Time to Rethink Consumerism?
Earlier this year, I took over responsibility for managing our bankruptcy counseling services. This service has been a requirement for bankruptcy filers since a 2005 update to our bankruptcy code. As a result, I have been able to look over a lot of data about bankruptcy filers’ financial circumstances as they begin the process.
What I’ve discovered is that most people filing for bankruptcy have a legitimate reason for doing so: job or business loss that lead to drastic, long-term income reduction; excessive medical-related expenses; dealing with divorce that, besides getting ugly, gets really expensive; or unexpectedly losing a loved one who was the primary income earner.
However, about one in four people filing bankruptcy have simply made some poor financial decisions over the years. And as the saying goes, many of us, but for the grace of God, could easily have gone that same route. The easiest item to blame is usually credit card debt (although I would typically put it behind unaffordable home and auto loans when it comes to causes of financial troubles). We have to remember, though, that consumers don’t go into credit card debt just to have credit card debt. Credit card debt usually results from overspending on consumer goods AND services.
The next easiest target to focus on is cable and satellite television service. While it’s pretty common to see such monthly bills in the $120 to $150 range in the budgets of bankruptcy filers, that doesn’t mean it’s a good idea for the rest of us. Many of us (myself included) haven’t paid for television in decades, and somehow we continue to survive and even enjoy life. For most people, locking themselves into a long-term contract at these levels should probably come somewhere way down the list of priorities past saving for emergencies, preparing for retirement, saving for Christmas and our next transportation emergency, (not to mention food, clothing, utilities, and transportation). And we can’t blame these high costs on being forced to get the “package deal.” Just because a company says that bundling will save us money doesn’t mean it will. Paying for the extra service (usually a home line) means we’re paying more, not less. Virtually all companies offer an Internet-only option; they just don’t advertise it much. If you’re paying more than $40 a month or so for Internet access, you’re probably paying too much. It’s time to put on your “incensed” hat, call the provider and insist on a better deal.
The other three biggest expenses that never cease to amaze me when I see them in bankruptcy filers’ budgets are, in order of what I consider the most damaging: 1) Massive car payments, 2) Large dining out expenses and 3) Excessive cell phone bills.
- From whatever angle you want to try to justify it, it is unreasonable to expect that a household earning $25,000 or $35,000 a year (or even arguably $60,000) can afford a $400 monthly car payment. Yet we often see households in this income range that have two car payments totaling $700 a month or more. Add full-coverage car insurance premiums, gasoline, vehicle maintenance, and licensing/registration, and some households are paying as much as half of their net income toward their transportation costs. Some might ask what the point of going to work is if you have to spend the first half of your day just earning enough to pay for you to get there in the first place. Very good question!
- Usually, what we see when it comes to large dining out expenses is a household that has lost a very successful business or high paying job and that has not adjusted their lifestyle to their new reality. When a household drops below median income levels (probably in the $45k to $55k range, depending upon your state), it becomes hard to justify even $100 a month on eating out. Still, that’s a lot of Scooby snacks!
- There was a time in the fairly recent past (and I say recent because I can remember it) that cell phones were a thing of science fiction that later became a status symbol for the well-to-do. Not only does virtually every American adult (and there are exceptions, of course) now carry a cell phone, but the majority now have smartphones. While the minimum monthly service bill for a smartphone runs in the $50 range, give or take, we regularly see households with cell phones that average $150 per person! Zoink’s Scooby! Like, that’s a lot of money! It’s not the cell phone service that’s killing their budget. It’s the leased phone or the brand new phone financed into the payment every two years or so. Whether or not we want to believe it, the reality is that most of us can use the same smartphone for 5 years or longer. Will it be the latest and greatest? No. Will it have a crack or two in the screen? Likely. But it will not tip us toward bankruptcy.
I guess this is a long post to simply say what other financial experts say over and over and over as well: let’s chillax with the hyper-consumerism. Let’s stop obsessing about the latest phone or tablet or phablet. I admit that I’m guilty of it myself sometimes, but bigger doesn’t mean better. Neither does buying something newer mean we’ll be happier. Seriously, how did our parents’, grandparents’ and great-grandparents’ generations ever find a reason to smile before the popularity of smartphones (the 2000s), the expansion of cable television (1980s) and the introduction of automobile loans (1920s)? Oh yeah, restaurants have been around since ancient times! Bon appétit!