The personal savings rate is the ratio of personal savings to disposable personal income. Disposable personal income is the amount of income left over after taxes have been paid. Personal savings is the amount of income left over after personal consumption expenditures and debts have been paid.
The U.S. Department of Commerce's Bureau of Economic Analysis has kept a record of the personal savings rate since 1959. Since then, the personal savings rate has averaged 6.98% with a standard deviation of 2.75%. In the past 20 years, Americans have saved at a much lower average of 4.18%.
During the same twenty-year period, according to statistics released by the Federal Reserve Bank, consumer credit outstanding increased in the United States from $751.9 billion to $2.78 trillion (excluding mortgage loans).
Finally, according to the International Trade Association, the latter half of the twentieth century, the service sector has been both the largest and the fastest growing component of the U.S. economy. Following World War II, the service sector accounted for about 60% of U.S. output and employment. Today, the service sector's share of the U.S. economy has risen to almost 81 percent.
This three factors over time, along with the ease of obtaining credit through credit cards and lower lending standards, have created a significant change in our consumer culture from a “save- to-spend” to a “buy-now-pay-later” mentality. And since the U.S. economy is so dependent on consumer spending, how can our culture reverse its addiction to immediate gratification without going through a number of struggling years as we collectively build savings today in order to buy stuff tomorrow?
And when it comes to our children – the next generation of consumers – can this change in culture be realized or are they sentenced to a lifetime of debt and struggles?
Take a look at this video clip on the commercialization of children and tell me what you think.
Sunday, March 28, 2010
Monday, March 22, 2010
Going to Orlando? Stay away from Hertz!
With a few exceptions, I’m a pretty easy-going guy when it comes to customer service. I’ve worked enough customer service jobs in my life to appreciate the challenges of working with the public. And in many ways, things are more difficult these days with the “get-me-my-answer-now” attitude from consumers.
So last week I arrive at the Orlando International Airport (me and a couple of thousand other people) and proceed to board a shuttle bus to take us to the Hertz rental car facility which is off-site from the airport. The over-stuffed bus unloads its passengers and we follow the signs to the pick-up center.
Here we are greeted by over 12 empty customer service stations and 4 staffed stations – and nobody seems to be in a hurry to wait on their guests. No eye contact – no welcome greeting – no apologies for the long wait. Finally, it’s my turn and the next available agent looks at me and tells me it’s her break and closes her station. I thought I was at the Post Office for a moment.
A few minutes later, another agent appears and motions for me to come over. She then engages herself in the conversation that is going on at the next station as she grabs my reservation document, license and credit card. She swipes the card and then tells me that apparently because I arranged this through AAA (that might be another story for another day), she “can’t do anything more” for me and directs me to go around the counter and “wait for them to call" my name. No explanation given - that’s it.
I go to the directed area and someone behind a desk asks me if I need help. It turns out to be a Marriott salesperson who then begins the hard sell to visit the local time share opportunities in the region. My blood pressure - my blood pressure. I approach another Hertz agent and tell her that I was instructed to this part of the counter to wait for my name to which she replies, “Have I called your name yet?” Uh, no – “well you’ll have to wait then.” Okay, but why ?
10 minutes later, my name is called. The agent then begins the whole re-booking situation again and swipes my card – which is now rejected (because the previous authorization from the first agent is still out there). She announces the card rejection in a loud voice and says she needs another card. Feeling like a shmuck, I hand her my debit card. Now the agent receives a phone call and suddenly leaves the station. A few minutes later another agent appears and picks up the process which takes her a minute or so to get up to speed. When asked if there is a problem, she says no and keeps typing.
She completes the transaction, hands me my stuff and tells me to go parking space so-and-so for my car before she turns around and leaves. No map, no directions how to leave this hellish place, no instructions on the return process, no thank you for choosing Hertz – nothing. So an hour and a half after arriving, we finally get into the car and head out.
This was so different than my Hertz experience in Fort Myers Florida last year which was a delight and was the reason I selected Hertz again this year. That ends now.
I have a new marketing slogan for them – it hurts to rent from Hertz.
So last week I arrive at the Orlando International Airport (me and a couple of thousand other people) and proceed to board a shuttle bus to take us to the Hertz rental car facility which is off-site from the airport. The over-stuffed bus unloads its passengers and we follow the signs to the pick-up center.
Here we are greeted by over 12 empty customer service stations and 4 staffed stations – and nobody seems to be in a hurry to wait on their guests. No eye contact – no welcome greeting – no apologies for the long wait. Finally, it’s my turn and the next available agent looks at me and tells me it’s her break and closes her station. I thought I was at the Post Office for a moment.
A few minutes later, another agent appears and motions for me to come over. She then engages herself in the conversation that is going on at the next station as she grabs my reservation document, license and credit card. She swipes the card and then tells me that apparently because I arranged this through AAA (that might be another story for another day), she “can’t do anything more” for me and directs me to go around the counter and “wait for them to call" my name. No explanation given - that’s it.
I go to the directed area and someone behind a desk asks me if I need help. It turns out to be a Marriott salesperson who then begins the hard sell to visit the local time share opportunities in the region. My blood pressure - my blood pressure. I approach another Hertz agent and tell her that I was instructed to this part of the counter to wait for my name to which she replies, “Have I called your name yet?” Uh, no – “well you’ll have to wait then.” Okay, but why ?
10 minutes later, my name is called. The agent then begins the whole re-booking situation again and swipes my card – which is now rejected (because the previous authorization from the first agent is still out there). She announces the card rejection in a loud voice and says she needs another card. Feeling like a shmuck, I hand her my debit card. Now the agent receives a phone call and suddenly leaves the station. A few minutes later another agent appears and picks up the process which takes her a minute or so to get up to speed. When asked if there is a problem, she says no and keeps typing.
She completes the transaction, hands me my stuff and tells me to go parking space so-and-so for my car before she turns around and leaves. No map, no directions how to leave this hellish place, no instructions on the return process, no thank you for choosing Hertz – nothing. So an hour and a half after arriving, we finally get into the car and head out.
This was so different than my Hertz experience in Fort Myers Florida last year which was a delight and was the reason I selected Hertz again this year. That ends now.
I have a new marketing slogan for them – it hurts to rent from Hertz.
Sunday, March 14, 2010
Bring Back ODP Loans!
Good Grief. Read this excerpt from a Bloomberg article published last month (“Banks May Use Payday-Style Loans to Replace Lost Overdraft Fees”, Jeff Plungis, February 23, 2010):
“U.S. banks may expand their short- term lending at interest rates of 120 percent or more as they seek to replace more than $15 billion in lost revenue because of regulations limiting overdraft fees.
“The smarter banks are trying to resell overdraft protection to consumers as a different product,” said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group in Maynard, Massachusetts.
Banks including Cincinnati-based Fifth Third Bancorp, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They’re known as “checking advance products.” That puts them in competition with so-called payday loan stores, which make loans with similar terms to customers who generally don’t have credit cards to bridge the gap until the check comes, according to Rowe, whose firm advises banks.
The banks don’t call the advances payday loans because it’s a “very tarnished, negative brand,” said Rowe, who estimates U.S. banks may lose from $15 billion to $20 billion in revenue when Federal Reserve rules take effect July 1. The rules will prohibit banks from charging overdraft fees at automated teller machines or on debit cards unless a customer has agreed to pay for exceeding account balances.
For consumers, getting a short-term, high-interest loan from a bank might be worse than going to a payday store, said Lauren Saunders, managing attorney with the National Consumer Law Center in Washington. A bank has direct access to consumer accounts, meaning its loans will be paid off first, ahead of food, housing or utilities, she said.”
Am I the only one on the planet that remembers Overdraft Protection Lines of Credit? We called them ODP for short. These “loans” (yes I said loans) were small revolving lines of credit that were attached to a customer’s checking account (essentially, increasing the available deposit balance by the available credit line). Borrowers were charge interest on ODP balances using the same calculation as credit cards. Checks went through, customers were not embarrassed by a returned item, we made a little interest income – everybody wins and life goes on.
So what happened? Well, the Number Crunchers analyzed the whole loan & collection process and concluded that to pay a loan officer to underwrite tiny open-end lines of credit was not cost-effective and, oh by the way, banks can make a lot more money by simply charging the customer a $20-35 fee for clearing the transaction. (which still seems like a loan to me but that’s a discussion for another day). Plus, since financial institutions really don’t want to carry loan portfolios anymore (see March 1st posting), this is another great way to generate fee income under the cloak of customer service and benefit.
So now that new regulations are coming into effect that will restrict this kind of practice, are we really headed down the path of payday lenders and provide short-term loans at exorbitant interest rates all under the cloak of customer service and benefit.
Why reinvent the wheel here and just bring back revolving lines of credit attached to the deposit accounts? Oh wait…. that’s right…. that’s too old-school now…
“U.S. banks may expand their short- term lending at interest rates of 120 percent or more as they seek to replace more than $15 billion in lost revenue because of regulations limiting overdraft fees.
“The smarter banks are trying to resell overdraft protection to consumers as a different product,” said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group in Maynard, Massachusetts.
Banks including Cincinnati-based Fifth Third Bancorp, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They’re known as “checking advance products.” That puts them in competition with so-called payday loan stores, which make loans with similar terms to customers who generally don’t have credit cards to bridge the gap until the check comes, according to Rowe, whose firm advises banks.
The banks don’t call the advances payday loans because it’s a “very tarnished, negative brand,” said Rowe, who estimates U.S. banks may lose from $15 billion to $20 billion in revenue when Federal Reserve rules take effect July 1. The rules will prohibit banks from charging overdraft fees at automated teller machines or on debit cards unless a customer has agreed to pay for exceeding account balances.
For consumers, getting a short-term, high-interest loan from a bank might be worse than going to a payday store, said Lauren Saunders, managing attorney with the National Consumer Law Center in Washington. A bank has direct access to consumer accounts, meaning its loans will be paid off first, ahead of food, housing or utilities, she said.”
Am I the only one on the planet that remembers Overdraft Protection Lines of Credit? We called them ODP for short. These “loans” (yes I said loans) were small revolving lines of credit that were attached to a customer’s checking account (essentially, increasing the available deposit balance by the available credit line). Borrowers were charge interest on ODP balances using the same calculation as credit cards. Checks went through, customers were not embarrassed by a returned item, we made a little interest income – everybody wins and life goes on.
So what happened? Well, the Number Crunchers analyzed the whole loan & collection process and concluded that to pay a loan officer to underwrite tiny open-end lines of credit was not cost-effective and, oh by the way, banks can make a lot more money by simply charging the customer a $20-35 fee for clearing the transaction. (which still seems like a loan to me but that’s a discussion for another day). Plus, since financial institutions really don’t want to carry loan portfolios anymore (see March 1st posting), this is another great way to generate fee income under the cloak of customer service and benefit.
So now that new regulations are coming into effect that will restrict this kind of practice, are we really headed down the path of payday lenders and provide short-term loans at exorbitant interest rates all under the cloak of customer service and benefit.
Why reinvent the wheel here and just bring back revolving lines of credit attached to the deposit accounts? Oh wait…. that’s right…. that’s too old-school now…
Monday, March 8, 2010
Spring Break or Groundhog Day?
I recently came across a company called StudentCity.com – their website describes themselves this way – “We've been providing the Ultimate Spring Break Experience for over 20 years. Our mission: To help students organize and promote trips which enable them to celebrate youth through travel. In fact, it's all we do.”
OK – I get it – they’re travel agents.
Twenty years – 1990. Since then, Spring Break has become almost an expected part of the college experience. And for most of those college students who travel to these warm weather destinations, they have paid for these elaborate trips with credit cards. For next year’s college freshmen, getting credit cards will now be a much harder prospect and will have to involve having Mom & Dad co-signing on the account – thanks to the Credit Card Act of 2009.
This might mean that in the next few years, the Spring Break phenomenon will be limited to college seniors or to those students who are over 21 years old. I guess for the rest of them, we’ll have to find another way to “celebrate youth.”
1990 – seems like yesterday. The Education Resources Information Center published a white paper that year that listed the Top Ten Educational Issues Facing Society in 1990:
1. children held in low esteem;
2. changing work force demographics requiring a new vision of training and hiring objectives;
3. a corner-cutting ethic promoting mediocrity;
4. the development of ethnic "beachheads" which impede the assimilation of immigrants into American society;
5. leadership guided by public opinion polls;
6. the prevalence of competitions and contests in schools;
7. reliance on "rubber" yardsticks in place of national education standards;
8. continued erosion of federal support accompanied by lack of financial equity in the schools;
9. preoccupied parents who spend little time with their children;
10. a geometrically expanding information base requiring multimedia approaches transcending the printed word.
Have we made any progress?
Enjoy your spring break – and by the way, we boomers know all about it – we sort of invented it. It’s called Woodstock.
OK – I get it – they’re travel agents.
Twenty years – 1990. Since then, Spring Break has become almost an expected part of the college experience. And for most of those college students who travel to these warm weather destinations, they have paid for these elaborate trips with credit cards. For next year’s college freshmen, getting credit cards will now be a much harder prospect and will have to involve having Mom & Dad co-signing on the account – thanks to the Credit Card Act of 2009.
This might mean that in the next few years, the Spring Break phenomenon will be limited to college seniors or to those students who are over 21 years old. I guess for the rest of them, we’ll have to find another way to “celebrate youth.”
1990 – seems like yesterday. The Education Resources Information Center published a white paper that year that listed the Top Ten Educational Issues Facing Society in 1990:
1. children held in low esteem;
2. changing work force demographics requiring a new vision of training and hiring objectives;
3. a corner-cutting ethic promoting mediocrity;
4. the development of ethnic "beachheads" which impede the assimilation of immigrants into American society;
5. leadership guided by public opinion polls;
6. the prevalence of competitions and contests in schools;
7. reliance on "rubber" yardsticks in place of national education standards;
8. continued erosion of federal support accompanied by lack of financial equity in the schools;
9. preoccupied parents who spend little time with their children;
10. a geometrically expanding information base requiring multimedia approaches transcending the printed word.
Have we made any progress?
Enjoy your spring break – and by the way, we boomers know all about it – we sort of invented it. It’s called Woodstock.
Monday, March 1, 2010
Time for Consumer Lenders to Come Out From Under the Covers
Based on an informal survey of consumer lenders around the country, no one seems to be lending anymore. Oh they would argue that – they would say they are lending only to qualified borrowers and then begin to cite monthly loan production numbers.
But that’s really not lending. Lending involves identifying risk and if you lend to only the highest quality of borrowers, then you might as well invest that money in low-risk securities and eliminate the operational cost of maintaining a loan portfolio.
Which is what I think is happening to many large consumer lenders. A friend of mine told me last week that he is 4 months away from paying off an installment loan he took out 4 years ago to help finance his son’s college education. He wanted to refinance that loan with the same lender to consolidate debt. Back in the day, provided the applicant had good credit and income capacity, this was a no-brainer:
But that’s really not lending. Lending involves identifying risk and if you lend to only the highest quality of borrowers, then you might as well invest that money in low-risk securities and eliminate the operational cost of maintaining a loan portfolio.
Which is what I think is happening to many large consumer lenders. A friend of mine told me last week that he is 4 months away from paying off an installment loan he took out 4 years ago to help finance his son’s college education. He wanted to refinance that loan with the same lender to consolidate debt. Back in the day, provided the applicant had good credit and income capacity, this was a no-brainer:
- The customer had an established loan record with you
- The customer was improving his financial position by consolidating debt
- You were strengthening a customer relationship
- You were increasing your consumer loan portfolio
Nope – the answer he got was that the bank was not making any new loans until further notice citing the “current economic conditions”.
Talk about having it completely backwards! If I was still in the loan business, I would be making a boatload of bill-consolidation loans because this helps borrowers by reducing and managing their debt. (It also builds customer loyalty which once upon a time used to be a big goal). I used to make bill consolidation loans on a bi-weekly basis with payments automatically debited from the borrower’s deposit account with us (there’s that loyalty thing again). Bi- weekly loans actually pay the loans down faster and are quite profitable. Everybody wins.
But alas, financial institutions and regulators have lost their way. It used to be that they would take in deposits and lend money to help people in the community, using the interest they made from loans to pay the bills and make a profit. But that approach involves risk – interest rate risk, credit risk and collateral risk.
No – the fastest way now to make a profit is to increase fees on everything and take the deposits and invest them in securities and other investments – now you only have to manage the interest rate risk and avoid the credit and collateral risk. However, when credit stops flowing people stop buying stuff - businesses stop expanding - and unemployment remains high. The circle of recession goes on and on.
So c’mon guys – start with the average consumer. Help them to consolidate their debt, finance new cars and homes, and start opening credit lines again on credit cards. Start lending again. It’s what you’re supposed to do anyway.
If you need someone to show you how – call me.
Subscribe to:
Posts (Atom)
Posts
