Because we're not talking about an individual, we're talking about an aggregate choice of many individuals who run up credit card bills and don't save. THAT trend is dangerous for the middle class, and by extension, our society.

So, are you proposing that we somehow get the government involved to regulate the personal financial decisions of the US populace?

P.S. We are talking about individuals. People do not make their financial decisions as a collective. Just because there are multiple individuals making the same bad decision does not make it a group choice.

I have proposed nothing.

We already "regulate" personal finance decisions for nearly every person in this country. The tax code is probably the most influential piece of law written, and it encourages people to buy a house, have kids, save for college, save for retirement, acquire student debt if necessary, etc.

P.S. -- aggregate: A total considered with reference to its constituent parts; a gross amount.

I made no reference to a group choice.

It is important because the government writes policy to encourage or discourage certain behavior. For istance, the tax code encourages homeownership and charitable deductions.

The tax code inadvertently encourages taking out home equity lines of credit to pay for things people buy with credit cards. It encourages buying individual stocks because they appreciate tax-defered and you pay only capital gains on theprofits when you sell. The code discourages savings because you have to save with after-tax dollars and then pay tax on the interest or dividends that come from the savings.

Societal trends don't exist in a vacuum. They happen because there's something driving them. Sometimes something bad happens long enough that the government should take a look at changing a policy in response. Perhaps this is one of those times, perhaps not. That's what the debate is about. But we should probably have that debate before the only available policy change is bankruptcy reform.

Wludavid:

So, you are saying we should be concerned about this as a nation but do nothing about it?

Or are you suggesting tax breaks for those who do not have credit card debt? I'm confused.

What other carrot do we need? If you run up credit card bills, you end up in debt, unable to gain credit, living paycheck to paycheck and never get anywhere financially.

On the other hand, if you manage your finances responsibly you can move up the ladder in this country, buy a house, invest in the market and retire.

Sounds like a no brainer to me.

Why does our country feel the need to regulate the poor individual choices of others?

P.S. Savings accounts are a horrible investment vehicle. They should be used for emergency funds only. The market is much more efficient and profitable if you have a reasonable time horizon (i.e. not 5 years from retirement).

Because it is now not acceptable to allow someone else to fail and society (read you and me) are expected to pick up the bill.

once that person running up the credit card meets the end of the road and can't dish out the min payment to keep the wolves away, what do they do? Favorite tactic was go bankrupt. You really think that the credit card co's (or any business) willingly eat that unpaid dept? Not a chance. They pass it right on to those that have good ethics to pay for in any way they can. If they can't get it from us, they go looking to the gov for coverage.

In the end, it does effect all the rest of us.

Sounds like the problem is the idea that we are not allowed to have people reap the results of their personal choices. Is the answer really more government regulation?

:eek::eek::eek:

I just wanted to point out that the world is about to end. I personally am taking the rest of the day off, buying a lottery ticket, and going to kiss my wife.....

That is all.

:D :p

Exactly so. I agree completely. We need LESS ways for people to get out of their own messes.

Less government involvement and more education about finance included in secondary schooling.

Moneyguy has the one solution I would support here. Educate kids in high school about personal finance and how to avoid debt.

Some of you guys throw around the term "assets" when talking about rich and poor. Are you using the definition correctly? Assets=Liability + Equity. Equity = Net Worth. Assets are what you owe and what you own. But your still right, the top 10% control a huge amount of the country's wealth. The top 10% also pay most of the income taxes. Poor people don't even pay enough taxes to support the schools, police, fire, trash collection, etc. that they avail themselves off. In fact, the middle class, for the most part, doesn't pay their "fair share" either.

Hugh is absolutely correct. Though I make a lot less than most of you guys, I'm not poor....but.....I don't pay any income tax to speak of either. Two kids, a home office and a bunch of mortgage interest and I'm out the door for a couple percent or less.

Tax cuts for the rich indeed:rolleyes: The rich are the only ones paying any tax.

I think modern marketing and media have much to do with it.

That are just TOO effective.

Causes people to buy a bunch of crap they don't need, then updated crap to replace the previous crap.

I don't think it's as much an income problem as an expenditure problem.

Rick,
I don't think that these are individual decisions. The pervasive nature of advertising is where to lay the blame. Instead of a nation of producers, the US has become a nation of consumers, which is great for companies, but not for the nation. People have become conditioned to think that they should own huge homes, drive cars that are not less than 2 years old and buy the latest gadgets. It is high school (look I'm in the "in" group) to the Nth degree. Because of the frenetic attempts by the majority of this population to out-buy their neighbors, eventually the economy will come crashing down. Why? Look at the trade deficit and how much is owed to China. They don't care if you didn't buy much on credit. When they call in the debt your US dollars won't be worth the paper they are printed on.

Haha

I went back and looked, by golly you're right.

the, you got there faster than I oculd tpey without correction:D

I remember the 80s and the Conspicuous Consumption and consumerism then. In the 90s we looked back and thought it was crazy.

The last few year, though, make the 80s look like Amish living.

that just means that people are too stupid for their own good. I thought that the dorito's commercial was pretty funny last night. I do not think that if i eat doritos, a really hot girl is going to like me. Using common sense and delaying gratification til you can afford it will keep you out of debt.

I am a have-not.

I guess I'd never really argue that people aren't too stupid for their own good, but in semi-defense of people, I think we are in a time where media has advanced a bit faster than people can keep up.

Technology has allowed media to be everywhere. Everyone has 100 commercial TV stations. There are TV screen with ads at the gas pumps. Everywhere.

And, marketing techniques have become more sophisticated and effective, too.

Also, a lot has to do with trends and fashion. The 80s were about designer labels, glamour and conspicuous consumption. By the 90's, people grew tired of that, the pendulum swung the other way and it was about grunge and "anti-labels." No 25-40 y.o (prime demographic) would have been caught dead wearing huge black sunglasses with giant gold designer labels down the side in 1993.

By the 2000s, it swung the other way again, and here in 2007, I think the pendulum is at a peak and getting ready to start swinging back the other way. People do get "consumer fatigue," which leads to a change in trends. Plus, there are a lot of things in the economy that will force the change, too (like the negative savings rate the last few years, the end of the "Home as ATM," etc.)

doing some basic algebra with your equations and we can conclude:

Net Worth = Assets - Liabilities.

haha! very funny. we can agree on some topics and disagree on others.

after all, we're not politicians here, who take sides no matter what.

SmileWavy

Art, while I agree that the marketing machine has perfected its craft, I'm not sure what you think should be done about it. Corporations exist to make money, pure and simple. It is their job to make as much money as possible for their shareholders. That means advertising. Just because they are good at it is not a reason to relieve the overindulgent consumer of blame.

Where is the self control in this country?? I want a new Porsche, but I don't run out and buy one...

Exactly, if you've taken a basic accounting class that is one of the first things they teach you. Don't confuse assets with net worth, they're not the same, but the press doesn't seem to understand this. Case in point.. A credit union advertises that it has assets of 2 billion dollars. They usually have most of it loaned out (minus some minimum governement retention) that means they have about 1 billion in deposits and about (but not quite) 1 billion in loans, hence assets of 2 billion. Not arguing the overall concept of the thread, just make sure when you talk about "assets" you know what your talking about. Ask any CPA if you don't believe me.

C'mon Rick, you get bombarded by something constantly, and it becomes part of your lexicon. Don't tell me you don't believe that kids that play violent videogames are more desensitized than those who don't. You keep getting hit with images of excess, and they do become part of you. Look at these silly shows like the wives of the OC or whatever.

As for the PLAN...Hmmm, I didn't actually state a plan, brainstorming...

1. No tax breaks for interest on home mortgages above a certain level (actually kind of happening with the AMT)

2. Tighten up the financing laws, and interest rates (obviously this may cause a recession) - essentially making it harder for poor risk people to get any credit.

3. Tax the heck out of imports (also could cause a recession).

4. Tax the advertising industry separately.:D

5. Eliminate income taxes and go with a pure VAT.

6. They've already eliminated some stuff like bankruptcy to avoid debt.

7. Force manufacturers to deal with recycling their products which become trash - I'm thinking electronics here, not guns.

The problem with all this stuff, unfortunately, is that it flies in the face of the current valuation system. A company is valued for more sales, almost more so, than its profit margin. America/stock market is still stuck on more # = better rather more quality = better.

I'm sure the anarchists among us will love the above ideas.

Let's put some numbers on this, then.

According to the Census Bureau, there are approximately 110 million households.

Additionally, the Census Bureau states that total household financial assets for 2005 is $38 trillion (includes stocks, bonds, pension funds, etc), and total household liabilities is $11.9 trillion for 2005.

The numbers are from 2007 Statistical Abstract: Census Bureau

Let's calculate the numbers based on the claim:
Therefore, the top 1% (1.1 million households) have total assets of $11.4 trillion and total debt of $0.833 trillion. The bottom 50% of households (55 million households) have $2.28 trillion in assets and $2.86 trillion in debt.

If the statistics represent truth, then the middle class is like the dinosaurs a few years before extinction. This may not be a bunch of lazy, stupid people making stupid choices in life. Generally, half the nation's households are financially upside down.

In case you were wondering, I'm not offering solutions. I'm just whining.:p

It doesnt necessarily mean that they are lazy, but it leans pretty heavily towards being stupid. If you don't realize that you arent making good financial decisions by putting yourself into significant debt just so you can have a 50" plasma instead of that 42", then you are not smart.

My grandparents are a prime example of this. In the 70's my grandpa was making over 200K a year. Today, I am 18 and I have more money in the bank than he does. They just bought every thing in sight. When my dad was 16 his family had 8 cars for 3 drivers. They had no idea how to save. You dont have to make a ton of money to not be up to your eyeballs in debt, you just have to live within your means

Financial literacy is key, but nothing is likely to happen soon to change things. Parents should be teaching their children about money, but the parents don't have the knowledge themselves. It's a downward spiral.

I witnessed a father/adult son conversation about the son's new car purchase. It went something like this:

Dad: "Hey, did you get a deal on the car? What are your payments."
Son: "Only $350/month!"
Dad: "Way to go!"

If dad had a clue he would have asked about the interest rate, length of the loan, how much did he put down, what's the total cost of credit, etc, etc. All Pa had to hear was the payment to be satisfied that junior got a good deal.

It bugs me that some of my closest friends will never be able to retire. Currently they live in larger homes, take better vacations, buy more stuff, etc, than we do, but it kills me that these guys who are in there 40s have zero or negative net worths.

And a balance sheet can be misleading, too. While it's nice to have a ton of equity in your home/cars/art collection, those are just ongoing expenses until they are sold. The real test of wealth is earning assets.

That aside, I'm still boggled that more than half of the population is upside down. Downright scary..

Of course it becomes part of the lexicon. I'm not saying that the advertising machine isn't out of control, it is. The question is what do you do about it? Do you regulate what can be advertised a la tobacco? Where does that regulation stop? If your interest is in keeping middle class families from going into debt, you should not allow advertisments for expensive cars, or jewelry, or electronics. Credit card ads would obviously go, as would ads for expensive restaurants. Oh, forget about advertising for vacations, Disneyland, the Bahamas, etc. Those all cost money. Airlines? Out. Take the bus. Cell phones? Ban them. They cost too much and people can use pay phones. See what I mean? Where do you finally stop? At what point do you finally say "Ok, you have to act like a grown up now"?

The problem I have with this are two: First even though if you set the home price high enough (like $1 million) you would essentially only be increasing the taxes on the rich, I have a problem with that. You are penalizing people for success. Bad idea. Also, if you really want to help the "middle class" and discourage them from buying homes out of their range you would have to remove tax breaks on all homes with purchase prices above say $250k. Not only would this tax a large percentage of the population, it would cause a real estate crash like you have never seen before.

This one I think is a good idea. It is far too easy to get credit these days, tightening up the rules for credit card issuance is a good move. Yes, it would cause a recession due to drops in consumer spending.

Not could cause, would cause a recession or worse.

Tax them for what?

I agree with eliminating income tax as it stands now, but I would favor a flat tax across the board instead of a VAT or federal sales tax.


I guess my concern here is that when you start making government policy to curb individual choices you start on a slippery slope. Of course our government has already started down that slope with taxes on tobacco and alcohol, laws against the sex industry, etc. I'm not saying those ideas are bad or even that some of the ideas for helping people stay out of debt are bad. I hope that we don't end up in a future where we all eat a government mandated diet (to avoid health risks), drive government mandated cars (to save on fuel and improve driver safety), watch government mandated TV, and wear government mandated clothing.

Lenders need to be a little more responsible about handing out credit. If Joe sixpack isn't smart enough to manage all that credit without getting himself hopelessly in the hole, don't extend the credit to him.

Coupla points and thoughts;
-in banking, deposits are a liability, not an asset.
-AK-47's (amongst others) should not be polished but oiled instead.
-90% of the rich people i know got there by being born to the right circumstances. they are given opportunities by other rich folks who assume anyone who is rich must know what they are doing. not always the case, but hey, who's keeping track. once GIVEN that first million or whatever it takes very little skill to make it grow quickly.
-A-L=E. My grocery store doesn't accept E as payment for food.
-i wonder just how many people are in fact spending away with the thought that akhmed is going to start WW3 in the coming months and it will all be over anyways.
-WTF was that guard thinking when he left Jack's dad alone with his son?!

Was Berettafan watching 24 on a large screen tv, sitting on a leather la-z-boy, in a million dollar house, all paid for on credit?

Well the rent-a-center people found me so no more leather couch and big screen;)

Well I guess I'm just a pessimist. Education seems to do little for these folks IMO. As long as they can buy 50" Plasmas today, even if it might cost them tomorrow, today is when they will buy it. The idea of financial pain just isn't enough to get them beyond the immediate gratification. They must experience the mistake, and even then a significant number can't learn the lesson of deferred rewards. Just look at how many are leaving school without degrees, or worthless ones - delayed gratification doesn't play well in the public.

BTW Wayne, if the dollar tanks, the economy will tank too. Once all the industries which have been exported can get built/running again, (resulting in a trade surplus since the dollar is so devalued), then the economy will truly be back on the road to health. Problem is there is India, and China, and most of Africa that all would love to provide cheap labor for a while. Since birth control is almost absent in all but China (where there are so durn many people anyway), labor is going to get cheap for a long time.

I tend to agree with Wayne...I dare say that everyone on this site would fall into the 'have' category...albeit, some are MUCH more "havier" (I just made that word up) than others :)

ps: I'm NOT in that category however...

Sorry Wayne, but this is incorrect. Stick with CPA's for tax advice.

Oh, and a 'here here' on teaching basic financial skills in high school!

I got it in an optional accounting class. Shouldn't be optional, that is for sure.

yeah, the interest on a home equity loan is tax deductible, in most cases, up to $100,000