A MASTERS’ THESIS BY JASMINE FRIEDL
THERE’S A four letter word we’re all familiar with, but most of us are actually afraid to speak up about it. This one is pushed under the table, uttered only in a state of vulnerability, or rarely, used as a bragging point, which usually brings regret, because we’ve let someone know too intimate a detail. We’re much more comfortable talking about the things that bring us to this word, the path, the journey we take, and what we got from it, rather than the state of the word itself. It can pull us to some pretty fantastic places, and procure us some pretty precious things, but most often it’s used in a fashion that’s ragged, leaving us empty and wanting more.
What is that four letter word that most dare not mention?
Debt. Plain and simple.
DEEPER A Realization of Debt 4
THE WORD has its associations, and there are some negatives and positives. In bringing up the United States’ national debt, we might cross some wrinkled noses, faces of disdain, and holier than thou attitudes. When referring to student loans, educational debt, or home ownership debt, mortgages, we may feel a bit better, because we know the difference between frivolity and investment. But when we talk about that one kind of debt, credit card debt, we act as if it were an affliction of a friend of a friend, cured only by antibiotics and life changes that would befit a monastery. You might think this isn’t you. It isn’t your problem. But be assured that it is. And if it is not now, it will be at some moment in your existence, and if not, it will be an affliction that your children and their families will at some point face.
Many young people entering the workforce, when courted by the idea of a full time salary, see spending as a means to an end. This may manifest itself as purchasing a new wardrobe for interviewing or a new job, furnishing an apartment or non-dormitory living space, or paying for lavish dinners or drinks to facilitate a new social sphere. These types of spends are easily put on credit because they are considered “investments” into a new life, one that will pay itself back tenfold. The reality is, however, spending doesn’t stop there. Young people today have a pressing desire to look good and feel in control, which is a characteristic specific to Generation Y, the 70 plus million twenty-somethings also known as Millenials, the Facebook generation, or the Peter Pan generation. “Desire to be as high in the hierarchy as possible creates a powerful psychological state,” says Adam Galinsky, a professor at the Kellogg School of Management at Northwestern University. Using a credit card is a fast and easy solution to getting there socially. The fact of the matter is, $4100 in credit card debt is just a starting point for these young people.
Before we get too defensive, let’s go over a few numbers.
Source: Federal Reserve’s G.19 report on consumer credit, released February 2012
Source: “The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston, January 2010
Calculated by dividing the total revolving debt in the U.S. ($801.0 billion as of December 2011 data, as listed in the Federal Reserve’s February 2012 report on consumer credit) by the estimated number of households carrying credit card debt (50.2 million)
Still doesn’t sound like anyone you know? Let’s narrow our focus group.
% OF UNDERGRADS HAVE AT LEAST ONE CREDIT CARD
Source: Sallie Mae, “How Undergraduate Students Use Credit Cards,” April 2009
% OF UNDERGRADS HAD 4 OR MORE CREDIT CARDS UP FROM 32% IN 2000 IN FACT, 39% ALREADY HAD A CARD BEFORE ENROLLMENT IN SCHOOL.
BUT TODAY, THE AVERAGE NUMBER OF CARDS PER STUDENT IS
% HAVE ACCESS TO A CARD BELONGING TO THEIR PARENTS
2008, United College Marketing Services
UNDERGRADS ARE NOW GRADUATING WITH AN AVERAGE OF OVER
IN CREDIT CARD
DEBT Do you think it ends there? We hope so, but the truth is, it doesn’t.
Source: Sallie Mae, “How Undergraduate Students Use Credit Cards,” April 2009
SPENDING CAN BE an addiction. It can be a band-aid, or a warm blanket. It can be an investment or a reward. And it cannot, will not be stopped. Our lives depend on consumption. To tell you that spending should be abolished, and that it should be quit cold turkey would be foolish. We need things to survive. The question is, what exactly do we need, and how are we paying for it? We all have spending needs. Ian Gough and Len Doyal, respective political economy professor and ethics professor, list broad categories of basic need, including nutrition (food and water), housing, clothing, healthcare, and education. Most often, these are not free. However, it is not the access of these things to fill basic needs that leads to credit card debt. It is the access of things in excess of what are needs are, or a mutated perception of what needs really are.
Evaluating Consumption IN REALIT Y, our finances look something like the following. We all have some sort of income, be it from a paycheck or an allowance of sorts. We also all have spending, which can be categorized into two types: fixed spending and variable spending. Our fixed spending has to do with recurring costs usually paid in lump sums, and averaging about the same each payment. They are typically things we pay for monthly, such as housing (rent, mortgage), transportation (car payments, monthly transit passes, gas), utilities (gas, water, electric, garbage), hookups (cable, internet), and miscellaneous (loan payments, gym memberships). These usually are the effect of a permanent lifestyle choice and an interpretation of need, and are rarely paid for with credit. On the contrary, variable spending has to do with more fluctuating spends, such as food and drink (grocery, restaurants, bars), retail (onsite and online shopping), transit (bus, taxi), and entertainment (movie theaters, shows). These often are more dependent on funds available, often loosely relying on bank statements for this information. Much of this is paid with credit. What is the solution to credit card debt? It’s quite simple: Don’t spend what you don’t have.
LEARN A Personal Story HOW WE SPEND definitely is influenced by the generations we grew up in, but it can also be heavily influenced by how we were individually raised. Personally, agewise, I fall on the cusp of Generation Y, but my habits fall much more into that of Generation X. I was raised by financially conservative parents, not by desire, but by circumstance. Unemployment runs rampant in their history, and the fluctuation between having enough and having little was weighted rather heavily on the latter side. I recall in elementary school, the take home bi-weekly pay my father received was between $600 and 700 on most checks, and up to a thousand on the rare good days. After fixed costs, my mother took what was left 10
for groceries to feed our family of six. We would eat like relative kings for the first week, and scrimp for the next. On the rare occasions we went out to dinner, we would have a dollar limit, say four or five dollars a person. There were no sodas, and definitely no dessert. We never went hungry; the lack of having often creates a resourcefulness that those without need might never acquire. My mother grew a garden, and she would freeze and can fruits and vegetables. She would focus in on a few things to grow, and grew them in bulk. There was a year where she chose eggplant, which none of us liked. She tried it every way: baked, fried, boiled, in pancakes, in pasta. We never became fans. We would also buy from friends and neighbors who raised farm animals, also in bulk. One year, my parents brought back a garbage bag full of butchered chickens that went in to the deep freezer; another year is was half of a lamb. It took me nearly twenty years to be able to stomach some of those tastes again. We never had soda in the house. We never had store bought cakes or cupcakes or sweets. For birthdays, my mother would bake cakes from scratch and make the frosting and decorations herself. One cake she made a zebra,
another year a giraffe. They were all carefully and beautifully made. I learned to make the best chocolate chip cookies from a recipe in my head. From the cupboards, we would often use substitutes. I remember making kool-aid with honey and maple syrup because the sugar was gone. The cupboards themselves were small. Today, living alone, I have cupboards twice the size, and for one person, not six. I often have to catch myself when I claim I have “nothing to eat.” Aside from food, I learned very soon that if I wanted things, I was going to have to buy them myself. For a short period, we had an allowance, of $1.50 per week. Ten percent went to our tithes, and the rest was split 50/50 for savings and spending. It wasn’t much. I would dream of things other kids had: horses, pools, bikes, and decided that I needed to make more if I was going to save for these
things. I started babysitting when I was nine, at one dollar per child per hour. At age ten, I got a paper route. My brother had one a street over, and was making $50-60 dollars a month. I could barely clear $40; my route was closer to the train tracks, where income levels obviously trailed off. My customers would often ignore doorbells when I came to collect my fees, and I took the few dollars’ hit for each home that wouldn’t pay from my earnings. At fourteen, I started working at a Tastee Freez. My rate was $2.40 an hour, which although was less than minimum wage, was accepted because of the possibility of tips, which were rarely given. I worked there summers throughout college, where I made six dollars an hour as a manager. My senior year in high school, once my sports commitments were up, I took a job at a dry cleaners as a receptionist. I balanced two jobs for a year before I went off to college. There, I also balanced two jobs, working at the university bookstore along with managing a campus art studio. When I moved to San Francisco after graduating, I took a part time retail job until I landed my full time job. I kept the retail job, working on weekends for nearly four months before I realized I couldn’t do both. I did the same thing again, coming back to graduate school, landing a temporary retail job, and not being able to let go completely when I took a design internship. In over thirty-five years of working, my father has held over twenty jobs. I know that this plays a large factor into how I view work and financial security. My goal when I started my first full time job was to make more than he did. I achieved that. 01
Rocking horse: $65
Inflatable pool: $40
Girl’s bicycle: $219
A lot of people here in the United States, especially my age and younger, do not have the experiences that I have had. Many have grown up with parents who actively used credit, or who at least had money to spend. The transition to their adulthood has never instilled in them the fear of not having, or not being able to pay their bills. Without the need to be frugal, the understanding of spending consequences is lost. Our country has adapted very well to the “buy now, pay later” routine. Young people aren’t worrying about retiring yet, because they’re already living on borrowed money, and there is always credit as a fallback. They are not worried about buying a home, because rent is enough to handle. 12
They are not worried about the cost of children, because they are living in the moment, and the world is their oyster. My parents also never went into debt for anything other than a home purchase. They have one credit card, and only one charge on it has been excessive, and that was a fraudulent charge. I have loads of debt, but almost all of it is from educational investment. I have dabbled with my credit cards, but not with the frivolity of what I’ve seen in people my age. I have friends who have run up to $25,000 in credit card debt, and have nothing but shoes, bags, dresses, and vacations to show for it. The thing is, although I still don’t have a horse, a pool, or even a bike, I still find it easy to lust after what other people have.
Adidas Sunglasses: $140
Trek Beach Cruiser: $209
Put it on my card: $159
Put it on my card: $238
(Case included): $349 Put it on my card: $397
Diesel wristwatch: $120
Beats by Dr. Dre
Nine West Pumps: $89
Nintendo Wii: $149
Put it on my card: $136
Put it on my card: $100
Put it on my card: $170
Put it on my card: $340
“Put it on my card” prices estimated by 12 month APR of 13.99%
Wilson Blade Team
Jessica Simpson bag: $98
Local artist bracelet: $62
Havaianas flip-flops: $18
tennis racquet: $65
Put it on my card: $112
Put it on my card: $71
Put it on my card: $21
Put it on my card: $74
MacBook Pro: $2199
Gillette Fusion razor: $10
digital camera: $99
Put it on my card: $2506
Put it on my card: $11
Put it on my card: $113
Put it on my card: $644
“Put it on my card” prices estimated by 12 month APR of 13.99%
01 Lobster dinner: $45
Recognizing Choices MOST PEOPLE probably donâ€™t have lobster dinner every night. There are, however, special nights dining out, and for young people, this can become a sometimes daily experience. At an upscale restaurant, an entree can range from $15 to 40, and the addition of appetizers, not to mention drinks, skyrocket from there. A dinner at home, in contrast, can usually be kept under $10. Think about saving $30 every time you chose to eat in. How do most people eat their lunch? A brown bag lunch can run $2 to 6. Lunch out, just food runs on average $9 to 18. Think about saving $10 every time you pack your own lunch. Some food and drink consumption is necessary on the most basic levels of survival; some is not. Some are the force of habit that become things that we believe we canâ€™t live without. One pound of coffee beans yields approximately 40 cups; each cup costs about 25 cents. At a coffee shop, you would pay upwards of a dollar, for the same cup. An at home espresso maker may cost a couple of hundred dollars up front, but makes a latte that will cost about one dollar. The same latte at a national chain will cost about $3.50.
02 Sandwich from home: $4
01 Homemade coffee: $0.05 Per year: $9
What does that break down to? A straight coffee habit at home will cost $9 per year. A straight cup at the coffee shop? $450. At home lattes: $370. At national chain: almost $1300. Maybe you’re more of a soda person. Coca-cola products run $12 for a 24 pack, breaking down to 50 cents a can. At a fast food joint, a fountain soda is about $1.50, where cans at restaurants are sold at up to $3. We all have our vices, and they’re usually easily excusable. Because of their addictive qualities, we instinctively write them off as “needs.” With young people today, aside from the retail game, a massive “need” is the need to be involved socially in the bar scene. The word “party,” previously associated with an actual event, has come to universally refer to consuming alcohol. Especially in urban areas, twenty-somethings are weekly blowing hundreds of dollars on excessive numbers of beers, cocktails, and shots. Combining alcohol consumption with credit can be a lethal combination; the clouding of judgement with the false charm of an endless good time often ends in morning after spending regret, which is only appeased by a weekday reset that brings the same behavior the following weekend.
Homemade espresso: $1
Café coffee: $1.50
Café espresso drink: $3.50
Per year: $370
Per year: $450
Per year: $1300
An Exit from Credit 22
WE GET IT. Spending is a problem, and itâ€™s hitting young people hard. The solution falls somewhere between cutting spending entirely and spending recklessly. If credit gets taken out of the equation, things become a lot more simple. Then we arrive at the obvious answer: spending within your means requires a budget. Most of us think we can get by without one. Those of us who think we do budget are misled into thinking that means simply looking at an online bank statement. We do this twice a month, usually around payday: account for bills and fixed spending, and make general plans for the rest. The problem with this is that we fail to consistently look at what happens after this, and instead run a lump fund down until itâ€™s almost gone, or is gone and pushes us to credit abuse, until we begin the cycle again two weeks later. This, unfortunately, is not budgeting. Thankfully, for someone who is new to handling finances, it does not have to be as complicated as investments and forecasting and planning. It is possible to take what you have and know daily where you are at for spending availability in an uncomplicated and efficient way.
The SpendWise user:
The SpendWise user is not: a trust fund baby, or dependent on money from parents. familiar with budgeting â€” real budgeting. able to stick to routine, like consistently packing a lunch. accustomed to window shopping. going to walk over taking a cab.
STAND UP Identifying an audience SPENDWISE IS BUDGETING for a new generation. It’s even beyond that. It’s learning to spend within what you earn. It’s living within your means.
01 SpendWise app: $1.99
01 The New Frugality $24.00 02 Third World America $23.99 03 In Cheap We Trust $24.99 04 Why We Buy $18.00 05 Nickel and Dimed $13.00
51 06 Common Wealth $27.95
07 Persuasive Technology $12.95 08 Plenitude $25.95 09 The Green Collar Economy $25.99
10 Obsessive Consumption 10
$19.95 11 Guns, Germs, and Steel $16.95
Leaving a Mark The SpendWise squirrel is the mark of the obvious reward of not spending everything you have: savings. Squirrels are notorious for working feverishly to store away their acorns for when they need them. Sure, they eat, and they scamper, but when the time comes, they are prepared. We ought to take heed of their habits, and be a little more careful when weâ€™re daily whittling away at our funds. You never know when youâ€™re going to need that extra acorn.
SPENDWISE EMAIL firstname.lastname@example.org PHONE 415.652.3721 WORK jasminefriedl.com ACADEMY OF ART UNIVERSITY School of Graphic Design 79 New Montgomery, San Francisco, CA 94105
TYPEFACES Knockout, Museo BOOK PRODUCTION Neil Uhl PRINTING & BINDING Blurb.com TEXT STOCK Proline Pearl/Uncoated Copyright © 2012 Jasmine Friedl SPENDWISE IS A MASTERS’ THESIS CONCEIVED AND DESIGNED BY JASMINE FRIEDL NO PORTION OF THIS BOOK MAY BE USED OR REPRODUCED IN ANY MANNER WITHOUT WRITTEN CONSENT OF JASMINE FRIEDL