This is an interesting documentary about the predatory practices of the credit industry in the United States. Bear in mind that this movie is from 2006, so some things may be a bit dated (especially due to the current credit crunch). However, it still has a lot of very pertinent, valuable information. There is information from experts and also regular people talking about their credit situations.
It was interesting to listen to the Real Estate Agent from Las Vegas, Nevada. She was talking about how everyone now wants a home with a dedicated home theater, wine cellar, both upstairs and downstairs laundry facilities, two dishwashers, gated communities with security guards, etc. She then talked about the home she was having built and the creative way she financed it. Basically, if the interest rate goes up too much before the house is completed she will no longer be able to afford it. Clearly a case of people falling into the more and bigger is better trap.
Mike Hudson is an investigative reporter and is writing about how it is so difficult to get out of poverty. One of the families he talked to were the Browns. The family consists of an elderly woman and her developmentally disabled son (who is in his 40′s). They had a low interest government subsidized mortgage; however, a financial institution convinced them that they could give them a better deal with lower payments. When all was said and done, they ended up being stuck with a longer term, higher interest loan that they can’t even afford to pay. Basically, a bait and switch tactic that is used on people that are not financially savvy.
Professor Elizabeth Warren from Harvard Law School was asked by a financial institution to give a presentation to their company about bankruptcy. She was happy to have been asked and gave them a lengthy presentation on how they could save money by screening their customers differently, weeding out the most high risk individuals and thereby reducing bankruptcies. Their response was, but that’s where we make most of our profit (basically from the people that are in worst financial shape).
She also learned that some companies will target those that have already been through a bankruptcy. Due to the fact that they can’t go bankrupt again, but they already have a taste for credit. Which means they will continue to use it and end up making minimum payments forever.
Credit cards and subprime mortgage is a huge business and is profitable even if people default. Banks have 180 after a person has defaulted before they legally must write off the debt. However, during that time late charges and finance charges continue to build up, thereby, drastically inflating the debt that is owed. Then they turn around and sell it on the debt market at this inflated amount. Debt buying is one of the fastest growing industries on Wall Street. In 2005, investors bought $75 billion of bad debt.
Credit Card Companies will hang out at colleges, tempting students to fill out applications by offering free promotional items. You get the impression they want to hook the kids on credit early on and hopefully end up with lifetime customers that only pay the minimum each month. It was so tragic to hear two mothers tell the story of their college age kids that got in over their heads in credit card debt and subsequently ended up committing suicide because they couldn’t see any other way out.
Some Interesting Statistics From Movie:
Average U.S. household carries $9,205 in credit card debt and spends more than $1,300 per year in interest payments.
Between 1994 and 2004 over 10 million Americans declared bankruptcy.
In 2004, thirty states sued banks for predatory and discriminatory practices.
The U.S. Government spends more on interest than on homeland security, education and healthcare combined.
Special Features -
The Wise Use of Credit – This is an educational film from 1960 that is about 11 minutes long. It is extremely hokey; however, the sad thing is it probably contains more financial information than our kids learn during their entire time in school.
What is a Credit Report – An eye opening report on how the credit reporting industry works.
Bankruptcy: A Life Changing Event – Professor Warren talks about the human cost of having to declare bankruptcy.
Dave Ramsey, On Personal Responsibility – He is a straight forward kind of guy giving some common sense advice on finances. As he says “companies are misbehaving, but it’s up to you to fix your life”.
American’s For Fairness in Lending – Information about the organization and also tips to help prevent being scammed.
Comedian – “Look, I’m not being broke just to f*ck with you. I just don’t have any money.”
I loved the song choice for the opening and closing credits; Queen and David Bowie’s “Pressure”.
Yes, this is an extremely one sided look at the credit industry. That is because the goal of the documentary is to point out predatory lending practices. However, that doesn’t mean that there isn’t a lot of valuable information contained within the film. Think of it as a stepping off point for financial knowledge.
I really feel that everyone needs to educate themselves about money and finances. Like it or not money is always going to be a vitally important tool throughout life and can also help provide peace of mind and security. It is really important that you understand what you are getting yourself into, because as this documentary has shown, not everyone is looking after your best interest (even if they act like they are).
There are a lot of “financial experts” out there and not all of them are trustworthy. The best advice I can give is don’t go with the “get rich quick” kind of people, they are the ones most likely to give bad advice. Look for the ones promoting a more reasonable approach (aka, the slow path).
Here are some that I have found to be generally reasonable and useful (although don’t just blindly follow anything you read – think it through for yourself to see if it makes sense to you).
Dave Ramsey – He has a syndicated radio program, books and classes. While I don’t agree with everything he says, he does have a lot of good solid information and advice.
Your Money or Your Life – A book written by Joe Dominguez and Vicki Robin. While the investment information in this is a bit dated (although maybe it’s just mine since now that I look at it I notice it’s from 1992 – I see there is an updated version that came out last year), the how to look at money and what is important to you part is extremely useful.
Motley Fool – A website with a plethora of financial information. Covering a wide range of topics, including stocks, bonds, retirement, funding college, etc.
Larry Winget – He is an interesting guy that takes a real tough love approach when it comes to finances. He has books and DVDs available.
Just so you know, getting out of debt and obtaining a bit of financial security is still doable in this day and age. When I was pregnant with our son, my husband and I fell into the financial trap that a lot of people do. We started using credit cards for things “we just couldn’t live without”; video camera to tape the baby, new larger size washer and dryer, a better family car, etc. It doesn’t take long for that type of stuff to get out of control and add up to more than you think.
Luckily, we stopped and took a look at what we were doing and said enough. Then we set up a plan for paying off everything as quickly as possible (using the snowball approach). We succeeded in paying everything off. We still use a credit card, but only for convenience and we pay it in full every month without fail.
By taking a step back, really taking a close look at our financial situation and make necessary changes we were able to change our lives for the better. I was able to quit my job and stay at home with our son, which was very important to us. Also, my husband and I are in our mid forties and have no debt (our house and cars are totally paid for).
One more thing before I go, if you are a parent, please be sure to teach your kids about being financially responsible. It is such an important topic and if you don’t teach them about it, who will?