Personal Finance

Before the causes and resolutions are discussed, debt must be understood. Terry Herman, a financial advisor for Edward Jones, expresses this definition: “Simply put, debt is a product bought or a service utilized that you still have a financial obligation to” (Herman). To further that definition, debt is the borrowing of money with the entitlement of repayment with interest; this explains the financial obligation Herman expressed. While family members and friends may not enforce interest, interest would not demean the situation. The current consumer-driven culture has significantly increased the amount of personal debt from decades ago. A chart derived from statistics collected by the Federal Reserve and Bureau of Labor Statistics displays the climb of debt from $1,186 per person in 1948 to $10,168 in 2010 (Indiviglio). As shown, the increase over 62 years is approaching a factor by the multiple of nine. Consumers are clearly spending irresponsibly, which Herman manipulated into the “complete difference between an investment and expenditure” (Herman). An investment is something expected to obtain an additional value while an expenditure is unnecessary spending. Thus, consumers must be acquiring expenditures more frequently than investments.

Debt has become the new American bedfellow; “The average U.S. household with debt carries $15,762 in credit card debt and $130,922 in total debt” (Issa). One should keep in mind that the “$130,922”is a median debt; some live debt-free while others have substantially higher debt (Issa). For twelve years running, the cost of living in our country has grown greater than our median wages contributing to the overall mountain of debt incurred (Issa). Our country has grown used to the debt that looms because that is what the American way has become; buy bigger, one can always settle finances at a later date. Juliet Schor discussed how “The new consumerism, with its growing aspirational gap, has begun to jeopardize the quality of American life”. Americans have grown tired of carrying a proverbial weight of their debt and are fighting against the normal American life of living

In a great world, no one would be into debt, everybody would get more than they spent, and candy cake would not be fattening. In reality, debt appears. Jobs are lost, factories close down, medical problems occur, and school tuition fees are due. Even the perfect family spending budget can fall short sometimes; all these, making quick and longer term borrowing a must. Knowing the benefits and drawbacks of various types of debt will help families make a wise decision about borrowing cash.

In the last year, a number of families have had problems with managing their mortgages and lost their homes to foreclosures. Each year, credit card debt continues to increase and hundreds to thousands of workers lose their job due to cutbacks and downsizing. Although reasons for these concerns are complicated, one contributing factor is the financial illiteracy of many individuals. Multiple studies have shown that adults and youth score low on financial literacy surveys. Lusardi and Tufano found that only “35% of respondents figured out that making minimum payments to the interest payment on outstanding credit card debt will never eliminate debt”. However,

In his book, Smart Women Finish Rich, David Bach outlines what he terms the "12 Commandments" of greater wealth. Commandment six, provides a great insight into how people get drawn into debt. "Society is designed to get you to spend every penny you make and them some. The more you make, the more you are led to believe you should spend." (Bach 2002). Bach goes on to express that consumers do not recognize how these debts or expenditures add up to hundreds and sometimes thousands of dollars in additional costs when interest rates are calculated in over the long term.

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The misuse of credit cards has a negative effect on many American households. Bragg (2010), " According to Bragg (2009) “According to the Nilson Report, a credit industry newsletter, the average American household has $8,329 in credit card debt” (para. 1). Richardson (1999-2010), “As of January 2008, the percentage of credit card accounts that were 30 days past due or more was 4.18 percent in the fourth quarter of 2007, according to the American Bankers Associated” (Effects, para. 3). When Americans realize they are credit card abusers and they determine that they are in need of some help with managing their credit card account (s), they tend to seek professional help from outside agencies for a fee such as, debt consolidation services and consumer credit counseling services. These companies that help individuals reduce their debt if it grows out of control. Taylor (2010), "If you're in over your head with credit card help, there are many free sources you can turn to for help with your debt. No one can make

According to the National Financial Educators Council, youth across America are slowly becoming illiterate when it comes to their personal finances. A study was introduced by Beierlein & Neverett (2013) through Harris Interactive for the National Council of Economic Education that stated, “Participants, 3,512 adults aged 18 and above and 2,242 students in grades 9-12, took a 24 question quiz on economics and personal finance. The adults surveyed scored an average grade of 70%, while the students ' average was 53%. Nearly 30% of the adults and 60% of the students failed the quiz. Ironically, although 97% of the adults

The use of credit cards are rising steadily as more consumers spend more money on common goods and services, thus the rise of credit card debt increases. There is the credit card to pay for items that exceed our current income amount: 4k resolution TV, shopping for sales, and going out with friends now occur more often thanks to credit cards. However, when the credit card bills come around and are not paid on time, debt accumulates and adds and adds on. Credit cards have its many benefits such as carrying reward points for trips and vacations, helping create a credit score for possible job opportunities, and lower interest rate to pay back with more money usage. Unfortunately, it is a responsibility held as getting the credit card paid back, having the harm of a bad credit score, accumulating interest that may skyrocket a person deeper into debt, and spending more than paying straight from cash to pay fees. Credit scores are important as they are a source that partially determines your job outcome, the ability to get a raise, and the ability to have money loaned to help pay for a mortgage, car, and other life necessities. Credit cards outweigh its harm, if used correctly, by having an opportunity for a great credit score and convenience.

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This paper discusses three probable causes of the excessive use of credit cards and provides suggestions on other available routes for alleviating particular types of expenses.

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Chapter 3: The Multiple Choice 1. a. b. c. d. e. 2. a. b. c. d. e. 3. a. b. c. d.

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Financial decision making is an important aspect among all the consumer behaviors (Johnson, Tellis, and MacInnis 2005; Mandel 2003; Morrin et al. 2002; Zhou and Pham 2004), because consumers’ welfare significantly depends on the soundness of their financial decision (e.g., savings for retirement, investing in college funds, using credit card to fund current consumptions, purchasing insurance, etc.). Among many financial decisions, some of the opportunities provide a modest and stable return, but not the others. Consumers often times face trade-offs between financial gain and the potential risk associated with the profitable return. Riskier options usually offer higher monetary value as well as higher likelihood of loss. Pursuing riskier but potentially more profitable financial opportunities is considered as financial risk-taking. The 2011 Consumer Financial Literacy Survey by the National Foundation for Credit Counseling (NFCC) reports that 56% of American consumers do not maintain a budget or track their expenditures; 33% of them do not have any nonretirement savings; 40% carry credit-card debt from month to month; 28% do not pay all their bills on time; 7% have debt in collection; and a record 41% would give themselves a grade of C, D, or F on their knowledge of personal finance (Duclos, Wan, and Jiang 2013). It is suggested by the report that consumers often lack appropriate information and/ or knowledge to make reasonable financial decisions. Many financial decisions