e-mail this story to a friend
write a letter to the editor



Avoiding a house of (credit) cards

By Silja J.A. Talvi
Special to The Christian Science Monitor

For the past 15 years, economic sociologist Robert Manning has been fascinated by ever-increasing levels of American debt. From the meteoric rise in personal bankruptcies (which peaked at 1.4 million in 1998), to historic levels of national debt, Mr. Manning has explored the social and structural implications of what he has called America's "addiction to credit."

At the beginning of the new millennium, explains Manning in his book "Credit Card Nation: The Consequences of America's Addiction to Credit" (Basic Books), a profound transformation in attitudes toward credit and debt has already taken place.

The once-prevalent Puritan work ethic that emphasized saving over consumption has given way to widespread credit use, says Manning, pointing out that US consumer debt is now at an astonishing $6.5 trillion. The Monitor recently caught up with Manning, who is now a humanities professor at the Rochester Institute of Technology in New York.

If I'm not in debt, why should I be concerned about all of the other Americans who are?


There's a short-term reason and a long-term reason. The short-term reason is that this is a cultural revolution that's occurring before our very eyes.... I don't think [most people] understand how swift and systematic the [shift] in cultural attitudes toward consumer credit and debt has been in such a short period of time.

There's been a transformation of American attitudes because [banks] have turned the idea of the social responsibility previously associated with credit and debt on its head. Before, you were only getting credit if you had proved yourself worthy by having a good credit history or by having a job. Now, the industry has allowed people to get credit without ever having had a job.

In the long term, there's going to be an even more serious crisis of underfunding for retirement. The fact is that we have a negative savings rate, and that the average household is $12,000 in debt. That means that the average interest paid by each household is $2,000. That's an amount they should be paying toward their tax-deductible IRA, and instead it's going to [credit-card companies].

The American consumer world is dividing into three camps: those who are able to save and be debt free; those who are credit dependent and who could cut back on their discretionary purchases; and those people who are credit dependent because they have no other choice.

What is your own approach toward credit cards? Do you use them?

I do use credit cards.... If you know how to use them, they have a lot of advantages. I make credit cards work for me instead of me working for the credit cards.

Before, we used to have a very clear distinction between good and bad debt. Good debt would be buying a home or paying for college. Now, with all this marketing and immediate gratification and "just do it" consumption, it has been skewed so that more debt is socially acceptable and that credit cards are actually your friends. And that's the real problem - that people are buying things with credit cards that they wouldn't have bought with cash.

Is there a good mental approach that someone who is heavily in debt should take toward handling credit?

That's really a key issue, because with a lot of people with credit-card debt, it's often a manifestation of other problems.

The first step is, you've got to figure out why you're in debt. Is there a personal or a social reason? Some people are overcompensating for their childhood where they came from circumstances where their parents were too frugal. Some people are going through status anxiety, trying to fit in with a different social circle, which they cannot possibly afford. There are a whole host of issues.

What is the "triangle of debt," and what aspect of the triangle do you think Americans might find most surprising?

The triangle consists of consumer, corporate, and federal/national debt. What would strike most Americans is that consumer debt is higher than the federal debt.

What should strike people is that all sectors of society are in debt. Before, there had always been one aspect of the triangle that had been saving money. That made up for fluctuations in the national or consumer or corporate debt. But when all segments of the triangle are in debt, it's clear that the US as a society and as an economy is very vulnerable.

If Congress passes the Bankruptcy Reform Act and it is signed into law, what kinds of general changes can Americans expect if they opt to file for bankruptcy protection?

They're going to have to pay more of their debts back, at least 10 percent of them. For the poorest of poor, they probably aren't going to be able afford the paperwork, because it will be more costly. That will force more people into the underground economy.

It will have a pretty seriously negative impact on small businesses. It's going to force businesses to liquidate, particularly with a slowdown in the economy, because they're only going to have 179 days to have a reorganization plan and repay it, whereas big corporations have the Resources and the legal teams to go directly to a bankruptcy judge to request extensions.

It'll also have a serious impact on young people who are now experiencing high rates of bankruptcies and who have high student loans, don't own a home, and only have entry-level salaries.

Describe the relationship between colleges and credit-card companies.

I see it really as a duplicitous union between credit-card companies and college administrators where they basically say [to students], "Well, you're in college, but it's the best investment you're ever going to make, so you shouldn't worry about how much debt you're going to get into."

And the credit-card companies follow that up with "you're going to [eventually] get a full-time job, so what's another $5,000 now?"

College administrators have crossed the line because now they make millions of dollars in exclusive marketing agreements [with credit-card companies].... [And] they're also making millions more by being able to raise tuition and prices on campus and knowing that students will make up the difference with their credit cards. The bookstore, for instance, raises textbook prices by 25 percent, and then they put an application for a credit card in the book bag.

Americans need help on spending

Hey big spender, take this quiz

Are you a member of America's growing number of overspenders?

If so, you may fit into one of two categories:

Those who spend beyond, sometimes way beyond, their income and/or ability to repay.

Those who pay too much for things because they failed to comparison shop.

Those groupings come from the Institute of Consumer Financial Education (ICFE), a San Diego-based nonprofit group helping consumers become better spenders, regular savers, and wise users of credit.

To help determine if you are an overspender, answer the following questions pertaining to your spending techniques. The ICFE lists five possible responses to each statement:

1. Totally like me.

2. A lot like me.

3. Equally like and unlike me.

4.A little like me.

5. Not like me at all.

Should a statement not apply to your situation, skip it and adjust the scoring accordingly:

1. I always live within my income range.

2. Each income period, I set aside at least 10 percent for savings.

3. My finances are managed according to a written spending plan.

4. All household and grocery spending is planned in advance and done with a list.

5. I rarely make more than one trip a week to the grocery store.

6. Grocery and other coupons and rebate offers are utilized whenever possible.

7. Comparison shopping for quality, value, price, etc. is something I/wedo for practically every purchase, large or small.

8. I have no revolving debt carried on credit or charge cards.

9. I have not had an overdraft of my checking account or paid late fees on a credit card.

10. I regularly contribute to an employer-sponsored retirement plan, an IRA or a 401(k) plan.

Scoring your spending techniques

10-15 Very good. Time to teach others how you do it.

16-20Pretty good. Concentrate on improving a few of the weaker areas.

21-35 Average. An hour a week devoted to improving spending will create greater savings.

36-40Lousy. Immediate changes required, now, to avoid a financial disaster.

41-50 Atrocious! Time to contact a credit counselor.


bullet For further information:

Please Note: The Monitor does not endorse the sites behind these links. We offer them for your additional research.

Home | Archive | Subscriptions | Get Free E-mail Update | Send Editor E-mail | Monitor Talk | Today's Paper | | About Us/Help | Feedback

. Copyright 2003 The Christian Science Monitor. All rights reserved.