The Credit Crisis and Why It Matters to You

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( — May 29, 2018) — Okay, so maybe your credit score is fine, and you just don’t see what the big deal is about the credit crisis. If people just paid their bills on time, that would not happen to them, right? Wrong. It’s a lot more complex than that, and you should care regardless of what is your credit score, as your neighbor’s credit score can have a big effect on you too.

How does this all work? What is the credit crisis, and why does it matter to everyone regardless of your credit score? Here is why it’s such a big deal. 

The Credit Crisis

What is the credit crisis? Right now it is the fact that there are two struggling generations. Many millennials could care less about credit. If they get medical bills or have other issues, they don’t even worry about paying them since many feel the system is unfair anyway. At the same time, many of them do not have credit cards or car loans, and are doing nothing to build a good credit score.

Generation X is also struggling. Medical bills, the housing crisis and more frequent divorce has also devastated their credit scores, and while they are more likely to try to recover them, increases in housing costs since the crash of 2008-2009 have kept many of them out of the home ownership market.

The crisis comes from the fact that we are a consumer driven economy, and if consumers are not consuming due to less disposable income and more difficult access to credit, this affects jobs, wages and company profits. In short, everyone is impacted by it.

Why It Matters to You

When times get tough, many property owners turn certain homes into rentals due to increased demand. When people cannot afford a home or even simply can’t qualify due to credit issues, they turn to renting. However, many do not want to rent apartments, and this leaves an opportunity for real estate investors, many of whom are real estate agents themselves.

Typically, home owners take better care of their property than renters. This means if a neighborhood becomes saturated with rentals, the value of the homes in the area generally goes down. People want their neighbors and their neighborhood to be pleasant and clean.

Not all renters are bad, but because of the proclivity toward not caring as much about the property and the tendency of landlords to be absentee and let property management companies handle their rentals, the general trend is toward a less desirable area, impacting home values except as investment properties.

This is not the only impact though. People who are working two jobs tend to be more tired and distracted on the road, causing more accidents. Overworked customer service people tend not to be as friendly, and workers who are moonlighting to make ends meet tend to be less conscientious about their day jobs, making mistakes.

The credit crisis and the cost of housing means people are working harder, getting paid less and are struggling and stressed. Whether you are struggling or not, this will impact your life.

Are There Solutions?

Pointing out an issue does no good unless there are real solutions available, and there are. Managing credit is difficult in the best of times, and in tougher times it becomes even more so. While collectively we cannot change the way individuals respond to their situations, we can help make those situations not as dire.

  • Housing: Communities need to consider the cost of housing when approving development projects, and ensure that there are options for both affordable and low income housing where workers want to and need to live. One of the largest contributors to the credit crisis is the cost of housing that often exceeds 50% of a household’s income, making it difficult for them to afford other necessities.
  • Medical Costs: The states which are most injured by this crisis are those who have not approved the Medicaid expansion offered by the Federal government,  as consequently they have many low-income families who are uninsured or underinsured. This results in more sick days for employees, poorer overall health, which results in increased costs for businesses and individuals alike. Even the lower middle class just above the poverty line often cannot afford the medical care they need.
  • Education: Property taxes often fund education, and if values are low in a certain area, the schools in that area get less funding. Education is a big contributor to both credit and income, and the value of an education should not be determined by zip code. In many states, the way education funding is distributed needs reform.
  • Wages: Raising the minimum wage to force employers to pay better is not always the solution, but we can “vote” for better wages with our spending. Only spend with companies who treat employees well, provide living wages and good benefits, and truly care for employee well-being.
  • Access to Credit: An individual’s credit score is often largely impacted by income and the amount of credit they are using. Providing reasonably affordable credit and regulating predatory lenders is essential. Higher interest rates on short-term personal loans are reasonable for lenders to assess, but rates in the 100% or greater realm are hurting families. Credit cards and personal loans that incentivize good credit behavior with lower rates are a much better credit solution.

We cannot legislate our way out of the current credit crisis. However, we can take steps to make things better and easier on those who are struggling. Those who are struggling can make the best of things by working with lenders, employers and educators to improve their situation. Voting is another key. Unless people speak out, the current credit crisis will continue, and until it starts to impact them directly, businesses are unlikely to do much about it.