Why we re hooked on credit

No doubt, if questions were asked of consumers about overdrafts, the outcome would be similarly frightening about the squeeze on ordinary people from the austerity drive of the last five years. Enter email address This field is required Sign Up. The State's cost of borrowing has fallen sharply, but there has been no break for the taxpayers who bailed out the banks and are now paying a very high price in terms of higher taxes and more expensive banking.

Who needs moneylenders when banks can help bankrupt a country, charge exorbitant rates on credit cards, fail to lend to home buyers and businesses, and force — through their lobbying of Government — An Post to cut its savings rates three times in one year? The other side of this is that the cost of using a credit card — which we now know so many depend on — has shot up since the economy blew up back in And the fees and charges imposed for those who breach the rules on their cards are farcically high.

But the housing boom ended this distinction. Rising housing prices initially provided an opportunity to paper over the problem of unsustainable consumer deficit spending. And why not? It certainly makes more sense to pay the interest on a housing loan than on a credit card. Not only were interest rates at record lows, but mortgages are also tax deductible. Of course, the reason mortgages have low interest rates is that houses have equity that banks can repossess. However, as Geisst points out, cramming consumption into mortgages obscured the line between housing and unsecured debt.

Homeowners actually wound up more leveraged after they used their housing equity to fund consumption. The entire system became much more vulnerable. Once housing prices stopped rising, the debt had nowhere to hide. Boilerplate condemnations notwithstanding, Collateral Damaged makes an important point. Whether you blame lax regulations or irresponsible consumers, the basic story is the same.

But in the real world of social media, internet shopping, low and variable income and inadequate sick pay, people will always need to borrow money for things other than buying a house.

We need to meet people where they are today with empathy, not judgment. Rather than a lecture, people want practical help and tools to be better with money. Making progress, not perfection, is the best way to build financial confidence and win the war against problem debt.

Twitter: jbthewealthman. Create a spending plan for your money. Allocate where you will spend your money in advance, only spending the money you have. My Smart Spending System can help. Find ways to increase your income. You need enough to meet the essentials and surplus to repay debt and build savings. Use the snowball method to get rid of your non-mortgage debts fast. You do this by putting the largest share of your spare cash each month into repaying the smallest debt.

Build an emergency fund. This gives you the ability to cope with unexpected expenses or a drop in income. Manage cookies. If you think the same, join us. Opinion Personal debt. Share on twitter opens new window Share on facebook opens new window Share on linkedin opens new window Share on whatsapp opens new window.

Using a cool car as the concept for the credit card design is also very tantalizing. A clever way for credit card companies to get the younger demographic is to come up with products and offerings that marry the real world with the virtual one, where entertainment involves creating an alternate world of avatars, adventure and even online commerce.

Start them early, thinks the big corporation. Pre-teens are now being cultivated as plastic card spenders starting with debit cards like Visa Buxx and the PAYjr.

What could be juicier than the prospect of a kid who knows how to use a card for spending? That may not be a practical set up, but would hopefully avoid the trouble that uncontrollable debt heaps up on someone vulnerable.

Teach your kids how finance, saving and credit work before handing them a debit or credit card. I recall how I applied for my first card in my early twenties after I got my first job. I was too stingy to let that happen. If you insist on giving your child an education in building and establishing credit, then make sure some questions are answered before they get a hold of a card, such as:. Does the child have a job? How will he pay it off? Will he be paying the balance every month?

Adhere to strict limits on the use of the card or perhaps consider starting off with a debit card, where the worst case scenario causes the corresponding bank account to get wiped out.