Zebscussion Topic: Bankruptcy Rate Surpasses 1929 Crash

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Zebulon

Monday, October 16, 2000 - 03:52 pm Click here to edit this post
Ok, I wanted to get everyone's point of view on this, so I've created a discussion topic. I'll chime in my thoughts a little later.

Today, over one million people are filing for bankruptcy each year. This has surpassed the bankruptcy rate during the 1929 economic crash, yet we are currently in one of the most robust economies. There is something wrong with this picture. What do you believe to be the source of the problem and the solution?

Luke

Monday, October 16, 2000 - 04:02 pm Click here to edit this post
Hey Zeb! It's good to hear from you! I'll give my worth... :)

When I went to Europe last year and this year, I had the opportunity to hang out with a lot of locals, specifically in Spain and in Germany. Of course, one of the first places where I needed to go was to the shopping mall to buy gifts for all my friends back home. Wherever I went in Europe, everyone always mocked me because I was the typical "American" with my wallet full of plastic credit cards. Of course! I wouldn't be caught dead travelling with a lot of money in cash... I've always learned that it's safer either with travellers checks or even better--credit cards. Plastic is smaller, cleaner, and much easier to cancel at a moment's notice if they're lost...

But this is also very indicative of society here in the US. My friends in Spain were saying that it's almost unthinkable to buy anything unless you have the cash ready at hand to pay for it. It was kind of amusing, because I was travelling with my new digital camera that I had just purchased before I took off on my trip--and how did I get that digital camera? Circuit City had sent me a "free" credit card in the mail... and naturally, that piece of plastic was begging to be used!

This, however, starts a viscious cycle. If you don't have cash for your purchases, you fall into debt. It gets more and more tempting to spend money using credit cards with the mentality, "Well, payday is next week... So I'll be able to pay for it then." Sorry, but let me be the first to say that's a bunch of BULL. And I feel that I can say that--why? Cuz I do the same SHIT! I'm close to paying off the last of my credit cards... and what happens? I'll go to the shopping mall... or to the music store... or even worse, amazon.com! And there goes all the hard-earned savings that I've built... and it disappears a million times faster than it took to earn.

Let's face it... we are living in the (materialistically) richest country in the world. Not only is it "cool" to have a lot of posessions, it's almost expected in this society--regardless of one's ability to pay for it all. When my European friends tell me that it would be unthinkable to spend 5 years paying for a car, or 30 years even to pay for a house, I start to think whether or not that type of mentality could ever exist here in the US....

Something tells me we're still far away from that...

Zebulon

Monday, October 16, 2000 - 09:11 pm Click here to edit this post
Thanks for your input, Luke! It'll be interesting to see what everyone thinks about this very real situation.

Vykin

Tuesday, October 17, 2000 - 07:04 am Click here to edit this post
Zeb, it does seem odd in economic good times the rise in bankruptcies. Here's my take. With economic stability it seems more money has been made available for small business start ups. At least in Canada it has been. I think people are popping up with their small businesses without thinking through the ramifications. So they get initial grants or funding and don't use it wisely. One of the biggest mistakes people opening a business make is mixing the company with their personal assets. So thats one area I see why the increase in bankruptcy. The other is with the DotCom companies. Again, it seems people are buying into the idea that the internet is a gold mine of profits to be made. I've been cruising the net since 93 and have seen more websites come and go.

In the area of personal bankruptcy. Plastic "Money" has become popular, its a status thing. i.e. "I got a gold card, I got a platinum card, I got a double platinum, I got a diamond credit card". When at one time it was difficult for a person to get a card. They are now mailed faster than lightening, with seemingly low interest rates. Once again, no one bothers to read the fine print. I heard few months ago the the average US citizen has a minimal of 14-17 credit cards. That shocked me. I don't know what the average Canadian has. In my case, I've probably had up to 3, maybe 4 at any one time. I have also had my share of debt and still do! I consolidated debts a few times as well. About 4-5 years ago, I decided I have to change my focus, I kept getting further & further behind. I decided One CreditCard ONLY. and it would be tied to my bank account so that the charges are automatically debited. I am really trying to pay cash nowadays instead. I have to say, it feels a hell of a lot better to walk in and pay cash for something even if its a Sears purchase. Though it may take longer to pull the money together. I'm starting to sleep more easily at night now.

Zebulon

Tuesday, October 17, 2000 - 06:25 pm Click here to edit this post
While the employment rate seems to say more people have jobs and are working now, many people are "underemployed". Too many large companies have down-sized and the people who were laid off have had to take jobs at a pay rate lower than when they incurred most of their debt. I agree with everyone above that the economy is being driven by out of control spending. People spend more than they decide to save for themselves. Credit card balances have increased at a much higher rate than the increase in the pay scale.

What upsets me more is the fact that credit card companies are giving people credit cards who can literally not afford anymore debt. When those same people file for bankruptcy, these same companies are the first ones to complain. Remember that they charge as much as 24% because of the risk. It's a prime investment for the lender while the borrower's financial life slowly crumbles apart.

The best way out of this situation is to consolodate revolving debt into a fixed loan with a fixed interest rate. There is a BIG difference between revolving interest (credit cards) and fixed interest (bank loans, car loan, mortgage). In some instances, a home equity loan is the best solution as long as you are smart about it and don't let the lender trick you into adding more debt.

You see...money doesn't come with any type of manual and they certainly don't teach how to properly save and spend money in school. Kids should be learning a few basic principles in elementary school.

Most people, especially around age 35 and 40 (when they actually get around to thinking about saving for retirement), can't fathom accumulating a million dollars or more. It seems out of reach...mainly because they have no money to save. It all goes towards debt payments. The fact is they could do it with a little bit of proper financial knowledge.

I'm very thankful for the principles my friend and mentor taught to me. I never knew these things and certainly didn't think about retirement when I was in my 20s. Most people don't even think about it in their 30s. Albert Einstein said that Compound Interest is the most powerful force in the universe. There's a common financial principle called the Rule of 72. It basically states that if you take the interest rate you're getting on your money and divide it into 72, it tells you how many years it takes a one lump sum deposit to double. How many doubling periods do you have in your life and are you getting the best rate of return? Do you think the banks know the Rule of 72 when they make you a loan or dish out a 14-24% credit card? You bet they do. That's why they make them so easy to obtain. Don't fall for it.


I'll just end there and I know this may not be a comfortable topic for discussion by some. However, it's important to know what's going on around us and how we can overcome or avoid the pitfalls. I'm anxious to hear other points of view on this.

Vykin

Tuesday, October 17, 2000 - 08:12 pm Click here to edit this post
Zeb interesting Rule of 72, I never heard of it before. Goes to show a person can learn something new in here everday.

,You said: "money doesn't come with any type of manual and they certainly don't teach how to properly save and spend money in school. Kids should be learning a few basic principles in elementary school". Absolutely agree, you know what really bothers me is the credit card companies are setting up booths in colleges and universities and literally handing out cards to young students, like candy!
Also, my son will go to university next year, and I registered with a legitimate site, for scholarship searches for him. Guess what the first item was? You Got it. A lovely advertisement saying something to effect of:

Please click here to obtain your Mastercard automatically! We know as a student you don't want to have any financial worries.

Pissed me rite off! (That's why we're searching for scholarships, so he wouldn't have any worries, but to offer a credit card? Give me a break!

Regardless, I found your topic quite interesting Zeb. Don't know about the others, but interesting for me.

Zebulon

Wednesday, October 18, 2000 - 01:17 pm Click here to edit this post
I'm glad I reached you in some way, Vykin. It's tough to reach everyone because financial matters is not something people want to deal with until it's too late. Getting out of a financial pitfall can't happen overnight. It takes a well rounded plan and patience. It takes a while to get into debt and will take a little while to get out. The speed of that is determined by the plan.

Of course, the best course of action is to educate everyone in hopes they can avoid the pitfalls. I understand your anger about the credit cards being handed out to students. Look at the extraordinarily high interest rates. Did you know credit cards have over 60 ways of calculating interest? The companies make them sound so great and easy to use, but it's poisoned candy for most people...ESPECIALLY college teens. I know. I was one of them. With a little bit of patience and use of the Rule of 72, paying for things on a cash basis could quickly become a reality.

Savings accounts in banks give such a poor rate of return. You're lucky to get 3%, if that. 72 / 3 = your money doubling every 24 years. ouch! The bank uses your money to get a 12%+ rate of return. They like to call that profit. I call that a sham. I'm not trying to bash banks, but just show everyone there are ways to do better by investing directly into the global economy than relying on a bank as a middleman.

Zebulon

Wednesday, October 18, 2000 - 01:26 pm Click here to edit this post
You'd also be surprised how many people save money in insurance policies. That's probably one of the WORST ways to save money, yet they are so heavily pushed that 80% of the population trust in those things. I'm not saying people shouldn't be protected, but there is a better way of doing that. When you try to combine protection and savings together, the cost to maintain that each month shoots skyhigh for such a poor rate of return. Just more FYI.

Vykin

Wednesday, October 18, 2000 - 01:56 pm Click here to edit this post
Zeb interest you'd mention the insurance policies. I paid into a police since 1987, for a few years I paid with the "cash value" accumulation. Then I needed money, only had about 1000 bucks in the cash value. I notified the insurance co. and said, "look, I only want to pay the premium for if I die, don't want to accumulate". That was fine my premiums dropped from around $60/mth to $40/mth. So I pay for years rite up to this year. Now about a year ago to now, I get a letter from the company saying they are making many changes. One is their insurance agents will be let go. They will be hiring and training "Advisors". They said, they are making big restructuring changes and gonna offer us about 8 or nine different options and ways to "save" additional money. I phone and 800 number they had. Its unclear to me I want to find out who my local rep is and have a face to face discussion with them. I'm told for British Columbia there are still in the restructure process, but someone will call me within two months. (This was October last year when I called). Come, January, February 2000. NOT A WORD. Mean time btwn Jan and March I've recented get this 3 increases to my premium after 13 years of the same premium. I am mad as hell, call the Insurance Co. again, say, look, I called 4 mths ago, and no one has called me to set up an interview. Response, we're sorry, we should get to hiring advisers for BC soon. We will make a note and have someone call you.

I am not a happy camper. Months go by , in July I get this big thick fat package of choices of how to pay my premium. I open it look at it and file it into oblivion. By now I figure they want my $53/mth but don't call me. Whats wrong with this picture.

At the end of Augst, I get a call from some idiot, who claims to be an advisor in ONtario, with out notice, late at nite. He says, you wished to speak to someone?
(I'm thinkin no I wish to kill someone - LOL).
I told him, its been a year, What The Hell is going on. He rambles as though reading off a prepared speeech. I say, look I don't want to talk on the phone I want face to face with who ever my new "adivser" is. He says, well vyk, your closest adviser will be in Vancouver or Victoria (my insurance agent had been within a half hours drive before). I said, Oh and whats the plan, no one in my area? The "Adviser" responds, "Well, you know we find it just isn't worth our while to put an advisor in your area.
(and then he goes on to try push these savings options in my face over the phone).
I was so damn mad, I responded, "Well, Wayne, I have been reviewing my policy and I don't find it WORTH MY WHILE to continue my coverage with you people.
The guy starts backpeddaling, said, he will give me time to look at my policy (Well why the hell didn't he give me heads up to begin with)
I told him not to waste my time anyfurther, and cancelled my policy.

Sorry got a bit off track, but so agree about the B.S. "cash value" people don't even realize its not extra money they are earning, but their own the company is keeping, and playing virtually nothing for interest.

Vykin

Wednesday, October 18, 2000 - 01:57 pm Click here to edit this post
Zeb I have to pop out for an hour or so, but will come back and re-read other parts of your last response and vent some more with you if thats okay bud.

Zebulon

Wednesday, October 18, 2000 - 02:06 pm Click here to edit this post
No wonder everyone is negative when it comes to dealing with insurance. It's those situations that sours people.

Good for you! They were giving you a major runaround...it's what they're best at. Look into a solid term life policy (no savings plan) that has a guaranteed premium for 20 years. They are out there. A good rule of thumb is 7-10 times your annual income. No more (unless you can afford it and that's what you want), no less, no built in savings.

Income protection is the solid foundation for an overall financial plan, especially if you are married and/or have kids.

Zebulon

Wednesday, October 18, 2000 - 02:07 pm Click here to edit this post
That's fine, Vyk. Vent away.

Vykin

Wednesday, October 18, 2000 - 06:54 pm Click here to edit this post
Zeb after I canceled my insurance policy, been two months now, I have $103 dollars in my savings account.

Zebulon

Wednesday, October 18, 2000 - 07:04 pm Click here to edit this post
Ouch! Do you mean in your actual savings account or the savings portion you got back when you cancelled your policy? I'm not an insurance person, but those cash value agents love to do a number on people. It's big commission for them.

I'm sorry you were subjected to it. There ARE respectable companies out there. My mentor and friend used to deal a lot with a company called Primerica and another one called Kemper, I believe. You might check their websites.

Roger_Ramjet

Wednesday, October 18, 2000 - 09:17 pm Click here to edit this post
Not much to add to what's already been said. High interest rates on plastic, the movement to charge a heck of a lot more than what was done just 10 years ago, and an increase in materialism.

btw, does it seem weird that cards are typically sent to college students these days?? What, is the idea to get them hooked early in life??

It seemed like that not all that long ago most households has two things that were being paid for on time...the house and the car.

Zebulon

Wednesday, October 18, 2000 - 10:05 pm Click here to edit this post
College students are prime targets for credit cards because they are at a point in their lives when they need to establish credit and they have no credit history. Usually by the time they get out of college, their credit history is screwed...for the majority. Credit card companies only care about one entity...themselves. Good luck trying to talk around their "fine print" when you talk to a customer service representative.

Everyone should have one credit card, and really only for emergencies or to rent cars and hotel rooms. A debit card is great too. Any more than 2 cards and maybe one gas card is asking for trouble...in my observant opinion.

Vykin

Thursday, October 19, 2000 - 12:17 am Click here to edit this post
Zeb you said: Do you mean in your actual savings account or the savings portion you got back when you cancelled your policy?
Answer: WHAT SAVINGS PORTION? I GOT SQUAT!
I mean in an actual savings account. I took the monthly premium that was going nowhere and started putting it into a separate savings account for my son (unbeknownst to him). He has a savings account. But I was so angry with the insurance company, this way I figure if my son needs extra cash while in university>(and I have no doubt he will) I can give it to him when he needs it not when I'm dead and my wallet is empty.

Zebulon

Thursday, October 19, 2000 - 03:19 pm Click here to edit this post
I see, Vyk.

That savings account is probably generating less than 3% interest per year. Will he be using an ATM card to get out what he needs?

With a money market account that has a check writing option, you get a better rate of return than the current inflation rate...usually 5%+ Checks usually have to be written in $100 increments though.

Of course, there are mutual funds that generate 12%+ but it takes up to 12 days to receive a withdrawal...depending on who the broker is.

Just more FYI.

Zebulon

Thursday, October 19, 2000 - 08:49 pm Click here to edit this post
Vyk, I'm truly sorry that company messed you up. Situations like that are the reasons why I try to educate people, especially younger adults before they have to go through any of that. Maybe you can pick and choose some of the info above and pass it along to your son so he'll know.

I don't think too many more people will add to this post, so I'll just end there. This is a touchy issue with most people.

Vykin

Thursday, October 19, 2000 - 10:32 pm Click here to edit this post
Zeb the company didn't mess me up so much as, they pulled me in when I was young, and it took me this long to figure out, I didn't have the brains to consider my options at that time.