Hey carlflack, here in the sunny south, there are some credit unions that still offer those Christmas Club accounts!!!! Most of those who contribute are employees who are on payroll deduction.

And....my very first charge cards were Exxon, and Sears. I don't remember if you could "make payments" as my Dad taught me that if you buy it, you better have the money to pay the bill when it comes in. No option, that's the way it was. Taught me a lot, and every day I thank him for that.

Anyone notice lately that a lot of the cars, etc. advertised on tv doesn't even give you the price, only tells you the monthly payment? When you call for the price, wanna pay cash, they all look at you.....why, we are only charging -% interest, keep your money in the bank and make payments, that's all these kids understand.

It should be interesting to see where we are 20 years from now....

20 years....so whats that in monthly payments?

quote:

Originally posted by Jim and Tere:
Twenty years ago, after listening to a class taught by a guy named Ron Blue, who in turn had been mentored by Larry Burkett, Tere and I started treating our one credit card like a debit card. We use the credit card because we get frequent flyer miles that way. Every purchase is entered into our check book. It's an obvious reminder when to stop spending. When the bill comes in the mail from the credit card company, it's already "paid" for. Just write a check and don't subtract it from the balance. We've tried to teach our three kids to do the same. The one that does it is the one who has no financial problems. When we retired, we had no debt, nada, which is the only way we were able to retire. It's a little bit of a pain to keep track of stuff but has been worth it for us.

Wow! That is so simple but so perfect.

Wow, lot's of good comments, a sign that people really read this stuff and have opinions of their own.

Don, thanks for the comments. Hope you continue to enjoy the thread as we discuss more and more of "playing with the numbers".

Bill, correct again on the comments about American Express. Amex issued their first "charge cards" in 1958. These cards had to be paid in full every month. Amex issued their first "credit cards" in 1987. This was the first time Amex allowed balances to be carried forward from month to month.

Danny, your so right about the need for a credit or debit card to facilitate so many of the everyday transactions in today's world. The safest way to do this though is to carry one "credit card" that has a small credit line.

Jim & Tere, That is probably the safest and best money management scheme I have read or heard about. Yep it's extra work and easy to overlook a charge but it sure does a great job of managing money availability. I have tried doing something similar using "Quicken" and setting up accounts for each charge card.

Yep, everybody is correct about Store Charge Accounts. They have been around a lot longer than the credit cards of today. The draw back was that they were only good at the store that issued them. The first credit cards were actually issued by the gasoline dealers. Most of the gas cards had very small limits, maybe a couple hundred dollars, but then again gas was about $0.30 a gallon.

Now everybody ready for Chapter 3? Next post.

Nick

Chapter 3

Short term vs Long term

Many of the members are senior executives in large corporations or run their own companies. Much of the following is one of the first things they learned about financing their operations.

When you analyze the balance sheet of a company, or for that fact your own personal financial statement, assets are broken down between current and fixed or long term. The same is true for the other side of the balance sheet. Liabilities are either current or long term and when added to owners equity must equal total assets. We all know this, so why am I telling you something you already know? Because it leads to the following:

Never finance a "Current Asset" with a "Long term Liability" or a "Fixed Asset" with a "Current Liability".

The life of an asset or expenditure must not be less than the life of the payments for that asset or expenditure. Examples: It's ok to buy a building with a thirty year life and pay for it with a thirty year mortgage. It is NOT okay to buy computer equipment that has a 5 year life and finance it for 10 years. Anyway you get the idea.

Now the point of all of this. Apply these principles to your personal finances.

If the washer or dryer dies and money is not available for a new one by all means buy one on time payments. Hopefully, you can check the interest rate on your "Charge Card", or the in store account, or a bank loan. but try to pay as small as premium as possible. The same can be said for emergency uses. If the engine blows up in the Barth a 1000 miles from home not many of us carry the extra $10,000 or so to replace it in the safe in the coach. Use whatever means you have to pay for the repairs. You will notice though that you are paying for something that hopefully outlast the time required to payoff the debt.

Where we get in trouble is using credit cards for expenditures that have a very short life but leave a very long life of payments. One of my favorite examples is that cruise of a lifetime for the whole family. 2 weeks in paradise for you, the wife, the kids and their families. Only cost $25,000. Over within 2 weeks but the payments on your "charge card" go on for years.

Anyway in the future, when you pull out that plastic, ask yourself "will this purchase last as long as it's going to take me to pay for it?

Nick

Nick - oh so true, guess that's why the credit card ads say "two weeks in paradise for the whole family - PRICELESS"....

Then theres the equation that if you make the minimum payment for the PRICELESS 25k vacation, it will take 30 years or so to pay off, and end up costing you 265,000. Now, that's PRICELESS.

Tina

I have a debit card and three credit cards - a USAA Mastercard, an NFCU Visa, and a Sam's Club Charge.

I use the MC and Visa, because if there's a dispute, there are rights debit cards don't confer. And then, of course, there are the rewards, for me about $200/year. The Sam's Club is for convenience, because it allows me to refuel at Sam's.

quote:

Originally posted by Nick Cagle:
Now the average outstanding balance is approaching $10,000.00 per household.

Nick

I just read in Time Magazine that in 2010 Americans' credit card debt will be 1.2 trillion dollars. That is double what it was in 2000.

I am not going to go Islamic here, but easy credit is one of the root causes of our situation. And I mean businesses as well as consumers.

I have to disagree a little – the credit cards are not the cause of the problem – there are a symptom of the problem.
People have to take a little responsibility for their actions. Sure, there was/is a lot of marketing to get people to buy stuff they can’t afford, but in the end it is still the action of the person spending the money.
I cringe a little at the ‘credit cards are evil – don’t use them’ ideas. Hey guys, its spending more money than you can afford that’s evil, doesn’t matter if is credit, cash, even bartering – if you can’t afford it don’t buy it.

My words of wisdom for the weekend….
Credit cards are just like booze. If you control them they are useful, fun and entertaining. If you allow them to control you….well it’s not very pleasant.

quote:

Originally posted by chrisW:
I have to disagree a little – the credit cards are not the cause of the problem – there are a symptom of the problem.

Quite right. The root cause is shortsightedness. Too many people act on their immediate wants, without thinking of their long term needs.

One of the financial writers has suggested we evaluate every decision on a 10-10-10 basis. That is, "How will it affect me in 10 minutes?....10 months?...and ten years?"

But, you know, really, the difference between civilization and savagery is short term vs long term, as well.

quote:

Originally posted by bill h:

One of the financial writers has suggested we evaluate every decision on a 10-10-10 basis. That is, "How will it affect me in 10 minutes?....10 months?...and ten years?"

One of the best evaluations I have ever read. Now if we could get 535 people do follow it implicitly.

Nick

I live in a rural, poor, county in East Tennessee. The unemployment rate is 20%. Even when it is at 7%, it's normal level, there are a lot, and I mean hundreds, of families of 4 or more who live on $15000 a year or less. I know this as fact. They could get credit cards, did get credit cards, maxed them out, and now what? These are people who are poor, very uneducated, bound in a circle of poverty that they just can't get out of. There is no industry to speak of, no technical school system, the public school system is very bad (what do you expect when starting teachers salaries are $21000/year)and the 'good old boys' run things with an iron glove. They are quite content with the status quo.
I guess my point is that there are huge areas of poverty in this country and even with their limited ability to analyze short and long term benefit, these folks often are reduced to trying to figure out how to feed their kids or get them medicine when they're sick. If I was in their shoes and had a credit card and could buy a weeks worth of food, I'd do it in a minute knowing darn well I'd never be able to pay it back. There is a poor America out there, hundreds of thousands, millions of them. So while a lot of the problem lies on people getting into credit card debt that make enough to live on, there's another side to consider. What to do? I'll be damned if I know, but what we're doing now is not working.

Up til now we have talked about the debt that large corporations and individuals have incurred in the last few years and their inability to pay that debt. Well, tonight let's look at Uncle Sam's balance sheet. This will make corporations and individuals look like beginners.

The government keeps telling us the current national debt is $11 trillion. That is a lot of money. But it is only the beginning. The deficit for this year is another $1.7 trillion. Now for the really scary numbers. Unfunded Social Security benefits - $6.6 trillion. Unfunded Medicare benefits - $36.3 trillion. Okay now we are talking a whole lot of money -over $56 trillion. By the way this only comes to $483,000 for each American household.

What is the future of Social Security? Consider the following: It is already $6.6 trillion in the hole. In 1960 there was 5.1 workers paying social security taxes for each person drawing benefits. By this year, 2009, this is down to 3.3 workers per beneficiary and by 2040 it is projected to be 2.1 workers.

These numbers come from iousa.com. Visit it if you have the nerve.

Nick

The unfunded liabilities of Social Security & Medicare make scary numbers indeed, but as of today they are merely hobgoblins. They are estimates of how much will be needed to pay claims over some future time period.

Social Security is not $6.6 trillion in the hole. The government still collects more taxes each year for both programs, than it pays out. Both will become insolvent sometime in the next few decades. I've seen 2018 for Medicare, & 2042 for Social Security, but no one can be certain. The date changes as our economy fluctuates. They will become insolvent on the date their outgo exceeds their income.

If they become insolvent, then any outgo that exceeds income will have to come from general tax revenues, but for 25 of the past 28 years, government has not collected enough general taxes to pay its ordinary bills, let alone shortfalls in separately funded social programs.

We have a future problem, but there is still time to correct it by also taxing people with higher incomes, increasing the retirement age, reducing benefits, or some combination of the three. Last I heard, even if Social Security becomes insolvent, there still will be enough income to fund benefits at about 75% of the current level.

This is one more national economic problem to be addressed in the near future, but we are not facing immediate catastrophe regardless of what the doom criers say.