Day: July 19, 2011

Debt

Yesterday I read an article that astonished me and I just had to share it with all of you.    It is entitled “Young Adults Feel Empowered by Debt” and it talks about a new wave of young adults that “actually feel empowered by their credit card and education debts.”  This is garnered from a study done by the journal of “Social Science Research”.

This article shocked me because I have always been petrified of debt.  In fact, part of the reason I went to University of Phoenix for my graduate school was I knew I could work while I studied; thus, allowing me to pay for most of my schooling and living expenses concurrent with my education.  I was lucky to have some family support but even if it had been solely left to me I would not have gone into very much debt because I was working at the same time.

I have also never bought property or driven a new car mostly because I am scared to death of being held down by the obligation of debt.  People tell me all the time that I’m ‘throwing money away on rent’ but at least it isn’t a noose around my neck that could hang me if things go badly (both personally or with the economy at large).   I have known so many people saddled with mortgages they can’t get rid of  from homes that will not sell.

In admitting my reservations about debt I also admit that in some ways it is a weakness.  I know there are risks and investments worth taking,  but I cautiously chose not to.  I also gratefully acknowledge the many blessings I’ve had along the way which have helped me avoid debt.

That said- I can’t imagine someone having the attitude of some in this article or the study at large. “Young adults wear their debt like a new tattoo”.   I can’t imagine being proud of  or feeling empowered by debt.  To me it is a bizarre reaction.

Another good article on the topic says that credit card debt is particularly tempting for young adults (considered in this study to be 18-35, so I still count!) because it allows them, if only temporarily, to experience a more exciting, full life.

“Buying things is a way to alleviate [a feeling of powerlessness]” says Rucker. “It might be only temporary, and so I continue to buy and that’s how I accrue debt. When consumers feel powerless, they spend in ways that help them accumulate power or at least the psychological feeling of power.”

I think there is an attractiveness to credit card debt because it solves problems quickly.  Want to look more professional, charge it.  Want to take a memorable trip, charge it.    The problem comes when all of that charging piles up.

The third article I listed gives the following example:

Jason Eichacker, 31, of San Jose, Calif., for example, used debt throughout his 20’s to help finance expenses that helped move him closer to his goals. “When I needed professional looking clothes or textbooks, I just put it on my card,” says Eichacker. To justify it, he told himself, “‘You know what, I’m going to make good money. I’ll be able to pay it off pretty quick.'”

Unfortunately, Eichacker’s habit of using credit to finance his aspirational lifestyle later spiraled out of control when he opened his own business and used business and personal credit cards to purchase what he needed. “When the business foundered, I had to declare bankruptcy,” says Eichacker. He now receives collection calls almost daily and his personal relationships have suffered as a result of his wrecked credit history.

Eichacker admits that self-esteem issues and an early concern with status and control over reaching his goals were at the root of his behavior. “It gets down to the picture in my mind of how I was supposed to look like,” says Eichacker. “I was more concerned with that than I was about how my credit would be down the line.”

I know that certain debt is unavoidable but shouldn’t it be looked at as a necessary evil, not an empowering gift?   A large reason we are in such a financial mess as a country is too many people were “using credit to finance his [or her] aspirational lifestyle”.  People aspired to bigger homes than they could afford, impractical degrees they will not see much value from, new cars they don’t need and wardrobes that they couldn’t pay for.

As Eichacker experienced, I fear many will find what empowers them one minute, robs them of future minutes.

I personally think part of the fault lies with our government.  Have not many in Washington made the case for empowering debt?  That spending when we have no money ‘stimulates’ the economy; thereby, making things better and making the obligation of more debt a good thing?  Is this not another way of saying debt empowers the economy?

Indeed, many are making such an argument right now in the debt ceiling debate.  If it is so great for our nation than why not incur tons of debt in our individual lives as well?   The truth is it that it is bad for our country and it is bad for individuals.

Think I’m exaggerating?  Take a look at http://www.usdebtclock.org/.   Also, look at the interest owed of over 3 trillion dollars and growing!  Think of all the good we could do with that 3 trillion if we weren’t in debt.

I don’t think anyone should feel empowered by debt.  Yes, it is a necessary evil for some but it is not a free check to pay later on.  It carries with it many burdens and problems which must be fully anticipated before the debt is incurred.   What do you all think?  Are you empowered by debt?