Saturday, November 22, 2003

"I'd Like A Mortgage On This Venti Mocha Machiatto, Please."

"I'll have a Venti White Chocolate Mocha no-whip with a double-shot of espresso, very hot, and a bran muffin" the young woman ordered matter-of-factly in the Baltimore Airport Starbucks last week.

Even Starbucks' aficionados stood back in awe. The Venti Mocha, I am told, comes stock from the factory with 4 shots of espresso -- enough caffeine to transmogrify the most docile wimp into a Pit Bull on a gunpowder diet. Adding another 2 shots of pure speed is like putting half again as much heroin in a junkie's needle, because the standard dose of pure smack may just not be enough to kill him. I stood, watched and wondered whether they should have wrapped her muffin in a death certificate.

And I thought I had seen it all, as far as the public abuse of drugs is concerned, but it was what happened next that was truly horrifying.

"$6.50," the clerk said to her, not looking up, no hesitation.

The young woman whipped out a MasterCard from her Coach purse. The counter clerk swiped it. A receipt was generated. Transaction concluded. The young woman waited impatiently, tapping her long nails on the counter as the Starbucks Squad dedicated the entire espresso machine preparing her morning "medicine." She snatched it off the counter and drew deeply. The double-strength concoction snapped her head back like she'd hit a bridge abutment at 65, and as she walked down the corridor grousing out loud at life in general I saw her toss the credit card receipt into a trash can.

Now, don't get me wrong. I like Starbucks as much as the next obsessive-compulsive white trash hobo. Indeed, I favor the Christmas Blend more than most. But, when the day comes I start ordering $4.50 Grande Caramel Machiattos and taking out a mortgage on them, I hope someone cares enough to commit me to a 12-step program for those who pistol-whip airport ticket agents after charging their "Cup 'a Joe" at 19.5% interest.

And, it’s not only Starbucks. As I look at the numbers, it strikes me that many, perhaps most Americans, are in need of help. We are caffeine junkies, to be sure, but more importantly, we are credit junkies -- a nation of debtors. If it can be charged, we charge it. If it can't be charged, we get another credit card.

Don't believe it?

According to the Federal Reserve, in September, 2003 consumer credit rose at an annual rate of 9-3/4 percent while wages were rising at a 2 1/2 - 3% clip, just in line with inflation. Bottom line? Household debt hit a record high relative to disposable income -- even higher than you get after downing a Venti Coffee Frappuccino.

And this from Debtscape . . .

"The average balance on a credit card is $7,000.

"The average interest rate is 18.9%.

"Late fees are now $29.00 (if not received on the payment due date).

"The average household has 10 credit cards.

"Almost half the households in America report having difficulty paying
their minimum monthly payments, thus making bankruptcy seem like a good
alternative. And, apparently for some, it is. Personal bankruptcy is up more
than 100% since 1995.

"If your credit card balance is $8,000, and you make the minimum
monthly payment at 18% interest, it will take you 25 years, 7 months to pay the
debt off. You will pay $15,432 in interest charges, (almost twice the balance),
bringing your total to $23,432.

"Americans paid out approximately $65 billion in interest last year

"If you didn't have your credit card payment of $218 a month, and you
instead invested that money in a 12% savings plan, in 25 years you could retire
with $1,354,930 in the bank. So your credit card payments not only will cost you
thousands in interest, but also prohibits many Americans from adequately saving
for their retirement and makes bankruptcy look like the only alternative.

"Last year over 1.3 million Americans filed for bankruptcy, the highest
in our nations' history.

"Credit card companies solicit the average American 7 times a year
through the mail."

And, even knowing all of that, as a nation we're not stopping the Stuff habit. Hell, we're not even slowing down. Our only question is, "Have you got anything larger than a Venti -- maybe a 55 gallon drum?" When it comes to debt, the most common asset purchased with refinance money from our homes are plasma flat-screen TV's. We're hooked.

Average credit card debt has jumped 35 percent this year, which won't stop Americans from spending an average of $722 Christmas gift-shopping this holiday season. We average $3,250 per person on an average of 2.5 credit cards, the same cards more than half of shoppers plan to use for their holiday purchases, the same cards about 60 percent of their holders won't pay off when the bill arrives.

Welcome to Wimpie's world of paying next Tuesday for the hamburger today, a world where Tuesday never comes -- at least in our imaginations.

To our debt equation, one in which all math is addition, we have created a housing bubble that continues to swell . . .

With mortgage rates as low as they have been in a half century, it seems that everyone is buying a house -- on credit, of course. They are counting on low rates and higher prices. But, because rates can't go any lower, what the consumer should be counting on is higher rates and lower prices. Foreclosures are already setting all-time records and that is even before real estate prices start to fall, as they must when interest rates begin to rise again. Those already paying piddling interest on adjustable rate mortgages will find their payments skyrocketing. Those who are on fixed rate mortgages will switch to adjustable rate mortgages to ease the monthly pain, hoping that rates will return to lower levels, hopefully before the last of their savings (if they have any) disappears.

Is there an answer that can pull our proverbial tit out of the wringer?

Yes. Pay cash. For everything. Plain. Simple. No exceptions.

And where did I learn this bit of wisdom? In Mexico.

Here, everything from your water bill to your cable TV, your food to your house (yes, your even house) must be paid for in cash. Except for tourist-havens like Cancun and Puerto Vallarta, credit cards are pretty much worthless. A few restaurants will take them, but even those that advertise "We Welcome American Express" don't welcome American Express at all, and it is curious just how often you hear a waiter say, "Sorry, our credit card machine isn't working tonight," making you come up with cash anyway.

What we have found is that paying cash for everything leads to spending less. Think of it as an "Automatic Budgeting Device." Having to go to the bank or to the ATM and withdraw money gives you time to think about whether what you are buying is worth what you're paying, and it is surprising how often decisions that were once easy while fingering a VISA card become more difficult clutching cash.

It is a lesson more than a few need to learn and I often suggest employers teach it to their employees. (Indeed I believe it important enough that I may produce a new training program to do just that.) After all, money, as in not having more money, makes more people more unhappy than any other reason. And while having "more" money is a condition that can never be satisfied, if only because there is always "more," having "enough" money is a choice, and it is a choice made easier if we stop going into debt for $5.50 cups of coffee.

For sure it is a step in the right direction.


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