Hopefully you enjoyed your holidays!
So let’s continue. I’ve given you some time to ponder how incredibly important it is for us as believers to give money away – in fact, so elemental in getting our attitudes straight on how to view this thing called money that we had to deal with giving before we could even think about the issue of spending. But with those concepts firmly etched into your heart and mind – they are, aren’t they? - we are now ready to switch gears a bit and get into some real practical stuff regarding what to do – or NOT to do - with the resources that we don’t give away.
Amazingly, over 70% of our annual GDP here in the U.S. – the sum of all the finished goods and services produced in a year – is powered by personal consumption expenditures, and much of that is fueled by credit. If we slow down – or stop – spending, especially on credit, the economy goes rapidly into the … toilet. And since it seems that just about everyone uses some form of credit – whether to buy a house, finance an education, buy a car or even to buy the groceries, it seems reasonable as a wise steward to step back a bit and at least examine the costs of a debt-fueled lifestyle, don’t you think? Shouldn’t that be something that a wise steward should do? I guarantee, you are going to be amazed by what it does cost.
We’ll also talk about those innocuous looking but magical little 2” x 3” pieces of plastic just about everyone over the age 18 carries in their wallet – the credit card. And … since its younger brother – the debit card - is becoming so prevalent, we will also deal with those. It must be munching on steroids because debit card charges now exceed credit card charges, even though they are only about half as old as credit cards.
So let’s start by taking a fun little test.
1. Including mortgages, credit cards, student loans and auto loans, what is the average debt per household?
a. $50,000
b. $75,000
c. $100,000
d. $125,000
e. $150,000
f. $200,000
2. What percentage of American households have at least one credit card?
a. 20%
b. 40%
c. 60%
d. 70%
e. 95%
f. 125%
3. How many credit cards does the average American family have:
a. 1
b. 2
c. 4
d. 5
e. 10
f. 20
4. According to information gathered by the Census Bureau in 2017 (the latest year available), there were approximately 189 million credit card holders in the U.S. Approximately how many do not pay off their bill in full each month?
a. about 60%
b. about 40%
c. about 25%
d. about 10%
5. Let’s get a little more specific. Approximately what percentage of Americans pay only the minimum payment required each month?
a. 50%
b. 35%
c. 30%
d. 10%
6. The credit card debt that the average American family carries is approximately:
a. $2,500
b. $5,000
c. $10,000
d. $15,000
e. $25,000
f. $50,000
7. Although there have been changes to credit card laws recently, there was no required change in minimum payments and many credit card companies still use the old rules: the interest charges and 1% of the balance owed. Using our average family owing $10,000 on their cards who can only pay the minimum balance every month and has an interest rate of 18% (the most common) AND never charges another penny, how long will it take to pay off the balance?
a. 4 years
b. 8 years
c. 13 years
d. 18 years
e. 23 years
f. 28 years
g. 50 years
Because that IS so long, the new law requires credit card companies to show you how long it WILL take to pay off your balance and how much you would have to pay every month to pay it off in 3 years, again assuming you never charge another cent. In some cases, it can take more than 30 years, longer than most mortgages!
8. What is the highest interest rate credit card companies can charge?
a. 18%
b. 19.99%
c. 24%
d. 36%
e. 50%
f. No limit
Federal law sets NO limit. While many states regulate rates, they only apply to banks based in that state and don’t protect consumers who borrow from out-of-state lenders. Delaware and North Dakota have no limits and so many credit card companies are based in those two states.
9. What percentage of credit card users do not know the interest rate on the credit card they use most often?
a. 5%
b. 10%
c. 15%
d. 25%
e. 35%
f. 50%
g. 90%
And one more – for those who have become avid users of debit cards:
10. Debit cards are hugely popular – more transactions using these now than for credit cards. But like credit cards they can be lost or stolen. What maximum loss are you liable for if your card is lost or stolen?
a. Similar to a credit card: $50 as long as you inform the card issuer when you get your statement
b. $50 if you report the card missing after 2 business days of unauthorized charges occurring
c. $500 if you report the card missing after 2 business days have passed
d. Unlimited if you fail to report the card lost or stolen within 60 days of receiving the bank statement
e. Always responsible for the loss – the card is just like money
f. b, c and d
Answers:
1. D - $125,000 (A little more than $137,000 per the Federal Reserve, November, 2017)
2. D – 70%
3. C – 4
4. A – about 60% (but among college students, a whopping 82% carry a balance!)
5. C – 30% (per creditdonkey.com)
6. D - $15,000 (actually, $15,482)
7. F – 28 years (actually, about 28 ½ years; because that IS so long, the new law requires credit card companies to show you how long it WILL take to pay off your balance and how much you would have to pay every month to pay it off in 3 years, again assuming you never charge another cent.)
8. F – no limit (Federal law sets NO limit. While many states regulate rates, they only apply to banks based in that state and don’t protect consumers who borrow from out-of-state lenders. Delaware and North Dakota have no limits and so many credit card companies are based in those two states.)
9. F – 50% (actually, 48%, or >1 in every 2 users; yet this is amongst the most expensive borrowing you can do!)
10. F – B, C and D (But note that if the thief drains all the money out of your checking account, it can take the bank a while to investigate. In the meantime, you could bounce checks to your landlord, your mortgage company, your credit card company and on and on.)
So … how did you do??? Did you learn anything? And … per the correct answer to question #2 [how many have at least 1 credit card], it is obvious that credit card usage is the norm here in the U.S. Like getting your driver’s license, getting your first credit card has become one of those ceremonial “rites of passage” in life. And yet … unbelievably … it has not always been so. In fact, credit card usage is just a tad over 60 years old, and the explosive and ubiquitous use is only about 30 years old. But oh what marketers they are as we’ll talk about in the next post.