Personal-debt snowball from hell rumbling toward NIN generation

By Doug Storum

Staff Writer

You just had to spit in the Grinch’s eye. Didn’t you.

The spirit moved you, so you bought the MP3 Player and the PDA while ignoring the APR. Went ahead and bought the Play Station 2, Robot Pooch and the no-headband earphones. As you checked out, did you happen to hear the retailers singing the Hallelujah Chorus?

And then you went home and shopped on the Web in your underwear. This has all the earmarks of a recurring dream. You clicked a bunch of stuff into your online shopping cart and booked a best-fare flight over the river and over the woods to grandma’s house.

While many of Boulder County’s affluent don’t bat an eye at this kind of spending, nor do they need to, there are those who should: the youngsters of the Need It Now (NIN) generation ? young people between the ages of 18 and 29 who haven’t made their first million yet. They have been cursed to live in an age of marketing blitzkriegs and PCCs (plastic credit cards) that come with high credit limits and even higher annual percentage rates.

There’s too much stuff out there to choose from and buying on credit is way too easy. Before they can say price-dot-bomb, the deed is done. Somewhere between George Foreman’s Mean Lean Fat Reducing Grilling Machine and the Florida fruit basket, the credit-debit line was crossed. NINnies throw fiscal caution to the wind. Now, as they look over their buy-now, pay-later shoulders, they see the personal-debt snowball from hell gaining mass and gaining ground as it rumbles toward them. PCC bills = CPR.

The Christmas cheer that can be rung up in a nanosecond can take an eon to pay off, but that is what retailers and bankers have come to expect. More than one in three NINnies carries between $5,000 to $50,000 in consumer debt, according to a survey by the GE Center for Financial Learning. That doesn’t include home mortgages or car loans. Of those surveyed, one in five had to move back in with parents or friends. GAG.

And it’s not just in America. In the United Kingdom, unsecured consumer debt has increased by more than 60 percent in the last four years and is running at 159 billion pounds a year, according to the Office of Fair Trading.

We have many people to thank, but can only blame ourselves.

Retailers’ buy-and-don’t-pay-until-2002 deals are inviting, but do we ever consider the annual percentage rate when payments begin? Maybe. But I think not.

The banking industry encourages spending, then tells us to seek counseling. Everybody’s mail is full of pre-approved credit cards with credit limits high enough to fund a start-up dot-com. Their itty-bitty APRs swell into double-digit money monsters. And in the same stack of mail are catalogs of stuff to buy, most with Web addresses printed in bold.

Why do humans do this to themselves? It’s a mystery.

The scholarly Drazen Prelec, professor at the Sloan School of Management, studies these sorts of things and can only conclude that the urge to splurge stems from people’s complex attitudes toward money and often defies economic theory.

“The moral tax gets blurred with credit cards,” he said. “When you’re consuming, you’re not thinking about the payments, and when you’re paying, you don’t know what you’re paying for.” Hint: interest.

Prelec found that PCCs can powerfully influence people’s spending habits by disconnecting the pleasure of buying from the pain of paying. He conducted a study in which he organized a silent auction for tickets to sold-out Celtics basketball games. Using his unsuspecting students, he told half the bidders they could only pay with cash, and he told the other half they could only pay with a credit card.

“On average, we found that the credit card buyers bid more than twice as much as the cash buyers did,” Prelec wrote in a report. “That’s got to be crazy, right? It suggests that the psychological cost of spending a dollar on a credit card is only 50 cents.”

I’ve got two old-fashioned suggestions: budget counseling and will power.

Not heeding this advice can mean only one thing: the personal-debt snowball from hell will crush the NIN generation before it has a chance to spit in the Grinch’s eye next Christmas.Jerry Lewis’ Editor’s Column will return Dec. 29.