The Culture of Debt

[Pangloss]

New York Times columnist David Brooks ran a great column yesterday about the debt situation in this country. He talks about the left and the right blaming each other over it, with the right screaming that it's about accountability, and the left screaming about compassion.

 

Then he talks about a "third position".

 

This third position begins with the notion that people are driven by the desire to earn the respect of their fellows. Individuals don’t build their lives from scratch. They absorb the patterns and norms of the world around them.

 

Decision-making — whether it’s taking out a loan or deciding whom to marry — isn’t a coldly rational, self-conscious act. Instead, decision-making is a long chain of processes, most of which happen beneath the level of awareness. We absorb a way of perceiving the world from parents and neighbors. We mimic the behavior around us. Only at the end of the process is there self-conscious oversight.

 

His point is not that people aren't responsible for their actions, but that there is a larger concern here. We've created a society that has forgotten the significance of debt and the value of thrift. As he puts it, we're in a period of "mass luxury", and many institutions that used to warn people about the dangers of profligate spending no longer do so.

 

The government and moral institutions have begun to fight back, but it's an uphill battle, and the toughest and most important part of the job still has to be done by individuals.

 

I think it's a great point. It will sound like some to be making excuses for people's bad behavior, and to others like demanding accountability. But I think he's struck and in-between chord, and one that's right on target.

 

What do you all think?

 

http://www.nytimes.com/2008/07/22/opinion/22brooks.html?em&ex=1216872000&en=266d0c9c7fcffe27&ei=5087%0A

[iNow]

The term "mass luxury" seems an appropriate one. Most of the world openly shares their opinions about how us in the US have thin skins, a need for instant gratification, and we whine a lot over really trivial nonsense.

 

Now that we are actually facing some difficulty, more than the fluffy topical troubles of yesterday like choosing between Dom or Krystal, we will see ultimately how we work to regain the respect of the world (and, more to the point of the linked piece, each other).

 

I think, much like the article, that we do go for respect of others. My contention is that we've spent far too many years looking only at the respect of those within our own country. Now, we realize that we don't have that respect from the rest of the world, it pains us, and we need to go out and find it again.

 

Hopefully we can avoid some of the infighting between ideologies internal to the US while we do so.

 

I'm not sure if that adds anything to the conversation, but it was an interesting article. Thanks for sharing it.

[Royston]

What saddens me, is that Western society has created so-called 'norms' and there's overwhelming pressure on individuals to reach certain milestones of success, through fear of what their family, friends et.c think.

 

Personally, and I'm now in my 30's, I'm not married, I don't drive and I live in rented accommodation, and some people I know, use these attributes to judge whether I'm successful or not. I find it incredibly short sighted, but I certainly don't blame anyone, for using these markers to judge success. All these things, of course, cost a lot of money, and whilst there's this pressure on individuals to live up to these 'norms' then people will continue to spend, more so, that there's the addiction within society that drives people to want the better car, house, hdtv, et.c

Edited July 23, 2008 by Snail

[ParanoiA]

I love the article and I don't see it as making excuses for anybody, rather just an explanation of the phenomenon. I've long railed against the credit culture and have felt disadvantaged being the kind of consumer that resists credit almost vehemently. I feel like counter-culture since I don't believe in the autonomic notion that financing vehicles, housing, furniture and etc on credit is "normal". Credit is a huge exception, not an immediate option.

 

That's why I love the article. I don't think it's strong enough, but I like hearing someone else point out how silly and somewhat offensive our "shopping" addiction is and how the entire market has evolved seemingly into one big credit conspiracy.

 

Exactly how many cars, boats, entertainment systems, are bought by people who already have the money for it? I'll bet that's a tiny fraction. That's disgusting.

 

This is also what makes it hard to teach your children - or to influence your spouse - about sound monetary choices when virtually 99% of their environment is telling them the exact opposite. I hate that. I'm dealing with my teenager on this very subject. He throws his hands up because we won't finance more goodies on credit so he can have a new game system, a new car for his 16th birthday, etc. He's grown up around kids who's parents are credit whores for every gizmo that lights their loins.

 

I personally hate the credit culture. I can't stand how "saving money" is some archaic, out dated concept that old people had to do. I sometimes wonder just how much total money in the market is being thrown away to interest. How much money would we all still have if we didn't finance everything in our lives on credit?

 

Dave Ramsey certainly has promoted an anti-credit agenda. He's got some good stuff to say on the subject too. For anyone who hasn't heard of him, his big thing is getting people debt free. Then they have credit card cutting parties - or something goofy like that. It's a good thing, IMO. You can find him on Youtube I'm sure.

[Phi for All]

Michael Shermer, skeptic over at Scientific American, has written a book called The Mind of the Market. I read this article about some of his findings and they may have some relevance here.

 

It seems primates have a heightened sense of reciprocal altruism. We are very cognizant of "fairness". Logic tells us to be happy with what comes our way but this reciprocal altruism tells us it's not fair that some have more than we do. We rectify the situation with some well-documented knee-jerk responses, like buying something we don't need to give us the illusion of fairness.

 

The entire designer clothing industry is built on this principle; rich people can afford the clothing, but it's the middle class who make up the majority of the profits by purchasing the accessories. We can't afford to look like Armani, but we can afford to smell like him. This seems like a fair trade.

 

We have unfortunately become inured to the idea that equity, comfort and convenience are more important than financial freedom. We wail that we can't afford to go out more often while we sip on designer coffee that costs us weekly what a night at the movies costs.

 

There is also the celebrity factor. We see many nouveau-riche spending extravagantly and that becomes our idea of what rich people do. We dismiss the stories of how they wasted their money and fell on hard times later and instead remember how many cars they bought or hotel rooms they trashed.

 

And you're right about there being no one to tell us how bad debt is. Just the opposite, we hear every day about how easy it is to sidestep a lack of funds with credit. Couple that with all the advertising telling us how inadequate we are and it's not hard to see why we fall prey to debt and still think life is unfair.

[Pangloss]

All these things, of course, cost a lot of money, and whilst there's this pressure on individuals to live up to these 'norms' then people will continue to spend, more so, that there's the addiction within society that drives people to want the better car, house, hdtv, et.c

 

Ack! HDTV isn't a luxury, it's a necessity!! Heathen! Now, if you want to take beer away, that'd be okay.

 

 

Dave Ramsey certainly has promoted an anti-credit agenda. He's got some good stuff to say on the subject too. For anyone who hasn't heard of him, his big thing is getting people debt free. Then they have credit card cutting parties - or something goofy like that. It's a good thing, IMO. You can find him on Youtube I'm sure.

 

I'm glad you brought up Ramsey. The great irony there is that he's often been seen as a crackpot and a get-rich-quick schemer, but he's only talking about reducing your debt! Regardless of Ramsey's motivations or methods, I think that's an astounding reaction that says a great deal about the relative value we place on having certain items vs saving for the future.

 

http://en.wikipedia.org/wiki/Dave_ramsey#Criticism

[waitforufo]

Is there a major corporation today that doesn't have a credit card branch or affiliation? They all seem to make a significant portion of their revenue from credit cards. Then they have all those incentives to use their cards. Use your Costco Amex and get cash back and you can by their discount gasoline. Airlines give frequently flyer miles. And so on.

 

How many credit card offers do you get in the mail? I have young adult children at home or just recently moved out, and between my children, wife, and myself, I must get at least two every day.

 

Try to rent a car or stay at a hotel without a credit card.

 

I'm in my late forties. I recall my parents sitting at the kitchen table debating if a purchase should be made on credit. Regardless of the necessity, I always got the impression that my parents felt that credit purchases were a moral failing. Good people didn't buy things on credit. This extended to their mortgage. I got the impression they felt like slaves to the bank.

 

My parents kept there credit cards locked up at home for emergencies use only. My mom wrote checks. My dad always used cash.

 

I do often use plastic, but I pay the bill in full at the end of every month.

[Lance]

I was getting credit card offers before I was even 18...

[ParanoiA]

I was getting credit card offers before I was even 18...

 

Well, really what's so silly about that? You can work at age 16, so in terms of business, why not offer you a card before you're 18?

 

I guess what always kicks me in the crotch is when I think how long I held out and didn't submit to credit card lust. I finally gave in at 34 years old. I haven't drowned myself in it or anything, but it certainly feels stupid to carry a balance on those. I have re-resolved to giving them up and haven't swiped one in over a year.

 

So, you think you can reject this legerdemain money trap? For your sake, I hope so.

 

Of course, the kicker then is that your credit score isn't as good. Yeah really. Responsible money management is not what they're looking for. Responsible DEBT management is what they're looking for. I think that sucks.

[Lance]

Well, really what's so silly about that? You can work at age 16, so in terms of business, why not offer you a card before you're 18?

 

Because in the US it's illegal.

[iNow]

I guess what always kicks me in the crotch is when I think how long I held out and didn't submit to credit card lust. I finally gave in at 34 years old. I haven't drowned myself in it or anything, but it certainly feels stupid to carry a balance on those. I have re-resolved to giving them up and haven't swiped one in over a year.

 

So, you think you can reject this legerdemain money trap? For your sake, I hope so.

They're a good back-up option, though. Just this week, my dog got really sick and needed surgery. I didn't have enough money in my account to pay for it outright, so charged it. Now, I have a dog that's healthy and no longer sick, and can pay for his treatment over the next few months.

 

If I'd had the money, I'd have used cash. But, I didn't, and was able to get him the care he needed because I had the credit option available to me. As long as it's not abused, it's quite a helpful system to have. Now... if only more people realized it should be the exception and not the rule, we'd be all set.

[ParanoiA]

Because in the US it's illegal.

 

Well, I'll be... I didn't know that. I figured if you could work a job, why not receive credit?

 

They're a good back-up option, though. Just this week, my dog got really sick and needed surgery. I didn't have enough money in my account to pay for it outright, so charged it. Now, I have a dog that's healthy and no longer sick, and can pay for his treatment over the next few months.

 

Yeah, I've always appreciated that point. However, I've had several militant financial gurus berate me about it, claiming that I should have money in savings just for emergencies; that it's part of good money management.

 

I can see their point, but emergency costs are a variable surprise. Ultimately, I think you're right.

[Sisyphus]

I have credit cards as an emergency backup (though I've never had to use them that way), and as an easy way to build credit rating, so that I can get a good, safe loan if I ever need one. I just pay for pretty much everything with a credit card, then immediately pay it off. I've been doing it for years, and have yet to be charged a single cent of interest.

[doG]

Late 40s here. No credit cards and no credit with anyone except my monthly utilities. Everything I own is paid for. Everything I want waits until I save up the money to pay for it. I don't care what anyone else thinks of me but I do have a car, 2 trucks and live in a 2 story house with a full basement so I don't look like a poverty case either. The difference between me and many others though is that I'm happy to wait until I can buy things instead of using credit to have it all now. IMO the debt game is as dangerous to our society as religion.

[Phi for All]

I remember thinking a while back that credit debt, education and employment are a powerful combination that someone is likely to exploit. The scenario goes like this:

 

Your public education won't get you very far in the job market (for some reason, public schools don't get the funding and attention in the US they do elsewhere), and you've been encouraged even as a teen to use credit cards. Suddenly an offer comes in to pay for your college tuition, as long as you study certain courses and allow a company to be named later to pick up your debt. When you graduate, various companies who need what you've been schooled for now offer to pick up your debt in exchange for a work contract. The company may even help you get a loan for a house (but then you'd have to work longer to pay it off).

 

I think those in debt will have a pretty rude awakening in the near future.

[Pangloss]

The student loan situation is even worse than most people think, having taken several hits over just the last couple of years. Not only has it gotten much harder to get low-interest, government-backed loans, but these loans were actually included on the list of items that are exempt from bankruptcy protection. As if Fannie Mae needed help!

 

But that's what a powerful lobby gets you these days. Fannie and Freddie spent over $200 million in its K-street lobbying efforts just in the past five years. And now it's getting additional protection in the form of a bailout to cover their bad investments into high-risk mortgage lending.

 

Your money at work.