I’m torn a bit on this documentary. I’ve worked with the financial sector for a large bit of my life. No, I’m not a bill collector, I’m not in predatory lending, and I’m not pulling down million dollar bonuses.
Credit in this world is a necessary thing – few people will afford a home or a car without it. You’ll also be hard pressed to do some activities without credit cards – it’s not impossible, but travel without a credit card today is very difficult. Living without a checking account isn’t impossible, but it’s not easy.
See, I’m already into emotional territory, aren’t I? Homes and transportation – a little break for the family or an emergency car rental – just being able to pay bills…
The documentary shows the emotionally-crippling side of debt. And what was happening when credit was a lot easier to come by before the economy’s implosion in ‘08 (the documentary was done in 2006). Parts of it were absolutely dead-on and other parts of it were a bit manipulative and very misleading.
The dead-on: giving credit too young and too early. I’m a huge fan of the CARD Act making it so you can’t get a credit card without a co-signer until you’re 21. The lack of clear understanding on how revolving, unsecured debt works in this country (“it takes a while to pay it off” isn’t even close to understanding the true cost of a $20 T-shirt on a 20% APR card that you’re carrying a balance on and making minimum payments on) and the default rates were ridiculous on those cards.
The mis-represented: That debt collectors can really act like that (there were some borderline federal violations shown – depending on how they were contacting relatives/neighbors and what they were saying). The ones they showed were 2nd party debt collectors – these are agencies that buy bad debt from all the major lenders in the country. Basically, if you manage to ignore calls from a bank or lender for about 3-4 months, they give up on you and sell your debt for 10-30 cents on the dollar depending on a ton of factors. This is sold to a 2nd party debt collector who gets to keep anything they can get – they know that a good portion of people are long-gone and will take time to be found, but some folks have just been ignoring their primary lender hoping things will go away. These folks will be aggressive as all get-out whenever they have a live body – because they’ll likely be settling for 50 cents on the dollar.
The bad: A huge “blame the lenders” attitude – and hoping that trotting out a lot of personal tragedy would make any such discussion seem distasteful. They had no less than 3 individuals who committed suicide over their debt and one woman who openly discussed her chosen method (car accident) as if she were on the verge. The suicides were heartbreaking enough, but this sort of got me thinking about the problem in point #2 – and even in #1 to a degree…
We don’t discuss debt or money in any real way in this country. Even when we do get money people – they love to tell everyone how you should have zero credit card debt, how easy it is to get out of debt, how you always should have a lawyer (nevermind the cost!) look over this or that contract, how you never get this kind of loan, how you always do this or that type of buy, how this never happens in housing no matter what your real estate agent says, how your friend knows this guy who can do this for you and save 3 points booking, and don’t you know that the government shouldn’t be regulating it because it’s so easy to figure out, and just check this or that website
Seriously, are they on crack? Finances aren’t easy. How many people even do the most basic thing anymore – keeping a daily checkbook register and a monthly household budget? Or do you say you do it and rely instead on your ATM receipt balances and online banking because those are “really accurate” not knowing there are all sorts of processing exceptions.
Getting into debt is easy. Out is very hard – “snowball” method or whatever cute thing you got from a radio host or tv personality. You know how you can complain about your lawn or your sex life and people will immediately launch into their own tales of woe and fix-it solutions – with tremendous detail? You’ll never get that same level of detail with debt! In fact, it’s almost like talking about sex in front of your grandmother – you’ll likely only admit to the most necessary information and you’ll want to move on as quickly as possible.
Why? Because we’ve made it a shameful thing NOT to know. We’ve made it really emotional. Everyone pretends they have it 100% together and the only person that must not have it together is you. So we absolutely don’t talk about it – ever. So much so, we’ve made not being able to pay a very shameful and punitive thing – no matter who wants to talk to you about your debt. That people go behind on payments with their primary lender and never talk to them is heartbreaking. Trust me – they don’t want to sell you off to a 2nd party collector, but if no one picks up the phone or returns a call, no one can work with you. And trust me, they will work with you whenever possible.
Is there more the industry needs to do? Absolutely! Responsible lending with proof of income, proof of employment and all that sort of responsible banking craziness of old – because it does no one any favors to stretch into something they can’t afford with the hope that things might get a little bit easier in a few months/years.
Sorry for the large wall ‘o text – but I really want to see things that are geared toward having everyone learn as much as possible about finances. The more informed everyone is, the better. Heck, I’d love it if financial literacy were taught just like basic literacy – so you started with things like piggy banks in first grade to learn the concept of saving money and worked your way through personal accounting all the way up through high school where you learned about various forms of interest, reading financial contracts and even got introductions to the various financial markets (seriously, how many people even know the basic difference between a stock and a bond?).