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Tuesday, September 19, 2006

"We Have Become A Plastic Nation"

I just finished watching an amazing documentary, called "The Seecret History of the Credit Card". I don't want to go through it all because I can't, but it was very informative on what's happening with the credit card industry today, and how Americans are spending their credit. Over 70% of Americans are in debt, most of it comes from credit card debt. They're paying off just the minimum payments and borrowing more and more. They interviewed the marketing guru that came up with the ideas to have 0% introductory rates, and to lower the minimum monthly payments. He researched and saw that the average person pays off about 5% of their balance every month, so he said that if the minimum payment was 2%, people would rather pay that and charge more. And, that's exactly what happened. As the man who pioneered the credit card industry said, "We have become a plastic nation". The bulk of the show discussed how credit companies really make their profit, and what the problems are. READ THE REST...

Here in Israel, the concept of the credit card is just now coming to fruition. Before now, you were able to go a certain amount into over-draft in your checking account, and you had to pay off interest for every month you went over your limit. In essence, you had a credit line from your bank. When you were issued a "credit card", the money was taken directly out of your checking out every month. You didn't have a choice whether to pay off all or some of the balance since the credit was from your money. You weren't, in essence, borrowing against the bank. However, last year, the government passed a law prohibiting banks from allowing over a certain percentage of over-draft, and a cap on how long a person had to pay it back.

Because of this, banks and companies are starting to introduce real credit cards into Israeli society. I really don't know how I feel about it. I haven't exactly been able to process the pros and cons yet. Israel also is a society of "payment plans". I mean, right down to your groceries. Since, before now, there was no such thing as a credit card, and everything came out of your bank account, people needed payment plans in order to buy things, even food. I mean, that's what credit card are for, right? You need or want something, but you don't have the money to pay for it just this minute. Instead of getting a payment plan, you simply charge it, and pay it back later. Of course, in contrast to payment plans, you could still be paying for that $40 shirt a few years after you bought it, and after you already gave it away to the Salvation Army.

I guess since I'm a new-comer, the concept of payment plans and over-draft are very foreign to me. I'm used to the concept of credit cards, and credit card debt. I grew up with it. I'm not sure I want the same thing happening in Israel. I'm not so sure it's a good thing; to become a "Plastic Nation". What do you think? Any opinions out there on the matter?

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At 6:47 PM, Blogger Irina Tsukerman said...

I think the solution for this problem has little to do with the credit cards themselves, and more to do with the way they are being used. Many people in debt are simply not responsible users. They should be encouraged to learn more about the terms of their contract with the credit card, and to be aware of their consumption trends. I'm not sure who should do the teaching and when, however.

At 10:35 PM, Blogger Yoel.Ben-Avraham said...

Irina, the REAL problem is that close to 40% of the Israeli population cannot afford the cost of living! Not that they are extravagant, wastefull etc. They simply can't earn enough money to make ends meet ... so they adlib!

At 10:43 PM, Blogger Olah Chadasha said...

It's funny you mention the contract. That was part of the documentary. The contract is practically impossible to discern or understand for the layman. They interviewed a well renowned contract attorney, from Harvard no less, who said even SHE couldn't understand what the contract said. If a CONTRACT LAWYER can't understand the wording of a credit card contract, how is the average person to understand it?!?

I agree that there needs to be some practical fiscal responsibility classes given. It's becoming more and more common for people to not check their statements or look over their balances. People don't keep their receipts, and don't keep track of what they're charging. My husband's working for IDT's AOL division now. He can't tell you how many he calls he's gotten from people who thought they cancelled their accounts and didn't realize they still had an account from months or years ago and wanted credit back. These people were paying by credit card, and were getting monthly statements with the AOL charges on their every month. If they bothered to even glance at their charges, they would see it there.

I think just like there are seminars on how to buy a home, car, etc. There should be a seminar on credit responsibility and dillineating terms, contracts, etc. For example, did you know that part of your credit card contract says that if you're dilinquint (sp?) or late on the payment of ANY OTHER payment you may have, whether it be your mortgage, car payment, or even another credit card, that credit card company reserves the right to INCREASE YOUR PERCENTAGE??? Were you aware of that? Even if YOU are, 99% of credit card holders are NOT aware that they their interest on a given credit card can be increased if they are late or miss a payment on ANYTHING ELSE THEY OWN IN THEIR LIVES regardless of whether they have a perfect record with THAT SPECIFIC credit card company.

But, you are totally right. There needs to be some sort of education out there. The future of America depends on it, in my opinion.

At 8:06 PM, Blogger Ason Lee said...

Credit card companies are sneaky. They'll do anything to extract more money out of your pockets. Here's an interesting article outlining the tactics they use:
Top 10 Tricks Credit Card Companies Use To Squeeze More Money Out Of You

At 9:52 PM, Blogger SephardiLady said...

Can you post a link to the transcripts of the documentary?


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