Should a nation that runs on plastic have a credit-card bill of $6 trillion?

The Outlook

March 02, 1997|By Bill Atkinson

THE CONSUMER Federation of America, a Washington-based consumer advocacy group, released a study last week that found that Americans charged over $1 trillion on credit cards last year.

Nearly one-third of the debt is being paid off in installments. It also estimated that Americans carry an average balance of $6,000.

Are American living dangerously? Who is at fault for these high debt levels? Should the credit card companies be blamed, or it is reckless consumer spending?

William "Tim" Keating

Financial counselor, Rockville.

I blame the system. The system doesn't educate us properly about money and yet we have Ph.D.s and MBAs driving the mechanism to get us to borrow money. It is difficult for the consumer to compete.

It's great marketing, and total lack of consumer education about money and specifically debt. Consequently, consumers get sucked in to making minimum payments. What that does in the consumer's mind is it allows them to meet the minimum. Consequently, the debt builds and builds and builds. It is extremely dangerous.

Say a consumer's credit card debt is approaching 10 to 15 percent of their monthly budget, and then you factor in their mortgage at 28 percent, and another 8 to 10 percent for an automobile. What happens now is we don't have money to fund our retirement plan, we don't have money to fund $130 a month for a child's education, we don't have six months in reserves. Now we have a consumer that has to charge to eat. Of course, the supermarkets are very accommodating; they take credit.

Thomas Grzymala

President, Alexandria Financial Associates, Alexandria, Va.

Credit cards are too easy to get.

In the 1970s people had a difficult time getting credit, now it's credit cards by the basket load. There should be some record of fiscal responsibility before someone gets a credit card. I think that is up to the credit card companies, but who owns the credit card companies? America. Buy shares in MBNA, a marvelous company, or Advanta, a wonderful company making oodles of money.

We see the baby boomers pouring money by the barrel full into the stock market. There is unrealistic expectations in the marketplace. As a result, people will borrow more money because money comes from heaven. Unfortunately, liquidity is the name of the game, and as we get very low interest rates people are going to borrow and borrow and borrow.

I think the young people, the 20- and 30-year-olds, are more aware of not having any credit card debt vis-a-vis the baby-boom generation. They have enjoyed all of the luxuries.

James Chessen

Chief economist, American Bankers Association, Washington, D.C.

It is the banking industry's job to provide credit, and do it in a way that makes sense for their customer. Customers have to have some responsibility in managing their finances. Customers have to decide, can I buy that coat? Can I go out to dinner?

It is always easy to blame someone else.

There is no question that banks and consumers need to be responsible and need to be cautious. There is no question that both sides play an important role.

Certainly, banks are concerned about rising delinquencies and bankruptcies. Banks don't want to put money in the hands of individuals who cannot handle it. It doesn't do them any good. It creates losses and it doesn't help the customers at all.

Just looking at credit cards, about 3 percent of individuals are delinquent in meeting their credit card obligations. Certainly, that is a concern. On the other hand, 97 percent of individuals are meeting their obligations and deserve to have credit.

One of the misnomers that comes out of CFA is that it is the low-income individuals who are suffering greatly from this. Experience has shown that delinquencies and bankruptcies seem to be across all income levels. Many affluent individuals are having difficulty meeting their obligations.

Stephen Brobeck

Executive director, Consumer Federation of America, Washington, D.C.

Consumers who run up high credit card debts clearly must accept some responsibility for their actions. After all, no one forced them to accept and use the plastic.

But the principal reason for the rapid run-up in these debts in the 1990s is one of the most extensive and aggressive marketing campaigns in the history of our country. Each year, credit card issuers have mailed out more than 2 billion solicitations, more than 20 per household, and have initiated countless telephone solicitations. These issuers would not spend billions annually on this marketing if it were not effective.

Especially disturbing to us is that some credit card issuers have increasingly targeted households who are least able to handle large debts.

Pub Date: 3/02/97

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