Debt To America

I just finished watching the documentary Maxed Out on NetFlix Streaming this evening. Considering that I spent most of the morning reconciling a year’s worth of monthly statements for my 401k and brokerage accounts, I’ve had money matters on the brain all day, and this blog post is the result.

Maxed Out
Maxed Out looks at the credit industry from a number of different angles, interviewing debt collectors, consumers from various walks of life, and a few Harvard professors. They also throw in a smattering of clips from congressional hearings, and sound bites of president G.W. Bush making an ass out of himself and signing in laws that only help big businesses. The whole point of the film is to expose our debt culture, and how the poor stay poorer by being saddled with debt they can never pay off while the government gives legislative hand-outs to big lenders.

In my opinion, the movie tried a little too hard to present a damning perspective of the creditors and our government officials. Far be it from me to defend the credit vampires or the influential lapdogs in public office, but credit takes two to tango. When things go south with an irresponsible consumer that drank too much from the credit firehose, they are as much to blame as the credit card company who gave them the credit they should never have had.

Well, that’s not very satisfying; this is America, so somebody must be to blame for all this debt… but who?

Is it the government’s fault?
It’s hard to discuss our government without sounding jaded, but please know that I’m not. I’ve come to understand that our capitalist society, like most things in life, is a two-sided coin with a number of cons that I must be willing to accept in order to enjoy the pros.

Because of the way this country operates, I can live a lifestyle that would be considered fabulous in some parts of the world, but in order to do so I have to accept that our government is largely controlled by the flow of money. Along with this, I have to accept that (regardless of any utopian ideals) the people in our government have a primary purpose to protect the interests of the businesses who will keep their campaigns well-funded; my personal interests and protection are mostly secondary concerns. So long as our government acts favorably to business, businesses can be successful, and I’ll be able to earn a decent wage as an employee and continue to enjoy the life I left England for.

This is simply the way of the USA. There’s not much any of us can, ever will, or necessarily should do to change that.

So, is it the credit card company’s fault?
If government protects the interest of businesses first, we can’t expect the government to protect us as consumers. We also shouldn’t be surprised that lending companies, like all companies, want to make as much money as they can. We should be equally unsurprised at the choice of people creditors want to lend to, i.e. those who are most likely to make minimum payments from the day they make their first credit card purchase until the day they die (leaving the creditors with massive profits).

Personally, I think it’s somewhat hypocritical for us as a nation to criticize these companies for doing what they do. I may not find it ethical, but I understand the motivation for a business to make as much money as it can from the best possible consumer of their product.

It’s our fault.
We’re the ones that sign the credit card agreements. We’re the ones who charge all the crap that we can’t afford. We’re the ones who don’t educate our children about how to save money and live within their means. We have nobody to blame but ourselves. There isn’t a credit card company on the planet that can force any of us in to debt without us playing our part.

If there is anything to be angry about, it’s our collective apathy.

I took a life skills class in high school. They taught me about baking and condoms, but they never touched on how to balance a checkbook or what compound interest looks like. Nobody showed me a sample of monthly expenses for running a household, paying a mortgage, or owning a car. My guidance counselors showed me a big binder full of careers and the starting salaries for each, but I had no idea what kind of lifestyle I could lead with a $20,000 starting salary versus a $40,000 one. There was no mention of how to save money, let alone of how I should invest it for the future.

And so, the only good financial habit I picked up as a teenager was a stoic motivation to pay my credit card off every month – the result of being given a credit card at age 16 by my parents along with a white lie that my account couldn’t carry a balance beyond the grace period. If you’re wondering, I intend to play the same trick on my kids.

While I left high school with a solid education in all things academic, I lacked the life skills to be effective as a financially responsible human being. I spent six post-graduation months working a single job and constantly owing money. Finally, my step-mom sat me down for about an hour and worked me through my budget. Looking back, that one hour has had more impact on my life than almost anything I learned in all my years of school.

The result was that I couldn’t afford to support myself on a single job; I either needed to make more money or work two jobs. I ended up doing the latter. I took the foundation that my step-mom gave me and put together a two-year plan to save up enough money to pay off my car loan and go to college. The plan involved the abandonment of every luxury (no matter how small), and left me with about $20 a month in discretionary spending money. It was a hard two years of brown-bag lunches and lackluster Friday nights, but in turn, I learned both the crushing financial constraints that a loan could put on me and the discipline to save money to meet a future goal. Barring interest-free promos and necessities like auto and housing loans, I’ve been debt-free ever since – all because somebody who knew the potential perils cared enough to take responsibility for me.

Let’s Take Ownership.
And thus, we arrive at the point of my rant: as a country, we need to take ownership of our finances. We need to make sure that our kids understand the money minefields awaiting them in life. No kid should leave high school without knowing what kind of lifestyle the salary associated with their chosen career will let them lead, or just how important it is for them to pay themselves in savings before they pay their bills. Every school should cover this stuff in home economics; it’s maybe two class’s worth of material along with some basic reading as homework. And since that’s unlikely to happen, I urge you to talk to your kids (or nieces and nephews) and set them straight.

If you yourself are confused, don’t be embarrassed; seek some help. There’s loads of it in the library and on the web. I recommend The Millionaire Next Door as a starting point, along with a saying whose origin I have long since forgotten: “The secret to happiness is to live beneath your means.”

In closing
I think it’s likely that the reason our government is racking up trillions in debt is because many of the people running our country grew up in a debt culture. I also think our collective apathy toward our government’s financial irresponsibility stems from how many of our citizens owe money and can’t imagine a debt-free existence.

Perhaps if we can raise a generation of fiscally responsible kids, they’ll form the next generation of fiscally responsible adults, and we’ll see an end to irresponsible borrowing in both our government offices and our personal lives. It’s worth a try.