Your data has found quite the opposite to be true -- that many people with high credit card debt are spending it on what you term the "must-haves."
Yes. The No. 1 reason people get in trouble financially is they lose their job. The No. 2 reason is they have a health problem. So many of the people who are in the worst trouble with credit cards got there because they were charging medical care or groceries or the kids' child care. I don't mean to suggest that nobody has bought a 50-inch plasma TV they shouldn't have bought, but it's not the primary explanation for financial trouble.
That same misconception also exists when it comes to the subprime mortgage mess.
It's important to remember that the vast majority of subprime loans went to people who already were homeowners; they were refinancing and cash-outs rather than helping first-time homebuyers into new homes. There is a great deal of evidence that millions of people were steered into mortgages at far worse rates than they otherwise could have gotten or tricked into products with deliberately confusing terms. I think that's inexcusable. We would not allow that in other kinds of products. For instance, you could not buy that $2,000 television and get home and get a bill for $4,000. Or you open it up and, oops, it's not a television, it's a washing machine. We have consumer protections in place on every other kind of product to prevent against that sort of thing. We have greater safeguards in place for a tube of lipstick than we do for a credit card.
The trick is to use credit wisely.
Look, nobody can deny that credit cards are a great convenience. And if you're in the 40 percent of Americans who pay it off every month religiously and don't pay any fees or extras, then you're probably using it just right if it's not a problem. But if you're in the other 60 percent, I think you need to try to live your life with as little use of credit cards as possible. Think of it like this: If you're trying to get control of your money and you're walking around with debt, why walk around with a credit card in your wallet all the time? It's the same thing as if you're trying to lose weight: Why walk around with a candy bar in your pocket? You don't need it.
You've prescribed a magic formula for financial success: Put no more than 50 percent of your income toward must-haves like mortgage, rent, automobile and health insurance, 30 percent toward wants and 20 percent into saving for the future. Why can't most Americans accomplish that?
I think a lot of people have structured their lives so they're spending too much on the must-haves and they need to re-evaluate. And that's hard.
You're saying they need to downsize?
Yep. They have too big a house, too big a car payment, and they need to be realistic about that. Sometimes, with time, you'll grow into it; you get the car paid down and then you just hold onto it. But if 75 percent of your paycheck is pre-committed to your basic monthly expenses, you don't have all that much wiggle room to eat or go have a good time on a Friday night, which I think everybody ought to have a little room to do, or to be saving for your future, which everybody needs to do.