Tuesday, December 26, 2006

Debt, It's Not Me, It's You.

“I’ve kept up with the debt payments as long as I can. I mean, I charged the stuff and I agree that it should be my responsibility to pay it off. But in 6 months my rate has gone from 0% to 12 to 23 and now it's at 33%. Credit card companies have become worse than loan sharks. I don’t think it’s right that they can charge so much interest that you can never pay off your debt. And when you’re struggling they call your house night and day and treat you like some deadbeat! I’ve tried and tried, but if I pay them what they ask I won’t even be able to afford to feed myself. So forget it. They’re not getting a penny more of my money.”

Most people agree that if they borrow money they should pay it back. They will even agree that it is acceptable for a lender to charge interest on the amount borrowed (unless their religion forbids it). But what happens when the terms of repayment go beyond a person’s idea of what is fair and reasonable, or when the borrower feels powerless to meet the lender’s demands?

As terms become more unbalanced in favor of the lender, the borrower’s sense of ownership for the debt decreases.

Call it the consumer's APR: Adjusted Personal Responsibility.

I’ve said before that lending is a business, and right now the lenders are holding a lot of cards. Regulatory caps on interest rates and fees have been eroded in recent years, and consumers live in a world where the 0% APR on your Visa can jump to 23% (or higher) just because you’re late paying the electricity bill. These are pretty tough terms. Factor in the aggressive practices of collection agents and you have a situation where the besieged borrower, already stressed, now feels attacked and victimized.

In these situations, the mind will reframe the circumstances in a way that preserves the borrower’s sense of his own self-worth (“goodness”) and will recast the lender as predatory, unfeeling, and downright evil.

Part of the problem is the way that consumer goods in general, and credit in particular, are marketed and sold. In order to ease consumers through the anxiety that comes from parting with their money, they are presented with the option of buying on credit. And in order to get the consumer to override their natural aversion to debt, they are flattered and told that this credit is something they’ve actually “earned,” something available only to people who are “worthy.”

So when a lender switches from acting like a loving parent or an approving friend to acting like a wronged lover, this can come as somewhat of a shock to the consumer. The consumer may experience the lender’s escalating (punitive) interest hikes as erratic and unreasonable behavior.

First, the borrower is wounded:
Creditor, I thought you loved me!
Next, the borrower reproaches himself:
Maybe I’m not as great as Creditor said I was.
Then the borrower’s sense of self-preservation kicks in:
This Creditor is acting like a real creep.
Finally, the borrower rejects the negative message:
Creditor, we’re through.

The “break up” can take a number of forms depending on the situation. Maybe the borrower stops answering the creditor’s calls or opening their letters. They may transfer the balance to another card (if they’re able), or take steps toward filing for bankruptcy.

Since you cannot actually break up with a creditor, all of these scenarios are bound to cause more grief for the borrower than they will for the lender. Trust me, you can't punish MasterCard by throwing their bills in the trash. Eventually they will get your attention.

However, I do feel that creditors are taking the wrong tactic with their penchant for ever higher fees and interest rates. I’ve spoken with many consumers who feel personally betrayed by the actions of their creditors. Having experienced extreme consequences for what they perceive as relatively minor missteps, they are bound to be wary of exposing themselves in the same way again if they can possibly avoid it.

Creditors should be concerned about the rising tide of consumer anger. When creditors hold all the power in a relationship, they also hold a higher proportion of responsibility. Even in Shakespeare's day, nobody cried for the money lender.

Sunday, December 17, 2006

Stars - They're Just Like Our Libidinal Fantasies!

I am a tabloid reader. I admit it. I’m not proud of my up-to-the-minute knowledge of Britney’s hair color changes or how Brangelina feel about marriage. Tabloids are my candy, my escape from complicated thoughts.

Even the most casual tabloid browser knows that there are two major celebrity activities that end up in Us Weekly or Pink is the New Blog: nightclubbing and shopping. Getting Starbucks runs a distant third, mostly because there are still a handful of stars who spend their days running to and from meetings, not acting out for photographers.

I snark with some affection here, because I myself have pored over what the It Girls wear when they go to It Girl parties. (Or, as of late, what they don’t wear – yuck, Britney.)

But why shopping and clubbing? Why do people outside of Los Angeles even know about the existence of Kitson or Hyde?

Shopping and clubbing are activities that are primarily driven by libidinal impulse. Besides just a sexual drive, Freud felt that the libido was an instinctive life force that bucked at the conventions imposed by civilized society. This is the society where you and I live, forced to repress our libidinal impulses in order to work, follow traffic laws, and pay for things using money we earn. Repressing the desire to act out and run free takes energy, and so to let off steam we fantasize about scenarios where youth (youth is the playground of the Id), beauty, and lack of responsibility are celebrated traits.

Who hasn’t wanted to walk into a store in the middle of the afternoon, try on loads of fabulous, expensive outfits, and then walk out with whatever we wanted without a care to cost? Or go out any night of the week and not worry about having to be functional the next day? And what’s more to be fawned over for such behavior?

I raise this topic on The Good, the Bad, and the Money because the escalation of celebrity consumer culture has a profound effect on our sense of what is “normal” (hence “good”). When we are surrounded with images that portray a certain way of living, this is bound to influence our own expectations.

Earlier in my career I used to call this the Nice Girl Complex, because this was how I thought of the set of expectations that influenced me and my girlfriends. Nice Girls have their nails done. Nice Girls have good haircuts and keep their roots re-touched. Nice Girls know about this season’s bag, heel shape, and hemline. (Though my ideal of a Nice Girl may not have been too concerned with actually being nice, she was awfully fashionable.)

Being seen as someone who was able to stay current (or as I might say at this point in my career, “able to effectively manage the signifiers of competitive material culture”) was a demanding job and a serious drain on the finances. Eventually I had to shake the Nice Girl and decide for myself what my priorities were for myself and my life.

I still see many people who need a constant diet of new and stimulating, or else they become agitated, bored, and even self-destructive. These people are highly likely to try to spend their way out of an unpleasant mood. A new outfit can represent a shiny new self. A night on the town can stand in for love and approval.

These people are usually terrified of a balanced spending plan, because the idea of having to defer the impulse to spend, consume, and to run free is tantamount to a maximum security prison. Having never learned to manage their own emotional processes and self-soothe, they are afraid they will never be able to. These are usually people who declare that they are “bad with money” or “hopeless with budgeting.” This is actually code for “I can’t (or won’t) control my impulses.”

To give in to an impulse is not necessarily a bad thing. In fact at the opposite end of the spectrum are people who experience every impulse as bad and dangerous. They are the ones who must have rigid structure or else they feel completely out of control.

True emotional maturity is characterized by appropriately moderating impulses. In my financial wellness practice, I try to help clients flex their beliefs about what is “good” and “bad” financial behavior and instead look for what is healthy and sustainable for them.

Healthy spending involves meeting one’s needs and experiencing gratification in ways that are not destructive to oneself or to others. It’s okay to buy yourself something nice. It’s not okay if it means you won’t be able to pay your rent, if you have to lie to your significant other about the expenditure, or if it creates unsolvable debt.

A sustainable, well-formed budget should create balance between your impulses and your priorities for growth and self-care. It should feel like a perfectly tailored garment, with the right fit, construction and support to make you look and feel your best.

Fantasizing about the hedonistic lives of celebrities can be a harmless diversion, but if it makes you feel bad about yourself, creates temptation to buy things you can’t afford, or causes you to devalue your own personal experiences and relationships, then it is not an activity that contributes toward your quality of life.

To chase an "ideal" of good, bad, fun, or fashionable means that you are pursuing an extreme. And any extreme is very likely unhealthy. In money as in life, you are unique.

Besides, you've can see how well it's all turning out for Lindsay Lohan. A cautionary tale if ever there was one.

Saturday, December 16, 2006

The Belly of Beliefs

Most therapists I know love the word “inappropriate.” In social work assessment, where we look at how the individual functions in his/her environment, “inappropriate” usually means that something in the client’s presentation is inconsistent with other aspects of his/her life. In my work, a good example of this would be, “The client’s lack of anxiety was inappropriate given the severity of his financial crisis.”

Inappropriate is a flag for further investigation. When we probe how individuals think and feel about the events in their lives and their role in shaping these events, we find a gateway to clients' underlying beliefs.

Belief frameworks are what financial wellness work is all about. Beliefs tell us what is “good” and “bad” behavior, and we measure ourselves against these internal standards. Most beliefs about good and bad can be traced back to our families, the original crucible where we are taught how to understand and interpret the world. Depending on the circumstances, children come to either accept (repeat) or reject (react against) their parents’ interpretations.

If prompted, most people can recite a laundry list of financial lessons learned when they were growing up. Some are popular adages, such as “money doesn’t grow on trees,” or “if you do what you love, the money will follow.”

However, the strongest beliefs are often unconscious, and uncovering these unconscious beliefs can even surprise the person who holds them. Children are finely attuned to the emotions of their caregivers, so when a parent angrily tosses off a comment like, “Look at that jerk in the BMW,” a child may understand this to mean that having a nice car is somehow associated with being a jerk, so if they want their parent’s love they shouldn’t have expensive things. This may sound far-fetched, but I’ve treated many adults who experience powerful ambivalence about material good fortune, and in 9 cases out of 10 it is because a parent felt unfairly thwarted or punished by others’ success.

Parents themselves can be surprised to learn what interpretations their children are making. Children lack adult cognition, so when left to fill in the blanks they can make wild leaps that may be far out of line with what the parent intended. If seeing mom take out the checkbook to pay bills is usually followed by a period of crabbiness and hearing her say “no” to anything you ask, you’d better believe that children will learn to fear that checkbook. Because of this, a parent who is careful to the penny may have a child who eschews even the most basic activities of financial management because he associates them with anxiety.

Parents can mediate this by talking about money more openly with their children. Asking children what they think about who should earn the money in a family or how the family’s money gets spent can provide parents with an opportunity to guide and reshape beliefs as they form.

For adults, cognitive therapy techniques can be an effective in exposing beliefs that are unconsciously directing present day actions.

Though we may think about money often, many of us still experience a disconnection between financial activities and the more personal aspects of our lives including relationships, values, and dreams. Yet money is a subject that is deeply personal, often painful, and very seldom rational. Financial wellness work is a way of exploring the role of money its full context: taking into account our cognitive processes around money, how money is a factor in our social environment, and how we learned about money in our family.

Friday, December 15, 2006

Are You In (Over Your Head)?

You may be surprised to hear that I’m actually pretty temperate on the topic of credit. Though I’ve seen how debt can cause serious strife, I don’t believe that the lending industry exists to deliberately wreak havoc in the lives of its customers. Profits are profits, and for better or worse this industry profits by siphoning off the earning power of all those who carry a balance. Caveat emptor, cardholders. At least read the Schumer Box before you’re seduced by the suggestion you’re “worthy” of “platinum status.”

My general neutrality ends when lenders cross the line between offering a product and enabling an addiction. Arriva is being positioned as a card designed for the gaming lifestyle. How so? Because the major selling point of the Arriva is the fact that you can get a cash advance of up to 100% of your credit limit. You know, because throwing your car keys or the deed to your house on the table after you’ve lost all your money is only really done in movies.

I won’t belabor the facts about how Arriva charges you 3% on every transaction (makes the $5 fee on casino ATMs seem like a downright bargain), or how Arriva’s interest rates, from 15.49% to 24.49% are significantly above the current industry average of 13.16%. The terms and conditions page lays it all out for you in black and white (and red, with pictures of pretty girls and guys having loads of fabulous fun).

So why does this product fill me with outrage? Because it’s primary attribute is that it enables a problem behavior. “Enabling,” in the addictions world, is defined as depriving the addict from the consequences of their behavior in a way that prolongs the cycle of addiction. Labels can sometimes distract from the point at hand, and I want to be clear that I’m not labeling all Arriva customers gambling addicts. But when you choose to borrow money at 15%+ so that you can continue to gamble, it might be time to take a hard look in the mirror.

For the non-problem gambler, it hurts to lose money. It hurts, but the non-problem gambler uses this environmental feedback to enter a healthy decision-making process that goes something like this:

“I came to the casino with $500 to gamble with. I’ve lost my $500. That sucks. I’d really like to continue gambling – maybe I could win my money back! No, I should step away from the tables (slots, etc.). Five hundred was my limit, and I can’t afford to lose any more.”

The difference between the problem- and the non-problem gambler is that the problem gambler’s persistent impulse to continue gambling overrides the negative environmental feedback. He/she engages in progressively more risky behaviors in order to continue gratifying the impulse.

The Arriva is the enabler here, because this card's entire premise implies that it’s perfectly okay to borrow money to continue gambling. And Arriva is hardly a disinterested enabler. The parent company of Arriva, Global Cash Access, is "a leading provider of cash access products and related services to approximately 960 gaming properties..."

The message that it's okay to borrow to gamble is also obscured by offering rewards and points that seem almost like the consumer is getting a deal.

This is a gross distortion of reality. A person who borrows $5,000 – oops, make that $5,150 because you have to tack on the 3% transaction fee – will pay back $463.59 a month for an entire year, and Arriva will collect $563.08 in interest and fees above the $5,000 you withdrew. That's a great deal for Arriva.

What do you get? Well, you get a chance to gamble with that $5,000 and you get a whopping $37.50 in cash-back rewards (redeemable for food or merchandise on the casino floor). And don’t make a late payment over the course of the year – I computed the above example using 15.49%, the lowest rate offered.

Arriva is a product that profits from the poor choices and limited options of its customers. It might even be subject to products liability regulation because offering high-cost credit for gambling purposes is inappropriate and predatory.

Bottom line: it feels bad to lose money. It feels bad to have to walk away from an activity that’s fun and exciting. It feels bad that this is your vacation, and you don’t want to have to stop having fun on your vacation.

Sometimes things happen in life that are difficult and unpleasant. When we can’t face this, we enter a process of denial that takes away our ability to make good choices. Arriva promises escape (or delay) from the pain of loss or anxiety in much the same way one might use opiates. It’s important that potential consumers examine the dangers of this product, and try to limit their exposure to risk before they’re in an emotionally-charged situation.

When it comes to using Arriva to gamble, just say no!