Feeling the Crunch

I have long had a soapbox that I like to climb on from time-to-time that involves the ever-increasing use of credit cards to finance a lifestyle that some cannot afford. I do not hold myself above anyone else as I have been guilty of this behavior myself. It takes one to know one, so to speak. Still, in my single days with little more than groceries and rent to pay for, I often wondered how acquaintances who made far less than I did were able to afford $700 purses when I felt like I could not. It just didn't make sense. Somewhere along the lines we, as a society, were losing the conservative spending nature taught to us by our parents and grandparents in favor of the trappings of materialism. If not the generation before us, who exactly were we emulating?

Last Fall Husband and I took a trip to Vegas (I on business, he along for the ride). We stayed at MGM's Signature hotel on my company's dollar. It cost $200 per night which was far less than the going rate for almost all of the other hotels on the strip. We dined at the restaurants in the MGM Grand and spent a pretty penny to do so. In one restaurant there wasn't an item on the menu that cost less than $34. Everything was a la carte so the meal price added up very quickly. One steak on the menu actually cost $188!

Shocked by the prices of what is otherwise a very nondescript establishment, I glanced around to see what kind of people patronized this restaurant. They were almost all in their mid to late twenties.

"Trust-fund kids." Husband surmised.

"No, no way," I disagreed, "there aren't that many trust fund babies who would frequent this place---it's not glamorous enough."

That begged the question: if Husband at 45 and I at 36 felt like we could not afford this restaurant on our healthy, dual incomes, how could they?

"Credit cards." I told Husband decidedly. "They're maxing out they're credit cards."

But why? What was prompting this sudden movement of irresponsibility?

I still don't have the answer to that question but, in studying my own behavior, I can make a few good guesses. For instance, I'd never even heard of spending $400 on a pair of Manolo Blahniks until Sex an the City became popular. Through Carrie Bradshaw's character the show glamorized maxing out credit cards in the name of couture. Looking expensive was so damn important, the message told us, that it was worth missing a month's rent payment to do so.

(Note to Dad in case you're having a heart attack right now: I have never spent anywhere near $400 on a pair of shoes. I did on a dress once and felt stupid forever after, so I learned my lesson.)

Then reality shows joined the band wagon. Paris Hilton and her friends became en vogue and, with an insider's view into their lifestyles, we all craved a lifestyle that we could not afford. Or could we?

We opened multiple credit cards and simply transferred balances as the introductory interest rates expired. We made minimum payments and transferred money from savings as we struggled to cover our ever-increasing debt. We did this because buying nice things felt good and we craved the praise we received from our friends with each new purchase. The benefits were affirming and far outweighed the guilt we felt each time we saw our credit card balances rise.

After a while we just quit looking at those credit card balances as we continued to book those trips to Vegas and the slopes of Colorado. Multiple vacations in one year was the norm. We told ourselves that we "deserve it" and that we can "always make more money". We ceased putting money in 401K's and savings was a thing of the past. Who needs savings when our tech stocks will recover and once again catapult us to the ranks of millionaire?

Once upon a time, not too long ago, a LOT of people in Austin were millionaires on paper. They are no more.

This post comes about because I ran into an old acquaintance of mine at Starbucks this morning. (Side note: why am I frequenting Starbucks? I did the math the other day and realized that I could easily waste $100 a month if I gave into my urge to go every day. That's at least one week's worth of groceries for our household.)

Back to my acquaintance.

We were catching up on each other's lives and suddenly she looked crestfallen and placed her hand on my forearm. "You've always been responsible with your money," she began, "can I ask you for some advice?"

"Of course you can." I replied, failing to see the irony as I sipped my $4 decaf latte.

"I'm declaring bankruptcy." she whispered, glancing around with her head ducked in shame. "It just got out of control. I've tried everything to prevent it but it seems inevitable. I've had my house on the market since July but it won't sell. We just lowered the price yesterday and, if it sells, I won't make one single dime off it. I have $29,000 racked up on my credit cards and, with my child turning 18 this past summer, I no longer receive child support. I thought I was using it for her, but I guess I was using it to support my lifestyle. When I was married my husband made well over $200K, you see, and I guess I'm just accustomed to that lifestyle. I have a hard time cutting back. I really like nice things."

I murmured sympathetically. I do understand. Completely.

She continued. "I have spoken with two attorneys and we determined that the best thing to do is cash out my 401K and either use the money to pay off my car (which she bought brand new in 2006 for $40,000) or have my car repossessed and buy a newer model car that will last longer. What do you think? What would you do?"

Inwardly I was freaking out for my friend but outwardly I remained calm. Here's why I was freaking out: this woman is in her fifties and is going to cash out her 401K. What on earth will she do when she needs to retire? How will she replenish that money in time? Also, she bought a car, a nice car, for $40,000 in 2006. $40,000 is a LOT for a car! I can understand wanting a nice car, but the used car market is pretty good and far more economical. There are ways to afford things you want, if you're willing to put your ego aside. In addition, I distinctly remember her asking me for financial advice in 2006 because she was overspending. This was before she bought the car. What happened?

Then there's the issue of having a car repossessed. I remember not too long ago that having a car repossessed was something people kept to themselves out of shame. Bankruptcy too. Now, I guess, it's just so common that no one thinks twice about weighing the pros and cons of it over gourmet coffee.

"This is all my own fault," she confessed, wiping away her tears. "I mostly spent money on helping my kids and giving them the things they need. I mean, my daughter needed a new car for college so how could I not do that for her? And then there's my adult son who needs help from time-to-time. My 83 year-old mother has helped me out financially to the point where it should be embarrassing but still I am in this mess. My ex husband has even helped me out financially--he's given me thousands and thousands of dollars to get me out of these holes--yet I still have to sell my house and declare bankruptcy. I did it to myself."

My heart broke for her. Clearly she is responsible for the situation she is in but it is just as clear that she is willing to accept the blame. Her justifications were interesting. No college kids needs a new car, necessarily, but that's not for me to judge. What's worth considering is that she's having all this trouble yet not one major financial catastrophe has befallen her such as a serious illness or disability. What happens if it comes to that? What happens if you declare bankruptcy and then have something serious, like a huge medical bill, to pay? I honestly have no idea.

I do know, however, that given the right circumstances I--hell--any of us could be in her Manolo Blahniks.