Thursday, November 05, 2009
Being born in the heart of the Depression (1934) and raised during World War II, I lived in a family that was part of the thrift culture. We were surrounded by thrift institutions and practices that in spirit went all the way back to Ben Franklin.
As children, we all had very small savings accounts. I remember putting in 11 cents a month. My grandmother would take the streetcar downtown (cost: 5 cents) each month to pay her gas bill, electric bill, telephone bill and deposit $2 in the Conservative Savings and Loan Association. She thus saved the expense of four 3 cents stamps and enjoyed the outing. In World War II, my brothers and I would buy 5 cent U. S. savings stamps at the grocery store and put them in a booklet until we had $18 and that would buy us a $25 war bond.
Everybody we knew saved in this way through credit unions, building and loans and other nonprofit banking places. We were what were called the small savers. In the fall, parents bought gifts on Layaway plans. We were taught that saving for a rainy day was important. You would need money for high school and for college. When my parents came to buy a house, they needed a down payment of at least $1,000 saved for their first house which cost $5,000. They had to go to the bank and show their credit worthiness. There were limits set by the government on the interest and fees the bank could charge. My brothers and I studied mightily so we could get into a private prep school where the tuition was $76.50 per semester. You could make that much money if you had a paper route.
We knew there were other shady ways of obtaining money. The pawn shops were across the river, together with the peep shows and skid row. We knew there were loan sharks and numbers games which our parents taught us were a waste of money and a financial rip off. They taught us if you wanted to go to this school, you had to save and pay up front. We did and felt good about it.
Yes, thrift and industry were virtues everyone needed in order to be successful. If you worked hard and were thrifty, you could make something of yourself. Our parents would never think of borrowing money to buy superfluous items. Dad would announce solemnly the Friday after Thanksgiving: Santa this year can afford $2.50. We were sure envious of kids who had shiny new bicycles, but we knew not to ask for one as a Christmas present because our parents could not afford them and it would hurt them if we asked.
I remember my mother crying one Friday night at dinner, saying: “Boys, I am sorry all we have for dinner is pancakes. I wish there was something else.” And we were not poor by any means for we were told vivid stories of families so poor that the kids took turns eating every other day. We never thought of ourselves as any other than middle class in hard times. And we knew that thrift and hard work were the key to a brighter future. Greed was clearly a bad thing. Early on, I learned this prayer:
Dear Lord,
“Do not let me be too poor
Or too rich.
Give me just what I need.
If I have too much
I might forget you.
If I don’t have enough
I might steal. (Proverbs 30 8-9)
What happened to all of that? Well, after World War II during which such great sacrifices were made by so many Americans, a feeling of entitlement entered the mentality of most Americans. The returning soldiers often said they had sacrificed so much they were entitled to a little bigger house, a little nicer car and a little better vacation not spent at home, also the GI bill. Credit cards began to appear and at first they were not used by most people for credit as much as they were used in lieu of cash and that’s how they were advertised. Slowly, but surely, they became instruments of heavy debt with minimum payments required. Usury laws prohibited predatory interest rates and, in some ways, that encouraged spending and building up debt. Through a variety of influences we were slowly, but surely, becoming an affluent society.
What is affluence? It is a subtle change from a state of wanting more salary, more goods and more services to expecting more money, more goods and more services. We began to expect that this would continue on and on and so we were willing to move away from what is called a thrift culture. In a thrift culture, you save until you can afford to buy something. You work very hard and, although you want more goods and services, you do not buy them until you can afford them. But the post World War II boom led the Americans to change their expectations. Thrift began to recede more and more. We began to buy more and more on credit. Credit cards became easier to obtain and then loans became easier and easier to obtain because less collateral was needed. Then came signature loans.
I remember clearly in 1960 arriving home from Europe after six years of study there. I was a newly ordained priest making $75 a month and I applied for a Phillips 66 credit card. On the application, I stated honestly my income was $75 a month. (Priests were paid a pittance!) Well, of course, I was denied a credit card. So I changed the $75 on the new application to $750 and immediately a card was issued to me. Nobody cared to check. That was way back in 1960. By 1970, people were sending all of us offers of credit cards in the mail. By 1980 and 1990, this became much more frequent. People were piling up credit card debt and fewer and fewer people even thought of delaying purchases until they could afford it. Chase Bank had not yet started its ads: “I want it all. I want it now.” But that is what was happening. We had now become affluent and debt ridden. Candidates for President usually ask the voters: are you better off today (financially) than you were four years ago?
As said above, affluence doesn’t simply mean wanting more salary, more goods and more services. It means expecting more salary, more goods and more services. The difference is startling. In Africa, for example, everyone would like to have a higher standard of living, but they do not expect it. Here in America, we expect to be making more every year, to be buying bigger and better things. Until, of course, the current economic collapse.
It now began to be clear that we were borrowing far beyond our means. On the horizon came subprime credit card issuers. In times past, payday lenders were in the seedy part of town. So were rent to own merchants. Now payday lenders, rent to own merchants, auto title lenders, check cashing outlets all appeared in the new strip malls right next to us in the suburbs. Have you noticed the pawn shops that have sprung up in the better part of town?
And even more than that, the government has now gotten into the anti-thrift business by state owned and operated lotteries. Until 1964, not one government sponsored lottery existed in the United States. Today, almost every state has one. It is interesting to look at who are the most loyal customers of state run lotteries. It is the low and moderate income families that, somehow or other, hope to win big. So instead of saving $5 a week at a credit union, they buy five lottery tickets as a way to fantasize about instant wealth. A very poorly dressed fellow standing next to me in the grocery store pulled out a $20 bill and spent it all on lottery tickets. And, of course, we forgot to mention casino gambling which in times past was allowed only in Las Vegas and Atlantic City. In times past, those who pawned their wedding rings or gambled away their family savings or borrowed from loan sharks were viewed as destroying or despairing of family life.
In 2008, the Institute for American Values published a report from the Commission on Thrift, pointing out that formerly thrifty Americans in the moderate and lower economic brackets have now become habitual debtors. And at the same time, the report noted there is an upper tier of richer Americans who were investing and building wealth through pro-thrift institutions. The lower tier had been serviced by anti-thrift institutions that “provide multiple ways and means for lower earning Americans to forgo savings, borrow at predatory interest rates and fall into a debt trap.”
And that was all before the economic collapse. Members of what the Commission called the lottery class (I call it the “I want it all” class) were not motivated to put aside extra dollars. They were motivated often to forgo some of their tax refund dollars in exchange for fast cash from H & R Block.
It is good to remember that a century ago in the early 1900’s, (history calls this the Progressive Era) anti-thrift agencies were ripping off many hard working Americans, taking their dollars and dreams. They were “chattel lenders” or “salary lenders.” But most people in those days knew them as loan sharks. One writer says that in New York alone, 100 years ago, three out of every ten workers owed money to loan sharks. The noble response to loan sharks was a national campaign among honest business men and politicians to drive them out of business. It worked. Journalists wrote exposés of their corrupt practices. They were called muck raking articles. And legislation was passed to encourage credit unions, thrift agencies of all kinds. That is all mostly gone now.
This is not to say that borrowing is a bad thing, but it is to say that access to credit, on one hand, helps a young family to grow and to develop, to start businesses, to boost job prospects. But, on the other hand, it can also promote mounting debt, even staggering debt which slams the door on the future. The whole credit union movement had as a motive to engage in thrift and enable savers to take out low cost loans as an alternative to pawn shops. In our day, a pinched wage earner has more places to turn to get fast money. More than one billion credit cards are in the wallets of Americans. There is hardly one of us who has not paid late fees or been charged for missed payments on credit cards. In 2006, late fees and missed payments were at $17.1 billion in fees. And for unexpected expenses such as house repairs or car repairs or medical emergencies, there is not a nest egg at the credit union, but there is a credit card.
Around 1960, banks and other institutions issuing credit cards or bank cards offered fixed interest rates to credit worthy people. Usury laws in most states capped out at 12 – 14% interest that could be charged on credit card balances. In 1978, the Supreme Court ruled that banks could get around the usury laws by charging interest rates allowed in their own home state rather than in the consumer’s home state. So if you moved your credit card operation to South Dakota, you could set whatever interest rates you wanted. Then the home states responded out of fear of losing banking industry to places like South Dakota and lifted their own caps.
Now credit card folks really did build a financial model for getting people to move from thrift (healthy fear of debt) with its social stigma for people always in debt to “it is OK to have a heavy debt load.” Barbara Defoe Whitehead says it this way. “The credit card industry was the great innovator in this how to get people into debt and keep them there.” Consumers now bought more than they could afford and were happy doing so. People’s self-image changed from being stogy old saviors like Ben Franklin into “shop till you drop” savvy buyers.
The credit card folks (once they achieved the magic trick of I want it all) realized they could make a lot more profit if instead of issuing short term credit to financially solvent customers, they extended long term credit to financially shaky customers. Card companies made the minimum payment as low as possible and encouraged card holders to only pay the minimum payment. This is unsavory!!
And, of course, then they discovered the student market. These were kids who did have jobs, did have some spending money and were told not to save, but to buy right now what they really wanted and put it on their cards. The credit card companies counted on their parents to bale them out and oftentimes they did. The credit card folks also demolished the traditional banking relationship between lender and borrower. Today, for example, I have three credit cards and on only one of them do I have a depository account. The result of all this was that many, many Americans are now dependent on expensive credit.
And don’t forget what we call the “democratization” of credit. It started as a good idea way back in the early 1900’s when poor immigrants needed access to small loans (unsecured consumer loans). The banks at the time began issuing them (with regulators allowing higher interest rates so they could make a profit, but lower rates than the loan sharks). Credit unions were another good facet of democratization of credit. So were layaway plans and insurance. There was now a difference between good debt and bad debt. It’s a noble motive in helping the poor avoid loan sharks, but it didn’t turn out so noble. And this subprime lending market resulted in the poor having more debt than they could ever pay off. A young couple the other day told me they ran up $60 of credit card debt in two weeks at McDonald’s, Burger King and Wendy’s. Democratization of credit still is a good idea if used wisely.
And now we have been in a very severe recession with millions and millions of Americans laid off, with our homes worth far less than they were before and with many, even in the culture of wealth, experiencing a decline of 30 or 40% in their 401(k)s, profit sharing plans, Keogh plans, deferred income compensation plans and retirement savings plans. Whether we like it or not, it’s time to take seriously the task of rediscovering thrift.
Yes, we are in tough financial times. And when things get tough, it is time to go back to the basics of thrift – only spend when you have saved up for the purchase. There are bright spots in economic hard times and we need to focus on them. One great benefit of tough times is we are much more structurally motivated to help one another. Let’s take examples from the family. In these times, it is better to limit going out to eat and it is much better to have family meals. That is a plus. In these times, it is structurally better to live at home. And to do so, we have to try harder to get along with each other, to treat each other as brothers and sisters. In these times, it is much better to pay down our credit card balances. We learn to get along with less – entertainment, excursions, clothes, etc.
It is a good time to sit down with your children and explain in simple honest terms, without panic, that the family has to reduce spending and that we can do it by becoming closer to one another, helping one another more.
And we can explain to our children that it would be good for them not to ask for as many expensive gifts as they have in the past. And if they see us, their parents, doing without certain luxuries we are accustomed to, they will be inspired by our role modeling.
There are three basic themes we are suggesting you consider adopting as a family.
1. The first theme is this: if we learn to live within our means, we will be learn to live with less. And if we live with less, we will be far happier.
2. The second theme is that self-donation is much more important than self-absorption. Helping others is much more important than being selfish. Caring for one another, helping each other is much more important than looking out for yourself. At the last judgment as described in Matthew 25, the questions that will be asked of you are all about self-donation. I was hungry and you gave me nothing to eat. I was thirsty and you gave me nothing to drink.
3. The third theme is that who you are is much more important than what you have. You are first and foremost a child of God, a member of a family. You are one of God’s people, together with others, called and sent to bring the Good News.
It is a great time to discover and foster family life, togetherness, caring, and sharing. It is time to return to Ben Franklin’s ideas of economic freedom. Economic freedom is freedom from the worry of mounting bills and no way to pay them off. Immigrants quickly bought his idea of frugality and industry, namely, working hard, saving wisely and spending modestly so as to achieve a state of wellbeing liberated from the worries, burdens and anxieties that so filled the lives of the very poor in his time and the overly debt ridden in our time. We have to feel good about saving and bad about overspending.
Postscript: Please go to the web site of the Institute for American Values and see “A Report to the Nation from the Commission on Thrift.” Many ideas in my paper were taken from it. It is great reading!
As children, we all had very small savings accounts. I remember putting in 11 cents a month. My grandmother would take the streetcar downtown (cost: 5 cents) each month to pay her gas bill, electric bill, telephone bill and deposit $2 in the Conservative Savings and Loan Association. She thus saved the expense of four 3 cents stamps and enjoyed the outing. In World War II, my brothers and I would buy 5 cent U. S. savings stamps at the grocery store and put them in a booklet until we had $18 and that would buy us a $25 war bond.
Everybody we knew saved in this way through credit unions, building and loans and other nonprofit banking places. We were what were called the small savers. In the fall, parents bought gifts on Layaway plans. We were taught that saving for a rainy day was important. You would need money for high school and for college. When my parents came to buy a house, they needed a down payment of at least $1,000 saved for their first house which cost $5,000. They had to go to the bank and show their credit worthiness. There were limits set by the government on the interest and fees the bank could charge. My brothers and I studied mightily so we could get into a private prep school where the tuition was $76.50 per semester. You could make that much money if you had a paper route.
We knew there were other shady ways of obtaining money. The pawn shops were across the river, together with the peep shows and skid row. We knew there were loan sharks and numbers games which our parents taught us were a waste of money and a financial rip off. They taught us if you wanted to go to this school, you had to save and pay up front. We did and felt good about it.
Yes, thrift and industry were virtues everyone needed in order to be successful. If you worked hard and were thrifty, you could make something of yourself. Our parents would never think of borrowing money to buy superfluous items. Dad would announce solemnly the Friday after Thanksgiving: Santa this year can afford $2.50. We were sure envious of kids who had shiny new bicycles, but we knew not to ask for one as a Christmas present because our parents could not afford them and it would hurt them if we asked.
I remember my mother crying one Friday night at dinner, saying: “Boys, I am sorry all we have for dinner is pancakes. I wish there was something else.” And we were not poor by any means for we were told vivid stories of families so poor that the kids took turns eating every other day. We never thought of ourselves as any other than middle class in hard times. And we knew that thrift and hard work were the key to a brighter future. Greed was clearly a bad thing. Early on, I learned this prayer:
Dear Lord,
“Do not let me be too poor
Or too rich.
Give me just what I need.
If I have too much
I might forget you.
If I don’t have enough
I might steal. (Proverbs 30 8-9)
What happened to all of that? Well, after World War II during which such great sacrifices were made by so many Americans, a feeling of entitlement entered the mentality of most Americans. The returning soldiers often said they had sacrificed so much they were entitled to a little bigger house, a little nicer car and a little better vacation not spent at home, also the GI bill. Credit cards began to appear and at first they were not used by most people for credit as much as they were used in lieu of cash and that’s how they were advertised. Slowly, but surely, they became instruments of heavy debt with minimum payments required. Usury laws prohibited predatory interest rates and, in some ways, that encouraged spending and building up debt. Through a variety of influences we were slowly, but surely, becoming an affluent society.
What is affluence? It is a subtle change from a state of wanting more salary, more goods and more services to expecting more money, more goods and more services. We began to expect that this would continue on and on and so we were willing to move away from what is called a thrift culture. In a thrift culture, you save until you can afford to buy something. You work very hard and, although you want more goods and services, you do not buy them until you can afford them. But the post World War II boom led the Americans to change their expectations. Thrift began to recede more and more. We began to buy more and more on credit. Credit cards became easier to obtain and then loans became easier and easier to obtain because less collateral was needed. Then came signature loans.
I remember clearly in 1960 arriving home from Europe after six years of study there. I was a newly ordained priest making $75 a month and I applied for a Phillips 66 credit card. On the application, I stated honestly my income was $75 a month. (Priests were paid a pittance!) Well, of course, I was denied a credit card. So I changed the $75 on the new application to $750 and immediately a card was issued to me. Nobody cared to check. That was way back in 1960. By 1970, people were sending all of us offers of credit cards in the mail. By 1980 and 1990, this became much more frequent. People were piling up credit card debt and fewer and fewer people even thought of delaying purchases until they could afford it. Chase Bank had not yet started its ads: “I want it all. I want it now.” But that is what was happening. We had now become affluent and debt ridden. Candidates for President usually ask the voters: are you better off today (financially) than you were four years ago?
As said above, affluence doesn’t simply mean wanting more salary, more goods and more services. It means expecting more salary, more goods and more services. The difference is startling. In Africa, for example, everyone would like to have a higher standard of living, but they do not expect it. Here in America, we expect to be making more every year, to be buying bigger and better things. Until, of course, the current economic collapse.
It now began to be clear that we were borrowing far beyond our means. On the horizon came subprime credit card issuers. In times past, payday lenders were in the seedy part of town. So were rent to own merchants. Now payday lenders, rent to own merchants, auto title lenders, check cashing outlets all appeared in the new strip malls right next to us in the suburbs. Have you noticed the pawn shops that have sprung up in the better part of town?
And even more than that, the government has now gotten into the anti-thrift business by state owned and operated lotteries. Until 1964, not one government sponsored lottery existed in the United States. Today, almost every state has one. It is interesting to look at who are the most loyal customers of state run lotteries. It is the low and moderate income families that, somehow or other, hope to win big. So instead of saving $5 a week at a credit union, they buy five lottery tickets as a way to fantasize about instant wealth. A very poorly dressed fellow standing next to me in the grocery store pulled out a $20 bill and spent it all on lottery tickets. And, of course, we forgot to mention casino gambling which in times past was allowed only in Las Vegas and Atlantic City. In times past, those who pawned their wedding rings or gambled away their family savings or borrowed from loan sharks were viewed as destroying or despairing of family life.
In 2008, the Institute for American Values published a report from the Commission on Thrift, pointing out that formerly thrifty Americans in the moderate and lower economic brackets have now become habitual debtors. And at the same time, the report noted there is an upper tier of richer Americans who were investing and building wealth through pro-thrift institutions. The lower tier had been serviced by anti-thrift institutions that “provide multiple ways and means for lower earning Americans to forgo savings, borrow at predatory interest rates and fall into a debt trap.”
And that was all before the economic collapse. Members of what the Commission called the lottery class (I call it the “I want it all” class) were not motivated to put aside extra dollars. They were motivated often to forgo some of their tax refund dollars in exchange for fast cash from H & R Block.
It is good to remember that a century ago in the early 1900’s, (history calls this the Progressive Era) anti-thrift agencies were ripping off many hard working Americans, taking their dollars and dreams. They were “chattel lenders” or “salary lenders.” But most people in those days knew them as loan sharks. One writer says that in New York alone, 100 years ago, three out of every ten workers owed money to loan sharks. The noble response to loan sharks was a national campaign among honest business men and politicians to drive them out of business. It worked. Journalists wrote exposés of their corrupt practices. They were called muck raking articles. And legislation was passed to encourage credit unions, thrift agencies of all kinds. That is all mostly gone now.
This is not to say that borrowing is a bad thing, but it is to say that access to credit, on one hand, helps a young family to grow and to develop, to start businesses, to boost job prospects. But, on the other hand, it can also promote mounting debt, even staggering debt which slams the door on the future. The whole credit union movement had as a motive to engage in thrift and enable savers to take out low cost loans as an alternative to pawn shops. In our day, a pinched wage earner has more places to turn to get fast money. More than one billion credit cards are in the wallets of Americans. There is hardly one of us who has not paid late fees or been charged for missed payments on credit cards. In 2006, late fees and missed payments were at $17.1 billion in fees. And for unexpected expenses such as house repairs or car repairs or medical emergencies, there is not a nest egg at the credit union, but there is a credit card.
Around 1960, banks and other institutions issuing credit cards or bank cards offered fixed interest rates to credit worthy people. Usury laws in most states capped out at 12 – 14% interest that could be charged on credit card balances. In 1978, the Supreme Court ruled that banks could get around the usury laws by charging interest rates allowed in their own home state rather than in the consumer’s home state. So if you moved your credit card operation to South Dakota, you could set whatever interest rates you wanted. Then the home states responded out of fear of losing banking industry to places like South Dakota and lifted their own caps.
Now credit card folks really did build a financial model for getting people to move from thrift (healthy fear of debt) with its social stigma for people always in debt to “it is OK to have a heavy debt load.” Barbara Defoe Whitehead says it this way. “The credit card industry was the great innovator in this how to get people into debt and keep them there.” Consumers now bought more than they could afford and were happy doing so. People’s self-image changed from being stogy old saviors like Ben Franklin into “shop till you drop” savvy buyers.
The credit card folks (once they achieved the magic trick of I want it all) realized they could make a lot more profit if instead of issuing short term credit to financially solvent customers, they extended long term credit to financially shaky customers. Card companies made the minimum payment as low as possible and encouraged card holders to only pay the minimum payment. This is unsavory!!
And, of course, then they discovered the student market. These were kids who did have jobs, did have some spending money and were told not to save, but to buy right now what they really wanted and put it on their cards. The credit card companies counted on their parents to bale them out and oftentimes they did. The credit card folks also demolished the traditional banking relationship between lender and borrower. Today, for example, I have three credit cards and on only one of them do I have a depository account. The result of all this was that many, many Americans are now dependent on expensive credit.
And don’t forget what we call the “democratization” of credit. It started as a good idea way back in the early 1900’s when poor immigrants needed access to small loans (unsecured consumer loans). The banks at the time began issuing them (with regulators allowing higher interest rates so they could make a profit, but lower rates than the loan sharks). Credit unions were another good facet of democratization of credit. So were layaway plans and insurance. There was now a difference between good debt and bad debt. It’s a noble motive in helping the poor avoid loan sharks, but it didn’t turn out so noble. And this subprime lending market resulted in the poor having more debt than they could ever pay off. A young couple the other day told me they ran up $60 of credit card debt in two weeks at McDonald’s, Burger King and Wendy’s. Democratization of credit still is a good idea if used wisely.
And now we have been in a very severe recession with millions and millions of Americans laid off, with our homes worth far less than they were before and with many, even in the culture of wealth, experiencing a decline of 30 or 40% in their 401(k)s, profit sharing plans, Keogh plans, deferred income compensation plans and retirement savings plans. Whether we like it or not, it’s time to take seriously the task of rediscovering thrift.
Yes, we are in tough financial times. And when things get tough, it is time to go back to the basics of thrift – only spend when you have saved up for the purchase. There are bright spots in economic hard times and we need to focus on them. One great benefit of tough times is we are much more structurally motivated to help one another. Let’s take examples from the family. In these times, it is better to limit going out to eat and it is much better to have family meals. That is a plus. In these times, it is structurally better to live at home. And to do so, we have to try harder to get along with each other, to treat each other as brothers and sisters. In these times, it is much better to pay down our credit card balances. We learn to get along with less – entertainment, excursions, clothes, etc.
It is a good time to sit down with your children and explain in simple honest terms, without panic, that the family has to reduce spending and that we can do it by becoming closer to one another, helping one another more.
And we can explain to our children that it would be good for them not to ask for as many expensive gifts as they have in the past. And if they see us, their parents, doing without certain luxuries we are accustomed to, they will be inspired by our role modeling.
There are three basic themes we are suggesting you consider adopting as a family.
1. The first theme is this: if we learn to live within our means, we will be learn to live with less. And if we live with less, we will be far happier.
2. The second theme is that self-donation is much more important than self-absorption. Helping others is much more important than being selfish. Caring for one another, helping each other is much more important than looking out for yourself. At the last judgment as described in Matthew 25, the questions that will be asked of you are all about self-donation. I was hungry and you gave me nothing to eat. I was thirsty and you gave me nothing to drink.
3. The third theme is that who you are is much more important than what you have. You are first and foremost a child of God, a member of a family. You are one of God’s people, together with others, called and sent to bring the Good News.
It is a great time to discover and foster family life, togetherness, caring, and sharing. It is time to return to Ben Franklin’s ideas of economic freedom. Economic freedom is freedom from the worry of mounting bills and no way to pay them off. Immigrants quickly bought his idea of frugality and industry, namely, working hard, saving wisely and spending modestly so as to achieve a state of wellbeing liberated from the worries, burdens and anxieties that so filled the lives of the very poor in his time and the overly debt ridden in our time. We have to feel good about saving and bad about overspending.
Postscript: Please go to the web site of the Institute for American Values and see “A Report to the Nation from the Commission on Thrift.” Many ideas in my paper were taken from it. It is great reading!
posted by Fr. Peter | 1:26 PM
<< Home