I always wanted to teach a class called "You Can Lie With Statistics," a class that dealt with the very selective ways data is used to make a point. I've not had a chance to teach such a class, but many Americans are living the lesson of manipulated statistics, especially in this expanding economy we keep hearing about. Here's a question -- if the economy is expanding so rapidly, we are so many people so broke?

More than a million people a year have filed bankruptcy since 1996. The number got as high as 1.4 million in 1998. By 1999, the number had dropped from 1.3, and it may drop again to about 1.2 million if the current 2000 pace of more than 300,000 personal bankruptcies a year continues.

The easy answer to why so many people are broke is, of course, that people are spending more than they earn. I guess they can't help it with all this economic euphoria out there. But it's not just the euphoria -- there's also the easy credit climate that had more than 4 billion credit cards sent out in 1998. And the credit card industry is sending these cards at the same time that they have been trying to persuade Congress to tighten up bankruptcy laws, making it more difficult for people to declare bankruptcy, and giving creditors a larger slice of a broke person's already meager assets. In one proposal that was floated in 1999, a creditor would have a greater claim on someone's assets than their children -- child support payments would have been deducted only after Visa and MasterCard got theirs.

Personal debt has been at an all time high these last few years. Because interest rates have remained low, this isn't as much of a crisis as it could be But as our economy slows down, which is inevitable, and interest rates creep up, those who are carrying high levels of personal debt will find themselves paying more and more money to service their debt.
The irony is that all this personal spending is, in large part, fueling economic expansion. Manufacturers and retailers put pressure on consumers to buy, buy, buy, and judge their own effectiveness by how enthusiastically people respond to their exhortation. If people slowed their spending, they might be a bit more financially responsible, but they also might slow our economy down more than we can stand it.

So what's a consumer to do? Go on a spending spree in the name of economic expansion or tighten her belt in the name of long-term financial security. I don't believe I asked that question as if there is really a choice here. The savvy consumer knows exactly what to do, which is to use credit wisely, if at all.

This doesn't mean that I'm down on credit cards, or advising people to cut up their plastic. With the proliferation of the Internet and the growth of e-shopping, the consumer who doesn't have a credit card often finds herself locked out of a whole array of bargains, from the 20 percent off that Amazon.com routinely offers bookbuyers to the special deals that airlines post to those who can buy tickets online. The digital divide is also a credit divide, and the poor too often pay more because they don't have credit access.

But credit cards have to be viewed as a tool, not an income supplement. And credit card holders have got to be trained to use their credit judiciously. The television commercials often reinforce the point that credit cards are great to have in an emergency. Wanting a new outfit, however, is hardly an emergency.

The bottom line in all of this is that middle-income and poor families are experiencing more of a squeeze on their finances than the data about economic expansion would suggest. People are taking out home equity loans and running up credit card bills because their incomes have not been growing as rapidly as the economy has. In the fall of 2000, we learned that incomes rose by nearly 3 percent in 1999, and that level of growth was likely to continue through 2000. But the economy grew by more than 5 percent in 1999, which means that profits are growing while incomes are not.
Even with income growth, too, it is useful to note that median income for our nation's households was just $40,000 in 1999, which means that half of all households had incomes below $40,000. Median income for African American households was $27,910; it was $30,735 for Hispanic households. In addition, most income growth has taken place in metropolitan areas, leaving rural Americans isolated not only by their location, but also by their poverty. And while the poverty rate, at 11.8 percent in 1999, is lower than it has been in 21 years, one in eight American families is officially poor, and even more than that are broke.

Rising levels of personal debt are a warning sign in our consumerist economy. It suggests not only a need for financial literacy, but also a need for individuals to place consumerism in context. Do we really need to own the latest, the largest, and the most elaborate toys? And if people are racking up personal debt to pay for necessities like health care or child care, what does that say about public policy? If we are doing so well as a nation, how come so many of us are broke?

 

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