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HSFPP Weekly Update # 155—Maxed Out

Message from Bob: Consumers are bombarded with advertisements saying that, if you want to be happy, you need this or that product; and, if you don’t have the money now, just put it on your credit card. There is nothing wrong with using a credit card as long as you have the money to pay the bill. The problem is that far too many people no longer ask themselves whether they really need something or how the purchase will affect their budget and their saving and investment goals. We, as educators, have an uphill battle to compete with advertisers who have the funds to get their message out. Their message to “spend, spend, spend” is not good for consumers. Perhaps the new film, “Maxed Out,” will make our job a little easier and help teens understand the consequences of not thinking before they buy. Only by getting teens to think about saving and investing, rather than spending, can we help them reach their short- and long-term financial goals.

 

Website Pick of the Week:

http://www.bankrate.com

Bankrate.com compiles and presents financial rates and information in an objective manner, providing up-to-date rates and information on auto loans, credit cards, and other banking products. The site is full of helpful features, making it a great place to compare and contrast financial rates.

 

In the New$… “Maxed Out”

I’m Dr. Robert Flashman, a professor at the University of Kentucky and State Coordinator of the High School Planning Program in Kentucky; and I am responsible for bringing you the Weekly Updates. As I write this, Chris is on Spring Break.

This article is about a riveting new documentary film and book titled, “Maxed Out,” by investor turned filmmaker and writer James Scurlock. Both the film and the book should hit theaters and bookstores within the next year. I was lucky enough to view a rough cut of the film a few weeks ago, as well as some sample chapters of the book, and was equally impressed with both. Of course, I teach and research on debt and overconsumption, but I’m not the only one who is excited about “Maxed Out.”

“Maxed Out” had its world premiere last week (03-11-06) at the South by Southwest Film Festival in Austin, TX, and, according to Geoff Revere’s write up in the Toronto Star, the audience cheered as the final credits rolled. Cheering a documentary on debt? As film insider Web site Rotten Tomatoes writes, “Maxed Out” is “far more entertaining than any movie about credit card debt has any right to be.” E! online calls it “eye-opening,” “heartbreaking and hilarious,” and Variety praises it as “intelligent, informative and unusually entertaining.”

According to interviews, Scurlock originally set out to make a lighthearted movie similar to “Super Size Me.” Instead of focusing on fast food, he thought he and his crew would investigate our habit of keeping up with the Joneses by incurring unnecessary debt.

What James Scurlock found and what the movie ultimately captures is how the financial lending institutions and our legislators at both the federal and state levels have changed from those of our great grandfathers’, grandfathers’, and even our parents’ generation; these days, they actually encourage us to be irresponsible!

Until recently, we did not have legislators and regulators allowing lending institutions in many states to charge up to 590 percent interest. (In Kentucky, the maximum is only 390 percent after recent changes in the legislation a few years ago. Keep in mind that interest rates of 18 - 21 percent are common.) In most cases, the allowed interest rate of 390 percent is above and beyond what pawn shops charge in fees. Back in the day, this was called loan sharking and it was illegal.

Scurlock discovered that not only the poor pay more in interest, as documented by David Caplovitz in a book originally published in 1963, but in the case of almost all citizens who get over their heads in debt, their credit score falls, and they consequently must pay higher and higher interest charges or are forced to file for bankruptcy. Not only that, he discovered that not all the problems come from Americans who over borrow; many have lost jobs because of mergers or outsourcing, or they lack adequate health insurance.

The most moving segment of the film is an interview with the mothers of two young college students who committed suicide over the shame, embarrassment and overall sense of helplessness brought on by their monthly credit card debt.

Keep in mind also that recent federal legislation has made it much more difficult for individuals and families to file for bankruptcy, even in circumstances beyond their control such as divorce, loss of job, and high medical bills. Unless the law is changed, many consumers will find themselves squeezed hard to pay debts so large they simply have no way out. In a situation like that, it is easy to feel helpless.

Disagreements over money contribute significantly to marital quarrels and to divorce; and money troubles make life much less fun. So, if you want to have a happy and successful life, you would do well to save and invest!

 

Discussion Questions:

1.) Should the government allow loans with interest rates that equal 390 percent for consumers who have low credit scores? Yes ___  No ___ Explain why.

 

2.) Should all students be required to take a personal finance course before graduating high school? Yes ___  No ___ Explain why.

 

3.) Should companies that knowingly offer credit cards to consumers who have poor credit ratings not be allowed to collect the debt if the consumer declares bankruptcy?
Yes ___  No ___ Explain why.

 

4.) Should lenders be responsible for legal fees of those who file bankruptcy or credit counseling when they knew beforehand that the consumer’s credit score indicated they would not be able to repay the loan? Yes ___  No ___ Explain why.

 

 

Take-Home Assignment:

Go to the following Web site to find out your spending style.

http://www.bankrate.com/brm/news/financial-literacy/quiz/spending-style.asp

Then answer the following questions:

1.) How would you characterize your spending style? Are you thrifty, rational, or a free spender?

 

2.) Did your quiz results match your image of your spending habits?
Yes ___  No ___ Explain why.

 

3.) Can you think of other spending styles besides the three shown in the quiz? What are they? Do any of the three styles shown in the quiz match your own?

 

4.) Do you think a person's spending style says something about their general personality? Yes ___  No ___ Explain why.

 

5.) Are spending habits inherited? Why or why not?

 

6.) Are your spending habits similar to those of your parents? Explain.

 

7.) What factors help shape a person's spending style?

 

8.) Is it possible to balance the rationality of reasonable spending with the excitement of impulse buying? Explain.

 

 

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of the HSFPP weekly financial updates and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP and the weekly updates meet Kentucky core concepts. The Web site and weekly updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.