Blame the kids for all that red ink

Posted: Tuesday, December 13 at 08:00 am CT by Bob Sullivan

Half of all Americans don't pay their credit card bills every month.  A new study suggests you can blame the kids.

Robert Manning, who exposed America's bad debt habits in his book Credit Card Nation, recently conducted a series of focus groups to explore consumers' seemingly irrational spending habits.

He found that many Americans aren't the selfish super-consumers they have been made out to be. Instead, much of the nation's exorbitant consumer debt is the result of parents -- and grandparents -- trying to give their children the best of everything. The single most important factor underlying high debts is the "elevated lifestyles" parents provide for their children, the report found.

"Whether they are buying an $800 prom dress, a $2,000 trombone, or a $1,000 laborador, (parents) are convinced they are doing this in children's best interest," Manning said.  Parents simply want their kids to have more then they did -- often an emotional, reactionary response to more Puritan lifestyles they had as children, Manning said.

"This often assumes a form of vicarious adolescence whereby young parents relive their childhood through the material objects that they were denied by their own parents," Manning says in the report, called "Living With Debt," which was sponsored by online lender MortgageTree.com.

By indulging their young children, parents may be imperiling their kids college future, Manning said.

Overindulgent spending is hardly the only factor in high debts.  Parents are spending about twice as much of their disposable income on housing as they did a generation ago.

Focus group participants also complained that they face a series of additional expenses that previous generations didn't.  One parent complained about a $500 vet bill when the dog had an infected tooth.  Another complained about $2,000 band camp. 

Expenses like those are a major contributor to the skyrocketing credit card debt carried by Americans. That debt has more tripled to $804 billion in 2005 from $251 billion in 1992.

Christmas every day
In a section called "When Christmas Comes Round Every Day," Manning describes a phenomenon he calls 'competitive consumption."  Keeping up with the Jones\u2019s  has reached new heights in the age of easy credit.

"They know how much they are paying for the mortage, but don't know how much they are paying for Nike sneakers," he said.  One study subject shared that when she was growing up, she had three pairs of shoes -- for school, play, and special occasions -- but her son now has 20 pairs of Nike sneakers.

"I don\u2019t even know how many my daughter has", said Karen, a 54-year-old public school teacher in Washington D.C. 
 
As a result, among mature families, with parents aged  45-65, Manning found many parents had pretty much given up on reining in their teen-agers' spending. Inability to say no is a major contributing factor to America's dismal personal savings rate -- which is essentially zero, he said.  And as a result, many parents are now facing the Faustian choice between protecting their retirement savings and raiding it to pay for kids' college expenses.

There is no question that raising kids is costly and has always involved sacrifice. But how much is too much? In "The Two-Income Trap," Elizabeth Warren found that the single most reliable predictor of bankruptcy for women was motherhood. In other words, woman with children are several times more likely to file for bankruptcy than women who don't have children.

Unpopular priority setting
As a society that often talks about family values -- an issue both Republicans and Democrats have repeatedly tried to hijack -- Manning's report invites a welcome, honest discussion of the high cost of kids.

For Manning, the solution requires some unpopular priority setting, and an ability to ignore what the Joneses are doing.

It also requires lot of honesty.  At the right time, show your children your budget, including projected college costs, and make spending decisions together, he suggests.

"You have to sit down with the child and say, 'What are the goals?" he said. "If the goal is getting the kid to college, what are the expenses related to that goal? Where does the XBox fit in? Where does debate camp fit in?"

Easier said than done, I was told when discussing the report with a colleague who recently had his first child.  Having a budget is all well and good, but when you have a child, you do the things you have to do to buy the things you need to buy -- clothes, shoes, heating oil.  Sometimes, children don't fit so neatly into a spreadsheet, he reminds me.

The thought-provoking study is essential reading for any parent, and can be downloaded for free at Lending Tree's Web site.

This story ran on on December 13, 2005.