people to extract so much (like what Elizabeth Warren's CFPB has been doing, even with current meddling from the administration), * contain costs for the most expensive things in American life (health care -- some sort of universal coverage plan, and education -- student debt forgiveness and cheaper education options), * raising the minimum wage (which, had it tracked productivity in the US and not left unchanged since the 90s, would now be something like $20 an hour)
that's off the top of my head.
Andrew Yang has his "freedom dividend" which, the more you get into the weeds, the less of a benefit it'll seem to have, but that's even another idea.
These are all ideas floated in opposition to the current administration, which wants to weaken unions, keeps fiddling with even the shitty Obamacare to take health care back to the bad old days, and so on.
So, people are talking about it, and have plans drawn on what other countries are doing more successfully -- no real reason they wouldn't work here, except for the historical baggage and pulling-up-the-ladder that dominates US political discourse.
In soviet russia, kommunalki host you (https://en.m.wikipedia.org/wiki/Communal_apartment)
Your argument is that no one should have a conversation unless they have an action plan.
> I like seeing electric bicycle shares, I like seeing community-based, high density housing with shared kitchens and bathrooms, I like predictive diagnostics and telemedicine (although the FDA is fighting it).
These are all solutions for companies to make money from problems that could be solved by government-provided healthcare, better public transit, and subsidized housing (not just projects).
Additionally, there are many middle class folks making well above average that still live paycheck to paycheck by living beyond their means (huge house, multiple cars, etc).
Poor money management != poor and more money does not fix it.
> Yeah, they know the loan is bad. They probably don’t have any other options.
I think it’s a pretty poor assumption to assume all the people taking out these loans understand exactly what they’re getting into, and what other options they may have. I think there should be a mandatory 20 minute education session for anyone taking out a payday loan/installment loan.
I've re-read that sentence several times now and each time it makes more sense. I'm not sure how it could be deployed in practice, but the notion that before you do this there's some level of attainable, reasonable education you have to absorb first would be useful.
A 10 minute lesson before signing up for a loan that explains exactly how it works in a simplified format might make up for the systemic lack of financial education throughout formalised schooling. Might. Would certainly be interesting to see it happen/interested in helping it happen.
I explained to him about 0% credit cards and how, since he'd never defaulted on a loan, he would be certain to get one.
He used his new card to clear his existing debts and has been paying off the balance over the past 12 months (he has 18 months and could move to another 0% easily enough, if need be).
He really didn't believe a bank would give him so much free credit since nobody had ever told him so.
The good news is that he has now filed a complaint against the original lender and is likely to be refunded most of the interest paid over the years plus statutory interest of 8% p/a while he waits. It's going to be around £9,000
Why? Because he was unemployed all that time and they shouldn't have been lending to him.
There are a whole lot of people who _should_ be able to afford an unexpected car repair bill, and could quite easily do so, if they weren't spending $100 a month on cable TV, $800 every other year on a high-end smartphone, $500/month on owning an SUV when a $200/mo economy car would serve just fine, etc., and put the money into a basic rainy day fund instead.
And a middle and working class that was just a little bit more frugal might create some downward pressure on prices that would, in turn, alleviate what less wealthy people need to pay on just the basics.
given that the average American spends 4 hours/day watching TV[1], that's well under $1 per hour of entertainment. There aren't a lot of hobbies or entertainment media that are cheaper.
1: https://www.statista.com/statistics/186833/average-televisio...
It isn't like television/video is some kind of necessity for life.
Going to the library takes a whole hell of a lot more time and work than turning on your TV.
Let's assume we devote 70% of the 1TB cap to streaming (netflix, youtube, etc.). This leaves 300GB for anything else, which be more than enough. Using netfilx's highest bitrate for 1080p, we get 268 hours of content for 700 GB. At the highest bitrate for 720p, we get 518 hours of content. Dividing that by 30 days, we get 8.9 and 17.3 hours per day for 1080p and 720p respectively. 8.9 hours split among two screens (one for kids and one for adults) might be tight if they don't have anything else to do, but 17.3 hours sounds more than enough if the kids are in school and the adults are employed full-time.
I download and seed hundreds of GB's a month of torrents and run a couple cryptocurrency nodes in a household of 4 where everyone uses youtube, netflix, and spotify often and we've broken 1TB once in a decade..
What I'm saying is YMMV. I bet you'd see different results if one or two of your housemates turned on 4K on youtube/netflix.
Just focusing on TV, for starters there's free TV over the air. There's YouTube and Amazon Prime Video and Netflix and CuriosityStream and Hulu and whatever your local state-supported TV network is putting online for free, there's DVDs from your public library, etc. etc. No, these options won't let you catch the latest Game of Thrones episode as soon as it airs, but they'll keep you entertained.
If you really want to get nitty-gritty about it, there is at least an interesting thought experiment you can run where someone who's both living paycheck to paycheck and paying for a sizable cable TV package has, intentionally or not, chosen, say, ESPN over financial solvency. Because that cable TV bill could be converted into a steadily growing rainy day fund.
Books, sports, art, music, are all way cheaper forms of entertaining oneself.
Most hobbies or entertainment don't have a charge per hour.
Books can be free if borrowed from a library - but ownership has an ‘hourly cost’
Mind sports like chess have an insanely low hourly cost, but regular sports that involve consumables like trainers have an hourly cost.
Music is free if you sing, but otherwise involves buying and maintaining an instrument. Strings, for example are consumables.
Even the library has a cost, but it is generally much much lower if you have good access to a library.
Costs:
- Instruments & accessories (serious guitar players often have at least one acoustic and one electric - and good quality ones are going to be at least $500, but could go way higher. Other accessories: at least a metronome and tuner, potentially also some pedals, amps, drum machine, etc)
- Renting/owning/traveling to a practice space if playing in a group
- Educational material: Lessons, Books, sheet music, music apps
- Recording / mixing equipment
Sure you can get a used acoustic guitar and watch youtube videos to learn it - but I don't know many people who do that and stick to it.
The real up-side though, is that decent musical gear doesn't lose a ton of value over time unless it gets broken or stolen. Also, if you're not professional, you can pace out your purchases.
My personal collection grew over 10 years, and is just for amateur use, jamming with friends mostly. I've got a couple guitars, bass, keyboard, 2 banjos, amps and mics. When I add up everything I've spent, it was probably 2/3 the cost of 10 years of $100/mo cable. I wasted a decent portion of that cost on a few other instruments I never played and ending up giving away as gifts to friends though.
Movies is like $25 an hour, though skipping concessions and going to a cheaper theater can bring it down to under $10 an hour.
A short video game (assuming full price release day) is like $7 an hour. (Cost is higher if you play games less because the upfront cost of the system is split over fewer games).
A long video game is goes from $2 an hour to $.50 an hour, and can go much cheaper for games you enjoy for extremely long times.
Books for me are around $2 to $.50 an hour ($20 book that last 10 hours to a $10 book that lasts as long). Libraries make all of this much much cheaper if you have one.
I actually read a lot of web novels/fan fiction which are generally free and thus my only cost is for the internet access that I'm paying for anyways.
Sports can be a lot harder to measure because there is a large variance in the costs depending on numerous factors, but I would assume they aren't that much cheaper (though generally much healthier for you).
I find art, especially for anything that is above crayola level brand, is quite a bit more expensive. So for kids it is cheap, but for adults who spend any serious amount of time in it, the costs go up pretty fast.
So in comparison, $1 an hour for TV isn't bad, but it is filled with ads. So many ads I personally refrain from TV.
Also, I know a lot of people argue that watching TV can maybe relieve stress in some way, or allow them to "wind down" after a "long day" at "work", but I'm not sure you need to wind down for four hours (not saying you are saying that).
Do a little back of the napkin budget on $4,200/month (GENEROUS) take-home pay in say, Fremont, California.
You run out of money real, real quick.
If a person can't make ends meet on that kind of money in Fremont, that probably says more about Fremont than it does about anything else.
EDIT: The median personal income for all workers (including part-time), is of course much lower, more like 2700.
But it doesn't make that much sense to compare the national median income with a high CoL area, where you also expect higher salaries.
https://en.wikipedia.org/wiki/Personal_income_in_the_United_...
Secondly, you're right - it should actually take more than half of your take home pay.
Saving is opposite of spending, when a lot of people spend less, they'll also earn less, some more disproportionately, this cycle continues until its a great depression.
You can start from a high saving society to a high spending society and enjoy years of boom, or you can jump of a cliff - 70% of US economy is consumer spending, as in, most everyone's salary is supported by that. You can't save when you are jobless.
While it seems like common logic to someone that has the ability to live cheaply and save money, the more important thing is someone emotional response in this situation - that person actually feels good about saving. Something like this is not intrinsic to human development, and is usually acquired through the persons upbringing.
So when a person that makes little money decides to buy a high end smartphone, its not because they are doing it out of stupidity, they are doing it because they need to feel the same positive emotion that the former person feels. And as long as they can get by day to day, they are not incentivized to make any changes.
The discussion to enact change needs to start with answering this question - how do you effectively "reprogram" someone to value delayed gratification over immediate gratification?
I'd also add teaching financial literacy/strategy in school. A lot of mistakes could be avoided. I learned the hard way and it took a long time to dig myself out. There's a lot that would've been very useful to have known earlier.
If we don't, we should. Especially now that we're all responsible for our own retirement. With nearly every job I've held in the last 20 years, I've been one of the "financial geeks" to ask questions of, and it is astounding the amount of ignorance we collectively have and yet are supposed to understand the shit that gets thrown at us by our 401K plans. I don't blame the individuals for their ignorance, hell, I make a hobby of this stuff and I'm still lost sometimes. But don't just thrown 'em into the deep end, have a class or two in high school because everyone is going to have to deal with some aspect of finances.
As for most financial topics, I don't have much of a mind for it, so I would greatly benefit from a teacher. I need to be taught it, it's very difficult for me to teach myself finance. So I've simply erred on the side of heavily saving so at the very least I have a year or two of buffer.
And we wonder why so many americans live in poverty. Yeah the system is far from perfect, but I think basic classes in high school would be a great start to the problem, and could change the issue of generational poverty.
You say that, but, in a year or two when your rent has gone up so far that you have to move, you're looking at awful credit. Then how do you get into an apartment where they do credit checks and they see you've got awful credit. Those apartments will either charge an arm and a leg in security deposits, or deny you.
The difference was that I saved money to have savings for the sake of having a financial buffer rather than saving for something that I wanted to buy. Don't live beyond your means, it's that simple. These loans are targeted at middle class Americans, not the poor and starving. They should be able to save.
I am often surprised how people whose income is the same or greater than mine live in stress, because each extra euro of income is immediately translated into an extra euro of consumption, and there is no reserve for a rainy day.
However, I am not surprised when the same thing happens to people with incomes much smaller than mine. Sometimes I am instead surprised how these people manage to survive at all. (Well, obviously, if I'd ever got in the same situation, I would probably gradually learn a few tricks I don't know today.)
When I played video games (especially RPGs), I always ended the game with a mountain of unused resources at my disposal. I rarely used items, cash, etc, unless the ROI was plainly evident. Many of my friends would just burn through cash / items as soon as they had them, and were often in a bind during tough battles / situations. I wonder if this followed us into life.
I tend to be a saver, and have always lived below my means. Many of my friends struggle to make ends meet, regardless of their salaries.
So, I'm curious. Do / did you play video games? If so, did you end the games with a huge pile of cash, or did you burn through it as you went?
What's the connection there you're implying [1]? I would think that the higher (capacity to) save is an artifact of peer pressure/ecosystem effects. If a frugal person is still expected to have a big house, or else be seen as weird, that imposes a constraint that forces a lower savings rate than they prefer.
It's a hard Gordian knot to cut, but once everyone expects normal people to pay a certain expense, you can get stuck in that kind of bad equilibrium.
[1] between "some people always burn through everything" and "people in some poor countries have higher savings rates than in rich countries"
This really resonated with me. As a child I use to eat my food "in order", saving the best part for last. Now I'm thinking about all the instances where I've delayed gratication in my life. I've always saved money at an above average rate but never really made this connection before.
I read elsewhere theorizing, that kids from more secure backgrounds will delay more likely as the delay has been rewarded in the past. Whereas, if every dinner is fighting over scraps, they will probably take the initial marshmallow
https://www.theguardian.com/education/2018/jun/01/famed-impu...
The thing is - in both video games and life, this is not always a good thing. In Starcraft, if you've banked over 1K minerals you are doing something seriously wrong; if you look at pro games, they rarely have more than a couple hundred minerals stored up, because they have a strategy that they're continuously executing and it involves burning minerals to convert into more minerals. Similarly, if I'd been willing to run with zero cash cushion, spending everything I made and locking myself into the corporate treadmill, I'd be a homeowner and have a net worth about 50% higher than I currently do. Optionality & security have a price; you trade efficiency for it, and it comes out of the standard of living you can maintain.
I think people just have a certain set point for the amount of risk they're willing to run, and it's probably partially genetic and partially from watching how your parents react to risk and internalizing that.
Though perhaps the Sims or tycoon games suggest otherwise. I was always running broke in those.
I like playing real time RTS games and if I'm not spending everything (i.e have a lot of villagers and spend resources) it means I'm not optimizing enough. In real life, that is sort of where I am now.
At the same time, I don't do well with money, I eat out too much, drink too much, make impulsive purchases (mostly gifts and hobby related things, but still) and generally do not watch my budget very carefully.
I don't think video game experience translates very well into real life. In a game, going through tough fights without using any healing or other expendables feels like an extra challenge, going through life without going out for beers or a diner date or without wasting a couple of hundred bucks on a fancy VST plugin or a cute RC toy for some friend's kid does not feel that way.
I think games are too different than life. Having saves changes a lot; e.g. I can refrain from using a powerful healing item in a fight and try to micro or luck my way out instead, because if I fail, I can reload and try again. I've noticed that in roguelikes, I'm more likely to use items - those games are harder and have permadeath. Also, in modern games I'm also more eager to use collected items, because the experience these days is so streamlined that I can rely on the game to provide me another powerful item just in time.
Life, unfortunately, doesn't have saves, and is not balanced.
On the other hand, some (most?) people NEED lots of money to be happy. Their nerve systems are just low-efficiency in terms of how it is capable of converting a chunk of money into happiness.
I know you think it's mostly middle class but I grew up in dirt poor white ghettos and I could write a book on how many people make this mistake. Surviving sucks.
Many have similar social lives, I think it boils down to perception and realizing what it's really like to go broke. Most people who don't come from means know the emotional / mental value of not freaking out about money constantly, while those who come from money or just spend like there's no tomorrow seem to feel like buying out to their ego's delight will lead to a life they want. It's bizarre to watch. Some of my friends think it's normal to have $40k+ in credit card debt or $80k+ in student loans and still have a $100 gym membership and blow money like crazy. Again, bizarre to watch.
People are buying Peloton bikes, exotic vacations, and luxury purses, and hoping to pay that debt off in installment plans.
I worry about when enough people hit the tipping point where their monthly minimums on deeply depreciated goods are too much to be able to make.
The phone I'm typing on now was financed through symphony credit. Zero interest, and 36 monthly installments. I'm sure there are penalties if I don't pay every month, but it's on auto pay.
I’m guessing this was probably an arrangement between Peloton and Affirm to where the former paid some fee to the latter, and all of that is absorbed as marketing overhead just to get more people buying bikes.
That kind of loan is nothing new. My parents were buying furniture on zero-interest installment plans decades ago. They offer zero-interest financing as an incentive to buy.
The article is about installment plans replacing high interest payday loans, which is a whole other game.
See the pitch for the already mentioned Affirm: https://www.affirm.com/
Over here in the UK, the main culprit is a company called Bright House. They sell new household electronics and other goods on credit at around 70% to 100% APR.
They exploit the rush you get when you buy something shiny and new. For a lot of their customers, it is the only way to kit out the house with new appliances and furniture. The ability to do that gives their customers a false sense of achievement and secuirity which is exactly what these lenders exploit.
America’s Middle Class Is Addicted to a New Kind of Credit
I think in the case of the middle class, it's not really about survival, it's about living below/at/beyond your means, and whether these loans are doing too good a job of masking the real costs.
It's saved me a lot of money in interest and has been of great value to me.
It also caused my credit score to shoot up over 100 points because I didn't have such high balances on my cards anymore.
I would hardly consider it predatory. I for one am glad they exist.
Now, my first thought was good! They are so predatory. But what the report talked about was that in that case, these people still need the same amount of money and instead turn to loan sharks and organized crime which put them in an even worse position. At least with a payday loan, there is bankruptcy courts to protect them and no one is physically harming them or their families. I hope I never end up this desperate but it is a more complicated situation than it first appears.
The old adage is true, being poor is expensive. This is largely driven by transportation issues. They can't get to the wholesale club or save enough to buy in bulk. Instead they buy toilet paper one $3 roll at a time at the local CVS or bodega.
When you see a 100% interest rate loan (assuming no fees) then it basically means that banks lose 50% of the money they loan out and 50% of borrowers are paying their loan on time and have to cover the other 50% by paying twice as much.
Resources include anything by Dave Ramsey (including possibly used books, DVDs, audio CDs on amazon: we bought some of these for ourselves, and to loan or give to children and others; no other affiliation), or free full BYU personal finance courses online at: https://personalfinance.byu.edu/ (I have not personally reviewed but some relatives have taken the actual classes and recommended this link.)
There are also some free in-person training programs in at least 2-3 cities, with a collaboration between my church and the NAACP, and related material online (not mine but very good), at https://providentliving.churchofjesuschrist.org/?lang=eng such as, specifially, https://www.churchofjesuschrist.org/study/manual/gospel-topi... .
(Maybe I should add those notes/links to my web site, for more easily referring people... Edit: The above, combining freedom + chances to learn responsibility, is far better IMO than letting the federal government run more of our lives, badly, and without giving a choice what to do with those $. I have written more on that at http://lukecall.net under Other then Politics or such. ) (Edit: fixed a couple of links.)
An emergency fund is very important, but most people in poverty live in the red perpetually. There is never extra cash to save up. Any extra money is swiftly gobbled up by debtors who wait indefinitely for any money to show.
Which is actually one reason you will see some poor people make seemingly ridiculous purchases as soon as they get money. They know from experience that any extra cash on hand will get taken by creditors as soon as they detect it. So they spend it. At least, if you buy something of value, you can pawn it for cash later when you need it.
It's a terrible cycle.
And there is more at my web site. I have spent a great deal of time thinking about all these things, and writing. I have learned some things for myself.
(edit: a correction: the "development counseling" appears to be for Church members. The "immigrant services" and many other things like those online materials, classes done with the NAACP are not limited to Church members: https://providentliving.churchofjesuschrist.org/immigrant-se... . Etc.)
And I agree, the poverty cycle is of course not inescapable. But boy is it a lot harder than I think those of us who have always been more fortunate think it is.
Also, did your parents ever ask you for money? Because that is also a very frequent thing in poverty. Very needy parents that will be asking for, even expecting money the minute you have a little bit.
(Edit: Actually, my parents still live frugally so they can help other people. I don't recall eating in a restaurant until I was a teenager on a date (though it probably happened, just very rarely); we had a garden which supplemented our food budget for a large family, television was not a key part of the lifestyle but chores were (it seemed my dad was always working some helpful task for the family, except on Sundays), we often bought clothes secondhand, and we knew we were loved. The advice I have given above and below in various parts of this discussion is what we did, and I never, ever felt deprived. Food was generally homemade (cold cereal only on Sundays; Mom learned to cook mostly after marriage, but they both learned very well IMO--I salivate as I think about it), we ate a lot of wheat and beans (but not only), some bought in bulk to save. And we were very blessed, again, praying daily as a family and trying to do what we knew we should. There are people who can help with individual situations, and much good advice at the sites I have linked. But the blessings of God are what I credit the most, by far. Again, more (skimmable), at lukecall.net, a simple site with no sales or javascript.)
(We were/are far from perfect, and yes life has big challenges, but we definitely are trying, and we know what direction we should be pointed in. There is peace, direction, and connection with God available to those who want it enough to act and keep trying. My email contact is on that web site for further questions; am happy to try to answer. The more I think of it all the more I am grateful.)
At some point they just lost hope. I can't blame them for racking up debt if the system lets them continue. It sounds better to continually pay off debt and enjoy life instead of to continually pay off debt and not enjoy it.
(Truly, we do not need to be alone, or give up. I have been thru many things that ... leave me grateful now. So I hope this can be useful to someone....)
There are people who can help, with guidance, and in other ways. One list (many resources): http://lukecall.net/e-9223372036854601245.html . Another (having the Church as help in life): http://lukecall.net/e-9223372036854581807.html . Another: extended family. Another (general life lessons and resources found, including overcoming addictions, but much more): http://lukecall.net/e-9223372036854592298.html . Another (pray): http://lukecall.net/e-9223372036854585359.html . I have learned by long and much-repeated personal experience (the easy way and the hard way) that prayer makes a huge difference, if we are willing to do our part and be obedient to God when we know what we should be doing: http://lukecall.net/e-9223372036854580889.html . And how I learned that: http://lukecall.net/e-9223372036854587400.html . More resources (better than the above stuff): https://providentliving.churchofjesuschrist.org/?lang=eng
Wishing the best for everyone in tough circumstances (which seems to be all of us at one time or another)!
(edits: minor fixes, add the providentliving.org url.)
Very few of them actually need to. It is possible at any income level to spend less money than you make. People don't tend to make those choices though and unfortunately prices reflect this - for a lot of things, especially housing, prices rise to whatever people will pay – if everyone is willing to pay so much for housing that they can't save much at all, well the price of housing raises so everybody does that.
You can choose to not live paycheck to paycheck but it means making different choices about where you live, how you entertain yourself, and how you acquire things. This is applicable at the highest and lowest income levels.
People should be thinking that in order to afford a car they likewise need to be able to afford its repairs, but instead of buying a cheaper car and saving some for eventual repairs or maintenance, people just consider the acquisition cost and buy their max.
I am among these people despite a tech job in the bay area I live mostly paycheck to paycheck as a result of several choices I've made, and I don't necessarily regret all of them but at the same time the situation definitely frustrates me.
Really what we need is a culture of saving, but a part of me feels that many people in our culture find that extremely difficult because billions of dollars are spend every year on propaganda designed to try to get us to spend more (read: advertising).
I'd say "most people" save a lot for retirement and their first house buy, "most people" live way below their salary max, "most people" would slap you for considering a consumer loan.
What happened to you guys to go so deep in the hellhole to not even see it's madness to live that way...
This classical macroeconomic principle does not work any more [0]. Today inflation is not directly related to central bank actions.
[0] https://www.economist.com/special-report/2019/10/10/inflatio...
That is, central bank actions' effects are being hidden by complexity that will take time to shake out. Interest rates and bailouts and the like are only affecting a certain tier of society and it will take a while for those waves to spread to the rest of us.
[0]http://www.shadowstats.com/alternate_data/inflation-charts
[1]https://www.businessinsider.com/if-people-knew-the-actual-in...
[2]https://www.investopedia.com/articles/07/consumerpriceindex....
One factor is Americans have significantly higher disposable income and can service more debt.
https://data.oecd.org/hha/household-debt.htm#indicator-chart
My anecdata certainly doesn't back this up, so I'm going make you cite.
Most of the people I know who are in trouble are generally there due to medical costs. If we had universal healthcare in the US, I would be more receptive to your statement.
"Our results also do not support the hypothesis that financial strain by itself wors- ens the quality of decision-making. Even though there are substantial differences in financial resources before and after payday for our samples of poor US households, we find no evidence that the quality of their decision-making, or being prone to heuristic judgments differs across the before-payday and after-payday groups."
Unless their income literally increased by the amount of the loan cost, just before the additional expense hit them, the situation was avoidable. The fact is a lot of people on low incomes do not see any benefit from savings and don’t prioritise it.
That might be for rational reasons, their life circumstances are different from mine, but I don’t understand the logic. A branch of my family are significantly less wealthy than mine. When my uncle, the main breadwinner retired, his sons blew a big chunk of the retirement lump sum on luxury holidays for their families, of the sort my branch of the family would never consider. I think one of them has a mortgage and the others rent. It’s just bizzare. So many decisions they make in their lives seem actively self harming, but they do have jobs and support their families. They’re by no means destitute, but seem to actively avoid choices that could improve their lives. There’s something going on and I don’t know what it is. Maybe a lack of hope, leading to living in the moment? I don’t know.
It's a survey of about 10,000 people and, as far as I can tell, is the source for many claims like "40% of American adults cannot meet an unexpected $400 expense". That statistic in particular is consistent for the past few years.
There are also many other interesting statistics:
* 17% of adults are not able to pay all of their current month's bills in full
* 20% of adults had major unexpected medical bills in the last year
* Among young adults, hispanic people are twice as likely to attend for-profit colleges than white people, and black people are five times as likely
* Half of those who attended for-profit schools would change their choice if they could; a quarter of those who attend other schools would
Seems like addressing the costs of medical care and education would go a very long way.
[1] https://www.federalreserve.gov/publications/files/2018-repor...
Student loans are forever.
You can make a (somewhat legitimate) argument that we shouldn't require young kids to major in subjects that result in good paying jobs, but on the other hand you wind up with the mess that we are in if you don't.
The status quo cannot go on. I'm in favor of either fully privatizing the system again, OR fully socializing it. In either case, the government would absolutely not be backing loans anymore.
Do you mean buying out all of the universities?
PS: I come from Europe, studied in the UK when the tuition was capped at £3K/year.
People get private loans for bullshit degrees all of the time. Lenders don't care, because private student loans are non-dischargeable.
Maybe we could try to actually tackle things like medical costs so people aren't getting so deeply into debt to begin with.
I fail to see how this is worse than current predatory loan scenarios.
That's a strange assertion, considering there are dischargeable government loans, and private student loans cannot be discharged.
A better solution is to allow discharge of private debt so that lenders put more effort into validating debtors. If a creditor want to get money back from a debtor, they need to put the effort in to validate that the debtor has sufficient assets to pay it back and isn't paycheck-to-paycheck buying highly depreciating products.
If you need to buy a house or a car on credit, you can. For almost anything else, you don't need credit unless you have an (usually illiquid) asset to back it -- a slowly-depreciating asset like a house or car, or a steady job. If you want a loan for a business, the creditor is on the hook for your default. Perhaps they'll insist on keeping your funds under trustee in escrow so you don't waste your loan on a luxury car and WeWork.
And while we're at it, term-limits on secured loans that cannot extend much beyond the depreciation of the loan-enabled purchased.
There's no reason that non-dischargable debt has to be arbitrarily easy to obtain.
That this has not received more attention is troubling -- debtors prisons are illegal, and this is de facto creating a debtors prison. And that is often the only legal test required. That no one who can change the situation cares is indicative of societal rot.
But I don't have statistics on default rate or anything of that sort.
The problem is the default rate.
Example: An investor issues loans for $100k at $1k each. He charges the legal 30% interest to make $30k profit / return on his money. However, 30-40% of the borrowers default and these are unsecured loans. He makes 0% return. He stops offering these loans and now these people don’t have the access to these credit facilities.
This is a big claim to make. Do you have some data to back it up?
Just want to point out the fact that US government-backed student loans are non-dischargeable through bankruptcy. You will have that albatross around your neck until you pay it off or die. This is the ultimate predatory loan and it's provided by the government.
I just wonder what a viable business model would be for quality personal financial education or resources.
https://www.khanacademy.org/college-careers-more/personal-fi...
*well qualified applicants only...
Would you even consider a $3,000 loan at 25%? That's what's going on with these companies.
Of course the way the feedback cycle of the economy is set up, if you don't get into trouble with debt, someone else will.
Still a lot better than a subprime installment loan, but a 3% fee is not a 3% APR.
A 10,000 3% loan over the course of one year equal payments has $147.00 interest. A 3% transfer has $300, but your balance in month 12 will be 8846, which is like $80 back in interest if you save those what would be monthly payments until the end. Under this math, a 3% balance transfer is equivalent to 4.5% APR one year loan.
Or, if "somewhere high interest" refers to the stock market, then you risk not being able to pay back the loan in a year.
What I am saying is, is that IF you are taking a balance transfer, to accurately compare it to a traditional, monthly compounded loan, you need to account for the minimum payment differences (the balance transfer will be 5x-10x lower) and then calculate the interest that extra cash not paid back to the loan can net you.
I am making a counter argument to the claim that a 3% balance transfer is equal to a 5.5% apr loan, i think its closer to 4.5% if managed wisely. Its closer to 50% higher, not double.
How are you getting those numbers? I used an online APR calculator and for 12 months, the APR is 3.057%, nowhere near 5.5% you claim.
https://www.calculator.net/apr-calculator.html?cloanamount=1...
However most major banks (with some exceptions) do not report business cards to the credit bureaus unless you're in default, so it's possible to carry large balances without any impact to your credit.
1. If I default on my credit card debt it will screw up my credit but the banks can't come after any of my assets. If you default on a mortgage it will screw up your credit and the bank will take your home.
2. I am free to take on the level of risk that I'm comfortable with, including risk free options such as treasuries or CDs. With a mortgage you are locked in.
3. I am free to mitigate my risk by diversifying across asset classes. I can put some money in gold, some in real estate, some in Japanese equities, etc...
With a mortgage you are leveraging a huge chunk of money and concentrating it in a single undiversified holding. If a disaster strikes and the insurance company doesn't cover it your wealth is wiped out. If property values decline and you need to move you're wiped out.
By every measure owning a home is riskier.
Note (some of the investment trusts stock in own do )
The biggest downside vs a traditional installment loan is that having high utilization on a revolving credit line like a credit card has a much bigger negative impact to your credit score than having an equivalent balance on installment.
I'm banking (no pun intended) on a strong economy which makes banks happy to lend out free money. as soon as the economy sours I'm gonna be hard pressed to find anyone offering this. Truthfully I could pay it off now, but why should I?
It is the dark side of the internet.
We need to work to build communities where people are not as vulnerable to this type of scarcity.
For more information on this topic see the book: Scarcity: The New Science of Having Less and How It Defines Our Lives
Also - loan origination/servicing costs have a nominal floor - it costs the same to originate/service a $50 loan as a $500 or $5000 one, necessitating what would appear to be a abnormally large interest rates.
Let's say 150% APR is exactly the break-even rate for this kind of loans to high-risk borrowers, would you say a company writing 150% APR loans is predatory?
Obviously it is an atrocious interest rate. But what is the alternative? Unless the government or non-profits step in the make loans at a loss (or hey, direct cash transfers) to the poor, the alternative is no access to credit at all, which is strictly worse.
This smells of The Copenhagen Interpretation of Ethics to me:
"The Copenhagen Interpretation of Ethics says that when you observe or interact with a problem in any way, you can be blamed for it. At the very least, you are to blame for not doing more. Even if you don’t make the problem worse, even if you make it slightly better, the ethical burden of the problem falls on you as soon as you observe it. In particular, if you interact with a problem and benefit from it, you are a complete monster."
https://blog.jaibot.com/the-copenhagen-interpretation-of-eth...
Any interest on a loan is, by definition, predatory. How are they working on addressing this issue?
This topic is ultimately just a symptom. Focus on the larger economic design (eg rent treadmill) that precludes most everyone from saving a positive amount of wealth, rather than their needing to take on debt for emergencies.
If you are broke file bankruptcy and reset your life. Quit trying to steal tax dollars
Unregulated healthcare is silly since people dont have a choice about their health ( not discussing the food choices )
People do have a choice about borrowing money.
Right now government-subsidised healtcare works because keeping yourself healthy simply can not be externalised to the government. But what if I could spend the beat of my years being a coke-snorting socialite hoping to meet someone at one of those parties who would make my life?
20-year alcoholic? Let us grow you a liver for the total of $2M of taxpayer’s money.
They are either discharged of their debt or able to protect a house thru a payment plan.
It's a good option in crushing debt, but it's not without significant mid-term downsides.
Not everyone's way behind at the time they declare bankruptcy, either. We did it because six figures worth of medical debt was ceasing to be juggleable, and disability approval (and back pay) looked to be years out still. Credit score was largely fine at the time we filed.
When you say the government should bail out individuals, you're saying that I should pay for someone's gambling addiction, someone's lack of effort in finding a job after graduating from university with $150K in loans, someone's inability to manage their credit cards.
It's one thing to help people who are in need, something else entirely to help people who are in a bad place because of their own poor decisions.