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Sobering Look at Debt

The New York Times published an article titled “Given a Shovel, Americans Dig Deeper Into Debt”. I think everyone should read it. It’s a sobering look at what happens when you finance your lifestyle with credit cards and other debts.

However, before you read it, I must warn you that the article’s author is somewhat…financially illiterate. For example she wrote:

Household debt, including mortgages and credit cards, represents 19 percent of household assets, according to the Fed, compared with 13 percent in 1980.

I hate to say it, but “household debt, including mortgages and credit cards” cannot be called “assets”. They’re liabilities. Anything takes cash and/or other assets from you is a liability. And it sucks and must be avoided at all costs.

The article also comes with some videos. They’re very sad, but they don’t always illustrate exactly what is driving the engine of over-spending and over-consumption. The people featured have absolutely no savings or assets to fall back on. They’re living paycheck to paycheck, and they’re unable to do anything about it. That’s why even a minor disaster can hit them hard and push them into foreclosures and bankruptcies. The absolute tragedy of it all is that it’s not uncommon to see people like this in America.

One of the videos features an old lady who didn’t save any money because she wanted to give her children better clothes and so on. But she’s never given a thought about her financial future. I’m not sure if that was necessarily wise, although I’m sure her children appreciated the lifestyle she’s given them.

My parents were the exact opposite. My closet was woefully empty of pretty clothes. I think I had mostly jeans and t-shirts, and to be honest, I hated shopping for clothes because I knew I wouldn’t get the kind of stylish clothes my high school friends had. I also owned about four pairs of shoes. But right now, my parents own their home outright (they bought it in 1999) and have some savings to fall back on in case of emergency. They helped me pay for my college education, and with the financial aid and my summer jobs, I graduated without any college loans or credit card debt. They taught me the danger of relying on credit cards, and I wasn’t allowed to use mine except for the most extreme emergencies. They also taught me how to balance my check book, how to save and how to manage cash flow. Their mantra still is “hoarding cash or cash-generating assets is the best; borrowing is for the weak-willed”. They think that people who cannot delay gratification or deal with their emotions make poor purchasing decisions and use credit cards to buy non-cash-generating assets (meaning cars, clothes, shoes, handbags, etc.) they cannot afford in the first place.

Although I hated their extreme frugality when I was growing up, now I appreciate the fact that they taught me the value of money. I don’t know if I would’ve been able to survive this long as a non-income generating writer without the financial discipline they’d taught me. And after reading the article, I feel like I’m one of the rarest breed of American women who don’t get the therapeutic effect of shopping. I usually find shopping highly stressful because I see it as a cash-flowing-out-of-my-bank-account-and-I-feel-poor event.

How about you? What do you wish you knew about personal finance? Do you have any cool tips and tricks on how to manage money better?


9 comments to “Sobering Look at Debt”

  1. susan
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    · July 22nd, 2008 at 2:22 am · Link

    I agree with you. It is nuts what Americans will do where money is concerned. In 10 yrs at a Wire House – I can honestly say I have seen some very smart and talented and capable people do so really stupid things with their money.

    I am totally a clearance shopper and in fact I seldom shop regularly as my friends do. I will window shop and then if something catches my eye – continue to watch until it goes on sale. If I manage to find it on sale in my size – then it was meant to be :)

    There is a total lack of personal responsibility and honor in the US these days. Everything is about now. When in Rome I suppose – but then we see where that go the ancient Romans now don’t we.



  2. May
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    · July 22nd, 2008 at 5:23 am · Link

    Debt as an asset. That’s a new one. Debt’s only an asset if you’re the creditor, not the debtor. Idiot.

    I’ll say this though: Cash over Invisible cash such as cards.

    And if I hear one more time ‘it’s all the government(s)’s fault’ I’m going to shoot someone. Personal responsibility aka independence doesn’t taste so sweet any more, eh?



  3. Nadia Lee
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    · July 22nd, 2008 at 1:14 pm · Link

    Susan — I think it’s partly wanting things now and partially not knowing any better. Most parents and schools do not teach children how to manager their money better.

    May — I had to read that line three times because I couldn’t believe they called it “household asset”. I agree that nobody should blame the government. I mean, yeah, it sucks that you have a big debt, but you didn’t have to spend the money you didn’t have to finance lifestyle you can’t afford. Besides if the government regulated the market heavily and you couldn’t get any credit, you’d blame the government again for you not getting any credit cards.



  4. May
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    · July 22nd, 2008 at 10:46 pm · Link

    Angelle, yep. That’s exactly my point, and why I wouldn’t go into public service. Why would I want to be in a job where I ‘get it wrong’ no matter what I did?



  5. Nadia Lee
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    · July 22nd, 2008 at 10:52 pm · Link

    Let’s not forget: the government pay sucks.



  6. Jennifer Shirk
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    · July 23rd, 2008 at 9:15 pm · Link

    Well, it helps ME that my hubby is a financial advisor (and a good one if I might say) *wink*



  7. Debora Dennis
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    · July 25th, 2008 at 2:05 am · Link

    We live strictly within our means. We live on one income – I’ve been a stay-at-mom for 16 years and we live in NY. Sure my kids have most of the high-tech stuff, but they do without a lot too. Most people are pretty surprised when I tell them we cut all our credit cards 10 years ago and love the fact that Christmas morning when our kids open their gifts we can relax knowing it’s all paid for – no post holiday debt for us!

    We drive older cars – no car payments.

    Our mortgage is the only debt we have. Does that make us odd?

    Yeah…a good feeling.



  8. Nadia Lee
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    · July 25th, 2008 at 1:01 am · Link

    Jennifer,

    I think it helps when at least one person in the family is good with money and is in charge of the family finance. But sometimes people insist on doing it themselves, even when they know they can’t.



  9. Nadia Lee
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    · July 25th, 2008 at 2:08 am · Link

    Does that make us odd?

    No. That makes you smart. LOL.



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