Chapter Six: Confronting the American Debt Culture (Barbara Dafoe Whitehead)

In the early twentieth century, Americans were aided by the various institutions that existed to help them be thrifty and save. These institutions included local banks, credit unions, savers' clubs, school savings bond programs, etc... These institutions were pro thrift and limited consumers' debt. There were also government regulations on interest and fees lenders could impose. Lotteries were illegal in all states; gambling was illegal in most. Today, the pro thrift institutions are now catering to upper-income Americans whereas lower-income Americans are now pray to institutions such as rent-to-own merchants, payday lenders, tax refund lenders, etc... Credit should be a tool used to buy houses, get educations, and start businesses - it can be a positive thing. Today there is more debt than ever before. Part of this is due to the fact that most of it comes from middle-income and young families who natural have more debt due to their stage of life which involves buying houses, cars, and other high-cost things. However, there is also a rise in late fees and missed payments. One in seven families say they've had to file for bankruptcy or use a credit consolidator at some point. One in three admit their financial situation has been "out of control" before. One of the reasons for this rise in debt is because people do not have the knowledge or self-discipline necessary to make smart financial decisions. This is where institutions are useful in the establishment of norms, conventions, and values that can aid individuals. The credit card is the most well-known and well-used of these anti thrift institutions. There are now billions of cards in use in America. The credit card industry changed the conservative philosophy of U.S. by appealing to customers who would only pay the low minimum balance and incur late fees and other penalties on a regular basis; they ensure long-term consumer dependency. Families that could once get by with their credit card debt are facing a different situation with today's economic problems. Almost fifty percent of credit card holders missed payments last year. Payday lenders are another predator to pro thrift institutions. They offer "Fast cash" to people who live paycheck to paycheck and require loans before their next payday. With the creation of direct deposit for Social Security checks, payday lenders have attacked veterans and disabled people, knowing they have a secure form of collateral. So far, twelve states have banned payday lending by placing caps on interest for small loans. The lottery was once illegal in nearly all states. Today, state lotteries bring in about fifty-seven billion dollars, representing a 500% increase. The lottery advertises itself in a way that makes consumers addicted and delusional - they get caught in a never ending cycle of doing "just one more try." Lower-income families spend the money on the lottery that they could be investing in stocks every year. In the past, when loan sharks were on the rise, there were two modes of reform. The first was to raise the interest caps and to prohibit fees or other add-on charges. The second was to create the credit union. It provided an alternative source of consumer credit for workers as opposed to the loan sharks. Credit unions gave workers the incentive to save and borrow from each other. Today, there should be five goals to accomplish which will promote thrift.

1. Reestablish a public education campaign (much like Personal Finance class!)


2. Challenge "Consumer Spending" as a main solution to economic problems (we should be saving, not spending)


3. Create a thrift savings plan available to all Americans (extend the Thrift Savings Plans from federal employees to all working Americans)


4. Build new thrift institutions


5. Repurpose the lottery (do savings tickets as well as lottery tickets)

Much like Benjamin Franklin and our other forebears, we should aspire to leave America a better and more thrifty place.