Are We About to Hit Our Heads on the Consumer Debt Ceiling?

For those of you I have not met, I am reasonably tall but lack the safety cushion the rest of you seem to enjoy in your abundance of hair. Yes, admittedly, I am ‘follically challenged.’  While not an issue for me (my Dad used to say God produced only a few perfect heads, and the rest he covered with hair) on occasion it provides a painful reminder I need to keep my wits about me, especially when working toward the ceiling.  The other day was a particularly painful reminder as I was doing some work on a ladder and came into abrupt contact with our basement ceiling.  Adding insult to injury is the fact that our house, being of a certain age, is blessed with an abundance of ‘popcorn ceilings’ and as a result left a number of painful indentations as well.  I sent a few choice words in the direction of the ceiling, but of course being my own dumb fault did not help my pain.

So where am I going with this?

The latest Federal Reserve Bank of New York report on Household Debt and Credit shows that as a nation we will bump our financial heads on a ceiling we have not seen since 2008.  This ceiling is the peak of all types of household debt, led by credit cards, and we are expected to reach or exceed the previous ceiling of $12.68 trillion sometime in 2017.

I don’t know about you but to me that number is pretty much unfathomable.

Our practice has been to keep our clients apprised as to significant changes in the credit markets so as to be prepared should economic conditions change and bad debt loads increase due to customer’s inability to cover their debt.

Some key findings in the report include:

  • Credit card balances continued to grow and increased by $32 billion in the fourth quarter of 2016.
  • Of note is that the aggregate credit card limit increased for the 16th quarter in a row.
  • Not surprisingly, student loan balances have increased in all of the 18-year history of the report. The last quarter was no exception, increasing by $31 billion.
  • A new annual record was set in 2016 for auto loan originations.
  • Auto loan balances increased by $22 billion in the fourth quarter as well.

Add all that up and total debt is just 0.8%, or $99 billion, below the peak in 2008.

So, how bad is this seemingly alarming trend?  Well, as I wrote in a previous blog on this same subject, that depends.

The Fed’s Research and Statistics Group points out that the key difference here is that the mix of debt is quite different.  In the ‘great recession’ much more of the debt was mortgage and home equity debt driven by rapidly rising home prices.

“Debt held by Americans is approaching its previous peak, yet its composition today is vastly different as the growth in balances has been driven by non-housing debt,” according to Wilbert van der Klaauw, senior vice president at the New York Fed. “Since reaching a trough in mid-2013, the rebound in household debt has been led by student debt and auto debt, with only sluggish growth in mortgage debt.”

This seems to indicate that this mix at least tends to temper concerns about the same triggers that caused the so called ‘great recession.’  While consumers are certainly not debt free, they do seem to be able to pay what they owe.

The Fed went on to note that, overall, delinquencies have remained stable, and in fact have declined in comparison to 2015.   The report states that 4.8% of debt was in some state of delinquency, with $412 billion of the $607 billion total at least 90 days late (“severely derogatory”).

Reasons for concern?  Reasons for vigilance.  No one can predict the future with any degree of certainty, but no doubt hitting our heads on this ceiling may hurt and not just a little should economic conditions change unexpectedly.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 10 years.

 

Honor Thy Father and Thy Mother: What about ‘Thou Shall’ Don’t We Understand?

Let me be clear that this is not a blog about the Ten Commandments.  Yet, I think it is hard to argue that at the very least they can form a solid basis for good moral framework of our lives. 

Increasingly, it seems, many of us have forgotten the commandment to “Honor thy Father and thy Mother” and subject them to abuse–if not physically, emotionally or mentally, then financially—stealing literally billions of dollars each year through financial scams and outright theft.  What is the worst is that much of this outright theft is at the hands of the people they need to trust the most—their families!

Writing a commentary for CNBC (“Protecting yourself and loved ones from elder financial abuse”), Richard Behrendt, director of estate planning at Annex Wealth Management, writes that “Elder financial abuse is fast becoming the crime of the 21st century.” 

He cites some stunning statistics about the number of older Americans who have become victims.  Quoting a recent study by Metlife, 3.2 million Americans were the victim of elder financial abuse in 2014, representing a nearly $2.9-billion-dollar loss each year. 

Elder financial abuse, as Behrendt defines it, is: “…unauthorized, illegal or inappropriate use of an aging adult’s financial resources by a person in a position of trust.”  The abuse is broad based and crosses all boundaries—social, racial and economic.

Much of the increase in this type of crime is due to the increasing numbers of aging “baby boomers” and is “…largely a crime of opportunity.”  Judgement declines as we age and we become especially vulnerable if there are not adequate checks and balances to help us manage our finances.  Behrendt points out that the most venerable tend to be single adults who don’t have a spouse to keep things in perspective.

Yes, there are scams galore from outside sources including fake prizes or sweepstakes, the old “Nigerian Prince” scam, home improvement scams, claims of a grandchild in distress, and even romance scams from online dating services or chatrooms.

The most common and alarming abusers, however, are the victim’s own family.  I think this is the most disquieting aspect of this crime because such innocent trust is placed in those we love so much.  Perhaps that is why this commandment was included so prominently!

Having been responsible for an elderly relative’s financial situation I can attest to how difficult this can be. There is a fine balance between being respectful and supportive while counterbalancing often incomprehensible requests due to varying emotional states compounded by memory loss and other challenges.

Behrendt suggest the following warning signs that may indicate some type of abuse is occurring (quoting):

  • Sudden or unexplained changes in spending habits.
  • Surrendering control of finances to a new friend or partner.
  • Suddenly changing a will, trust or beneficiary designations.
  • Unexplained checks made out to cash, or unexplained loans.
  • Unexplained disappearance of assets (cash, valuables, securities, etc.).
  • Signs of anxiety or fear when asked about finances.

He suggests some other protective actions we can take including (quoting here):

  • Stay connected and involved with older family and friends.
  • Encourage seniors to use automatic bill payment services.
  • Shred financial statements instead of discarding in trash.
  • Contact the National Do-Not-Call Registry at www.donotcall.gov.
  • Never send money to someone you don’t know.
  • Do not give personal information over the phone.
  • Create a valid durable power of attorney.
  • Organize and store important legal and financial records.
  • Itemize and safeguard valuables and collectibles.
  • Request and review a free credit report annually.
  • Check references of caregivers and service providers.
  • Be wary of all unsolicited offers of any kind.
  • When in doubt, get a second opinion of a trusted friend or advisor.
  • Assemble a trusted team that includes a financial advisor, an attorney, an accountant, etc.

Our work family at A. Alliance is a pretty close knit bunch.  Family is a word often used when we relate to each other.  Unfortunately, we see the financial damage crimes like this can do to unsuspecting people.  As we age we are well reminded to “Honor thy Father and thy Mother” as we will likely be in its vulnerable spot ourselves someday. 

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 10 years.

Little Things that Make Big Impact

Remember the book “All I really needed to know I learned in Kindergarten” by Robert Fulghum? In it Fulghum lists a bunch of kindergarten rules that stand the test of time and remain relevant into adulthood.  Things like: share, play fair, don’t hit people, clean up your own mess, don’t take things that aren’t yours, say you’re sorry when you hurt someone, and many more.  You get the gist. I think what’s made the book so popular (in print since 1989) is its simplicity. It’s all very basic—stuff we all know, can agree with and relate to while also being very essential.  It’s one of those things that we read, see, or play (think hula-hoop) and think, why didn’t I come up with that?

Here’s the thing, I think we all can come up with them—the little things in life that can make a big difference.  All we have to do is remember the Golden Rule: do to others as you would have them do to you, and go from there.  We all know how we like (or don’t like) to be treated—that’s the easy part.  The harder part is the follow through.  Here are 3 of the little big things I’ve come up with.

  1. Say thank you

We’ve all been taught this, but do we say these two words or show our appreciation as often as we should?  I know this might sound petty, but when I’m driving I’m usually happy to stop and let someone in, but if I don’t get the nod it actually ticks me off. The nod—the thank you—is important to me. So, if showing gratitude is important (and I’m telling you it is) for something this insignificant, guess how much it means in the big scheme of things! We all love to get positive feedback. Wouldn’t the world be a better place if we all showed our appreciation for one another?

  1. Everyone needs help from time to time

But a lot of people just aren’t comfortable asking for help. This is where it gets a little more complicated: if you are one of those people who don’t ask for help because you think it will make you look weak or are afraid people will lose respect for you, guess again. Asking for help will not only benefit you, the person or people who help you will get to feel like a valued part of your life or business.  Remember, admitting you don’t have all the answers and need help from others is a way more admirable trait than being a know-it-all! 

On the flip side, there are those who have trouble asking for help because they don’t want to appear needy or may feel like they aren’t in a position to ask for help.  Asking others if you can be of assistance to them sometimes gives them permission to ask for or accept help. In either case, asking for or offering help results in a win-win for everyone.

  1. Everyone needs to be seen

I’m not talking about being the center of attention, not everyone craves or enjoys being in the spotlight. Everyone already acknowledges the big achievements, what I’m referring to are the little things that really aren’t that little: Like the employee with young children who was having trouble getting to work on time who is now regularly clocking in on time.  Or the person who regularly refills the copiers with paper and ink so they are always ready when we need them. It’s important to let people know they are seen—especially when doing stuff right. 

There are so many little things that can make a big impact on our lives and the lives of those around us.  Which ones are important to you?

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 10 years.