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Okay these loans certainly sound like a bad deal, but what are people supposed to do? Say your car breaks and you can’t get to work. For all of us here billin

by blhack 7y ago

Okay these loans certainly sound like a bad deal, but what are people supposed to do? Say your car breaks and you can’t get to work. For all of us here billing out >$100hr or whatever your local consulting rate is, the answer is some calculus around the cost of losing your job vs the cost of fixing it. But for MOST people, the cost of fixing it is functionally infinite. They literally do not have even a few hundred dollars to, for instance, replace a tire. Yeah, the interest on these is predatory, but then what are these lenders supposed to do? Many of the people getting these loans WILL default on them. Yes it would be great to offer these loans at a reasonable interest rate, but they are unsecured loans. The only collateral is the clients credit score. It’s easy for all of us with our comfy tech jobs to hate on these, but to me that feels like kicking the poor while they are already down. Yeah, they know the loan is bad. They probably don’t have any other options. Instead we should be looking at ways to make it so that giant unpredicted expenses don’t happen at all. That means cheaper transportation options, cheaper access to healthcare or preventitive care, predictive diagnostics, etc. It helps nobody to point out how foolish the poor are.

philipov 7y ago
> Instead we should be looking at ways to make it so that giant unpredicted expenses don’t happen at all. Or maybe fix it from the other end: reduce inequality so fewer people are living paycheck to paycheck and can actually build savings to use for unpredicted expenses.
- blhack 7y ago
  I’m sorry but this is a ridiculous, unactionable answer that is functionally equivalent to “well we should make things better”. Yes of course we should, HOW? We need more innovative solutions to these problems. I like seeing electric bicycle shares, I like seeing community-based, high density housing with shared kitchens and bathrooms, I like predictive diagnostics and telemedicine (although the FDA is fighting it).
  - philipov 7y ago
    How about paying people more? That's pretty actionable. Jeff Bezos doesn't need 100 billion dollars. "Just get rid of unexpected expenses" is the one that sounds ridiculous to me.
    - blhack 7y ago
      How is that actionable? Are you going to show up at Jeff Bezos’s house and rob him?
      - philipov 7y ago
        It's actionable by passing laws that limit the upside executives can extract from capital investments and raise minimum wage on large business. There will always be unexpected expenses, so you have to pay people enough to be able to save. Much better than making people dependent on those who control the mechanisms for allegedly limiting unexpected expenses; that's just a plan for increasing social control available to elites. High density housing with shared kitchens and bathrooms sounds like a dystopian hellhole designed to strip people of their dignity, and that's something you think is a good thing? We already saw tenement buildings in the 19th century.
        blhack 7y ago
        People have been trying that for 100 years or so. So far it hasn’t worked.
        ianleeclark 7y ago
        > People have been trying that for 100 years or so. So far it hasn’t worked. We didn't even have the minimum wage 100 years ago in the United States. How are you going to deride people for not offering solutions, then, when they offer viable solutions, attempt to magically will-away history?
        7y ago
- kortilla 7y ago
  Reducing inequality is a completely orthogonal. Taking everything from the top 1% doesn’t fix poor money management skills. Additionally, there are many middle class folks making well above average that still live paycheck to paycheck by living beyond their means (huge house, multiple cars, etc). Poor money management != poor and more money does not fix it.
wintorez 7y ago
Exactly, thank you!
tw04 7y ago
You had me until: > Yeah, they know the loan is bad. They probably don’t have any other options. I think it’s a pretty poor assumption to assume all the people taking out these loans understand exactly what they’re getting into, and what other options they may have. I think there should be a mandatory 20 minute education session for anyone taking out a payday loan/installment loan.
- wintorez 7y ago
  I think his point was "what other options do they have?". The cost of for example not fixing their car is infinite, so they'll accept anything to get that fixed.
- wastedhours 7y ago
  > I think there should be a mandatory 20 minute education session for anyone taking out a payday loan/installment loan I've re-read that sentence several times now and each time it makes more sense. I'm not sure how it could be deployed in practice, but the notion that before you do this there's some level of attainable, reasonable education you have to absorb first would be useful. A 10 minute lesson before signing up for a loan that explains exactly how it works in a simplified format might make up for the systemic lack of financial education throughout formalised schooling. Might. Would certainly be interesting to see it happen/interested in helping it happen.
- dazc 7y ago
  A friend of mine was hooked on subprime loans (from what we call a 'doorstep lender' in the UK). Not great sums in principal but leaving him always cash-poor and in need of another loan as he cleared the preceding one. I explained to him about 0% credit cards and how, since he'd never defaulted on a loan, he would be certain to get one. He used his new card to clear his existing debts and has been paying off the balance over the past 12 months (he has 18 months and could move to another 0% easily enough, if need be). He really didn't believe a bank would give him so much free credit since nobody had ever told him so. The good news is that he has now filed a complaint against the original lender and is likely to be refunded most of the interest paid over the years plus statutory interest of 8% p/a while he waits. It's going to be around £9,000 Why? Because he was unemployed all that time and they shouldn't have been lending to him.
mumblemumble 7y ago
I don't want to tut-tut the poor, but I do want to tut-tut consumer culture in general. There are a whole lot of people who _should_ be able to afford an unexpected car repair bill, and could quite easily do so, if they weren't spending $100 a month on cable TV, $800 every other year on a high-end smartphone, $500/month on owning an SUV when a $200/mo economy car would serve just fine, etc., and put the money into a basic rainy day fund instead. And a middle and working class that was just a little bit more frugal might create some downward pressure on prices that would, in turn, alleviate what less wealthy people need to pay on just the basics.
- bryanlarsen 7y ago
  > $100 a month on cable TV given that the average American spends 4 hours/day watching TV[1], that's well under $1 per hour of entertainment. There aren't a lot of hobbies or entertainment media that are cheaper. 1: https://www.statista.com/statistics/186833/average-television-use-per-person-in-the-us-since-2002/ https://www.statista.com/statistics/186833/average-televisio...
  - gruez 7y ago
    Just because it's cheap doesn't mean there aren't cheaper alternatives. Most people could easily replace that with a netflix subscription for $13, since they already have an internet connection.
    - toss1 7y ago
      People could also replace it all with a free library card. It isn't like television/video is some kind of necessity for life.
      - batty_alex 7y ago
        > People could also replace it all with a free library card Going to the library takes a whole hell of a lot more time and work than turning on your TV.
Reedx 7y ago
> cheaper transportation options, cheaper access to healthcare or preventitive care, predictive diagnostics, etc. I'd also add teaching financial literacy/strategy in school. A lot of mistakes could be avoided. I learned the hard way and it took a long time to dig myself out. There's a lot that would've been very useful to have known earlier.
- mikestew 7y ago
  Do we not do this anymore? When I was in high school almost 40 years ago, there was a class/classes that taught things like balancing a checkbook (go ask your parents), keeping a household budget, how interest works, and the like. I didn't take that class (kinda wished I had), so I don't know what it was called. If we don't, we should. Especially now that we're all responsible for our own retirement. With nearly every job I've held in the last 20 years, I've been one of the "financial geeks" to ask questions of, and it is astounding the amount of ignorance we collectively have and yet are supposed to understand the shit that gets thrown at us by our 401K plans. I don't blame the individuals for their ignorance, hell, I make a hobby of this stuff and I'm still lost sometimes. But don't just thrown 'em into the deep end, have a class or two in high school because everyone is going to have to deal with some aspect of finances.
  - nkrisc 7y ago
    My understanding is that no, such classes are uncommon in American high schools these days. I went to a public magnet high school in the 2000s and I can't recall any such class being offered. As for most financial topics, I don't have much of a mind for it, so I would greatly benefit from a teacher. I need to be taught it, it's very difficult for me to teach myself finance. So I've simply erred on the side of heavily saving so at the very least I have a year or two of buffer.
  - kart23 7y ago
    Theres literally no education about personal finance in high school. And I went to a fancy high school, graduated in 2018. College too. The only thing I've seen is the Wells Fargo booth at the yearly club fair trying to sign up new students for credit cards. And we wonder why so many americans live in poverty. Yeah the system is far from perfect, but I think basic classes in high school would be a great start to the problem, and could change the issue of generational poverty.
d--b 7y ago
Sure, but wouldn't be better for most people in this situation to simply default on their current debt, that take on these 150% loans that will bankrupt them just as well 2 years later.
- SketchySeaBeast 7y ago
  That's a hit to your pride. Who wants to give up like that? And in more practical terms, how does that help with your problem this week? Now you have a broken car and zero ability to get non-predatory credit.
- ianleeclark 7y ago
  > Sure, but wouldn't be better for most people in this situation to simply default on their current debt You say that, but, in a year or two when your rent has gone up so far that you have to move, you're looking at awful credit. Then how do you get into an apartment where they do credit checks and they see you've got awful credit. Those apartments will either charge an arm and a leg in security deposits, or deny you.
davidhyde 7y ago
Your income level does not make you wealthy, it is your capacity to absorb financial speed bumps. At uni, I made less money than some of my peers but I felt wealthier than them. This continued into our professional lives and had nothing to do with our relative income levels. Back then I always had spare cash to spend when an opportunity arose. An unplanned weekend trip away, a celebratory night out, no problem. Sure I didn't have what they had. No car, I took the bus instead of flying home, had to have drinks before going out rather then buying them out, that sort of stuff. The difference was that I saved money to have savings for the sake of having a financial buffer rather than saving for something that I wanted to buy. Don't live beyond your means, it's that simple. These loans are targeted at middle class Americans, not the poor and starving. They should be able to save.
- Viliam1234 7y ago
  Your capacity to absorb financial speed bumps today is (among other things) a result of your income level yesterday. I am often surprised how people whose income is the same or greater than mine live in stress, because each extra euro of income is immediately translated into an extra euro of consumption, and there is no reserve for a rainy day. However, I am not surprised when the same thing happens to people with incomes much smaller than mine. Sometimes I am instead surprised how these people manage to survive at all. (Well, obviously, if I'd ever got in the same situation, I would probably gradually learn a few tricks I don't know today.)
- christophilus 7y ago
  This brings up a tangential question I've had lately. When I played video games (especially RPGs), I always ended the game with a mountain of unused resources at my disposal. I rarely used items, cash, etc, unless the ROI was plainly evident. Many of my friends would just burn through cash / items as soon as they had them, and were often in a bind during tough battles / situations. I wonder if this followed us into life. I tend to be a saver, and have always lived below my means. Many of my friends struggle to make ends meet, regardless of their salaries. So, I'm curious. Do / did you play video games? If so, did you end the games with a huge pile of cash, or did you burn through it as you went?
Cd00d 7y ago
In the datasets I use at work, I'm seeing these or similar credit not for emergency solutions, but rather for luxury consumption (the very poor aren't likely to be in our panels). People are buying Peloton bikes, exotic vacations, and luxury purses, and hoping to pay that debt off in installment plans. I worry about when enough people hit the tipping point where their monthly minimums on deeply depreciated goods are too much to be able to make.
- WhompingWindows 7y ago
  Whoa, they are buying purses and vacations on these loans? Can you characterize the loans for me -- how much, what interest rate, what % of defaults do you see? I'd be very interested in a detailed analysis, that sounds very important.
  - andyjsong 7y ago
    At least with the peloton purchase, it sounds like they are using Affirm. Generally if you have good credit, interest rate is zero. I've seen it on other high ticket items for sale online. In this case Affirm reduces the friction of buying higher priced products. The phone I'm typing on now was financed through symphony credit. Zero interest, and 36 monthly installments. I'm sure there are penalties if I don't pay every month, but it's on auto pay.
    - llamataboot 7y ago
      I don't know - I have seen lots of zero interest offers - but never from Affirm. I have a 750+ credit score and last time I looked at Affirm for something (a glowforge I think), interest rates offered were above 21%!
      - jcater 7y ago
        They do, as I bought a Peloton using Affirm. I was ready to pay cash, but they offered to do an interest free, no fee loan thru Affirm and split it across a couple of years. So I did it, because why not? I’m guessing this was probably an arrangement between Peloton and Affirm to where the former paid some fee to the latter, and all of that is absorbed as marketing overhead just to get more people buying bikes.
munchbunny 7y ago
While I agree with your point around how loan programs work with the poorer parts of our population, the headline explicitly states: America’s Middle Class Is Addicted to a New Kind of Credit I think in the case of the middle class, it's not really about survival, it's about living below/at/beyond your means, and whether these loans are doing too good a job of masking the real costs.
bcheung 7y ago
For me, I had a business partner that screwed me over and left me with a lot of credit card debt. I took out an installment loan of $20K at 6.5% interest to pay down the cards. It's saved me a lot of money in interest and has been of great value to me. It also caused my credit score to shoot up over 100 points because I didn't have such high balances on my cards anymore. I would hardly consider it predatory. I for one am glad they exist.
- cascom 7y ago
  I don't think the article is referencing installment loans at 6.5%
snarf21 7y ago
I read a report recently that talked about payday loans. The issue is that the people who take them out are likely to default a lot so the rate has to be high. Most of these companies make almost no profit. Now, my first thought was good! They are so predatory. But what the report talked about was that in that case, these people still need the same amount of money and instead turn to loan sharks and organized crime which put them in an even worse position. At least with a payday loan, there is bankruptcy courts to protect them and no one is physically harming them or their families. I hope I never end up this desperate but it is a more complicated situation than it first appears. The old adage is true, being poor is expensive. This is largely driven by transportation issues. They can't get to the wholesale club or save enough to buy in bulk. Instead they buy toilet paper one $3 roll at a time at the local CVS or bodega.
- imtringued 7y ago
  >The issue is that the people who take them out are likely to default a lot so the rate has to be high. When you see a 100% interest rate loan (assuming no fees) then it basically means that banks lose 50% of the money they loan out and 50% of borrowers are paying their loan on time and have to cover the other 50% by paying twice as much.
sokamyung 7y ago
Your whole reply just oozes with paternalistic co-dependence. Do you realize that? You seem to think you supremely know what is best for the poor. You seem to think you know that not pointing out foolishness to those being foolish is a good thing. And you seem to think it is not only your duty, but also that you are one to impose what you believe if best for those who you think are poor. Have you ever asked the poor whether they desire your benevolent meddling in their lives? You are literally expressing concern for lenders who knowingly are either taking risks that they will have to bear the cost of, or they are collateralizing the risky loans on to others who should be sophisticated entities that should be evaluating the risk contained in the securities they will be acquiring. You should be keeping your concern for other people's individual lives in you pants. But if you are going to have a concern, start having a valid and healthy concern with the systemic risk of these subprime loans being bundled and collateralized into people's retirement accounts and pension funds on fraudulent or negligent circumstances. Because when it comes down to it; if you have known any of the types of people that take out these loans, they not only don't want you meddling in their lives, but they resent the notion of being denied something that is being dangled before their eyes when they can't realize the consequences of their action just mere minutes out. Reality is also that if you are concerned for the poor, your worries should not be directed towards the individuals that may have to suffer the consequences of their own actions (regardless of whether you like what they do with their lives or not), but you should be concerned with these subprime loans triggering systemic cascading failures throughout the whole system that will put people out of business, poor that did it to themselves and middle class who didn't alike. If you want to become the savior of the poor, go ahead, put your own money and time in place to inform and educate them on their foolishness. They will appreciate it … surely.
- mieseratte 7y ago
  > Your whole reply just oozes with paternalistic co-dependence. Do you realize that? As does yours. As if you know any more than anyone else.
lcall 7y ago
Maybe instead of pointing out how foolish, we can positively encourage good behavior, and tell them "you can do it!", and be a true friend, encouraging them to manage finances better. For example, we should all have some emergency savings, then build our savings, and sacrifice conveniences or fun as needed to get out of debt. We would do well to create a culture of not being victimized or manipulated so much by advertising, and helping one another in that. Resources include anything by Dave Ramsey (including possibly used books, DVDs, audio CDs on amazon: we bought some of these for ourselves, and to loan or give to children and others; no other affiliation), or free full BYU personal finance courses online at: https://personalfinance.byu.edu/ https://personalfinance.byu.edu/ (I have not personally reviewed but some relatives have taken the actual classes and recommended this link.) There are also some free in-person training programs in at least 2-3 cities, with a collaboration between my church and the NAACP, and related material online (not mine but very good), at https://providentliving.churchofjesuschrist.org/?lang=eng https://providentliving.churchofjesuschrist.org/?lang=eng such as, specifially, https://www.churchofjesuschrist.org/study/manual/gospel-topics/family-finances?lang=eng&_r=1 https://www.churchofjesuschrist.org/study/manual/gospel-topi... . (Maybe I should add those notes/links to my web site, for more easily referring people... Edit: The above, combining freedom + chances to learn responsibility, is far better IMO than letting the federal government run more of our lives, badly, and without giving a choice what to do with those $. I have written more on that at http://lukecall.net http://lukecall.net under Other then Politics or such. ) (Edit: fixed a couple of links.)
- jjeaff 7y ago
  I agree we should be teaching more financial literacy, but I think this, and most of these financial literacy courses, gloss over the realities of poverty. An emergency fund is very important, but most people in poverty live in the red perpetually. There is never extra cash to save up. Any extra money is swiftly gobbled up by debtors who wait indefinitely for any money to show. Which is actually one reason you will see some poor people make seemingly ridiculous purchases as soon as they get money. They know from experience that any extra cash on hand will get taken by creditors as soon as they detect it. So they spend it. At least, if you buy something of value, you can pawn it for cash later when you need it. It's a terrible cycle.
colechristensen 7y ago
80% of people live "paycheck to paycheck" whatever exactly that means. (count me among them) Very few of them actually need to. It is possible at any income level to spend less money than you make. People don't tend to make those choices though and unfortunately prices reflect this - for a lot of things, especially housing, prices rise to whatever people will pay – if everyone is willing to pay so much for housing that they can't save much at all, well the price of housing raises so everybody does that. You can choose to not live paycheck to paycheck but it means making different choices about where you live, how you entertain yourself, and how you acquire things. This is applicable at the highest and lowest income levels. People should be thinking that in order to afford a car they likewise need to be able to afford its repairs, but instead of buying a cheaper car and saving some for eventual repairs or maintenance, people just consider the acquisition cost and buy their max. I am among these people despite a tech job in the bay area I live mostly paycheck to paycheck as a result of several choices I've made, and I don't necessarily regret all of them but at the same time the situation definitely frustrates me.
- asdfman123 7y ago
  Thank you, people don't acknowledge that simple point of logic often enough -- debt is a mindset. Really what we need is a culture of saving, but a part of me feels that many people in our culture find that extremely difficult because billions of dollars are spend every year on propaganda designed to try to get us to spend more (read: advertising).
  - colechristensen 7y ago
    For an economy, too much saving is as much a problem as too much debt. We're all just paying each other to do things and acquiring capital just to have it past the point where you need it kills jobs and concentrates wealth away from people less fortunate.
- xwolfi 7y ago
  This is a very american thing. I'm french and live in China, what you're describing is really foreign to me. I'd say "most people" save a lot for retirement and their first house buy, "most people" live way below their salary max, "most people" would slap you for considering a consumer loan. What happened to you guys to go so deep in the hellhole to not even see it's madness to live that way...
merpnderp 7y ago
No, we need to figure out ways to help people make better decisions, and giving poor people money doesn't seem to help. It's like the old saying that there's a difference between being broke and poor - broke is liquidity problem, poor is a state of mind. "Our results also do not support the hypothesis that financial strain by itself wors- ens the quality of decision-making. Even though there are substantial differences in financial resources before and after payday for our samples of poor US households, we find no evidence that the quality of their decision-making, or being prone to heuristic judgments differs across the before-payday and after-payday groups." https://www.aeaweb.org/articles?id=10.1257/aer.20140481 https://www.aeaweb.org/articles?id=10.1257/aer.20140481
simonh 7y ago
I realise some people are in a really tough place, but if someone can afford the extra expense of paying off the loan, from their current income, then they could have afforded the expense of saving the same amount. Unless their income literally increased by the amount of the loan cost, just before the additional expense hit them, the situation was avoidable. The fact is a lot of people on low incomes do not see any benefit from savings and don’t prioritise it. That might be for rational reasons, their life circumstances are different from mine, but I don’t understand the logic. A branch of my family are significantly less wealthy than mine. When my uncle, the main breadwinner retired, his sons blew a big chunk of the retirement lump sum on luxury holidays for their families, of the sort my branch of the family would never consider. I think one of them has a mortgage and the others rent. It’s just bizzare. So many decisions they make in their lives seem actively self harming, but they do have jobs and support their families. They’re by no means destitute, but seem to actively avoid choices that could improve their lives. There’s something going on and I don’t know what it is. Maybe a lack of hope, leading to living in the moment? I don’t know.
apta 7y ago
It also might be worth looking at setting up funds for people to take interest free loans for emergencies. They can set up a collateral in return to ensure payment.

by blhack 7y ago

philipov 7y ago

> Instead we should be looking at ways to make it so that giant unpredicted expenses don’t happen at all. Or maybe fix it from the other end: reduce inequality so fewer people are living paycheck to paycheck and can actually build savings to use for unpredicted expenses.

blhack 7y ago
I’m sorry but this is a ridiculous, unactionable answer that is functionally equivalent to “well we should make things better”. Yes of course we should, HOW? We need more innovative solutions to these problems. I like seeing electric bicycle shares, I like seeing community-based, high density housing with shared kitchens and bathrooms, I like predictive diagnostics and telemedicine (although the FDA is fighting it).
- philipov 7y ago
  How about paying people more? That's pretty actionable. Jeff Bezos doesn't need 100 billion dollars. "Just get rid of unexpected expenses" is the one that sounds ridiculous to me.
  - blhack 7y ago
    How is that actionable? Are you going to show up at Jeff Bezos’s house and rob him?
    - philipov 7y ago
      It's actionable by passing laws that limit the upside executives can extract from capital investments and raise minimum wage on large business. There will always be unexpected expenses, so you have to pay people enough to be able to save. Much better than making people dependent on those who control the mechanisms for allegedly limiting unexpected expenses; that's just a plan for increasing social control available to elites. High density housing with shared kitchens and bathrooms sounds like a dystopian hellhole designed to strip people of their dignity, and that's something you think is a good thing? We already saw tenement buildings in the 19th century.
      - blhack 7y ago
        People have been trying that for 100 years or so. So far it hasn’t worked.
        ianleeclark 7y ago
        > People have been trying that for 100 years or so. So far it hasn’t worked. We didn't even have the minimum wage 100 years ago in the United States. How are you going to deride people for not offering solutions, then, when they offer viable solutions, attempt to magically will-away history?
        7y ago
kortilla 7y ago
Reducing inequality is a completely orthogonal. Taking everything from the top 1% doesn’t fix poor money management skills. Additionally, there are many middle class folks making well above average that still live paycheck to paycheck by living beyond their means (huge house, multiple cars, etc). Poor money management != poor and more money does not fix it.

wintorez 7y ago

Exactly, thank you!

tw04 7y ago

You had me until: > Yeah, they know the loan is bad. They probably don’t have any other options. I think it’s a pretty poor assumption to assume all the people taking out these loans understand exactly what they’re getting into, and what other options they may have. I think there should be a mandatory 20 minute education session for anyone taking out a payday loan/installment loan.

wintorez 7y ago
I think his point was "what other options do they have?". The cost of for example not fixing their car is infinite, so they'll accept anything to get that fixed.
wastedhours 7y ago
> I think there should be a mandatory 20 minute education session for anyone taking out a payday loan/installment loan I've re-read that sentence several times now and each time it makes more sense. I'm not sure how it could be deployed in practice, but the notion that before you do this there's some level of attainable, reasonable education you have to absorb first would be useful. A 10 minute lesson before signing up for a loan that explains exactly how it works in a simplified format might make up for the systemic lack of financial education throughout formalised schooling. Might. Would certainly be interesting to see it happen/interested in helping it happen.
dazc 7y ago
A friend of mine was hooked on subprime loans (from what we call a 'doorstep lender' in the UK). Not great sums in principal but leaving him always cash-poor and in need of another loan as he cleared the preceding one. I explained to him about 0% credit cards and how, since he'd never defaulted on a loan, he would be certain to get one. He used his new card to clear his existing debts and has been paying off the balance over the past 12 months (he has 18 months and could move to another 0% easily enough, if need be). He really didn't believe a bank would give him so much free credit since nobody had ever told him so. The good news is that he has now filed a complaint against the original lender and is likely to be refunded most of the interest paid over the years plus statutory interest of 8% p/a while he waits. It's going to be around £9,000 Why? Because he was unemployed all that time and they shouldn't have been lending to him.

mumblemumble 7y ago

I don't want to tut-tut the poor, but I do want to tut-tut consumer culture in general. There are a whole lot of people who _should_ be able to afford an unexpected car repair bill, and could quite easily do so, if they weren't spending $100 a month on cable TV, $800 every other year on a high-end smartphone, $500/month on owning an SUV when a $200/mo economy car would serve just fine, etc., and put the money into a basic rainy day fund instead. And a middle and working class that was just a little bit more frugal might create some downward pressure on prices that would, in turn, alleviate what less wealthy people need to pay on just the basics.

bryanlarsen 7y ago
> $100 a month on cable TV given that the average American spends 4 hours/day watching TV[1], that's well under $1 per hour of entertainment. There aren't a lot of hobbies or entertainment media that are cheaper. 1: https://www.statista.com/statistics/186833/average-television-use-per-person-in-the-us-since-2002/ https://www.statista.com/statistics/186833/average-televisio...
- gruez 7y ago
  Just because it's cheap doesn't mean there aren't cheaper alternatives. Most people could easily replace that with a netflix subscription for $13, since they already have an internet connection.
  - toss1 7y ago
    People could also replace it all with a free library card. It isn't like television/video is some kind of necessity for life.
    - batty_alex 7y ago
      > People could also replace it all with a free library card Going to the library takes a whole hell of a lot more time and work than turning on your TV.

Reedx 7y ago

> cheaper transportation options, cheaper access to healthcare or preventitive care, predictive diagnostics, etc. I'd also add teaching financial literacy/strategy in school. A lot of mistakes could be avoided. I learned the hard way and it took a long time to dig myself out. There's a lot that would've been very useful to have known earlier.

mikestew 7y ago
Do we not do this anymore? When I was in high school almost 40 years ago, there was a class/classes that taught things like balancing a checkbook (go ask your parents), keeping a household budget, how interest works, and the like. I didn't take that class (kinda wished I had), so I don't know what it was called. If we don't, we should. Especially now that we're all responsible for our own retirement. With nearly every job I've held in the last 20 years, I've been one of the "financial geeks" to ask questions of, and it is astounding the amount of ignorance we collectively have and yet are supposed to understand the shit that gets thrown at us by our 401K plans. I don't blame the individuals for their ignorance, hell, I make a hobby of this stuff and I'm still lost sometimes. But don't just thrown 'em into the deep end, have a class or two in high school because everyone is going to have to deal with some aspect of finances.
- nkrisc 7y ago
  My understanding is that no, such classes are uncommon in American high schools these days. I went to a public magnet high school in the 2000s and I can't recall any such class being offered. As for most financial topics, I don't have much of a mind for it, so I would greatly benefit from a teacher. I need to be taught it, it's very difficult for me to teach myself finance. So I've simply erred on the side of heavily saving so at the very least I have a year or two of buffer.
- kart23 7y ago
  Theres literally no education about personal finance in high school. And I went to a fancy high school, graduated in 2018. College too. The only thing I've seen is the Wells Fargo booth at the yearly club fair trying to sign up new students for credit cards. And we wonder why so many americans live in poverty. Yeah the system is far from perfect, but I think basic classes in high school would be a great start to the problem, and could change the issue of generational poverty.

d--b 7y ago

Sure, but wouldn't be better for most people in this situation to simply default on their current debt, that take on these 150% loans that will bankrupt them just as well 2 years later.

SketchySeaBeast 7y ago
That's a hit to your pride. Who wants to give up like that? And in more practical terms, how does that help with your problem this week? Now you have a broken car and zero ability to get non-predatory credit.
ianleeclark 7y ago
> Sure, but wouldn't be better for most people in this situation to simply default on their current debt You say that, but, in a year or two when your rent has gone up so far that you have to move, you're looking at awful credit. Then how do you get into an apartment where they do credit checks and they see you've got awful credit. Those apartments will either charge an arm and a leg in security deposits, or deny you.

davidhyde 7y ago

Your income level does not make you wealthy, it is your capacity to absorb financial speed bumps. At uni, I made less money than some of my peers but I felt wealthier than them. This continued into our professional lives and had nothing to do with our relative income levels. Back then I always had spare cash to spend when an opportunity arose. An unplanned weekend trip away, a celebratory night out, no problem. Sure I didn't have what they had. No car, I took the bus instead of flying home, had to have drinks before going out rather then buying them out, that sort of stuff. The difference was that I saved money to have savings for the sake of having a financial buffer rather than saving for something that I wanted to buy. Don't live beyond your means, it's that simple. These loans are targeted at middle class Americans, not the poor and starving. They should be able to save.

Viliam1234 7y ago
Your capacity to absorb financial speed bumps today is (among other things) a result of your income level yesterday. I am often surprised how people whose income is the same or greater than mine live in stress, because each extra euro of income is immediately translated into an extra euro of consumption, and there is no reserve for a rainy day. However, I am not surprised when the same thing happens to people with incomes much smaller than mine. Sometimes I am instead surprised how these people manage to survive at all. (Well, obviously, if I'd ever got in the same situation, I would probably gradually learn a few tricks I don't know today.)
christophilus 7y ago
This brings up a tangential question I've had lately. When I played video games (especially RPGs), I always ended the game with a mountain of unused resources at my disposal. I rarely used items, cash, etc, unless the ROI was plainly evident. Many of my friends would just burn through cash / items as soon as they had them, and were often in a bind during tough battles / situations. I wonder if this followed us into life. I tend to be a saver, and have always lived below my means. Many of my friends struggle to make ends meet, regardless of their salaries. So, I'm curious. Do / did you play video games? If so, did you end the games with a huge pile of cash, or did you burn through it as you went?

Cd00d 7y ago

In the datasets I use at work, I'm seeing these or similar credit not for emergency solutions, but rather for luxury consumption (the very poor aren't likely to be in our panels). People are buying Peloton bikes, exotic vacations, and luxury purses, and hoping to pay that debt off in installment plans. I worry about when enough people hit the tipping point where their monthly minimums on deeply depreciated goods are too much to be able to make.

WhompingWindows 7y ago
Whoa, they are buying purses and vacations on these loans? Can you characterize the loans for me -- how much, what interest rate, what % of defaults do you see? I'd be very interested in a detailed analysis, that sounds very important.
- andyjsong 7y ago
  At least with the peloton purchase, it sounds like they are using Affirm. Generally if you have good credit, interest rate is zero. I've seen it on other high ticket items for sale online. In this case Affirm reduces the friction of buying higher priced products. The phone I'm typing on now was financed through symphony credit. Zero interest, and 36 monthly installments. I'm sure there are penalties if I don't pay every month, but it's on auto pay.
  - llamataboot 7y ago
    I don't know - I have seen lots of zero interest offers - but never from Affirm. I have a 750+ credit score and last time I looked at Affirm for something (a glowforge I think), interest rates offered were above 21%!
    - jcater 7y ago
      They do, as I bought a Peloton using Affirm. I was ready to pay cash, but they offered to do an interest free, no fee loan thru Affirm and split it across a couple of years. So I did it, because why not? I’m guessing this was probably an arrangement between Peloton and Affirm to where the former paid some fee to the latter, and all of that is absorbed as marketing overhead just to get more people buying bikes.

munchbunny 7y ago

While I agree with your point around how loan programs work with the poorer parts of our population, the headline explicitly states: America’s Middle Class Is Addicted to a New Kind of Credit I think in the case of the middle class, it's not really about survival, it's about living below/at/beyond your means, and whether these loans are doing too good a job of masking the real costs.

bcheung 7y ago

For me, I had a business partner that screwed me over and left me with a lot of credit card debt. I took out an installment loan of $20K at 6.5% interest to pay down the cards. It's saved me a lot of money in interest and has been of great value to me. It also caused my credit score to shoot up over 100 points because I didn't have such high balances on my cards anymore. I would hardly consider it predatory. I for one am glad they exist.

cascom 7y ago
I don't think the article is referencing installment loans at 6.5%

snarf21 7y ago

I read a report recently that talked about payday loans. The issue is that the people who take them out are likely to default a lot so the rate has to be high. Most of these companies make almost no profit. Now, my first thought was good! They are so predatory. But what the report talked about was that in that case, these people still need the same amount of money and instead turn to loan sharks and organized crime which put them in an even worse position. At least with a payday loan, there is bankruptcy courts to protect them and no one is physically harming them or their families. I hope I never end up this desperate but it is a more complicated situation than it first appears. The old adage is true, being poor is expensive. This is largely driven by transportation issues. They can't get to the wholesale club or save enough to buy in bulk. Instead they buy toilet paper one $3 roll at a time at the local CVS or bodega.

imtringued 7y ago
>The issue is that the people who take them out are likely to default a lot so the rate has to be high. When you see a 100% interest rate loan (assuming no fees) then it basically means that banks lose 50% of the money they loan out and 50% of borrowers are paying their loan on time and have to cover the other 50% by paying twice as much.

sokamyung 7y ago

Your whole reply just oozes with paternalistic co-dependence. Do you realize that? You seem to think you supremely know what is best for the poor. You seem to think you know that not pointing out foolishness to those being foolish is a good thing. And you seem to think it is not only your duty, but also that you are one to impose what you believe if best for those who you think are poor. Have you ever asked the poor whether they desire your benevolent meddling in their lives? You are literally expressing concern for lenders who knowingly are either taking risks that they will have to bear the cost of, or they are collateralizing the risky loans on to others who should be sophisticated entities that should be evaluating the risk contained in the securities they will be acquiring. You should be keeping your concern for other people's individual lives in you pants. But if you are going to have a concern, start having a valid and healthy concern with the systemic risk of these subprime loans being bundled and collateralized into people's retirement accounts and pension funds on fraudulent or negligent circumstances. Because when it comes down to it; if you have known any of the types of people that take out these loans, they not only don't want you meddling in their lives, but they resent the notion of being denied something that is being dangled before their eyes when they can't realize the consequences of their action just mere minutes out. Reality is also that if you are concerned for the poor, your worries should not be directed towards the individuals that may have to suffer the consequences of their own actions (regardless of whether you like what they do with their lives or not), but you should be concerned with these subprime loans triggering systemic cascading failures throughout the whole system that will put people out of business, poor that did it to themselves and middle class who didn't alike. If you want to become the savior of the poor, go ahead, put your own money and time in place to inform and educate them on their foolishness. They will appreciate it … surely.

mieseratte 7y ago
> Your whole reply just oozes with paternalistic co-dependence. Do you realize that? As does yours. As if you know any more than anyone else.

lcall 7y ago

Maybe instead of pointing out how foolish, we can positively encourage good behavior, and tell them "you can do it!", and be a true friend, encouraging them to manage finances better. For example, we should all have some emergency savings, then build our savings, and sacrifice conveniences or fun as needed to get out of debt. We would do well to create a culture of not being victimized or manipulated so much by advertising, and helping one another in that. Resources include anything by Dave Ramsey (including possibly used books, DVDs, audio CDs on amazon: we bought some of these for ourselves, and to loan or give to children and others; no other affiliation), or free full BYU personal finance courses online at: https://personalfinance.byu.edu/ https://personalfinance.byu.edu/ (I have not personally reviewed but some relatives have taken the actual classes and recommended this link.) There are also some free in-person training programs in at least 2-3 cities, with a collaboration between my church and the NAACP, and related material online (not mine but very good), at https://providentliving.churchofjesuschrist.org/?lang=eng https://providentliving.churchofjesuschrist.org/?lang=eng such as, specifially, https://www.churchofjesuschrist.org/study/manual/gospel-topics/family-finances?lang=eng&_r=1 https://www.churchofjesuschrist.org/study/manual/gospel-topi... . (Maybe I should add those notes/links to my web site, for more easily referring people... Edit: The above, combining freedom + chances to learn responsibility, is far better IMO than letting the federal government run more of our lives, badly, and without giving a choice what to do with those $. I have written more on that at http://lukecall.net http://lukecall.net under Other then Politics or such. ) (Edit: fixed a couple of links.)

jjeaff 7y ago
I agree we should be teaching more financial literacy, but I think this, and most of these financial literacy courses, gloss over the realities of poverty. An emergency fund is very important, but most people in poverty live in the red perpetually. There is never extra cash to save up. Any extra money is swiftly gobbled up by debtors who wait indefinitely for any money to show. Which is actually one reason you will see some poor people make seemingly ridiculous purchases as soon as they get money. They know from experience that any extra cash on hand will get taken by creditors as soon as they detect it. So they spend it. At least, if you buy something of value, you can pawn it for cash later when you need it. It's a terrible cycle.

colechristensen 7y ago

80% of people live "paycheck to paycheck" whatever exactly that means. (count me among them) Very few of them actually need to. It is possible at any income level to spend less money than you make. People don't tend to make those choices though and unfortunately prices reflect this - for a lot of things, especially housing, prices rise to whatever people will pay – if everyone is willing to pay so much for housing that they can't save much at all, well the price of housing raises so everybody does that. You can choose to not live paycheck to paycheck but it means making different choices about where you live, how you entertain yourself, and how you acquire things. This is applicable at the highest and lowest income levels. People should be thinking that in order to afford a car they likewise need to be able to afford its repairs, but instead of buying a cheaper car and saving some for eventual repairs or maintenance, people just consider the acquisition cost and buy their max. I am among these people despite a tech job in the bay area I live mostly paycheck to paycheck as a result of several choices I've made, and I don't necessarily regret all of them but at the same time the situation definitely frustrates me.

asdfman123 7y ago
Thank you, people don't acknowledge that simple point of logic often enough -- debt is a mindset. Really what we need is a culture of saving, but a part of me feels that many people in our culture find that extremely difficult because billions of dollars are spend every year on propaganda designed to try to get us to spend more (read: advertising).
- colechristensen 7y ago
  For an economy, too much saving is as much a problem as too much debt. We're all just paying each other to do things and acquiring capital just to have it past the point where you need it kills jobs and concentrates wealth away from people less fortunate.
xwolfi 7y ago
This is a very american thing. I'm french and live in China, what you're describing is really foreign to me. I'd say "most people" save a lot for retirement and their first house buy, "most people" live way below their salary max, "most people" would slap you for considering a consumer loan. What happened to you guys to go so deep in the hellhole to not even see it's madness to live that way...

merpnderp 7y ago

No, we need to figure out ways to help people make better decisions, and giving poor people money doesn't seem to help. It's like the old saying that there's a difference between being broke and poor - broke is liquidity problem, poor is a state of mind. "Our results also do not support the hypothesis that financial strain by itself wors- ens the quality of decision-making. Even though there are substantial differences in financial resources before and after payday for our samples of poor US households, we find no evidence that the quality of their decision-making, or being prone to heuristic judgments differs across the before-payday and after-payday groups." https://www.aeaweb.org/articles?id=10.1257/aer.20140481 https://www.aeaweb.org/articles?id=10.1257/aer.20140481

simonh 7y ago

I realise some people are in a really tough place, but if someone can afford the extra expense of paying off the loan, from their current income, then they could have afforded the expense of saving the same amount. Unless their income literally increased by the amount of the loan cost, just before the additional expense hit them, the situation was avoidable. The fact is a lot of people on low incomes do not see any benefit from savings and don’t prioritise it. That might be for rational reasons, their life circumstances are different from mine, but I don’t understand the logic. A branch of my family are significantly less wealthy than mine. When my uncle, the main breadwinner retired, his sons blew a big chunk of the retirement lump sum on luxury holidays for their families, of the sort my branch of the family would never consider. I think one of them has a mortgage and the others rent. It’s just bizzare. So many decisions they make in their lives seem actively self harming, but they do have jobs and support their families. They’re by no means destitute, but seem to actively avoid choices that could improve their lives. There’s something going on and I don’t know what it is. Maybe a lack of hope, leading to living in the moment? I don’t know.

apta 7y ago

It also might be worth looking at setting up funds for people to take interest free loans for emergencies. They can set up a collateral in return to ensure payment.