This movie by now is old news in the finance blogging community but I watched Maxed Out
- A woman who spent years (I think) reclaiming her credit record and good name after someone thought that she had died rather than her daughter, who did die
- A woman in California who was holding a yard sale to sell her collectibles to pay her debt bills
- Two women whose children committed suicide after reaching college age, largely because of their mounting credit bills
- A serviceman whose family had to file for bankruptcy because his 23-month tour and modest wages strained his family's finances
- A pawn shop dealer, a collection agency, a debt auction company, and other finance industry watchdogs
Some of these stories were unfortunate, to put it mildly. I haven't been anywhere near as far in the hole as any of these people that were interviewed, so I can't understand what it feels like. The peek inside the credit industry and those that it affected was an eyeful, if perhaps rather one-sided in its incessant portrayal of credit card issuers as predators, collection agencies as vultures, government as enablers, and consumers as victims.
But regardless, the debt situation in this country is what it is. Despite the biases in this film, though, it's fair to say that it's quite easy to get into serious debt problems, and very difficult to get out of them. Another way of putting this is that the odds are stacked against consumers, and in favor of banks. This also is what it is, regardless of whether it's good or not, fair or not. It reminds me of a story one of my roommates in graduate school told me. He was from Turkey. He explained that the engineering classes were really competitive over there because the standards were so high. The failure rate for some of the first-year classes was 75%. Three out of four students got an F. That's pretty harsh. You'd have to be on top of your game to get out of the class successfully.
Likewise, consumers really have to be on top of their game to get through the maze of credit traps set before them. And there are many of them. People in this country enter adulthood into this environment whether they like it or not. A small part don't have to worry about it because they've lived a life of privilege. The others (most of the rest of us) enter this environment in various states of preparedness, resulting from some factors within our control and many others that are outside of our control. But the environment is what it is, and it doesn't care how you or I arrived in a given state of preparedness.
So we start where we are. How do we proceed?
Prepare. Prepare for emergencies by saving. Prepare for job loss by keeping your contacts open. Prepare for obsolescence by constantly learning new marketable skills. Prepare for old age by saving and watching your health. Prepare for a growing family by building up a cushion in your budget. (Twice what you need — you might have twins.) Prepare against being persuaded by marketing by learning about credit. Prepare against hard selling by understanding what's in it for the seller and the seller's company. Prepare for lean times by saving and not buying things that depreciate quickly. Prepare for your financial future by being or becoming one of the folks that does not make the banks a lot of money. They will tell you that you can afford the moon, and those that believe them will become the ones that make the banks a lot of money.
Will you succeed if you do all of these things? You might, or you might not. It depends on where you are now. But to be sure, you'll be better off than if you hadn't prepared at all.
"Two women whose children committed suicide after reaching college age, largely because of their mounting credit bills."
I am not familiar with the facts of this particular situation, but I am skeptical about this explanation. Most suicides are the results of mental illness caused by chemical imbalances in the brain. If you have ever spoken to a person who is clinically depressed, you will be struck by how irrational their outlook on the world is. They are overwhelmed by issues and problems that most people could easily address. So while it may appear that some outside event provoked a suicide, I think it is more likely that the underlying mental illness is the primary cause.
On the issue of predatory lending, we could make many forms of credit illegal such as payday loans with high fees and interest rates. One possible result would be that people who rely upon these loans would change their ways so that they could live within their means. Another possible result is that they would go back to relying upon organized crime loan sharks.
I'm glad you posted the last part: prepare! I think a message of personal responsibility was sorely missing from the movie and the accompanying book. Some of the stories were heartwrenching, but most of them involved a lack of responsibility, like the soldier who bought an Escalade and music equipment on her government-issued credit card. I forget who it was that said, "Well, I figured if they were giving me a card, I could pay for it." That's like an old argument, "My checking account can't be empty–I still have checks left!"
Adults have a responsibility to understand the goods and services they are purchasing, including credit and financial services. While I am sure that there are people out there who have no choice re: payday loans and so forth, there are many more who simply don't bother to pull their heads out of the sand before signing on the dotted line.
Pauld: Your point about mental illness is well-taken. Perhaps these young adults were predisposed to what happened to them.
Scarfish: I believe that the woman in CA with all of the collectibles said something like what you remembered. I didn't feel as sorry for her as I did for some of the others.
To PaulD, suicide has many factors which play into it, but a huge debt burden certainly does not help if the debtor does not feel they can ever pay their debts back. That hopelessness of very repaying it all is part of the psychology of a suicidal mind. Often times, in the pathology, especially for people like Fellowes who are manic depressive, racking up the credit card debt is part of their mania and a symptom of their depression. It can cause depression and it can be a symptom that keeps feeding the illness.
Kudos to Fellowes for being forthright about his illness and how it impacts his debt payback. It's not easy to admit to the world your dysfunctions, but in acknowledging it, I think he's moving forward with his debt and his illness.
I can't figure out whether watching this would just be too stressful. :-/
PaulD, you're right that mental illness must have been involved. Yet as someone who has suffered from mental illness and suicidal tendencies, I can tell you that hopelessness is the biggest part of it. And when you have a "good" reason for hopelessness like big bills, it's harder to work through your depression because the bad stuff won't go away just because you've worked through it. The bills will still be there, so it seems pointless.
Thanks for the advice and wise words. You are extremely right about the fact that its easy to get into debt and not so easy to get out. Credit cards make spending so easy and attractive, just like spending other peoples money which unfortunately it isn't.
It all boils down to Money, you must always have a cushion.
Great tips for playing the game in the stacked deck of our society. I think one of the biggest problems facing Americans is that many of us were never taught how to manage our money, budget, and save. We either never learn it or learn it the hard way, very often. I wrote an article not too long ago entitled, How to Manage Your Finances with a Spreadsheet in which I discussed how I finally disciplined myself enough to make a reasonable budget and stick with it. The envelope system and using the snowball effect in paying off debt was huge for me. And tracking it all in a spreadsheet gave me visual cues that I was making progress.
Anyway, thanks again for the article.
-jamin
Money problems, most of the time, are never just about money. I think this is indicated in the girls who committed suicide and many other scenarios we could post. It is true that the odds are in favor of the banks. Every person who makes money should understand and know how to play the "game". This knowledge keeps you from being the proverbial victim and can provide some insurance for yourself that you're on the right track. I wasn't taught about money and finance in school. Much of what I learned came from my mother who manages her finances splendidly. I'm lucky to have such an example. I hope to do that for my daughter to lead her in the right direction. My wife and I made some mistakes early on and hope to pass on what we learned to her.
I haven't seen the movie but it doesn't at all sound far fetched, (I will look at it later). If I had come across this post before I got my credit card I wouldn't have thought it was that serious, but now after a maxed out credit card I know all too well the bittersweet realities of these harsh predicaments. I agree with mbhunter when he said that if you are ignorant you will end up making money for the banks, funny thing is, I used to be horrible at managing money and that bled into my bank account when I began over drafting, by the way a terrible thing to do. However, for people who decide to get a credit card without any financial knowledge they should be aware, there are big and scary sharks out there.
http://www.bittersweetrealities.com