And when it comes to a large purchase like a car, salesmen know precisely how to take advantage of people’s greed, poor financial skills, and discomfort with negotiating. The last point is a big deal. I think most adults ought to be comfortable being assertive with a salesperson and negotiating, but they’re not. Knowing you should negotiate the 15k price not the $300/month payment isn’t sufficient when you’re dealing with an experienced salesperson who keeps switching back to calculating the monthly payment for you.
I wonder if a spreadsheet would help people who don’t quite get what the credit card companies are doing - plug your numbers in, and see how much that $1000 tv actually costs you (is that tv really worth $2000? $2500?).
Again, spreadsheet. I did this years ago - that’s how I learned that if you make only the minimum payments, you will essentially never pay off a credit card balance.
I asked them to hold my limit at $1000. Yes, that’s right - I have a credit card with a $1000 limit, and somehow I am living a modern life in North America! 
Yup. They should probably teach that course in high school, too. I was recently working with a young lady, around 24, I think, and she was no dummy, but she didn’t really have the first clue how finances and banks and credit cards worked. First rule - they are not your friends. They will never, ever do anything good for you (unless it also profits them). Have as little to do with banks and lenders as possible, and always assume they are trying to hose you.
Or they’ll slap an annual fee on the card in hope’s the cardholder will cancel it.
This is not limited to banks/credit issuers - it’s pretty much the entire consumer sector. No matter how they spin it, changes and new features benefit them first, you maybe… but they can convince you that it’s a 100% customer-centric act.
Teaching this in high school would be useless. It was done for years, in the sort of self-serving, encapsulated, devoid-of-connection-to-the-real-world way that such things are shoehorned into K-12 curricula. A general teaching of critical thinking, math skills and “cui bono?” would serve us well, but GFL.
It’s hilarious how nefarious some people think the credit card industry is. Credit is a useful service. The median user has a low balance, if any. You have to partake in voluntary, stupid behavior to get in trouble. Fortunately, most people aren’t that stupid.
But some people are. I’m not sure how to fix that. I’d rather it not be by further interfering with my private, mutually beneficial business with other private parties. People are also stupid about saving for retirement or college. We’ve “fixed” the former by forcing people to pay into SS. I’m sure that’s the route I want to go here.
I’ve never had an annual fee slapped to any of my many cards over the years. Is this a thing? I’ve seen cards canceled due to disuse, but never from not carrying a balance.
Depends what you call a low balance. The median credit card debt of U.S. households is $3,300. Since about 46% of households carry balances, the average credit card debt is $7,117. The average among the almost half of households carrying a balance is $17,630. That’s a substantial number of people who aren’t paying off their cards, and a substantial amount of debt owed.
The average is high. The median is low. Classic case from high school stats of a few screwups skewing the distribution.
My situation may not be equivalent to everyone’s. However, I pay off my balance every month. Any time an annual fee is mentioned and I show reluctance to pay it, it somehow gets waived. What this tells me is that the bank is entirely happy to just profit from the merchant fees associated with my purchases, if that is all I’m offering them.
Further, I’m not concerned about paying merchant fees (and yes, consumers are of course ultimately paying merchants fees). Having a credit card is damn convenient and it costs banks money to run the system. Banks deserve a profit on their efforts in that respect, same as any business. Of course, you can argue forever about whether they make too much profit from the system, but making some profit out of the service they provide is fair enough.
Here’s the info from last month’s statement on the card I use.
They’ll get two payments and about $25 in interest from me, but this clearly illustrates the hazards of compounded interest for someone less able to clear a balance.
Yes, she is.
Perhaps. But I have about 4 or 5 cards, and not a single one has bothered, even though I’ve paid back my balances in full for the last 10 years or so, and I get 1% back. I do my best to charge as much as I can for that extra 1% back. Doesn’t seem like much, but when you get $500 checks every couple of years, it does feel like real money.
It sounds to me like maybe she’s too focused on living within what she makes each month. She’s so busy thinking about what her $10 can do this month that she’s not worried about the $10 she’ll still be paying in 2019.
In America, it’s not how much you spend that’s important. It’s how much you save.
I didn’t need that stereo, but it was 20% off.
That kind of mentality is fine for commodities with a liquid resale market, like, say, stocks. If you can wheedle someone into selling you 500 shares of IBM at a 20% discount, it might be worth it to buy simply because you can get your broker to sell it for market price, which hopefully won’t drop by 20% in the short amount of time it takes to process it and thus you are likely to profit, or at least not lose that much.
With consumer goods, the depreciation is so drastic and things aren’t set up to make it easy to day-trade department store dresses, microwaves, or DVDs.
The credit industry IS nefarious because greed. If all their terms were as open and straightforward as they could be, they would make a lot less money. In various ways that span the spectrum from Amex Black cards to Vinny’s Payday Loans, the credit industry works as much on deception and legal scamming as it does on percentages. Decades of consumer legislation trying to bring transparency have had only partial effect.
Arguing that the industry is somehow not-nefarious because credit is useful is exactly parallel to arguing that car salesmen are trustworthy because cars are useful.
I have never had a card change terms on me for lack of use or paying off balances. At the onset of the last financial storm, I had my carrier arbitrarily cut my business card from something like $24k to $2k - no more than minimum notice, no slightest interest in restoring it to a useful level, just carrier-wide reduction of debt exposure. That limit was useless, so I cancelled the card (telling them I was going to do so if I couldn’t get restored to $8-10k or so) and had another with much the original terms in a week.
I think that was a something of an unusual situation, though. Quite a few carriers were chopping their potential debt exposure in that era. But adding a fee, jacking interest rates and the like? No. If anything, it’s amusing to see all the games they play to get us to keep and use our cards.
No, she isn’t. She just isn’t knowledgeable about this sort of stuff. I resent this kind of implication, because I am one smart cookie - when it comes to book learning. Real world stuff, I had to get out there and learn it, little by little, and my parents, being immigrants, didn’t have a lot of experience either. They chose to deal with it by switching off most things - I don’t even know if they had a credit card. I wanted more, so I made mistakes, but I fixed my mistakes, too.
Part of it is that some of us were never taught budgeting or compound interest or finance. I never was. Not in school, certainly, and once I got to college I was taking all science classes. No one ever sat me down and taught me how to balance a checkbook, how to manage credit cards. On the contrary, I was told the best way to deal with money was to never spend it - basically, abstinence for finance. Well it doesn’t work that way. Just like abstinence, as soon as you get out into the world, you want stuff.
It takes time to learn everything, and no one came into this world knowing it all.
Yes, she is.
It’s the financial equivalent of playing on the freeway. A lot of teaching should not be required to understand you don’t do this with your personal finances, regardless of how little more sophisticated than that your knowledge level is.
Saying she’s not being stupid because “no one taught her” otherwise is poor-victim nonsense. We are surrounded by sensible consumer choice and finance information if you take time to look at it, and only the smallest modicum of common sense is needed to know that ain’t nuthin’ free.
If she’s smart enough to have a job and a credit card, she’s smart enough to understand how to use it in ways other than financial russian roulette.
There is a difference between ‘ignorance’, which should not have a negative connotation, and ‘stupidity’. Ignorance can be replaced with education, you can’t fix stupid.
While compound interest isn’t rocket science, it’s also not particularly intuitive for someone not experienced in thinking in those terms.
This Credit Card Calculator will show you/her the exact hit your finances will be taking over time.
IIRC, most credit companies base their minimum payment on the interest due plus 1% of the balance. Therefore the payment you would be making on a $1000 balance is going to be $10. Leaving the balance at $990. Lather, rinse, repeat. Next month you’re going to pay $9.90 towards the balance leaving $980.10 to roll over.
So assuming a 25% interest rate, you’ve paid off $19.90 of you debt and put $41.45 in the coffers of the bank. And the bank will let you play that game as long as you’re willing.
This is kind of off the point - it’s not about the details of how credit works, it’s the fundamental notion of spending money you don’t have. The idea that you can “spend” every dime of future earning offered to you in advance is the problem - all else is window dressing and idiot tax.