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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Tuesday, June 20, 2006

Convention Resolution A-102: "Culture of Debt"

A financial services company that advertised on the TV coverage of the US Open golf tournament concluded one commercial, "You plan your life. We'll plan your money around your life." A thought-provoking slogan, isn't it? Another expression of the same sentiment comes from Fr. John Haughey, a Jesuit priest: "You control your money. Don't let your money control you."

"That's easy for them to say," you argue, "they don't have my bills! With my salary, I just don't have the flexibility to get on top of my money."

If this sounds like you, you've got lots of company and more every day. The Episcopal Church's Standing Commission on Stewardship and Development has taken note of these circumstances and proposed a statement about them for the General Convention, Resolution A-102. It was enacted in Columbus on June 15. Through this, the Convention "urge[s] each diocese to offer training, education, and resources that promote the healthy role of money in our lives . . . . " The background statement expresses the goal "to help people address the serious issues of debt, greed, hyper-consumerism, and cultural pressures that encourage people to spend beyond their means." The Commission highlights special concern for young people.

We can work on this issue here. In fact, we absolutely agree with the Commission's concern and we want to work on it. Following the Resolution's rough priorities, we'll begin with some measures of the debt situation and try to see why this is so important.

How Much Debt?
The average family carries a $95,000 mortgage on their home, $11,500 in installment loans, and $2,200 in credit card balances. These figures come from the Federal Reserve's (the "Fed") 2004 Survey of Consumer Finances*; the averages are the median values, that is, half of mortgages are bigger and half smaller, half of individual families' credit card debt is larger and half smaller and so on. Just under 50% of all families have each of these types of borrowing. All told, 76.4% of families have any kind of debt.

These debts represent car loans, student loans, purchases of clothes for the family, remodeling the second bathroom, taking the kids to Disney World over spring break and on and on; you know: what families just do. Is this "hyper-consumerism"? Why is it such a problem?

Heavier Burden on Income
First, debt has gotten large relative to income. According to the Fed's calculations, debt payments absorb 18% of a typical family's income. That is, just to stay current on these obligations takes almost two full days' pay each pay period. For some 12% of families with debt, this ratio of current payments to income is 40%: four days' pay out of each check. As we said at the outset, if monthly bills are making you feel strapped, many others are in the same boat.

More Paying Late
An increasing number of families are falling behind. Almost 9% of debtors were more than 60 days late with any of their payments in 2004, up from just 7.1% in 1995. By age group, as the Church Commission emphasizes, young people are in the biggest trouble. Of families headed by 35-year-olds and under, 8.7% had any delinquent payment in 1995. By 2004, this percentage had risen an alarming 5 points to 13.7%, the highest of any age group. The next group, ages 35 to 44, had the next highest incidence of late pays, 11.7%.

Among income rankings, the lowest 20% had the highest delinquency, 15.9%, as might be expected. But the most deterioration – from 4% in 2001 to 7.1% in 2004 – came in what to us is a surprising income range, the fourth rank of five, that is, the 60-79% tier, a group that averages $70,000 in annual income.

So perhaps when we redid the bathroom, we didn't just replace the basin and the faucets; maybe we added a Jacuzzi and tiled some walls. Or maybe we went to Disney and then bought a new LCD TV just a couple of months later, without paying down some of the trip's bills first. It's so easy for this debt load to get out of hand. Even before we face paying today's gasoline prices.

Here we examined some Federal Reserve data on debt. The same survey also shows what we have in our savings; it's worth looking at that too to see how far they can go in helping us out. An increasing number of folks have been borrowing against their home equity and we want to see what role that plays – both helpful and not-so-helpful. But first, it might clarify matters to talk a little about what we actually spend our money on. The US Commerce Department tallies that up in amazing detail every single month. More to come. Remember, to quote the title of a book we'll also refer to: it's "Your Money or Your Life"!

*A comprehensive, triennial interview survey of 4,522 families around the country, conducted for the Fed by the National Opinion Research Center. See the Fed's website for all of the information: The items we discuss here are available in the accompanying article from the Federal Reserve Bulletin.


Anonymous Anonymous said...

As an Episcopal Priest and Pastoral Counselor I have seen for 25 years the devastation brought on by debt, and the culture which promotes taking on ever more of it.

I used sermon time and counseling time to speak about the responsibility to live within our means, discerning needs versus wants, and most important, that our spiritual lives were intricately tied up with our financial lives.

My dear parents taught me early that no matter what I earned, a portion went first to God, second to savings, third to me to use for my NEEDS. That lesson continues to inform my life today--60 some years later.

I pray you will have a receptive audience, and that perhaps the time is ripe for more open discussion and discipline regarding our handling of our finances. Congregations and individuals have usually closed their hearts and ears to calls to study and learn more about financial matters. Perhaps now is the time.

6/24/2006 11:34 AM  
Blogger Carol S. said...

Thanks to dbdehetre for these kinds words. They describe exactly where I hope "Ways of the World" can go. Not just about personal finance but "macro" finance as well.

Meantime, watch later June 26 for an personal anecdote about the Debt Culture and the pressure to incur debt which we experience in personal business transactions every day.

6/26/2006 8:51 AM  

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