It's the ultimate credit card infographic over at Foreign Policy magazine. South Korea's surge of credit card debt is intriguing, I'd like to know more about what the deal is with that.
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Credit Cards
29 Feb 2008 11:12 am
Comments (13)
You don't know anything about south korean women. If you did, it would all make sense.
Hetler's right, but it's not just women. A Korean man will buy a car that he has no place to park. Why? It gives him status, which is more important than usefulness. The Koreans have taken American- style consumerism to a level we've never really seen. And they can do all their banking on their cell phone with immediate money transfers. Combine hyperconsumerism with the most efficient money transfer system in the world, and debt is the inevitable result.
I always wonder with these kinds of reports: how much of that credit card "debt" is merely current balances which get paid off in full every month, and how much is balances which are carried over? In other words, how much is merely using the card for convenience, and how much is actual debt that is being piled up?
Makes a world of difference in what the numbers actually imply.
"the most efficient money transfer system in the world"
Okay, that's not quite right. Japan's system is a little more efficient. You can buy a can a Coke from a vending machine in Japan by holding your cell phone next to it. The machine reads your cell phone and automatically deducts the money from your bank account. Korea isn't quite there yet, but will be in a few years. The US will be there in maybe 20 years. I'm guessing Thailand will be at that level before us.
the story w/south korea is more or less how ronald mann describes it -- there was an institutional shift in the credit card market, mostly spurred by a government wanting to boost consumption (there is a one-term limit for presidents). combined with loose underwriting in the aftermath of the 1997 financial crisis, lots of people obtained lots of credit cards to finance consumption. also, even in the 1990's, south korea was a cash-based economy (people used to and still buy million-dollar homes with cash) so the rise is measured from a low starting value. some of the rise in the use of credit cards reflects transactional use, some finances "typical" consumption, and some finances "profligate" consumption. needless to say, bankruptcy filings surged in the early 2000s, which was a mechanical by-product of having too much debt and not enough income.
The stat I really wanted was not there (but temptingly close - which is even worse).
Historical debt vs GDP for many countries, and up to the present. It only had US and Korea, and stopped in 2002.
Waaah!
Makes a world of difference in what the numbers actually imply.
Right. I graduated law school with about $5K in credit card debt, meaning it was stuff I'd bought a while ago and was still paying off. When I got a real job, I made a decision to stop using that card, using my debit card instead. I slowly and methodically paid off the debt (about $200/month, with a couple of extra large payments thrown in there).
Shortly thereafter, I got a credit card that earns miles. I use it for almost everything, but the difference is that I pay off the entire thing every month. I haven't paid a finance charge in years. Sometimes that's over $6K because I work for a small consulting firm and I don't have a corporate card, so all of my business expenses are on my credit card. That $6K looks bigger, but represents something FAR different than the $5K I had on my card coming out of law school.
The other thing about the ROK is the largest bill is equivilent to about 10 dollars (my understanding is this was done to make bribing peopel difficult) and checks on not used (other than these weird 100 dollar cashier check type of things) so as mentioned previously cash is used for many large transactions. Credit cards obviously make more sense.
Five cards per person in the US? Good gog, I didn't know that.
OT, another crazy stat that schooled me the other day was this article about the US prison population ... actually, I'd be interested in hearing commentary about that from MY.
Relative unfamiliarity with credit
Part of the explanation may be that the culture that Koreans are coming out of did not favor credit. When I lived there 20 years ago, home mortgages were a novel concept that had to be explained and sold to people. The traditional concept of home ownership was to save up for thirty years to be able to buy a house outright, rather than get a bank to loan you money upfront, and then pay them for the house over the next thirty years. Our culture didn't favor personal credit either, but capitalism has just had more time to change our traditional beliefs than it has had in Korea. They'll probably overshoot as they catch up with us, or come down to our level, however you view the change away from the traditional aversion to credit that both cultures used to maintain.
There was a really good article in the SF Chronicle about sex slavery and how credit card debt contributes to it in South Korea a couple of years ago.
And it's...here. The rest of the series is pretty good, too. Anyway, the upshot is that credit card companies there use the same predatory crap they do here, but there (if memory serves) they can go after the parents' house. Add to that the problem that the only jobs South Korean girls can get are either in the sex trade or (seriously) golf caddying, and you get a big, big problem.
Shortly thereafter, I got a credit card that earns miles. I use it for almost everything, but the difference is that I pay off the entire thing every month. I haven't paid a finance charge in years.
While this strategy is obviously sound from the overall perspective of financial management, it's actually not necessarily that wise from the perspective of creditworthiness (unless you have such a large line of credit that paying "almost everything" on said card still leaves you with a small balance relative to your credit limit). The credit bureaus use "utilization rate" as a key metric, and avoiding interest payments by paying off the balance mostly doesn't help you (because you're still "utilizing" a big chunk of your credit line on a regular basis). You're better off having a few additional credit cards and using them to make a few small purchases from time to time. This will reduce your utilization rate, and boost your credit score.
Comments closed March 14, 2008.
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Heads in the Sand
Kimchee on credit.
Posted by Petey | February 29, 2008 11:17 AM