“The gods we worship write their names on our faces, be sure of that. And a man will worship something–have no doubt about that either…Therefore, it behooves us to be careful what we worship, for what we are worshipping, we are becoming.”
–Ralph Waldo Emerson
Illness and Personal Finances
It comes as no surprise that our personal financial health practices affect our individual health status. And, in light of the abysmal financial habits of the 80 million U.S. baby boomers, you can count on the fact that a lot of people in this country are going to get sick.
Now, you could argue that some of the poor health that will be experienced by the boomers will be a natural part of the aging process. After all, as the body gets older, the natural order is breakdown.
This is, of course, true.
You could also make the argument that some of the coming sickness that will be experienced by the boomers will most assuredly be due to a lack of good preventive health practices like exercising regularly, eating healthfully, and getting regular check-ups.This is also quite accurate.
However, I’m willing to bet–and you can take this to the bank–much of the coming sickness in this country will be due to the devastating stress that will result from the abysmal financial practices of boomer nation.
In fact, our present financial practices–especially with respect to the use of credit cards–are so bad that we, as a country, now have a collective negative savings rate. And, given the reality that the baby boomers will be living to somewhere in their 80’s, it’s clear that people aren’t saving nearly enough for what could be 35 years in retirement.
Inevitably, these poor financial practices will come back to haunt a significant portion of the boomers–and it’s going to be a painful, stressful lesson for some 80 million U.S. citizens.
So How Exactly Does Poor Personal Financial Practice Take A Toll On Individual Health?
In a nutshell, we’re not sure.
One potential explanation is that illness occurs because poor financial practice leads to a lack of personal resources which ultimately results in the inability to afford good healthcare.
Another possibility is that illness comes to an individual and it drains their financial resources which then forces them to live in less than ideal circumstances.
But one very real possibility (which few want to acknowledge) is that illness comes as a result of the increased long-term stress experienced by those with poor personal financial practices.
In fact, recent studies have revealed that people who get into debt do indeed suffer from increased anxiety, greater emotional strain, and significantly more stress.
Still, when you examine all of the research from end-to-end, the simple fact remains that we really don’t know why people who have less money get sick–the aforementioned are all potential explanations.
But we do know one thing.
People who struggle to make ends meet each month experience more illness than those who do not–the Whitehall Studies revealed this truth years ago.
And, more often than not, people struggle financially because they get in over their heads with credit cards.
Credit Card Nation
Perhaps the best way to understand how influential the credit card industry is–and how recklessly Americans use credit–is by taking this quiz. I call it, The Great American Credit Card Quiz.
By taking this quiz, you can test your knowledge of the prevalence of credit cards in the U.S., the balances and payments of credit card users, and the general marketing practices of the credit card industry.
Just a quick heads up before you get started–some of the answers will blow you away.
The Great American Credit Card Quiz
Part 1: Credit Cards In America
1. How many U.S. households have at least one bank credit card?
Answer: c. 78 million. This means 78 million (out of approximately 100 million) U.S. households have at least one bank credit card. To use the common vernacular, more than three-quarters of households in the U.S. have “plastic in the house”–this statistic by itself is not that dramatic but read on.
2. How many Americans presently hold a credit card?
Answer: d. 158 million. This means that 158 million (out of 300 million) Americans presently hold at least one credit card. Put another way, this means that about half of Americans have at least one card. At first glance, this doesn’t seem like a lot. However, when you factor out the number of people under the age of 18, the number starts to get more compelling–but still it’s not that remarkable in and of itself.
3. Of the 158 million Americans that do hold credit cards, how many cards do they collectively hold?
Answer: BAM! The correct answer is d. Remarkably, Americans collectively hold 1.5 billion (that’s billion with a b) credit cards. That’s an average of ten credit cards per card holder. The typical American has about four retail, three bank, one phone, nearly one gasoline, and a travel and entertainment/miscellaneous credit card. This is a big, big number.
(Note: I used the conservative estimate here. Jean Chatzky, Editor-At-Large of Money Magazine, estimates that the typical American holds 16 credit cards.)
Part 2: Credit Card Debt In America
4. Members of the typical U.S. household carry how much credit card debt?
Answer: b. $8,000. The average card holder’s credit card debt is $8,000 as measured by the Federal Reserve Bank. It is important to note that consumer debt is at an all-time high. And, given the fact that the median income in the U.S. is about 50k, this is a big number. What’s really sad about this statistic is the fact that most people don’t see $8,000 as a big deal.
5. Of the U.S. households that have at least one credit card, what percentage are “convenience” users–i.e., they use the card for monthly purchases and pay the complete balance off at the end of each month?
Answer: b. 43%. For these people, credit cards serve a useful purpose in that credit cards allow convenience users to make purchases during the month without having to use any of their own money. It’s interesting to note that banks often refer to these credit card users as “deadbeats” since they generate no fees in finance charges.
6. Of the U.S. households that have at least one credit card, what percentage are “revolvers”–i.e., they carry a revolving balance and pay the minimum finance charge or less than the entire balance each month?
Answer: BAM! The answer is c. Sadly, 57% of households that have credit cards are “revolvers.” This means that these people carry a regular balance and pay finance charges on the money that they’ve borrowed. What’s really important to note about the distinction between convenience users and revolvers is that when you look at the average credit card debt, it’s calculated as all outstanding consumer debt divided by the number of card holders. In reality, it’s just the revolvers who are carrying balances thus bringing the average debt for this group to about $16,000–that’s double the aggregate household estimate of $8,000.
Part 3: Credit Card Payments In America
7. How many months would it take to pay off a $16,000 credit card balance paying the minimum monthly charge assuming a 19% interest rate?
Answer: BAM! BAM! BAM! BAM! BAM! The answer is d. 465 months. Let me say it again, 465 months. Put another way, clear your calendar for the next 38 years! In case you want to challenge the math, I used the calculator at bankrate.com and assumed 16K in debt and a minimum monthly payment of 2.5%. Remember, for the portion of card users that carry balances, 16K is the average balance. This payment period also assumes that no additional charges will be made on the card.
Keep in mind that 10’s of millions of people are already feeling this kind of pinch–month after month after month after month. As a result, a lot of people are going to get sick carrying this kind of burden.
8. How much would you pay in interest on that $16,000 initial balance at 19% percent if you only made only the minimum 2.5% monthly payment.
Answer: BAM! BAM! BAM! The answer is b. Remarkably, $27,182 is the amount you’d pay in interest over the 465 months it would take you to repay the 16K initial balance. And, in a time when Americans need to be saving more than ever before, this monthly payment to the credit card company is going to hurt big time.
Part 4: Credit Card Marketing
9. The typical household will receive how many credit card solicitations each year?
Answer: BAM! The answer is somewhere between 35 and 75. That means a typical U.S. household will receive between three and six unsolicited offers per month! That’s pretty aggressive marketing to say the least. What’s even more compelling is the fact that once you sign up for a card, it’s a pretty good bet that the issuing company is going to increase your credit line to encourage you to rack up even more charges. In fact, between 1993 and 1998, unused lines of card holder credit increased from $580 million to over $2 trillion.
10. The most profitable niche of the credit card industry is what group?
Answer: Almost unbelievably, the most profitable niche is college students. Given the fact that they aren’t even employed, it speaks volumes to how low the credit card industry will stoop to make money. This is why many colleges and universities are considering banning credit card marketing on campuses across the U.S.
Til’ Debt Do Us Part
Credit cards are a way of doing personal business for millions of Americans. That, by itself, is not a problem. Moreover, a lot of Americans pay the full amount of their balances each month. This is also a good thing.
However, the majority of people do not.
This is going to be a big problem for this country both in terms of health and security.
There is no question, that this problem revolves around personal responsibility. But with sophisticated advertising and aggressive marketing, the argument is not quite that clean.
Even with the bottom feeding tactics of the credit card industry, Americans are going to have to resist this low hanging fruit. In addition, boomers must re-adjust their material expectations and learn to live not “within in their means,” but “well below it,” if they are to make it in retirement.
Sadly, credit card issuers continue to absolve themselves of any responsibility as they keep pushing it off on the consumer as they pressure them to sign up and pay up. At the same time, they continue to bombard Americans with more and more offers–offers that appear to make good financial sense but in reality do not. And if that’s not enough, issuers continue to weasel fees from cardholders through late payments, hidden charges, and the fine print.
As all of this continues to take place, millions of Americans will feel the pressure of mounting debt and the pressure is going to take a significant toll on their health.
Dr. David Hunnicutt
**The content for this quiz came from a remarkable book written by Robert Manning. Entitled, “Credit Card Nation,” it’s one of the best books you’ll find on the topic.
This story ran on DavidHunnicutt.com on January 1, 2007.