The American Dilemma and How We Can Fix It

THE CREDIT CARD

 Most of us have one or more of these little miracles of our modern age in our purse or wallet. But there was a time not so long ago that having a credit card was actually a sort of status symbol – one that few people could claim. The typical American consumer would be a lot better off today if that were still the case.

 In earlier posts I referred to grandma’s view of finance. Sure she was an uneducated immigrant – but if we all had adopted her philosophy there would be no commercials on television offering to help negotiate the terms and payments of the excessive debt that many of us have accrued.

 For those of you who missed those posts let me bring you up to speed on her way of looking at money. If you didn’t have the money to buy something you didn’t buy it – or you waited until you saved up enough to make your purchase. That was it – plain and simple.

 Her view of money and spending was hardly unique. If you have never seen the movie, “I Remember Mama,” released in 1948, I urge you to do so at your earliest opportunity. Starring Irene Dunne, Oscar Homolka and Barbara Bel Geddes (of “Dallas” fame), it is the heart-warming story of a family of Norwegian immigrants living in San Francisco and of their struggle to make it in this new land of opportunity.

 As I have previously mentioned, dad traveled extensively. While he was away, he had to make sure that he had enough cash with him to pay for his meals, his hotel and anything else he would need. Then Diners Club was invented. It was the first credit card to receive wide-spread distribution and acceptance. I remember our family dinner the night his arrived in the mail.

 He had pulled this new-fangled thing out of its envelope before we sat down to eat and brought it to the table with him. As we sat over our starter – a bowl of ox-tail soup – he showed it to mom who passed it on to grandma. She asked what it was.

 Dad explained that instead of having to have cash with him, he could simply present the card and then at the end of the month he would receive a bill for his purchases. Somehow the concept of not having to carry cash translated to grandma as not having enough money to pay for things. She was horrified. This piece of plastic was an invention of the “evil one.”

 I knew that she was disturbed because she began speaking with my mother in Czech. This didn’t happen often – but when it did it was never a good sign. Something serious was afoot. Mom was finally able to explain the concept to her and she cleared our soup bowls and brought our salads out. She was calmer – but I don’t think totally convinced that either her daughter or son-in-law understood the way the world really worked.

 A friend of mine and his wife asked me to dinner one night and had requested my help in assisting them prepare a budget. They both held good jobs and had a substantial income – but they were always “running short.” So after dinner I took a look at their income and the list of monthly expenditures that they incurred.

 The source of their problem jumped off the page at me. They were spending twenty-five percent of their take home income to make only the minimum payments on the massive amount of debt the two had accrued on their credit cards. They had become typical credit card junkies.

 As we were sitting at their kitchen table, I asked them to show me their credit cards. I also asked for a tall glass of water. I took the credit cards and put them in the glass of water which I then placed in their freezer. I explained that they were on their way to becoming debt-free. In a couple of hours, their credit would be frozen in a small block of ice and that they would, at the least, have to defrost it before making another credit purchase.

 I think the idea hit home because a few years later Sam, the husband called me to let me know that he and his wife Laura were paying off the last of their credit cards. They had learned to live within their means.

 Grandma may have had a naïve and simple way of looking at money and spending. But if both the American consumer and Federal Government had followed her lead, we would all be in a better place.

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