Transaction Interaction
Day 14. Payment processing our consumption 💳
How do you transact life?
Not the get up early to smell the coffee choice.
Not the get up late and rush to Chick-fil-A for a biscuit before service turns to lunch choice.
The how do you pay choice.
In the U.S., the monthly average for a household is 46 payment transactions.1
Credit card and debit card swipes dominate as a financial transaction choice. This finding is consistent across age groups, but income ranges show a different result.
Payment Choice and Household Income
Lower-income groups rely more on cash and less on credit cards than upper-income groups. Some may see this as good news: a household can manage the risk of a credit card’s high monthly rates by avoiding usage. That is true. But, it could be those in lower income groups who have a card and a recurring balance are feeding the man with high interest charges, limiting consumption and new transactions.
How About Debt?
Nearly 78% of U.S. households hold debt. The mid-70s range has been typical. About 73% of households held debt in 1989. Debt is not inherently good or bad. It is a judgment free zone to manage effectively.
Most U.S. households have debt from home ownership, education loans, and vehicle loans, and credit card debt is relatively minor.
From the table below, the median values of held debt in 2022:2
Mortgage debt - $155.6K
Education debt - $24.5k
Vehicle loans - $15.4k
Credit card balances - $2.7k
Other closed-end credit loans - $2.3k
Debt to buy a home. 🏠 Check.
Debt to build human capital. 🎓 Check.
Debt for transportation services. 🚙 Check.
Where do you fit? Outliers get all the attention in the personal finance press and among academic researchers who worry about bad financial behaviors.
The High-Debt Outlier and Managing the After-purchase
“I am underwater with my credit cards.”
It happens. There is always time to turn it around.
How should debt of any kind be managed?
Pay down debt when APR exceeds the after-tax return on savings and investments.
Slow down paying on debt when the after-tax return on savings and investments is clearly higher.
Credit cards are a special case because the annual percentage rates can be so high that using a credit card to purchase goods and services should be done carefully. Optimize credit card rewards and always pay off the card in full each month. Then, you win!
“Managing the Transactions of Life, part 1” class notes follow…