On Credit Card Addiction And Ignoring The Points!

wallet_hub_credit_card_debt
Source: WalletHub

Congratulations, America, we did it! We finally broke the $1 trillion barrier for household credit card balances, according to a recent WalletHub Report.

This is a somewhat less impressive than Roger Bannister’s breaking of the 4-minute mile barrier in 1954 (RIP Sir Roger, B. March1929 — D. March 2018), or Sir Edmund Hillary and Nepalese sherpa Tenzing Norgay’s shared ascent of Mount Everest in 1953. Unlike those incredible human achievements, we all did this one together. $1 trillion! When you think of how far we’ve come, there’s practically nothing we can’t accomplish when we all work together!

I bet you did your part. The average household’s credit card balance hit $8,600 – also an all-time high according to WalletHub.

The previous high point in US credit card household debt was the final quarter of 2008, just at the moment in the Great Recession when it all came crashing down. I’m not linking those data points through causation, I’m just mentioning interesting facts you might want to know.

I’m teaching a personal finance course this semester at Trinity University in San Antonio, and in the course of the discussion recently on personal debt and credit scores, one student asked a very good question:

What’s the best credit card for a graduating college senior to get?

She hopes to have a decent income soon and she wanted to start building up credit. Should she shop for the miles or the points? Should she worry more about balance limits or the interest rate? And which banks offer the best terms? I could tell from the reaction in the room that many students wondered the same thing.

roger_bannister
RIP Sir Roger

Well. A mild rant ensued.

My answer, which I’m only somewhat happy with, involved trying to debunk the myth of “smart consumers” who maximize their mileage points or rewards programs, or who shop for the lowest rates on credit cards.

A low or teaser interest rate should be totally irrelevant, I said, because you shouldn’t carry a balance month to month. Don’t focus on the interest rate. Focus only on not carrying a credit card balance.

And the points and miles? These, I further ranted, are all tricks. All of them. They are equivalent to the tickets you win from playing games at Chuck-E-Cheese that allow you to accumulate enough to buy a plastic ring at the end of the birthday party. (Sadly, now you know how I spend my Saturdays.)

Yes, I admitted, I also benefit from travel miles and rewards points, and I also have a variety of credit cards in my wallet. To the extent psychologically possible, however, I try to ignore the various tricks and distracting “points” I’m earning.

edmund_hillary_tenzing_norgay
A fine bromance: Hillary & Norgay

Another student in the back row raised his hand. What about a credit card that offered 10X the rewards points, he wanted to know. Surely that would be worthwhile?

No. Stop. You are being tricked. There is no savvy points-maximizing strategy I can endorse.

I understand there are websites dedicated to all the different supposedly clever strategies around this stuff. For that matter there are many websites dedicated to people who dress up their pet hedgehogs in funny outfits – does that mean it’s a worthwhile activity? (Apologies to my 8 year-old who is obsessed with hedgehogs and recently pointed out these websites to me.)

The point is this: the best personal financial behavior tries as hard as possible to ignore the credit card marketing of points and rewards. Savvy consumerism doesn’t involve trying to maximize these things. The credit card companies are not dummies. The marketing wings of the credit card companies know, in fact, that we are the dummies.  The credit card companies will get back from us much more than they pay out with their Chuck-E-Cheese tokens.

Anyway, that was my rant at the time.

But I wasn’t totally happy with my answer.

I’ve thought about “what’s a good credit card?” more since then and want to add a few thoughts I didn’t say that day in class.

reese's_addictionBecause not only are there no good credit cards, the question itself feels wrong to me. It makes me cringe in all my sensitive finance places. I think of the question as the equivalent of asking a nutritionist what the best candy bars are for a college student. Or asking a substance abuse counselor what the very best narcotics would be for a graduating senior to take.

They are all bad choices. Some could be less bad than others, but it’s really not the product itself that could be intrinsically good, or advisable. No responsible financial advisor, nutritionist, or drug abuse counselor should endorse any of these things.

Instead, the responsible counselor can merely advice around moderating or eliminating behavior in the use of those bad products.  Yes, we can imagine consumers of credit, candy, and cocaine as fine people, enhancing their life or engaging in guilty pleasures in responsible ways.

credit_cardPersonally, I use credit cards because they are incredibly convenient. Fortunately for my family, I don’t abuse them. Our household balance is not part of the $1 trillion American problem.

And yes, I have been known to abuse Reese’s Peanut Butter Cups, in those stupid King-Sized 4-paks. Just sitting there, taunting me in the checkout line at the grocery store. It’s terrible, I know, but preferable to cocaine. I won’t judge you if you won’t judge me.

But make no mistake: Debt is a drug. We’ve never been more addicted than we are now. And many of us desperately need help.

 

A version of this ran in the San Antonio Express-News and Houston Chronicle.

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What’s in Your Wallet? Hope

Why You Hate Your Bank

 

 

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A Spreadsheet Divided Them

For Sonia, it felt like her husband Dave was having a separate relationship, one that didn’t include her.

With whom, you may ask? With their household finance spreadsheet.

She told me “I felt Dave was having an affair with his spreadsheets, like it was something secret that I couldn’t take part in.” She said she wanted to be part of it, but it felt like he wouldn’t ever include her.

Dave, an Electrical Engineer in Space Sciences at a local nonprofit, research and development organization in San Antonio, admits he likes his spreadsheets. But Dave disagrees with Sonia’s description.

As he told me, “The truth is, Sonia helped me build the spreadsheet. I got the budget categories from [well-known finance guru] Dave Ramsey. I forwarded it to her, and she’d tweak it a little bit. I think she would agree she was included. She probably didn’t want to be included. My perspective is: We both came up with the plan. The problem with it was sticking to the plan. Then later she would say, ‘I don’t want to talk about the spreadsheet.’”

spreadsheet_divided_themAnd that description by Dave is quite different from the way Sonia experienced it. “I did have a part in creating the spreadsheet but once it was created, I felt excluded from maintaining it or suggesting changes to it,” she told me.

In my self-appointed role today of pretending to be a financial therapist, these different narratives are troubling.

Now is the time I should mention: Sonia and Dave got divorced. They agreed to speak with me separately about their distinct approaches to shared household finances.

There’s no villain here. Just two good people for whom shared financial responsibility couldn’t reconcile happily. They both agree that irreconcilable approaches to spreadsheeting did not cause the divorce, but they also both describe it as an unresolved tension in their marriage.

Totally irreconcilable approaches to money are extremely common in couples. Google “top reasons for divorce” and money generally makes the top three of any list.

Dave’s engineering mindset couldn’t cope with Sonia’s approach. He said, “I like to keep everything within a few squares. When I was a kid, I was certainly someone who likes to color within the lines. And Sonia was a person who colored outside the lines. I remember clearly coming home and there were a bunch of Target bags, and I’m like: where is this going to fit on the spreadsheet? We’re going over our budget.”

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Yoga mindset…different from an engineer mindset

Dave described their differences like this: “She came at it from a quality of life approach. But the way I see it, you have $10, you can only spend up to $9.99. That thing over there would make my life enjoyable, but we don’t have the extra money to do it. I’m an engineer, so numbers explain the world. When I talked to her about money, I used to get a blank stare.”

Sonia also remembers being blamed, she felt unfairly, for making Target a favorite, well, target. Sonia, in recalling that same interaction, described it more as a glaring stare, rather than a blank one. “I felt like he overreacted when I’d made purchases that didn’t have a spreadsheet category – we never broke the bank – in fact with our two incomes, we had a promising little nest egg building up,” she said.

Sonia is an executive for a non-profit organization in San Antonio.  She has a professional life beyond yoga, but I first met her when she taught my daughters sun salutations in a local studio. In her office job she works with spreadsheets to track projects. But at home, rather than representing a shared solution, she felt the spreadsheet tended to limit their collaboration. She resented it.

I myself enjoy spreadsheets, but while listening to Dave I could empathize with Sonia’s reaction to his “stay inside the lines” approach. That, in turn, reminded me of reader feedback I received last fall.

Loyal readers of this blog (both of you!) may recall me asking for your help last November  with a project. We know that couples stress about, fight about, and sometimes even break up about money.

engineer_mindTo prevent that, what questions – I queried back in November – should couples ask each other before they get married or commit to a life together?

I figure good communication can’t guarantee a happy financial path but maybe is the first step to solving problems together.

I received some nice responses. Thank you. I also received some responses that made me laugh, ruefully. They frankly made me worry about the relationships of my readers.

Like when the husband responded to my open-ended query by mansplaining to me over email how his spreadsheet was the key to their financial success. Notice “my spreadsheet is a key to our success” is a far cry from the original topic of “what questions should new couples discuss together about their financial life?”

To state the obvious, “here’s the answer” is not the same as “what are the questions?”

Dave, with his engineer mindset, struggled with Sonia’s yoga-teacher mindset. Dave remembers their marriage counselor telling him, “your way is not the right way.  Or the only way.” So even while Sonia probably needed to work harder to fit inside the boxes, Dave probably needed to work harder to let go of his rigid plan. Sonia’s feeling of exclusion was real, even if Dave didn’t see that as a big problem, or the main problem.

The two now face financial challenges that come with divorce.

Sonia and I recently chatted about building her financial plan, now that she’s single and head of her own financial household. We talked about her mortgage, savings, and investments. I asked her if she had any money stranded in retirement plans with previous employers that she should “roll over” into a brokerage account. She looked sheepish.

She said, “I might have some.” Sonia wasn’t being coy. She just didn’t know.

“That’s why Dave loved his spreadsheets more than me. Because the spreadsheets always knew where the money was,” Sonia told me.

On a positive note, we’re coming up with a plan that doesn’t involve a spreadsheet. She gave full custody of that to Dave in the divorce decree.

 

A versions of this post ran in the San Antonio Express News and Houston Chronicle.

 


or as Wu-Tang_Financial would say:

Please see related post:

12 Money Questions To Ask Before You Get Married

 

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