Session 2: Living in Borrowed Times

Posted March 24, 2011 in Curriculum, Learning. Tagged: , ,

Opening Reading

Session 2: Living in Borrowed Times

 

How Did They Get Away With It?

Business writer Gretchen Morgenson (in conversation with Bill Moyers), March 26, 2010.  http://www.pbs.org/moyers/journal/03262010/profile.html

In sunny economic weather the banker readily lends you an umbrella — but then asks for it back when it rains.  So now it’s raining, and they’re asking for the umbrella back.  Yes, there are small business people who are in a terrible condition.  And our heart should out to them and to all the people who depend on them for employment.  America is very dependent on these small business owners to create jobs, and our government is dependent on them to provide tax receipts.  But the business owners can’t get the loans they need from JP Morgan, from Citibank, from all of these banks that made all these mistakes.  What it boils down to is that the taxpayers can’t get any of their money back — after putting up so many billions to bail out the very banks that now give them the cold shoulder.

The frustration that a lot of people feel about this lack of real reform, and about the banks being in control to the point of lording it over Washington, comes from the realization that there’s no effective outlet for their rage and anger.  They don’t have a lobbying organization to go to Congress for them and say, “What about these millions of people who have lost so much because of these bankster shenanigans? Look at these millions who have lost their jobs.  Look at the millions who’ve lost their homes.  Look at the millions who have credit card bills on which they’re paying at a 28% interest rate.”  So people are voiceless and they feel powerless.  And they’re getting angrier by the day.

 

ATTACHMENT 2-3

Pass-Around Read-Aloud

Session 2: Living in Borrowed Times

 

We are living in borrowed times.   When people hear about consumer debt, they sometimes rush to judgment.  They either blame irresponsible individuals for borrowing too much, or predatory lenders for pushing easy credit and unreachable dreams.  The reality is that both things are true.

Individuals are responsible for their borrowing and consumption choices.  At the same time, there have been structural changes in the economy that have pushed people into debt as a survival strategy.  Our entire culture has shifted in relation to debt and consumption.

For the last thirty years, real wages (after inflation) have remained flat or actually fallen for the majority of people in the U.S.  So how have we survived?   For many households, part of the answer has been by working longer hours and having more family members join the paid workforce (including children).

The other way people have survived is by borrowing.  We’ve borrowed on credit cards.  We’ve borrowed from Payday Loans and Pawn Shops.  Homeowners have borrowed against the value of their homes.

Some of that borrowing has been to buy more stuff that maybe we didn’t need.  Many of us have lived beyond our means, thanks to easy credit.  But for many, borrowing has been an economic necessity because of medical costs, broken-down cars, long commutes to jobs, or caring for needy family members.  The number one cause of bankruptcy in the U.S. is unexpected medical costs.

Over the decade prior to the meltdown, the expanding finance industry pushed “loose money” like a drug.  In 2007, credit card companies sent out 6 billion credit card solicitations.  Shady finance companies acted like “debt pushers,” touting the availability of cheap credit and flexible arrangements.   We were encouraged to buy more, bigger and newer.

Our cultural attitudes towards buying stuff and borrowing have shifted in the last generation.  Our elders remember a time when it was unthinkable to borrow so much beyond our income.  Prior to 1975, borrowing to buy a modest home and maybe a car was the norm.  But it was unusual to borrow money to buy electronics, go on vacation, or play the stock market.   The cultural norm was to “live within one’s means” and buy mostly durable items that would have lasting benefits.

 

Of course, this was not true for everyone.  There are some of us who have not had access to easy credit or have chosen to be thrifty.  But the national trends are powerful.  Over the last generation, we stopped saving money.   Our national savings rate – the percentage of our annual incomes we save after expenses — went from 11 percent a year in 1983 to a negative 1 percent in 2007.

The good news is that after the 2008 economic meltdown, our national savings rate started to go back up again.  Many people adjusted their spending to live within their means.  But there is enormous pressure to return to our borrowing ways.

 

 

 

 

ATTACHMENT 2-4

Action Ideas: Beyond Debt

 

 

Common security clubs can be a place where we support one another to get our personal financial situations in better shape.   Below are some of the activities that clubs have done to support one another.

 

1. Assess Your Debt

Take inventory of your debt.  Is your debt a serious issue?  Take the confidential Debtor’s Anonymous quiz to assess your situation.

http://www.debtorsanonymous.org/help/questions.htm

2. Know Your Debt

Car loans, credit cards, pay day loans, home mortgages…late fees, overdraft fees.   Look over the homework from the previous session.  There were a number of resources about different dimensions of debt.  Take a closer look at that list.

3. Create a Budget and Keep Track

Even for those of us who feel we “live within a budget,” it’s always a good idea to once a year actually develop a budget.  Sometimes tracking expenses for a month in a small notebook helps us remember all the hidden expenses and fees we don’t include in a budget.  The National Foundation for Credit Counseling has a nifty budget worksheet in English and Spanish.  Visit:

www.nfcc.org/FinancialEducation/monthlyincome.cfm

4. Budget Makeover

Many ongoing clubs do problem solving and brainstorm for their members.  One common approach is humorously called a “budget makeover” (feel free to call it something different).  A club member volunteers to share information about their personal financial circumstances and brainstorm ideas.  They prepare a budget that includes income, major expenses, and debts.   They could pass out their confidential budget as part of this discussion – and collect those copies at the end of the session to protect their confidentiality.

 

5. Renegotiate with the Big Boys

Many people are paying high credit card fees or have poor credit ratings.  Sometimes a late payment might trigger a higher interest rate, etc.  But there is important room for negotiation with credit card providers – to press them to cancel or reduce fees.

A poor credit rating makes it difficult and expensive to borrow for necessary items like a car or home.  There are things we can do to repair one’s credit rating – and correct mistaken information on rating forms.

Listen to this wonderful episode of Fresh Air with Terry Gross interviewing Elizabeth Warren about Credit Reports and Credit Rating Agencies:

http://www.npr.org/templates/story/story.php?storyId=92049490

 

6. Set Goals around Debt

Based on looking at your own budget and talking with other club members, you might want to set some personal goals around debt.  These could include:

  • Setting budget goals and tracking expenses.
  • Paying off existing credit cards.
  • Meeting with a credit counselor.
  • Stop carrying a monthly balance on your credit card.
  • Cutting up some or all of your cards.
  • Attending a meeting of Debtor’s Anonymous.
  • Use cash more for purchases.

 

Whatever goals you set, you can state them publicly and use the club’s “check-in” time to report on how things are going.

7.  Get More Help: Debt Counseling or Debtors Anonymous

It may be that you need more help than your common security club can provide.  But your club can support you to get that help.  There is a national network of credit counselors who can help you do intensive problem solving.

Debtors Anonymous is a national network built on the voluntary and free peer assistance model of Alcoholics Anonymous.  From their web site you can view tools and find local meetings.  Visit:  http://www.debtorsanonymous.org/

8.  Social Action: Consumer Protections

The financial services industry has used their considerable political clout to stack the deck against consumers.  Recent legislation providing for the creation of a financial reform agency will begin to chip away at this.  But the reality is, we still need greater consumer protections and regulation of the financial sector.  The Resilience Circle Network can keep you posted on timely actions we can take.

9. Your Money or Your Life

The Resilience Circle Network has developed a special session for clubs that taps into the marvelous book and curriculum called Your Money or Your Life. The 9-Step programs supports you to:

  • Explore your relationship with money.
  • Understand better the relationship between money and values.
  • Begin to discover what is “enough” for you.
  • Change habits and initiate major life changes.

 

The module can be downloaded at:

http://localcircles.org/wp-content/uploads/2009/08/introymoyl.pdf

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