Why Are We In So Much Debt?

In modern society, there is pressure from all sides to achieve a certain standard of material possessions. The big house, the nice car, the exotic vacations, living in the best school district or sending your kids to private school, and so on. These are not bad things themselves, they simply exist, but have you ever noticed how the pressure to acquire these things, usually involving going into debt, seems to come from every direction? The demand is created by advertising, and then, oh look, you receive a credit card offer by mail or your bank offers you a loan when you log in to your bank website. There are so many ways in which society pressures us to use debt to acquire items that project status. In fact, as people wear and drive around and talk about their status symbols, it becomes a way that companies advertise to us without even having to spend money.


I bring this up because we as a individuals and as a society need to question the factors working in harmony to harvest consumer debt from us. Too few people question the paradigm of going into debt to buy a car, then going into debt to go to college, and then going into debt to buy a house, to say nothing of other consumer debt. We subconsciously treat these forms of debt as “start-up costs” required to live a typical life. If I was a bank, university, car dealership, or credit card company, that’s exactly how I’d want society to think.


Before credit cards, people couldn’t go into debt to buy most things. I’m sure mortgages and car loans existed, as well as business debt, but how much consumer debt was there? Once credit cards were widely available, it became an arms race of who could acquire the most the fastest. From what I’ve read, many high-salary families are also highly leveraged, which means it’s not even a matter of how much money you actually make. The rich are still borrowing above their income.


One of the biggest problems caused by debt is that our debt hangs over us like a cloud, restricting our possibilities in life. It adds stress to what would otherwise be a less stressful life. Our debt keeps us up at night, as we lay there wondering where we’re going to find the money to pay it off. “Should I take a second job?” we ask ourselves. Those with family commitments know the answer is usually no. They more debt we accumulate, the harder and longer hours we have to work to stay ahead of our bills. We then work so hard that we need that vacation or new toy or hobby for stress relief, so we buy it on credit, bringing more debt, and the cycle continues. If we hadn’t gone into debt in the first place, there would be no stress to relieve. The question is, how do you create a life that is not stressful enough to have to use debt to escape?


If you add up all your debt (we’ll say sans mortgage) and divide it by your annual salary, you would get how many years you have to work to pay it off if that’s all you did with your income. For me, it comes out to 0.55 years, which is over six months of not buying food or any other living expenses at all, just paying off debt. It’s May right now, so that means it would be November before I could buy food again. Obviously this is an extreme example, but this exercise shows you that really, debt is a form of slavery. So much of the work you are doing right now, whatever the percentage is, is purely for the purpose of paying off debt. If we knew how long and hard we would have to work to have the money to buy something beforehand, the odds that we would buy it are a lot lower. If we knew that we could be exempted from the weeks, months, or years of work needed just to pay for something we would otherwise buy with debt, we probably wouldn’t buy it and thereby avoid all that extra toiling. But currently, we buy it and add on all those weeks, months or years without thinking about it!


According to USdebtclock.org, on this day in 1980, American credit card debt was about $123B. Our workforce numbered 90,681,763 people, which comes to $1,356 per worker. Meanwhile, today American credit card debt is just over $1 trillion and our workforce numbers 155,219,138 people, which comes out to about $6,590 per worker. Our population grew by 71%, but our average credit card debt per worker has grown by 386%! Clearly, our spending patterns have changed. I know health care has gotten more expensive, but I don’t think that fully explains the increase. That leaves discretionary debt—buying stuff just because we can.


I see a relationship between meteoric US economic growth over the past several decades (compared to 1950s and 60s levels) and the increasing levels of private debt (to say nothing of public debt). To me, it’s as if an larger and larger percentage of our economy is based on debt, but the problem is the debt must eventually be paid—it’s impossible for debt to continue on forever. That’s sort of like a fake economy, if you think about it. Accumulating large-scale debt without ever having to reconcile has never worked before in history, so there is no reason to assume it will work this time.


Pay off your debt and don’t take on new debt unless you are very confident it is financially worth it (for example, a student loan for a lucrative major or other schooling). Don’t be a cog in the debt machine.

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