Category: Road Trip

Categories
Credit Cards Debt Road Trip

18 states later, some reflections

I just finished my road trip. The goal was to learn about the impact that credit cards and payday loans have in Americans’ lives. I’m now back in Washington, D.C. If you haven’t already read the previous blog posts, here were some of my reflections from Michigan and Missouri. 

Now that I’ve interviewed folks in 18 states for this project (well 17 states, plus the District of Columbia which obviously should be a state!), here are themes on my mind.

“Impatience” isn’t the problem

In Sacramento, I talked to Kathryn, a 63-year-old woman with $60,000 in credit card debt, which she’s whittled down from a peak of $80,000.

Kathryn worked as a nurse for 13 years before becoming a stay-at-home mom in a small town east of St. Paul, Minnesota, near the border with Wisconsin, nearly half an hour from the closest grocery store. Kathryn got divorced right as her youngest kid was starting college. She suddenly found herself alone in a home, surrounded by other people’s stuff: her ex-husband took half the things they’d bought together, and the realtor staged the house with model furniture. Even though the divorce agreement said the full amount of alimony wouldn’t take effect until the house sold, she went ahead and moved into an apartment anyway—it was too depressing to stay in the empty home—without realizing how long it would take to sell the house. The Great Recession was deepening. She racked up credit card debt between attorney’s fees, her car payment, and paying rent while she waited for the full amount of alimony to kick in.

At the same time, she still wanted to help put her three kids through college, and continued to send them cash despite being deeply under water.  In writing about credit card debt, economists Scott Schuh and Scott Fulford have said that “more than half the population must be very impatient and care little about risk to hold the amount of revolving debt we observe.” Of course, that framework doesn’t really square with putting your children’s well-being ahead of your own, an act that is deeply future-oriented. More broadly, the schema of “I could have one marshmallow today or two marshmallows tomorrow” is only rarely appropriate for the actual types of trade-offs families are making when it comes to debt.

One additional reflection on marshmallows from this trip:

Vegan marshmallows will definitely melt in your car

Wrap those bad boys up!  

It’s time for credit cards to have their comeuppance

According to data from the 2018 Federal Reserve Survey of Household Economics and Decision Making, 91 million Americans have unpaid credit card debt. While 96 million adults said they paid their credit card bill in full every month, a larger number, 106 million, said they carried an unpaid balance at least once over the last 12 months. More than half of those — 54 million — said they had unpaid credit card debt most or all of the time. 

Despite the fact that credit card debt is still a central challenge in people’s lives, student loans have sucked all the air out of the room when it comes to talking about debt. It’s easy for people with student loan debt to contextualize the problem as basically a societal one: the byproduct of higher tuition and broken promises. And, of course, the fact that people signed on the dotted line when they were just 18 years old makes it relative easy for them to feel angry instead of embarrassed.  By contrast, people deeply internalize the shame of being in credit card debt. I talked to a woman in Seattle who had just moved from Michigan looking for work. “Credit score hinders everything [….] it was tight to get things established,” she said. At the same time, she added, “It’s the individual that gets themself in debt.” At least two Democratic front-runners have proposed cancelling most student loan debt, while proposing to wipe out credit card debt would be more or less unfathomable in our current political climate. Student loan debtors are depicted as sympathetic and credit card debtors are depicted as irresponsible. 

Geography matters

On this trip, I talked to people moving from basically every part of the country to basically every part of the country without having a job lined up in advance — in some cases people who literally were moving to and from opposite places.

There’s a lot of places where it’s taken as given you won’t get ahead unless you jump ship. Explaining why his daughter had racked up so much credit card debt, Curtis, a veteran and artist in Council Bluffs, Iowa, said, “She had the best opportunities […] She majored in arts education and she wanted to teach art. She didn’t want to relocate, and if you don’t want to relocate you’re a done deal.” 

But there are definitely no set rules for how you’re supposed to go about relocating to make ends meet, when big cities have high costs of living, and smaller towns have few jobs. The lists of “best places to live in America” would be pretty useless to anyone actually figuring out where to go: the variables that actually matter are probably things like the unemployment rate, the median income for people without a college degree, the 40th percentile of prices for a studio apartment, and whether or not the state expanded Medicaid. 

I’m still especially interested in the “Ability to Pay” doctrine. In 2010, Congress passed legislation saying credit card company couldn’t issue consumers a credit line unless they could demonstrate the customer could pay the loan back at their current income. More recently, the Consumer Financial Protection Bureau has been going back and forth on implementing rules that would do the same thing for payday loans: effectively outlawing lending money to people who are unemployed. The logic is clear: it can cause outsize harm to lend someone money if you have no idea whether they can repay you, especially because it normally means that you’re charging such high fees that you can break even, even if the customer defaults. And yet, what does it mean for literal mobility in this country if it’s illegal to lend someone enough money to buy a Greyhound ticket and stay at a hostel until they line something up? 

What’s next

I’ll be continuing research for this project, and I’m still hoping to talk to more people with experiences with credit card debt, personal loan debt and payday loan debt. If that’s you or someone you know, please drop me a line. I’m moving more into the manuscript phase of this project. It’s been exciting over the last few days to be making progress every day in telling Americans’ stories. I’ll be writing some standalone pieces this fall, as well, and potentially doing some consulting work, at a much lower number of hours than this past spring.

Here are some of the topics I’ve been thinking about outside of my major debt project:

  • Wage theft: I’m increasingly fascinated both by all the scams employers use to avoid paying people, and why some states/cities refuse to create a climate that would hold employers accountable– when even the most ‘free-marketeers’ among us agree that people should get paid the amount they’re owed for work.
  • The consequences of natural disasters for households: I’ve been talking to people in the Houston area about how Hurricane Harvey impacted their personal finances. I’m especially interested in the phenomenon of people using their disaster relief to pay off student loans while foreclosing on their homes. I’m also interested in efforts across the country to ensure fair labor standards when we rebuild after natural disasters. 
  • The Community Reinvestment Act: What affirmative obligations should be placed on banks? When this legislation was written, the phenomenon of “they’ll take my deposits but won’t lend to me” was a common critique, especially for minority families: now, it seems like predatory lending is rampant and people can no longer count on getting a free checking account.
  • Housing crises in rural areas: I talked to people in Red Oak, Iowa, about how areas of concentrated poverty sprung up after FEMA redrew their flood maps. I’m interested in the forces that create housing affordability challenges outside of places like New York and San Francisco. 
Categories
Jobs and Working Road Trip

Get a 20 cent raise; lose your child care

A 20 cent raise can cause Iowans to lose thousands of dollars in child care support

We need to do a better job of supporting parents, whether they’re working, in school, or taking care of children full-time.

At the federal minimum wage, paying for child care for one child would take the first 26 hours of wages in a 40 hour week (if it’s an infant, the first 32 hours of wages). All 50 states have some amount of federally-funded assistance to help parents afford child care, but in many states these programs have long wait lists, or have extremely limited eligibility. In Iowa, parents lose all assistance at 145% of the federal poverty line (an income of around $25,000 per year for a parent with one child). My piece for TalkPoverty explores what this means for children, parents, employers and the community.

In personal news, I’m now in Oregon. Tomorrow I’ll be heading to Crater Lake National Park. My next stops after that are Sacramento and then the Bay Area.

Categories
Banking Credit Cards Debt Financial Regulation Road Trip

The space between want and need

I’m now on Day 13 on my road trip at my aunt and uncle’s farm in Blue Earth County, Minnesota — today is the first day of the planting season for corn. It’s getting a late start because of all the rain. My next stop will be in Iowa.

If there’s one comment that has come up in most of my interviews with the people who wished they hadn’t borrowed money on a credit card, it’s that they used the card for things they realized they “didn’t really need.” That word “really” hints at the notion that there is actually a lot of ambiguous space in between want and need.

Peggy in St. Charles, Missouri started borrowing money on a credit card when she was pregnant to buy a new mattress — carrying around another person inside made it too hard to get in and out of her old water bed. Tasha in Milwaukee had “known” not to borrow money on a credit card for non-essentials. However, at times, she’d semi-consciously use up the money in her checking account on the things she wanted so that she’d have no choice but to borrow money on her credit card for the things she needed. It was a mental trick she used to let her evade her own rules of thumb.  

One of the greatest sources of ambiguity between “want” and “need” is family and tradition. All over the world, people who have been scraping by have found ways to set aside cash to celebrate weddings and to give their loved ones dignified funerals, whether that would mean working 14-hour days or by forgoing more quotidian “needs” like putting plumbing in their house. You can look at these choices as the actions either of status-obsessed people bowing to social pressure, or a recognition of the fact that our relationships to our families and communities are the greatest source of meaning and purpose that most of us have.

In one of the interviews I did before this trip, Joe in Washington, D.C., told me he wished he had forgone getting into credit card debt to buy new clothes, but that he’d never regretted borrowing money to buy last-minute plane tickets to see his long-distance girlfriend when she was feeling down. And similarly, when Kathryn thought about the credit card debt she’d accrued attending her sister’s and best friend’s weddings while in grad school, she said that while she now felt like she was “stuck in peanut butter” financially, it was hard for her to imagine not having stood beside the people closest to her.

Of course, throwing children in the mix complicates things further. I’ve talked to so many people who will figure out how to make things work and accumulate some savings on shoestring budgets when they’re only looking out for themselves. Yet, when it comes to their children, they have a hard time saying no. Is buying a uniform so your kids can join a sports team a want or a need? What about spending the $10 so they’re not the only one in their class left out of a field trip? Parents want so badly to provide for their children not only a sense of security, but also of normalcy, and of the magic of childhood — perhaps explaining why Federal Reserve data indicates that Americans accumulate an extra $19 billion of credit card debt in the fourth quarter of each year (around Christmas) compared to the rest of the year.

I’ll never forget one interview I did many years ago with a woman in Boston who’d accumulated most of her credit card debt bailing her kids out when they’d gotten into trouble — replacing a car they’d wrecked, or floating them when they couldn’t find work. She said that all her life she’d tried to make responsible choices, but that now she had no idea if or when she’d be able to retire (she was in her 60s). “I couldn’t bear to say no to my kids if I was able to afford it — but, in hindsight, the fact that I got into debt means that I never was able to afford it all along.”*

One of the ways that credit cards can mess with our heads is that it’s so easy to think of our credit limits as an “asset” or a “resource” that we can draw down. That way of thinking is so dangerous! Obviously a credit limit has a literal meaning — the amount we can charge on that particular credit card todayif we want to — but attributing any further meaning to that number gets so many people in trouble. The credit limit isn’t necessarily how much credit we could easily get access to. Many people with even below-average credit scores could get more in days or weeks by applying for credit limit increases with their existing cards, or by applying for new credit cards or loans. And the credit limits are certainly not how much money we could afford to pay back. By having available credit on her credit cards, it felt to the woman in Boston that she was able to say ‘yes’ to her adult children. She probably wouldn’t have felt that way if saying ‘yes’ to them had meant applying for a new loan.  

In the words of Alexandria Ocasio-Cortez, we need to reject a society that tells people, “If you choose to have any expense beyond mere animalistic survival – an iced coffee, a cab after an 18 hour shift on your feet – you deserve suffering, eviction, or skipped medicine.”

At the same time,  the personal finance advice that tells people to be careful about spending money on things they want but can’t afford today, because it could lead to suffering, eviction, or skipped medicine tomorrow, is true! Borrowing money for wants today usually means forgoing money for wants and/or needs tomorrow, and sadly, borrowing money for needs today can mean forgoing even more dire needs tomorrow.

When I worked in the credit card industry on developing the policies for credit limit increases, I would often zoom in to the level of individual borrowers to see what the proposed policy would have meant for them. Especially if a new rule would mean we were giving out credit to fewer people, I would see what that decision would mean in terms of purchases a given impacted customer would have to forgo. Often you see purchases that are pretty basic: $30 on groceries or gas, a few hundred dollars at a Mr. Tire. Other purchases are obviously discretionary: a Carnival cruise, fireworks, iTunes. Many others it would be impossible to say from the outside — spending at Walmart might be electronics or groceries, or at Lowe’s you might be fixing a broken window or replacing something that just looks dated. It might even be impossible to say from the inside!

Unsolicited or “automatic” credit limit increases to existing customers are a major part of how banks and credit card companies give out credit, and in turn, how Americans end up in debt. Just the other day, I talked to one of my cousins whose first credit card gave him a $500 limit, a limit which is now over $10,000. That trajectory is extremely common.

Banks could and should stop granting “automatic” credit limit increases to customers who are still paying interest on discretionary purchases they made months ago — they shouldn’t be trying to profit off of financial decisions that are going to cause Americans to struggle. This idea isn’t about looking at people and judging them in a moral sense – saying “shame on  you, you shouldn’t have bought that iced coffee.” It’s about not pushing people into holes they’re going to struggle to get out of. Operationally, I can say with great certainty that implementing this type of proposal at a bank would be no more complicated than all the things banks do on a quarterly basis to increase profits. And compared to Bernie Sanders and Alexandria Ocasio-Cortez’s proposal to cap credit card interest rates at 15 percent, this change would similarly prevent a massive proportion of  the high interest credit card debt that causes people to struggle, without having as large of an impact the access to credit that so many people rely on to make ends meet when there’s so safety net in place (like when people put their cancer medications on their credit cards while they’re arguing with their insurance companies to reimburse them.) The interventions in banking that make sense to implement today, in our current world, where people have few places to turn when things go wrong, are very different than the interventions in banking that would make sense to implement in a country with universal healthcare and basic income.

Of course, the idea that banks should stop raising credit limits of people who are still paying interest on past discretionary purchases would be fairly difficult to write into law: it’s more the type of thing a credit union or bank could choose to do on to better serve their customers, and hence, not something we should be expecting when it means they’d be forgoing big profits. One NerdWallet study reported that 86% of Americans with credit card debt regret it. If it was their primary goal, I have no doubt banks could find ways to do many fewer loans at terms or in circumstances where the borrower would ultimately feel regret, while barely making a dent in credit access under the terms and in the circumstances where the loans helped people succeed. To hear those proposals, keep reading in the weeks and months ahead.

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* Just a quick comment that this particular quote is a paraphrase, unlike all other quotes that appear on this blog.  This conversation was before I started the research for this project, and hence, unlike all the interviews I’ve conducted over the last 9 months, I don’t have a recording and/or time-of notes.

Categories
Debt Jobs and Working Road Trip

Day 2: What is opportunity?

This painted house is part of the Heidelberg Project in Detroit, MI.

I’m now on Day 9 in the Twin Cities, by way of Milwaukee, Springfield, St. Louis, South Bend, Chicago, and Cleveland, but this story will talk about Day 2, Detroit.

My first stop was the Heidelberg Project, an art installation where Tyree Guyton has used a city block to reflect on time, hope, and community. Guyton grew up on Heidelberg Street, and returned to it as an adult to find vacant lots and a neighborhood where poverty is deepening.

Detroit is a city whose population is only 40% of what is was at its peak. There is no way you can drive around Detroit, at least the neighborhoods where I visited and stayed east of I-75, and confuse it with most other parts of the country. Obviously, every city in our country has people struggling to get by, and neighborhoods that don’t get their fair share of the investment, the roads, the sidewalks, or the playgrounds they deserve from their city government.

But the physical landscape of Detroit was different from anything I’ve seen before. When a city shrinks by as much as Detroit did, you face a nearly impossible challenge: how do you keep up all the roads, the sewers, the water lines, the sidewalks that you once had, provide schools, police and firefighters to all the neighborhoods? You can’t, at least not well.

The Heidelberg Project is interesting for a lot of reasons, one of which is that the project was possible specifically because of the abandonment of that block. It is an opportunity that came out of the challenges Detroit faces, and I saw that thread everywhere I went: a proliferation of seemingly fly-by-night galleries, theaters, street art that leveraged the empty space.

To me, opportunity is one part the chance toachieve stability and one part the chance to express creativity. When we talk about the shrinking middle class, like Dan Kaufman and Latoya Ruby Frazier’s great piece about the closure of the GM plant in Youngstown, Ohio, we mostly talk about how economic changes  have made it harder for people to achieve stability: the conditions you need to raise a family, in a house where you won’t get evicted, at a job where you are treated with dignity, with a little bit of money left over to celebrate birthdays and weddings and to give your kids the chance to see the ocean. But opportunity is also about the chance to make art, to invent things, to start a community organization or a business. While those things are never easy to do if you’re hungry, there are ways in which a kid born in Detroit might have more of those chances than a kid born in Washington, D.C., where the amount of money you would need to scrape up to do anything that requires physical space is daunting even for the privileged. I don’t want to glorify or gloss over the challenges Detroit has faced. And yet, it is undoubtedly the case that people have found possibilities in Detroit’s unique landscape.

Lending, of course, is all about opportunity — at its best, it expands possibilities for people.

Joseph Campau Ave in Hamtramck, Michigan, a town inlaid within Detroit’s borders. Hamtramck has been in the news recently for being the first U.S. town with a majority Muslim city council.

When I asked David, a 47-year old man in the community of Hamtramck, whether he thought banks made it too easy for people to get into debt, or too hard for people to access credit, he didn’t hesitate before saying it was too hard for people to get credit.

The last loan David applied for was as a younger man — he was trying to pull together the money to rent a place to live, and his loan application was declined. I asked him how he thought his life would be different today if he had been approved.

“I might’ve had a house […] I might’ve been with my first baby’s mama. I might’ve not had felonies on my arrest record. A lot of things could have happened [for me].”

Of course, if he had gotten the loan and then had trouble repaying it there would have been a different set of negative repercussions — a lower credit score, the possibility of eviction from the apartment, or future garnished paychecks, although, in his case, it’s hard to imagine  that would have been any worse than the counterfactual.

Working in lending for as many years as I did, the idea of people like David is always in the back of your head. This loan is only profitable at a 29% interest rate. My models say this person will accrue tons of late fees on top of that high interest rate, and there’s a 1 in 3 chance they’ll eventually default on the loan, tanking their credit score — hurting their chances at finding housing or a job. Do I lend to them? If everyone’s story was like David’s, the answer would always be yes. David is the case for doing subprime lending, even at disturbingly high interest rates, because it’s hard to anticipate all the ways that saying ‘yes’ when someone has come to you asking for your help could change that person’s life.

I’ve asked the question, “Do you think banks make it too easy for people to get into debt, or too hard for people to get credit?” to a lot of people in a lot of places, and Detroit was a place where most people felt strongly that the answer was the latter.

Of course, not everyone’s story is like David’s — interviews I’ve done sincein St. Charles, Missouri, and South Bend, Indiana have made that clear.

I stayed at Hamtramck Hotel and Hostel, which had a mix of travelers, long-term Detroit residents, and people coming through looking for work. Reportedly, at least one person has lived at the Hamtramck Hotel and Hostel for 50 years. I talked to a man who had come from Greenville, South Carolina, a growing city about two hours west of my hometown of Charlotte, hoping that Detroit would offer both a job and cheaper rent.His strategy is probably the inverse of what a lot of people have tried — according to American Community Service numbers, about 40% more people have moved from Detroit to Greenville than from Greenville to Detroit in the last several years.

But there’s no single roadmap for how to get by in America, and we’re all relying on our own sources and accumulated knowledge. Sociologist Beth Redbird has found that when a profession becomes licensed, more people enter it, specifically because it creates a “clear path” to join and gain credibility — a fact that makes me think about how often the specific keys to getting money and making money are shared only locally, between parents and children or between people of similar backgrounds.

I’ll be in Minnesota and Iowa for a while, before getting to Omaha on May 16th.

Categories
Road Trip

My plan to see America. Day One: Cleveland

I left yesterday on a cross-country road trip. I’ll be back in Washington, D.C., in mid-July for a day or two, before looping up to New England and then back down.

Part of the challenge of this type of trip is knowing that you can live a place for years without understanding it. I grew up in Charlotte, North Carolina, and lived there until I went to college in Durham. If you’ve seen the Hunger Games films, Charlotte is literally “The Capital,” by which I mean that’s where “The Capital” was shot. If you drive between South Charlotte where my parents live and “Uptown Charlotte” (what you would call “Downtown” or “Center City” in most places, purportedly rebranded to sound more upscale), you pass mostly through beautiful streets lined with gigantic hardwood trees.

When I’d been at Duke for a year or two, I was talking to my childhood friend Kat, also a Duke student, and she mentioned to me that Charlotte and Durham were pretty similar demographically: a similar average income (around $50,000), and a similar breakdown of White (around 50%), Black (around 35%), Latino (around 15%), Asian and other residents. This was surprising to me, because that’s not what it looked like when I went about my life in Charlotte compared to when in went about my life in Durham. Charlotte is one of the most segregated cities in the country. It is a great place for people who like tennis and gardening. Charlotte has the lowest rates of intergenerational income mobility in the United States. In Charlotte, higher income and lower income people have no reason to cross paths when they’re divided by major roads. Charlotte-Mecklenburg public schools, where I went for twelve and half years, stopped integrative busing when I was young, creating what one judge called an “academic genocide” for lower-income and black students. I went to a high school that at the time was the largest in North Carolina, and that graduated the highest number of International Baccalaureate students of any school in North America.

Passing through a place doesn’t mean you’ll understand it, especially if you spend your time there checking out the flagship art museum, going to the highest-rated cool coffee shop, and looking at whatever is number one on TripAdvisor. I loved this old Guardian essay about the uniformity of global hipster aesthetic, and I think about it a lot.

But I’ll be doing my best to talk to lots of people, and if nothing else, I’m guaranteed to see a lot of beautiful land. What a poorly begotten but deeply powerful blessing that U.S. citizens can cross freely from coast to coast and see and take part in all the mountains, canyons, hot springs, rolling hills, forests, and waterfalls along the way.

My trip has a few goals. The first is talking to people about their experiences with debt and credit. When are people glad they borrowed money? And when is credit become more of a stranglehold than it ever was an opportunity? What do people hope for from their banking system?

I’m also doing reporting on other stories related to how people interact with the economy, particularly their experiences with finding affordable childcare.

I’m also seeing friends and family, and taking time to stop at places I’ve always wanted to see like Yellowstone and Big Sur. You can check out my tentative route here, but if you have any recommendations of places I should stop elsewhere, please send them my way! I’m especially interested in talking to people whose lives were shaped in any way by credit cards, payday loans, and personal loans, and would love recommendations of people I should meet.

The first leg of my journey yesterday took me from Washington, D.C., to Cleveland, Ohio. I didn’t realize that basically the whole route until the last 20 miles would be beautiful rolling hills

I stopped at Cuyahoga Valley National Park, and walked along the same Chesapeake and Ohio Towpath Trail that extends all the way to Washington, D.C., just about a mile and a half from where I live.

The waterfall, river, wetlands, and forest are all beautiful, but the park is also full of echoes of how quickly the economy, technology, and the landscape can all change together, like the whole village of Brandywine, which used to have a factory, a distillery, and a gristmill before its fortune dried up, and a lightning strike burned most things to the ground.

Cleveland has been full of memorably nice people, and I’m not just saying that as a generic thing that people say when they travel. Yesterday I was checking my phone under an awning, and the closest business owner asked where I was going, and then offered me her umbrella if I came back that night to return it (I declined, but, wow, giving your stranger your umbrella, what a gesture).

What’s left of the Jaite Paper Company Town, where primarily Polish immigrants lived making multi-wall cement bags

My next stop will be Detroit, Michigan.