What Bills Do You Pay?
I
INVARIABLY, inexorably, the second of January arrives, bringing with it the usual delayed Christmas cards and the usual stack of bills for all those beautiful, necessary, extravagant, vital things you bought in December — underwear, eggs, toys, furs, groceries, porcelain, doctor’s house visit, coal, poultry, club dues, milk, millinery, and the gold inlay for Junior’s tooth.
What do you do? Sit right down and write checks for them all? Or do you add the disconcerting totals, flush, and find you’ve gone and slipped over the limit again? If so, what bills do you pay first?
Does it go something like this? ‘H’m-m, that underwear was mostly gifts, and I’ve got to get some for myself next month — I’d better pay it now. Eggs and milk and groceries — we use them every month, so they’ve got to be paid. Poultry — well, we’ll be eating corned beef now the holidays are over; I’ll let that slide until February. Porcelain? Oh, the department store is rich — it can wait. If I send the furrier a small check, that ought to hold him a while. The coal — there’s no escape; that’s a must. Besides, there’s that five per cent discount I might as well get. Club bill, of course! We don’t want our names posted for everyone to see. H’m-m, where can I pare down? Ah, the dentist! We shan’t be going to him for another six months. He can wait! So can the doctor. Besides, fifteen dollars for a house visit! It’s outrageous; he wasn’t in the house a half hour. There, that’s all. . . . Oh no, here’s that plagued millinery bill. I have to pay it. I simply have to if I’m going to get a new hat for the wedding next month. . . .’
If that is a cross section of your first-of-the-month mental processes, you aren’t the only one in town. Exactly half the families you know are going through this same delicate juggling act. Nine out of ten of them do as you do — pay bills that friends might hear about; pay the local grocer because he’s a little man and you’re sorry for him, and let the department store in town wait because that’s a big company and you’re not sorry for it; pay creditors whose merchandise is wanted soon again, ease others into next month’s hope chest, and let physicians and dentists go until the last.
Not only in your town is this happening every month, but all over the United States, especially in big cities, especially in country-club suburbs. Only 50 per cent of charge-account customers settle all their bills within a thirty-day period, according to the National Credit Bureaus of America. The remaining 50 per cent let their bills drag on sixty days, ninety days, and even one hundred and twenty days. A few wealthy eccentrics here and there elect to pay their bills only twice a year.
Weather affects our paying habits, geography still more so, and nationality the most of all. And, no matter who we are or where, we are apt to pay the first two or three bills that come in and stuff the others in a drawer. That’s why so many stores close their books on the twenty-seventh of the month. They want their bill in your mailbox early on the morning of the first.
If we are Swedish, say, or Norwegian, and we live up around the Great Lakes, around Minneapolis or St. Paul, we pay on the button. We are almost fanatical about paying a bill the day it is presented. Credit managers in this area know a bill mailed on the thirty-first will materialize into a payment-in-full check on the second. If we are Chinese, English, or Scotch, we are just as meticulous. If we are Jewish, we may argue and postpone and ask for reductions. If we are Italian, we arc the slowest and most uncertain to pay of all.
In northern climates, straight across the country, check writing is not regarded as a chore. As we go south it seems to become an exertion: the farther south, the greater the exertion. In Texas, Alabama, Kentucky, Virginia, or the Carolinas our checks are just as good eventually as northern checks are. But eventually means three months, or four months, afterwards, and a ‘By God, suh, how dare you remind me of that bill!’
We pay bills enthusiastically in October, November, and December, department-store records show. We shudder, but are gallant, during January and February. Once March gets settled, though, and spring steals our minds, we slide. We slide in April, slide a little more in May, until it’s a regular toboggan in June. As for July, August, and September, they are the teeth-gritting months for stores.
No one seems to know what there is in a frosty October wind plucking leaves from trees that effects the change, but something in the melancholy spectacle makes us rush to pay our bills. Perhaps it is the touch of t he squirrel in all of us, for as we pay we also buy more and more and more of a winter hoard, and thus begin another credit cycle all over again.
Did you ever wonder why all the big fur sales are held in August? It isn’t chance. It isn’t even a heroic effort to drag customers in during the big slack. It is an adroit manœuvre to make our two enthusiasms coincide — the enthusiasm of daily possession with the seasonal enthusiasm for paying bills. We wear the furs, get the bill, take another glance in the mirror, and write the furrier a check.
The same furs purchased in January have psychological odds dead against prompt, or even full, payment. First of all, they face bill-cluttered months full of Christmas carry-overs, state and federal income taxes. After that they face spring — teasing, tugging spring that, can make a mink coat into a rag. Anyway, it’s mothball day, and away goes the coat into storage. Also, away go our thoughts and money for spring clothes.
Do credit managers pace and moan over those uneven collections? No, not these days. They sit quietly and quote to the last decimal, while they show you on vast charts just what it costs the store to ‘loan’ you money during these seasonal enthusiasms of yours. It is another cost like advertising, taxes, wide aisles, and uniformed doormen. And, along with the others, it goes into the mark-up.
If you and the other charge customers are the kind who pay promptly, and an equal proportion pay cash, the chances are this ‘credit loan’ mark-up is about 3 per cent. But if, for instance, the shop is a swank specialty one where 86 per cent of its customers purchase on credit running as long as six months, then the mark-up swoops accordingly. In other words, you don’t get credit for nothing. It costs money, Remember the 5 per cent discount you dont get from the coalman if you take your time about paying?
As for the doctor, he also includes the high cost of waiting in his mark-up. Part of his fifteen dollars for a house visit is to take care of those four, five, or six months of delayed payment. It must, or he’d be at the bank arranging for a loan to tide him over his grocery bills until you or your neighbors get around to paying him.
Incidentally, department stores are very chary of the amount of credit they extend to physicians and dentists, not because doctors lack the will to pay, but because their patients do. Many doctors feel they are lucky if they can collect 75 per cent of the bills they send out. No department store could operate on such a loss.
Credit men arc quick to say it is largely a doctor’s own fault that his collections are so poor. They say he is a careless business man and seldom investigates anything about a patient’s credit rating. Nor does he pool his credit knowledge and experience with other doctors in any sort of medical clearing bureau.
Doctors say, ‘Unethical,’ and credit men say, ‘Common sense, and the surest bulwark against socialized medicine! . . . Set a patient’s arm,’the credit men continue, ‘give him sulfanilamide for pneumonia, and handle any other emergencies as they occur, but don’t start long and expensive treatments until prices are discussed, payment dates arranged and agreed upon.’
The pros and cons fly, but meanwhile doctors admit that they are caught in a nasty crossruff — no payments, and no sympathy
II
Charge accounts have become one of the most comfortable conditions of present-day living. Instead of using money now, we pass out our word of honor to pay. We buy radios, pearls, porch furniture, station wagons, fur coats, and even vacations upon our word of honor. In fact, our whole economic setup right now is based upon this single theme — man’s trust in other men, belief in the fundamental honesty of the other fellow to the extent of giving, in 1939, some eight billion dollars’ worth of chargeaccount credit. This works out at slightly more than twenty times the retail trust given and received in 1920.
Twenty years ago a credit man’s trust was a gimlet-eyed affair. It scrutinized bank balances for substantial totals and looked for a listing in either the Social Register or Dun and Bradstreet before it considered you trustworthy. Today a listing in the telephone book and some sort of job, even if it pays only twentyfive dollars a week, is often enough to establish a charge account. And paying each monthly bill in full within thirty days for a year is quite enough to establish A 1 credit rating.
Consequently the desire and demand for credit have blossomed and expanded these past few years far beyond any economist’s predictions. Certainly beyond what he considers sound.
Last year, these economists point out, one third of all retail sales in the country were charged. That’s a powerful total to write against trust. The figure this year will be higher, they say, for installment sales alone for January 1940 show a 40 per cent increase over similar sales in January of the preceding year.
The economists quite frankly shake their heads over this. Credit, they say, has become too easy for safety. They talk, a little bleakly, of ‘erosion of the consumer’ and about ‘wasting consumer assets.’
‘What, a new hat a waste of assets!’ you scoff—and, like an average consumer, go right downtown and ask to open a charge account.
When you do this, three questioning C’s line up in the credit manager’s mind — your character, capacity, and capital. Their importance to him is exactly in the order named.
If you happen to have all three, you are a dream come true: you can take your pick of charge accounts. You’ll even have stores writing and asking you to open one with them.
Otherwise the present-day credit manager is primarily concerned with character. Don’t confuse this with personality. The credit manager long ago learned not to. One astute New Yorker, who has been sitting behind a credit desk for years, says the deadbeats who come to him invariably have delightful and charming personalities, the most delightful and charming. So the credit manager doesn’t care how gracefully you turn a phrase or how eagerly you listen to him. Your character, as he considers it, is actually your will to pay. He has his own instinctive formula for judging that. But your past record in paying either adds into or subtracts from the equation.
Capacity is your ability to pay from income — the margin you have to spend over and above living expenses. On a salary of $35 a week your capacity is somewhat strained. On $100 a week it expands. But of course, unless it is accompanied by character, you are considered a poor credit risk even with an income of $500 a week. In fact, you’d find yourself paying cash.
Many men on such an income do, especially in New York City. A smart dress shop there thinks nothing of refusing to give an executive’s wife credit, but will open an account for a $25-aweek stenographer working in his office, simply on her character. They know, naturally, that the stenographer will spend only a tenth of what the executive’s wife will spend; but in one case there’s a will to pay, and in the other the will is weak.
But suppose your character is all that it should be. Then your capacity determines the amount of credit you receive in a particular store. It also decides how many other charge accounts you can open in your town and the neighboring towns.
Two accounts are a safe average, credit men say, for the $25 or $35 salary. On each of these accounts you would be allowed to charge up to $50. The $100a-week salary rates five, six, and even seven accounts. The charge limit here is probably $100 a month in each store. On a $10,000-a-year salary there is no ceiling on the amount of your charges or number of accounts.
Not that the credit manager ever tells you your dollar limit in so many words — that is, not unless you bump into it headfirst by rash overcharging. He merely sets this limit, and marks it on your card as a guide to his clerks, as his own private signal of danger. He has arrived at the figure after studying the source of your income and the number of your obligations, all of which come out and are checked by credit investigators when you open your first account.
It’s all down from then on — your income, your way of living, the maids you employ, the private schools your children attend, all are itemized in your file in the local branch of the national organization of 1354 credit bureaus, and are available to some 180,000 members of this organization.
The chances are that you won’t crowd your limit the first month you use your account, nor the second, nor the third. And you are careful to pay your bills promptly within thirty days. Thus you establish yourself, for the time being, as a good account.
What happens, then, if you suddenly lose your heart to a negligee, an evening wrap, and a street dress all in the same month, and all of them well over and above your regular monthly purchases? You’d probably get them and no questions asked. The credit manager is human and understands the gusts of temptation. But a little warning signal would go up on your card in the credit office, and your payment the following month would be watched. Partial payment would get you by as long as you held down on new charges.
If, however, you paid promptly in full, you could even come in and double the extra total the following month. And still nothing would be said. But a second danger signal would go up on your card. There would undoubtedly be a quick telephone call, before delivery, to the office of the local branch of the retail credit association to ask the position of your charges at other stores. Provided there were no alarming symptoms there and your payment was still regular, you could go on exceeding your limit in this store indefinitely.
But suppose that first large overcharge wasn’t met the following month. Suppose you came in and saw another negligee, still another frock, and a halfdozen accessories you simply had to have, and started buying them. The charges wouldn’t be refused, exactly. You’d just be asked to step up to the credit office.
There the credit manager would lean back, bounce his fingers against each other lightly, and ask you to tell him how you plan to handle the payments. If, for instance, you tell him you’ve inherited money, expect a bonus, or have sold some property, you’d have his instant congratulations. But still, you’d give him a check for last month’s bill right then and there if you wanted the new purchases delivered the following day. He has heard about inheritances before; half the people who can’t pay, or won’t, try to dazzle him with their expectations.
If, however, the negligee, the frock, and the accessories were just overpowering temptations and you hoped, in some way or other, to manage to pay for them out of the same normal monthly income, that would be a different story. Your purchases would be refused. Tactfully, but candidly, the credit manager would save you from your own foolishness.
He does it every day. He reasons, advises, and reminds. He suggests: ‘Well, now, you bought a street dress and a suit and an afternoon frock last month and the month before. Why don’t you wait until spring and get your next street outfit then?’ He telephones a husband and says: ‘Your wife is in the store and has just bought five negligees. Shall we just not deliver four of them?’ He telephones a mother and tells her: ‘Your daughter is here. Do you want her to buy three evening dresses today?’
This is not fake paternalism. It is the new creed of prevention which all competent and reputable credit men practise today. They want your business, but they want it to be sound. They don’t want you to get in a jam; you cease to be a customer when you do. So they act as financial nurses, watching you always with a trained eye for any alarming symptoms, in order to apply treatment quickly before the case becomes severe.
III
There is no better example of this preventive care than the sound job credit men are performing in hospitals these days. They know you resent being ill, that you don’t want to afford it once you’re better again, that you haven’t budgeted for the emergency, and that you feel you are being overcharged anyway. So they take pains to fit your bill to your income.
You can’t run up an unpredictable bill any more. You can’t say, the day you are leaving the hospital, ‘But I didn’t dream it would cost so much! Why was I put in such an expensive room? Why did I have so many X-rays? Why this item? Why that one?’
The credit man talks it all over before you enter, with you if you are not too ill, or with close relatives. He outlines and details the various types of service you may have in a ward, in four-bed and two-bed rooms, in a private room, and in a de luxe suite. He quotes prices that run from three to seventy-five dollars a day. You select the one you can afford. You take your choice between ordinary nurses and a special. You are even told the approximate number of X-rays and extra treatments you will need, and their price. And you give him a check for one or two weeks’ stay before you cross the threshold.
Naturally, if yours is an emergency case, no reputable hospital is going to tell the surgeon to keep his scalpel poised until your credit record is checked. Treatment is immediate and thorough: you are even put into a private room if that is what you seem to want. Next day, perhaps, rates are discussed. If the cost of a private room is going to fret and worry you, the credit man will suggest your moving to less expensive accommodations. Your nursing, medical treatment, and food all remain the same, though, no matter what room you occupy. And there you have the real reason why hospital maintenance runs so high.
The credit man doesn’t always explain this, although he should — that it costs the modern, well-equipped city hospital exactly seven dollars a day to care for you. In other words, if you pay anything less than seven dollars a day you are receiving that proportion of your treatment at the hospital’s expense. When you pay eight and ten dollars a day you are balancing the precarious scales and contributing medical aid to those who can’t afford it.
The hospital credit man’s day is crowded with people asking for reductions, for extensions, and even for rebates after a relative has died. Curiously enough, few patients try to misrepresent themselves and take expensive rooms when they can’t afford it. The opposite is the rule — asking for ward treatment when they are able to afford semi-private or private accommodations. Many women misrepresent their husband’s salary, making it less, or deny owning an automobile even when it is parked at the curb. One big New York hospital found that a man in one of its wards had something like $175,000 in bank deposits and stocks. He had entered on a four-dollara-day ward plan and later begged for a two-dollar rate. He was furious when he was moved into a private room and his ward bed was given to a young clerk with a slim pocketbook.
One Italian girl came back to this hospital, where her father had died, and explained that she couldn’t pay the $300 still due on the bill because she had spent all her father’s insurance money on a big funeral for him. While the credit man was gulping over this sequel, the young woman hurried on to ask him for a $250 rebate on the portion that had already been paid, so that she could buy a tombstone — not only asked, but demanded the money with tears and screams. She didn’t get it, but neither did the credit man get the $300 still due the hospital.
It took millions of dollars of unpaid hospital bills to teach credit men that the longer they let their bills extend after the patient’s discharge, the less chance there was of collection. Now they take advantage of the psychological factor of gratitude for recovery while it is still fresh, and find that collections have tremendously improved.
The thing that has brought many a hospital out of the red these past few years has been the credit man’s system of selling hospitalization as openly as a merchant sells a coat or a dress. You pick it out, not blindly, but after looking it over and thinking about it. Also, you get good, practical advice as you make the selection, because the credit man, unlike a salesman, is wholly concerned with selling you what you can afford.
Don’t expect all credit men to do your thinking for you, though. Many won’t, especially those in installment houses. With few exceptions, this type deals in the present, in today, and in today’s order in the hand. Your future orders and good will are just a couple of intangibles out in the bush. ‘Never mind what brand of agony you go through paying, or borrowing to pay,’ they shrug, ‘we have your name on the dotted line. Either pay or we repossess.’
The classic example of this type of credit is the case which came to light recently just outside New York City. An installment piano house sold an $800 instrument to a man employed as a furnace fireman in an apartment house at $80 a month. Because he had five young children and a wife, the local relief bureau was allowing him an extra $6.00 a month to buy milk.
No one knows yet how the fireman ever planned in his own mind to make the payments. Probably he was emotionally involved because his eldest girl had musical talent, and, evidently, he was better with a shovel than with figures. However, the piano credit man knew how to add, yet he let the contract be signed, and it was he who authorized repossession two months later when payments weren’t met. Having received two payments, and having repossessed the piano, this credit man went right on hounding the fireman for interest money due on his contract until authorities heard about the case and stopped it abruptly.
IV
It is a mistake to believe that store collections are varied according to the financial rating of customers — that small-fry accounts are harried to allow the very, very rich infinite latitude. Only in the case of a handful of old accounts of long standing are customers of big stores allowed to pay only twice a year.
The surprising thing, credit managers say, is that the very rich pay their bills more promptly these days than those with moderate incomes. Instead of being vague, unbusinesslike, with a prima donna’s temper, like the petted darling of a wealthy husband in the ‘90s, today’s petted darling sends her bills en masse to her husband’s office and lets his secretary write the checks the first of each month.
However, collection procedure on overdue accounts is the same with all customers. The letters are form letters, written usually on a mechanical typewriter, employing the same words to tell Mrs. $25 or Mrs. $2500 that her account is overdue.
The credit manager in one of New York’s exclusive dress shops explains his system: ‘We never vary between a tycoon’s wife and a stenographer once an account is overdue. It is the same right through the alphabet. After no payment for three months, we start our form letters. The first collection letter is a mild reminder. If, after a month, this brings no response, we send a second letter asking settlement. A few weeks later a third and stronger letter goes out. By this time nearly six months have gone by, and if there is no response or explanation of any kind we turn the account over to a collection agency.’
Why doesn’t he start his reminder letters the second month? He knows that customers would buy elsewhere. His store wants the business, even if it has to wait for its money.
There seems to be no rule about paying a fashionable dressmaker. She makes her own rules, and most of these by instinct, to fit individual cases. One chic designer in New York City is known to have a safe full of customers’ jewels as security against overdue bills. Another one calls her customers ‘January and June accounts,’ meaning that they pay when their dividends come in. A Philadelphia dress shop says many of its ‘main-line’ customers regularly pay one hundred dollars every month, are never caught up, and never stop buying.
The people who run out on their bills are amazingly few. Bad-debt losses, according to the Retail Survey made by the Department of Commerce, amount to only 41/100 of one per cent a year. Expressed thus, the loss sounds infinitesimal. Yet translate that 41/100 of one per cent into dollars, and it becomes an overwhelming amount of money, something like $32,000,000 lost annually to deadbeats and cheats.
Individual merchants do not complain, however, for when the losses are broken down it means that a department-store owner, for instance, takes a bad-debt loss amounting to around 28 cents on every $100 worth of business his store does in a year. Furniture losses run somewhat higher, around $1.06 on the same unit of business. By far the most calamitous are jewelry charge accounts. Not only are the payments exceedingly slow, but bad-debt losses soar to $4.43 on $100, which, of course, does not help the price of diamonds any.
Between the deadbeats and the people who pay, even though it be slowly, there is another group which manages to produce most of the credit headaches. They are the honest, but optimistic, people who overextend themselves, who run into an emergency such as sickness, a death in the family, or losing a job, and who simply cannot pay despite the best will in the world. These aren’t necessarily people in low income brackets. They are army officers, college professors, lawyers, teachers — but always married, always with a family. Single persons, credit men say, rarely get in financial jams.
In other days these people were hounded by heavy-handed collection agents who thought nothing of walking pickets on the pavement before the delinquent’s house wearing such signs as ‘We Get Blood from a Turnip’ or of backing a placarded hearse up in front of the house and parking it there. Judgments and garnisheeing salary were the next steps. It was not unusual to hear of good honest men committing suicide rather than face such music.
The picture is quite different today. A man up to his eyebrows in foolish debt is rescued from phrase-slinging collection agents, from mortification and ruin. He can take his troubles to his local credit bureau and become a part of a new debt-pooling system whereby he liquidates his top-heavy debts in peace and without legal judgments.
One of the new-school credit men in New York City, A. J. Worsdell, Jr., who is in charge of the Adjustment Bureau of the Associated Retail Credit Men, started this pooling plan several years ago. He persuaded creditors to pool their debts with him and let him do the collecting from one debtor. He then worked out with the debtor a set sum of monthly payments — five, ten, or twenty dollars, or whatever could safely be spared from bare living expenses, so as not to drive the man farther into debt. As this money came in, Worsdell divided it, proportionately, among the creditors.
The process was slow, and long-drawnout, but it got the bills paid and saved the debtor’s reason, which was the reverse of what happened when half-adozen creditors harassed him simultaneously. So effective has this pooling system become that credit bureaus all over the country are now using it.
It is also the basis of the Wage Earners’ Amortization Amendment of the new Chandler Act. This permits the wage earner (defined in this instance as an individual who works for a salary of less than $3600 yearly) to arrange to amortize his personal bills over a period of time. In one Tennessee district where it was tried, 814 out of a group of 2600 debtors paid back personal debts amounting to $343,000.
Worsdell’s office is flooded with letters from people all over the country who want him to straighten out their debts. A university professor from Pennsylvania, receiving a salary of $8000 a year, says that his doctor and grocery bills, bank loans, house mortgage, insurance, and clothes bills have accumulated to the point where he is paying $400 a month on them, and is faced with the necessity of borrowing from loan companies to cover living expenses. A navy officer’s wife writes from California that out of a salary of $395 a month her family of four has only $112 a month for living expenses, The remainder goes to pay back nine loan companies from whom she and her husband have borrowed, successively, to liquidate previous loans.
These are only two of many similar cases. Behind all of them is a big why hammering. Why are we steadily pledging our future income for our present needs ? Why are we always behind ? Why do grocery stores have to give 54 per cent of their customers open credit if they want their business? Why are innumerable loan companies and credit unions flourishing on the business of lending us money to pay other debts? Why is there such a hairline between solvency and insolvency?
Sociologists tell us there are two reasons.
One set calls this the Debtor Era — the era when it is fashionable to be in debt. Twenty years ago it was thriftless, un-American, disgraceful, in fact, to borrow money for consumer goods. Today it has become a commonplace practical necessity of everyday life. It lets the family keep up with those irritating Joneses.
These same sociologists say that as long as the government spends twice its income individuals feel that they can do the same. There is no assurance now as there was a decade ago, they point out, that savings from denials, insurance, bonds, will bring returns tomorrow in dollars of similar buying power. Feeling this vaguely, families are inclined to buy tangible things — vacuum cleaners, Oriental rugs, motorcars, air conditioning — up to the hilt of their income, and even on the installment plan.
Also, the government program of social insurance counteracts some of the hazards of accidents, widowhood, and sickness in old age. People expect to be taken care of, so those who are none too provident eat, drink, and pile up pleasant memories for the future.
The other set of sociologists say that the American family has been plunged too precipitously into a cash economy system. Two generations have seen the passing of the household garden, orchard, chicken coop, and hogpen as subsidiaries to the family’s income. Even the woodshed has gone. Partial family subsistence on these brought a stabilizing influence on expenses.
Now, living is based on wages and cash income. Even the farmer buys his building material for cash instead of taking it from his land. His carpenter’s wages are cash instead of exchange of labor.
Most families simply haven’t adjusted themselves yet (as industry is trying to) to the inevitability of rise and fall of business cycles and to the necessity of providing against this fluctuation. There is some question whether they ever will. A large proportion of the population, having become thoroughly inured to debt during the past few years, have found that it isn’t as bad as they thought.
To keep consumer credit within safe bounds there is considerable talk now of establishing a central credit institution in each community. Its function would be more specific than the present creditrating bureau. Every debt would clear through it in the local community — grocery, coal, and dress accounts, bank and motorcar loans, everything.
Each case would be an individual one considered against time and place, and would be based upon income and future expectations. A man wouldn’t, or couldn’t, borrow through eight or nine sources and disastrously overextend himself. At least 25,000,000 families in the United States, credit men agree, would be better off if they had such impersonal advisory service about spending.
There is a growing conviction among educators that social mathematics and a study of consumer credit deserve a place in the curriculum of all schools to teach the young of the country the uses of credit, and so enable them to establish their own sound purchasing limit.