How US banking system pushes people into debt \ stacker news ~bitcoin

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How US banking system pushes people into debt

3447 sats \ 20 comments \ @nout 6 May 2023 bitcoin

There was a question from SN user from Europe that could be rephrased as:

How can Americans be this stupid to go into so much debt?

As a non-US person this also baffled me, but it's not the people - the US banking system is set up to trick as many people as possible into debt. This is true especially in comparison with European banks.

How US banking system shifts people into debt

the default is essentially that everyone gets a credit card (they sell you on "get 3% cashback on every purchase" or some discounts)
to increase your "credit score" (needed if you want to get a mortgage or rent a place), you need to own at least 5 credit cards for many years and show that you keep borrowing and repaying every month (otherwise your credit score is lowered)
you also get new credit card offers in a mail every week
it's hard to set up auto payments on the credit card (so the person have to remember to pay any bills)
it's hard or impossible to set up some notification that your borrowed credit is getting close to money you have in the associated bank account (in the online banking the numbers are usually far from each other on the page and looking differently, sometimes many clicks away)
it's possible and rather easy to pay off a debt of one credit card with another credit card (and essentially delay your debt by a year, but accumulating overall)
many companies offer their own "rewards" credit cards and use it as discount card (like every airline, bigger malls and shops, etc.) and they try to upsell you when you e.g. buy a new pair of jeans
and finally you can live on debt for many years without any issue.

So ultimately the system is set up in a way that "not falling into debt" requires continuous attention and manual work, whereas the easy default is to get into debt over time.

Defaults matter. Everywhere.

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703 sats \ 2 replies \ @gnilma 6 May 2023

to increase your "credit score" (needed if you want to get a mortgage or rent a place), you need to own at least 5 credit cards for many years and show that you keep borrowing and repaying every month (otherwise your credit score is lowered)

I can attest to that. My parents and I immigrated to Canada (yes, not the USA, but close enough with a similar enough system) when I was 9yrs old. I remember when they saved up enough money and tried to buy an apartment unit when I was 13. The banks didn’t want to give my parents a mortgage even though they had 40% down payment on hand and sufficient income to prove they could repay the monthly payments. The reason was that their credit score was low; and the reason for a low credit score was that they always used cash and never used a credit card. My dad ended up having to get signed guarantees from a few builders (he did contract construction work and was self employed) to secure that mortgage. My parents were never in debt, always paid every bill ahead of due date (with old school mailed in cheques), and always had a good amount of savings in cash and in the bank. But their credit score was bad because they never used a credit card and never went into debt. Strange world…

many companies offer their own "rewards" credit cards and use it as discount card (like every airline, bigger malls and shops, etc.) and they try to upsell you when you e.g. buy a new pair of jeans

This one pushes consumption a lot. They give you “points” back for spending with / using the card. But these points can only be traded for consumption goods, most popular are airline tickets and hotel bookings. This means they encourage you to go on more vacations by using these points. I mean what better way to spend and consume your capital than a vacation? My sister-in-law is big into these “travel points”, and always ask my wife why we don’t get one of these travel point rewards cards. My wife is interested too, but I tell her that I prefer cash back on the credit card; that way, we are not incentivized to go on vacations and forced to consume.

One thing I would like to add is that the credit card companies make it very easy for a young person to get a credit card, as soon as they become a legal adult. I remember there was a credit card booth occasionally setup in my university, in the hallway, helping students sign up for a card when I was in my first year. That was how I got my first card when I was 19 (legal age in Canada). They then encourage spending and mould your mind to live the fiat consumption lifestyle; buying all these cheaply made plastics and going on vacations, basically just consuming, all with credit. All at a young age when you didn’t know better and easily manipulated.

21 sats \ 1 reply \ @SpaceHodler 7 May 2023

This is messed up. Your parents deserved a mortgage more than most who uses a credit card. They had good financial discipline.

I never really understood the idea of a credit card. Debit cards are for paying for your everyday expenses, most people have no need to take out a loan to buy groceries. Loans are for things like buying a home or startup businesses that need funding and you don't use a credit card for that.

0 sats \ 0 replies \ @gnilma 7 May 2023

Well, they ended up getting that mortgage with help from my dad’s clients. Everything worked out in the end.

Most people living in the US and Canada were never taught financial management in school, and if their parents did not teach it to them, they don’t have a clue. These people, however, are always incentivized and encouraged to consume with debt; it’s probably why Americans and Canadians have very high household debt in general.

347 sats \ 0 replies \ @phaedrus 6 May 2023

Really well written and as a foreigner living in US for past 10+ years, I can confirm this.

Also, the consequence of living on debt/credit is that KYC is so important, because you need to enforce that the person pays it back eventually.

In a way, this turns people into slaves.

1633 sats \ 1 reply \ @DarthCoin 6 May 2023

And that's why US people and merchants will be the LAST ones in Bitcoin adoption. Because they will always fall into this trap of using the so called "bitcoin debit cards" instead of just pushing the acceptance of Bitcoin in shops.

1 sat \ 0 replies \ @033daf6a55 6 May 2023

Bitcoin will really show who is the most advanced and smartest).

264 sats \ 0 replies \ @jerrywilliampolley 6 May 2023

I just so happen to have the worst credit score I can possibly have, and I owe money to a bank. In America who ever pays more for the divorce/custody lawyer wins by default. Credit makes some incredibly life changing decisions at the hands of greedy judges who don’t even know the children there about to handover to the abusive parent who is always to drunk to walk much less do anything important for the children like, feed them, make sure they are clean, get them to and from the bus, take them to appointments etc. anyway long story short I get to sit back and watch the credit debt system work it’s evil while not being able to participate it’s the biggest lie ever created, by the most evil beings in existence. We are just to busy trying to make it in this over priced world that we don’t have time to stop and question why we let it continue instead of standing together.

108 sats \ 1 reply \ @ek 6 May 2023

it's hard to set up auto payments on the credit card (so the person have to remember to pay any bills)

What? Does that mean you get a bill via mail you have to pay?

My CC just deducts the outstanding balance from my checking account every month. Couldn't imagine that this is not the case everywhere.

179 sats \ 0 replies \ @nout OP 6 May 2023

Yep, that's not the case and that is what catches most people. Especially for CCs created not "within your bank account". Generally there will be some option somewhere (often hidden) saying "set up Autopay".

100 sats \ 1 reply \ @03arrival_plops 6 May 2023 freebie

The sentiment here is correct, the US consumer economy is very much built on the back of convincing people that the 1) need a credit score, and 2) the best way to do that is to have multiple credit cards and use them as if there’s no consequences.

But I’d say you’re a bit hyperbolic on the practical side of things.

it’s subjectively easy to set up automatic payments on most major credit cards, and equally easy to set up warnings if you’re approaching limits. Your mileage may vary but it’s relatively doable.
you get sent cards in the mail, and they go right to the trash
most credit cards integrate with budgeting tools to give you real time status on how much you owe
you really just need 1 credit card and about 18 months of regular usage for it to no longer be a hindrance on your credit score, at least that was my experience. The people who have 5 credit cards chose to have 5 credit cards.

But ultimately yes, the American culture around finance and purchasing is one of “why pay for it now when I could pay it back later?”. And it’s for sure going hand in hand with major government decisions to put off inevitable collapse in exchange for short term convenience. And hopefully Bitcoin can be an escape route for people, but it’ll take a long time and likely a generation change to re-educate everyone about the realities of money.

0 sats \ 0 replies \ @nout OP 6 May 2023

I agree with you that as soon as you are conscientious, careful and pay attention then you are fine and the system works for you. But the numbers don't lie and what you are saying does not apply to majority of americans: Credit card debt explodes at 2nd fastest pace on record.

Now specifically for credit score, here are the factors that go into it:

https://assets-global.website-files.com/61965f8506482fa94e9922c6/6223f85cfca782e958c22888_asksebby%20credit%20score.PNG

Different factors have different "weight" in the final score, the weight depends on which company do you use for the score. Here are the rough weights:

https://www.hhlnorthwest.com/wp-content/uploads/2016/10/Capture.png

54 sats \ 5 replies \ @JulienPH 6 May 2023

Good post, but it does not answer my question: what can they buy on credit? Unless I misunderstand something, you buy on credit when you have no capital left to buy. Americans have an average income of +70000$ : https://data.oecd.org/earnwage/average-wages.htm What kind of lifestyle can push you to credit with that? If interest rates are 20%, it's not for investment (margin your life). And for consumption, everything is cheaper than in France for exemple (where we earn much less)

It's something I don't understand.

216 sats \ 4 replies \ @nout OP 6 May 2023

No, you buy stuff on credit always, even if you have enough money in your accounts. To get good credit score you need to do this. Let's say you have $100 000 in your bank account, you still borrow money, e.g. $50 (using credit card) for a month and return it after the month ends. If you repay within the month, you don't pay any interest, if it takes you more months, then the interest rate applies.

0 sats \ 3 replies \ @JulienPH 6 May 2023

Wait, what ? The only bank cards Americans have are credit cards? How is that morally and technologically justifiable?

120 sats \ 2 replies \ @nout OP 6 May 2023

They also have "debit cards" (sometimes called "bank cards"), but those don't participate on your credit score, so if you want to rent or mortgage, you are forced to use credit cards. Sometimes e.g. to young students you will give a debit card, because there they can't get over the limit (that easily, but again they try to catch you on overdraft).

So yeah, this is the reason for why us people are on average so indebted.

57 sats \ 1 reply \ @JulienPH 6 May 2023

What is the banks' rationale for debit cards not offering a good "credit" score by default? Someone who never takes credit has a better chance of repaying one (real estate, for example) when it happens. This situation is crazy

57 sats \ 0 replies \ @nout OP 6 May 2023

The banks don't want you to return the money, they can squeeze more money out of people, if they get more people into debt. Also this whole system encourages more spending on stupid stuff, which in turn increases GDP of the country and so... welcome the the Keynesian world...

80 sats \ 0 replies \ @Undisciplined 6 May 2023

I had never heard anyone mention that this is a distinctly American phenomenon. Thanks for posting.

It's a system that rewards the highly conscientious at the expense of the careless, which our insurance sector used to do, but then we just get taxed more to cover their losses at the end of the year.

1 sat \ 0 replies \ @muraschal 6 May 2023 freebie

!https://cdn.discordapp.com/attachments/1086977114739314708/1104402556731523243/MuRacHaL___usa_The_central_figure_a_weary_consumer_is_surrounde_8e8f0abd-f60b-492d-b21b-cec0ad076482.png

0 sats \ 0 replies \ @SaToSHiWoMaN 10 Mar outlawed

stackers have outlawed this. turn on wild west mode in your /settings to see outlawed content.