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Credit Consciousness
Years ago when people paid cash for items they would often ask themselves if they could afford something. Since they were paying cash, they had to have enough money in their wallet or bank account to make a purchase - by paying the full amount.
Over the last 40 years or so our whole thinking about economic commerce has changed. We now have the ability to "use" easy credit. Most people no longer ask if they can afford something.
Today, they no longer consider if they have enough money to make a purchase. It's no long a questions of affording an item. It's a question of being able to afford the payments for that item. Are the payments "doable"?
This is a huge cultural change. Most store clerks ask "Will you be paying for that with cash or a credit card?" And most consumers don't know enough to see the difference between actually "paying" for something and saying "charge it" (thus getting a high interest loan from the bank in the form of credit card debt) to get something before they actually pay for it.
This change in thinking has produced a surging demand for consumer goods. Many manufacturers (in numerous countries) have prospered because Americans "buy" so many goods and services.
In September of 2005 Americans bought $66.1 Billion more from foreign manufactures than we exported. This trade deficit is growing more every year as we "buy" more and more goods that are produced abroad.
It seems to be a "wonderful" thing that Americans can easily obtain so many goods and services by using credit cards.
But, it is also a "wonderful" thing for credit providers. They are extremely happy with the 16, 17, or 18% interest they get on their high interest loans we call credit card debt.
With today's average credit card balance of nearly $8,000, the consumer is paying about $120 per month (or $1,440 annually) for the privilege of having "bought" $8,000 worth of goods and services.
You can quickly see that what is a burden for the consumer is a bounty for the credit provider. Credit providers love credit. They want you to go further and further into debt. They want you to obtain all the credit you can handle.
And, how much debt can you handle? You can handle all the debt for which you can make at least the minimum payments.
And, it's this huge burden of debt at high interest rates that prevent you from getting ahead.
If you are the average American family with $8,000 in credit card debt, just think of what an additional $120 per month would do for you. It sure does wonders for the bank presidents who tell you that credit is good for you.
You just need to realize that the reason you have this high interest burden is that you followed the advise of the advertisers and bankers. You let your emotions drive you into acquiring all the goods and services that your credit would allow you to acquire.
And, because you couldn't pay for them, you got them on your credit card-some of the most expensive loans readily available to you.
As a result, you are not accumulating wealth. You are accumulating debt.
You need to think differently. You need to think like a millionaire. But, you'd be surprised to learn that millionaires don't spend money like it's going out of style. They are, by and large, conservative spenders who watch every penny and make every dollar do its job. That's how they accumulated their money.
From the book, Millionaire Next Door:The Surprising Secrets of America's Wealthy, the simple facts of wealth accumulation are expressed by the three key words. What are three words that profile the affluent?
FRUGAL, FRUGAL, FRUGAL
But, most people are not frugal. They want to have what they want. And they want it now. The fact is that most people spend nearly everything they earn to satisfy their wants and needs. Most people are saving little for the future.
There is a good reason that most people are just two paychecks away from financial disaster. They buy too much. They care little about the actual cost of what they buy. Their only concern is whether or not they can continue to make payments on their debt. Their question is, "Is another $45 a month doable?"
This concept of "Are the payments doable?" causes people to lose track of their future needs. They are failing to plan for their retirement years.
And what is the result? As you might imagine, many retirees are totally dependent on Social Security for their income.
The Future Of Social Security, SSA Publication No. 05-10055, ICN 462560, March 2005 indicates that for two-thirds of the elderly, Social Security is their major source of income. And, for a third of the elderly, Social Security is virtually their only income.
Each individual needs to begin thinking about their long-term well being, rather than simply wondering if they can afford the payments for today's desired objects.
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