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Fable of savings merely a myth to credit generation

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© St. Petersburg Times,
published June 20, 2001

Cricket: It's me -- the cricket. I'm cold and hungry, with no roof over my head.

Ant: The cricket? Ah, yes! I remember you. And what were you doing all summer while we were getting ready for winter?

-- From The Ant and the Cricket, by The Brothers Grimm

* * *

These counselors see the symptoms day after day.

Desperate folks come looking for help. They are put on a program to break their habit and regain their independence. But many soon fall off the wagon and go back to their old ways. A year later, they show up again, in worse shape than before.

Alcohol? Drugs?

The addiction is debt. Credit card debt. Huge, revolving loans in which minimum monthly payments seem to make no dent.

In Central Florida, tens of thousands of struggling borrowers -- some with six-figure paychecks, some with four -- seek aid every year.

Richard Schram sees the symptoms every day as a 35-year veteran of banking and now the quality assurance manager at the non-profit Consumer Credit Counseling Service of Central Florida and the Florida Suncoast. He says the slowdown in the economy soon will mean more people knocking on his organization's door.

Sure, sure. Plenty of people have lacked financial discipline since time and money began. Aesop wrote of the spendthrift issue in his fable The Ant and the Grasshopper, as did The Brothers Grimm in the fairy tale The Ant and the Cricket.

But after the longest uninterrupted economic expansion in U.S. history, after a decade of consumer consumption so remarkable that the new financial disease Affluenza (affluence +

influenza) was coined, breaking the debt habit is getting tougher than ever.

"We see people with 12 credit cards," Schram says. One client arrived with 32 debt-laden credit cards.

"Imagine trying to sit on that many cards (in your wallet) every day," he says, only half in jest.

Schram, no foe of responsibly used credit, sees trouble emerging for old and young borrowers.

"Our older population is increasingly in debt," he says. Retirees -- many on fixed incomes but with strong credit histories -- have been bombarded by companies offering credit cards with high spending limits.

The problem is the rising cost of medicine, Schram says. "These people must resort to charging their prescription drugs on credit cards because they can't afford the costs any more on their pensions."

Here's a typical scenario. A retired couple is living on $1,200 a month from Social Security. As the couple ages, their medical needs increase. They find they are each charging close to $200 a month for prescriptions. Combined, that's $400, or one-third of their income. Over time, the couple cannot pay off the credit card and the total debt starts to rise.

"We will find some individuals in their 80s who owe $25,000 or even $35,000 in credit card debt, and all they have is Social Security," Schram says.

What will happen when baby boomers, accustomed to heavy spending and the ease of credit cards but often financially ill-prepared for retirement, become seniors?

If the old seem increasingly headed for financial peril, so are the young.

Schram says his credit counselors -- in 16 counties that include Pinellas and Pasco (but not Hillsborough, which has a similar organization) -- see many people still in high school and college that are "bridled" with credit card debt.

About half of the freshman class arrives at college with a credit card (in the student's own name) in hand. That's up from a quarter just four years ago.

By the time these young adults graduate college, some are saddled with $20,000 or even $25,000 in credit card debt, plus student loans of as much as $50,000.

"They owe $60,000 or $70,000 before they even have a job," says Schram, who is based in Orlando. "For many, it takes most of their lives to pay those loans off."

Who's at fault?

Schram shrugs the shrug of someone whose mid-Florida organization counsels 25,000 debt-strapped people a year.

If you're young and need money, will you refuse a hip credit card offer sent to you with a corporate blessing to spend? If you're retired and need pricey prescriptions, will you ignore the opportunity to buy it on plastic?

Should credit card companies ignore these "untapped" markets of potential young and old customers?

Schram says our society encourages consumption but has failed to educate consumers about what he calls "life survival skills."

Well, no one ever taught me about finances!

Here I am in college and no one taught me how to balance a checkbook!

Schram hears these lines over and over from people seeking debt aid.

Typically, Consumer Credit Counseling Service will put debt-strapped clients on a tight budget. Counselors will encourage modest, monthly payments to start whittling away at the debts. Sometimes, counselors will negotiate with credit card companies and other lenders to accept a smaller payback than what was originally owed.

It does not always work. Financial discipline does not arrive overnight. The average credit card debt per U.S. household was more than $7,500 in 1999, more than double the $3,000 average in 1990.

Our society is full of young people who think nothing of spending $200 or $300 a month just eating out at restaurants, Schram says.

Want to sober them up? Tell them they must cut their entertainment budget 90 percent. Tell them they can spend no more than $30 a month.

"A budget is foreign to most people who come in here," he laments.

Debt as addiction. Schram sees clients fall off their budgets after six months, only to rack up more debt. Then they show up a year later. Schram calls them "repeaters."

Consumer Credit Counseling does not encourage clients to file for personal bankruptcy. Counselors do not want clients with homes to take out second mortgages for fear the equity in their house could be at risk.

But bankruptcies happen. Nationally, bankruptcies are up more than 40 percent since 1995. And Schram knows plenty of clients who abuse the credit system and file for bankruptcy as nonchalantly (and almost as often) as one might grab a hamburger at a fast food drive-through.

The young and heavily indebted disturb Schram the most. And the math behind credit card debt can be deceiving.

Imagine the consumer who carries a balance of $5,800 from month to month, as many do. If that cardholder makes the minimum payment each month, it would take 30 years and $15,000 in interest to pay that off.

When everybody around you seems to be living well, when all those TV ads encourage you to buy the next new upscale thing . . . Schram likens the irresistible lure of today's consumption culture to a scene from Homer's The Odyssey.

In the ancient sailing travels of Odysseus, the hero encounters Sirens -- beautiful women who sing and attract sailors into the shallow harbor where they become stuck forever. Odysseus fills his mens' ears with wax so they will not be able to hear the singing. He then has himself tied to the mast so he will be able to hear the songs but won't be able to reach them.

In that fashion, the ship and its crew pass the temptation unharmed.

"Credit cards offer the same allure of easy gratification," Schram says. "And for some folks, that is very difficult."

- Robert Trigaux can be reached at or (727) 893-8405.

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