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A Heap O’ Debt: Household Indebtedness Records Broken

March 4, 2020 Mark Hammerstrom

To you, oh faithful readers, I suspect I am beginning to sound like a broken record. You remember what a broken record sounds like, right? Perhaps not. Well, so you know, the ‘needle’ (or stylus) of a record player would sometimes get caught on a scratch on the record and skip back to a previous part of the recording and play over and over and over again. Pretty annoying if you were in the middle of the album versions of “Free Bird” or “In-A-Gadda-Da-Vida.”

Gosh if that does not make me feel like a ‘man of a certain age…’

At all events, I am beginning to think the repetitive messages of ever increasing, historic levels of household debt may have become a normalized part of everyday life. That is, this data is no longer a surprise, or a source of alarm. In fact, I rarely see any alarming headlines about it in the financial press, or if so, the stories fade to the background pretty fast. We may simply have become used to the fact that heaping debt onto our lives is a normal thing and no big deal.

Until it isn’t.

So, here is some data from the last quarter of 2019 courtesy of the New York Federal Reserve (read the press release here):

Total household debt increased by $193 billion (1.4%) to $14.15 trillion.
This is 22 consecutive quarters with an increase in household debt.
This new mark is $1.5 trillion higher than the previous peak of $12.68 trillion in the third quarter of 2008.
Mortgage balances rose by $120 billion in Q4.
Auto loans increased by $16 billion
Credit card debt increased by $46 billion
Student loan debt increased by $10 billion.
Of particular note is that transitions into delinquency for credit card debt deteriorated again in Q4, a trend that has been ongoing since 2016.
The Fed noted in particular a jump in credit card delinquencies owed by younger borrowers.

These numbers are significant, but when we look at the total increase in 2019 the trend is breathtaking:

For the year, the aggregate increase in household debt was $601 billion. That is the largest annual gain since 2007!
The main component in this increase was a $433 billion increase in mortgage balances.
Credit cards and auto loans increase by a $57 billion each.
Fortunately, student loan debt showed a smaller rate of growth, but it was still a robust $51 billion.

Often a picture is worth a thousand words (or in this case about 700!). This is a chart provided by the Fed showing the growth in household debt since 2003:

Really a pretty astounding picture when we look at it like this. Yes, much can be credited to the improving economy beginning in 2013. As we went back to work, and wages increased, it was only natural that we could take on more debt and pay for it. Yet this trend simply cannot continue forever. Economic expansion has its limits, particularly when unemployment is so very low. Global events can trip things up very quickly, as we have seen recently with the Coronavirus outbreak.

What to do? As always, we urge our clients to use their best judgement when issuing credit. When receivables increase, and aging of debt increases, we encourage you to turn your debts over to us at the earliest possible moment to begin the collection process. Now is the best time to do so as it is tax season and tax refunds are a great source of debt recovery.

And, as always, we are here to help. Let us know how we can help 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 15 years.

Image provided by: Nick Ares – https://www.flickr.com/photos/aresauburnphotos/

Wait, What? Bizarre Taxes Here and Abroad

February 19, 2020 Lisa Brammer

“Taxes are what we pay for a civilized society”

This famous quote by US Supreme Court Justice Oliver Wendall Holmes Jr is carved over the entrance of the IRS’s headquarters in Washington DC.

When you read it aloud, it’s pithy and sounds enlightened and sophisticated, doesn’t it? But here’s the thing, even though the majority of taxes collected enhance society and are in place to fund welfare and public services, there are others that, let’s say, aren’t. Some are logical and others, not so much.

Here are some of the strangest ones I know about:

The Jock Tax: Back in 1991 after the Chicago Bulls beat the Los Angeles Lakers in the NBA finals, California responded by taxing the earnings of the Chicago Bulls players (and all others associated with the team who made the trip to California). Illinois evened the score (see what I did there;) by initiating their own jock tax. There are now about 30 states and municipalities that have jock taxes in place.

California’s Fruit Tax: It’s not unusual for states to ratify taxes to curb unhealthy behaviors. But I don’t know what was behind the 33 percent tax California added to fruit bought in vending machine. Seems like they’d prefer you bought candy—which is not taxed at the same exorbitant rate—in the next machine.

Tax on Illegal Drugs: Tennessee passed a law in 2005 (called the crack tax) that required drug dealers to pay taxes anonymously (duh) on illegal substances like marijuana, cocaine and moonshine. After paying they would receive a stamp as a receipt of payment. If they were arrested and didn’t have a stamp, the state would also go after money owed. Tennessee collected more than $6 million from the crack tax before it was overturned in 2009 by the Tennessee Supreme Court. It was deemed unconstitutional.

The US isn’t the only place with weird tax laws. Read on:

Canada’s Tax-Break on Breakfast Cereal: Evidently, our neighbors to the north grant cereal makers a tax exemption if their boxes of cereal contain a free toy. If you wonder why this made my list, it’s because the tax exemption is limited to toys that are not beer, wine or liquor. Without the added stipulation, do you think our Canadian buddies could be enjoying some free red wine with their Wheaties?

China’s Pro-Smoking Campaign: On the flip side of taxing unhealthy behaviors, the citizens of the Hubei province of China find themselves living in an upside-down world. In 2009 China was in an economic crisis and since most of the local taxes come from cigarette sales, residents were ordered to buy cigarettes or face a fine. The government thought the pro-cigarette smoking tax was a great solution since it would not only provide tax revenue from the sale of the cigarettes but would also bring financial prosperity to China’s local cigarette makers. Win-win (cough-cough)!

Sweden’s Baby Name Approval: Swedish citizens are required to submit their baby’s name to the Swedish tax agency for approval within 3 months of their birth or face a fine of 5,000 kroner ($770 U.S.). The law was instituted in 1982 to prevent citizens from using royal names. It was replaced by another law in 2017 that says that a first name will not be approved if it’s felt it could cause offense to others, or discomfort for the one using it.

Believe me when I say the above list is just a small handful of the many bizarre tax laws I read about while doing my research. It seems like lawmakers are only limited by their imaginations—and boy are they an imaginative group!

Married to Your Job? Time for Some Marriage Counseling

February 5, 2020 Mark Hammerstrom

I continue to be amazed by the sheer volume of reports, studies and research that focus on stress and the related health effects excessive stress can cause. In particular the stress our jobs can cause us and what to do about it.

Do you ever feel married to your job? I know at times in my career I have. In fact, at one point I had to make a choice of staying in my career path or sacrificing my family life. To me there was no choice: hands down I chose my family.

That is not right for everyone, however, and to be straight about it my decision caused a whole different kind of stress, along with some very significant adjustments to a new path. Yet I have never looked back and that decision made all the difference.

Don’t get me wrong, hard work is not a bad thing. And some level of stress is actually a good thing. The fulfillment we feel being part of a team that successfully develops and grows an enterprise is one of the best feelings ever.

Yet where is that line between working hard and becoming a ‘workaholic’? What can we do about it when it gets to be too much?

I found some answers in an article published by the Harvard Business Review, “How Being a Workaholic Differs from Working Long Hours — and Why That Matters for Your Health” by Lieke ten Brummelhuis and Nancy P. Rothbard (read it here).

First, what defines a workaholic? “The term ‘workaholic’ was coined in 1971 by the psychologist Wayne E. Oates, who referred to ‘an uncontrollable need to work incessantly’ as an addiction. Workaholics are characterized by having an inner compulsive drive to work hard, thinking about work constantly, and feeling guilty and restless when they are not working.”

Do hard work and workaholism go hand in hand? “Workaholism often goes hand in hand with working long hours, but the two are distinct: it’s possible to work long hours without being obsessed with work, and it is possible to be obsessed with work but only work 35 hours a week or less.”

Their research went on to show that workaholics experienced a whole array of significant, sometimes severe, physical and mental health problems. “We found that work hours were not related to any health issues, while workaholism was.”

“Specifically, employees who worked long hours (typically more than 40 hours a week), but who did not obsess about work, …reported fewer health complaints than employees who demonstrated workaholism. We found that workaholics, whether or not they worked long hours, reported more health complaints and had increased risk for metabolic syndrome; they also reported a higher need for recovery, more sleep problems, more cynicism, more emotional exhaustion, and more depressive feelings than employees who merely worked long hours but did not have workaholic tendencies.”

Not fun being a workaholic. And it can be very difficult to change that behavior, but it can be changed.

Some tips:

“[A]cknowledge when a relationship to work is unhealthy — when it feels out of control and is undermining outside relationships.” In other words, the first step is to acknowledge one has a problem and become willing to take steps to fix it.

“[R]egain control over your work behavior. One way to do this is by setting clear rules for how many hours you will work each day.” Basically, develop good habits to know when to shut off work and then engage in activities completely detached from work. For example, spending time with family, friends, reading. Anything unrelated to your work.

Take time to “…reflect on the reasons why you work excessively and compulsively. We found a striking difference in work motivation between engaged and non-engaged workaholics. Whereas engaged workaholics worked because they enjoyed their work or found their work meaningful (these are intrinsic motivators), non-engaged workaholics were more likely to work for extrinsic motivators such as money and status. Intrinsic motivation is associated with more optimism, effort, and persistence, whereas extrinsic motivation often instigates anxiety and undermines persistence, making failure more likely.” So, liking what you do can help the situation.

Finally, one point I would add is that self-medicating to treat workaholism is not a good choice. It may feel good in the short term to decompress after a hard day by using alcohol or pills, but be real about the reasons you do this. The regularity of medicating the problem can often only make it worse, like adding gasoline to a fire.

So, you may ask why a debt collection agency would publish a blog on workplace stress and workaholism? Well, the fact is that this is a systemic and endemic problem in our work culture throughout the country. We do our best to help our own staff members stay on the healthy side of the work load. That helps them, but also you, our valued clients, as we always endeavor to provide the best possible service we can. Of course, if by passing this information along to you, it may help you or someone else you are close to, then even better.