Taking Credit

I heard on “Marketplace” a report about how Millenials are supposedly engaging with debt, particularly credit card debt, in a very different way than previous generations. Basically they spend on credit cards until the cows come home, and then expect they can just pay it all off when they get jobs. Of course this leaves them saddled with crippling debt when they come out of college, and they are paying off debt much slower than previous generations.

I will be the first to admit I do not have the facts in this case, and I wouldn’t want to challenge those assertions without any facts. However there are some claims I do find somewhat specious, particularly the logic of “if we project that out to the end of their life using life expectancy tables, we will see that they will die with credit card debt” (direct quote there), since it assumes behavior will remain consistent over a lifetime that does not tend to remain consistent. I also notice there is a prescription slipped in there ever-so-subtly that I recognize from my own early college career, and one that has never fallen out of favor over the last twenty years: “banks need to stop giving out credit cards so generously” (again, direct quote).

Now, there is a certain temptation to turn this into a harangue about Millenials merely aping their elder statesmen and spending money they don’t have, paying as little as they can get away with and whistling past the graveyard until their credit rating gets turned to ash, but not only would that be too simple, I don’t think that’s really the case. I think this is more another example of same story, different generation. As I mentioned before, people were sounding the alarm bells of students having easy access to credit cards and not paying them off twenty years ago, and how college kids would ruin their lives with crippling debt, and you know what?

They were right. Here’s my story.

I was young and stupid. I got my hands on easy credit, and I used it. Oh boy, did I use it. If there was a way I could charge something I did, and the idea that it would bite me in the ass someday involved a vague and foggy “someday” I couldn’t seriously conceive of even if I could be bothered to think about it, and I was too busy having fun to even do that much. Until.

Until it caught up to me. The party ended, and I had to pay it all back. With interest. I had to move back in with my parents (more than once), I had to face the collection agency calls, I had to rebuild my credit score, I went through the whole thing (although fortunately I never had to declare bankruptcy). It wasn’t easy, and it had its costs. I have never owned a new car (not that I would choose to), I had to wait a lot longer than any of my friends to even buy a top of the line computer, and I had to pass up on a lot of fun that plenty of other folks my age got to have, because I had already had my fun and the piper came a-calling. Truth is, if I hadn’t had help from family and friends, I might not even have gotten off as lightly as I did.

But who dug that hole? Was it the credit card company? Was it the bank? I don’t remember them pulling out the credit card whenever I stepped into 7-11 for a pack of smokes or went out with my friends and said “I’ve got this one, guys.” I had what economists call a “high time preference” and what my mother calls “bad judgment”. My time preference has changed (or my judgment has improved), largely because of those experiences (not digging myself into the hole mind you, but digging myself out).

If we start saying to credit card companies and banks “you can’t give credit cards to this class of people based on their age” or “you have to charge higher minimum balances regardless of what your actuarial tables say” what we’re really doing is replacing our version of judgment for theirs. Yes, in some cases that will be better judgment, but not all. We don’t know what the local circumstances are for each individual. Maybe this month they just don’t have the extra money to go around; there could be an emergency, or hell, maybe this month they just feel like having an extra pizza.

Or maybe they just make bad choices all the time, and sooner or later it’s gonna catch up with them. If you take away the chance to make bad choices, you take away the chance to learn from those bad choices. I’m not saying everyone does, and I’m not saying everyone will. But in the absence of opportunity, nobody learns.

And what about the ones who didn’t make the bad choices? I had plenty of friends who did just fine, who didn’t go into debt, and who managed their money well. Should they be punished for my sins? At what age will they be “old enough” and “wise enough” to handle credit? When they have a spouse to take down with them? A family?

There are people who get hurt under the current system, it’s true; sometimes through no fault of their own they get screwed. But that can be said about any system. Before we blame the system and say “it’s got to go! We have to change it!”, we should consider: is it really worse than the next best alternative? The current system also provides many young people with a chance to establish credit history, manage cash flow, and begin to build a life.

And some of us even learn a lesson in spite of ourselves.