5 ms·

The Culture of Debt

21 points by robg 18y ago

tialys 18y ago
The real problem is our culture of entitlement. People have been lead to believe that NOTHING is outside of their grasp, leading them to live well outside of their means by buying expensive houses and cars that they can't afford because they can make the payments now. I have no sympathy for these kinds of people, it's absurd to say it's not their fault. Good financial planning is common sense: Pay yourself first, save for emergencies, live within your means. Don't pass this off on society, it's an issue of choice. You choose to buy a house you can't afford, or a car. The only person to blame for your debts is yourself.
- Tichy 18y ago
  I think you are making this too easy. Yes, technically it is the people's own fault. However, not everybody is a supercomputer making perfect rational decisions. People look to advisors and also their neighbors and peers for orientation. If advisors tell somebody he can afford something that somebody can not afford, they are also guilty to some extent. And why does anybody have to be guilty anyway (I hate scapegoat mentality). And why no sympathy? Be happy that you are smarter and maybe had a better education and smarter peers that enabled you to make better choices. Personally I feel that kind of luck could also enable you to feel with the less lucky ones. Edit: I just saw your one submission to HN so far, "recommendations for investing books". So apparently you acknowledge that it is not a trivial problem. You may say that everybody is free to go buy such books. But believe it or not, depending on your environment, it may not so obvious to do such a simple thing. Another example, to clarify what I mean by luck: occasionally you hear about "wonder investors" who started trading while in school and made millions before they came of age. But if you look closer, usually they have some family member who led them down the path of investing. To their peers, it does not even occur to get interested in investing while still in school. I say that kind of thing is luck on behalf of the young investor, not stupidity on the part of the non-investors.
  - tialys 18y ago
    I suppose I was harsh, my intention was not to say that anyone who has debt is an idiot and could have done better, I have sympathy for the poor kid from nowhere who gets himself way in debt so he can become a doctor, or so he can do something with his life. My lack of sympathy is for those who continually make poor decisions. In the article the woman felt bad because of her medical issues and continued shopping from home even though she already had previous debts, as well as her new medical debts. I have issues feeling for a person like that. I suppose I was too broad. Her issue sounds like a pyscological one, and perhaps she simply had no one to help her, but in the end she is still ultimately responsible for her own desitiny.
    - scott_s 18y ago
      She is responsible, but so are we, unfortunately. Because when you get enough of these people making bad decisions, it impacts the economy as a whole. Figuring out why people are continually making poor decisions regarding debt is not about finding someone other than them to blame. It's about trying to figure out what needs to change in our system so we can avoid hurting the whole.
- mechanical_fish 18y ago
  I'm not going to say that you're wrong. Your approach is a wise one, and it's one that I follow myself. But there is more to it than that. You shouldn't let society off the hook, here. The problem with a society where credit grows on trees is that it pushes the price up on everything. Why does that tiny house on the corner cost $700k? Because if you offer $350k in cash you will be outbid by the unemployed guy down the block whose bank is willing to loan him $700k. If you won't take those loans... perhaps you don't get to own a house. That's okay with me, but I'm relatively well paid and can afford some fairly well-located rental housing. A less well-paid person like a schoolteacher or a librarian might have to choose a two or three-hour commute, or leave the city of their birth altogether, unless they're willing to become debtors like the rest of their peers. Think about college. Does your determination to avoid debt extend to college? Is your desire to attend MIT evidence of your "sense of entitlement"? When you're interviewing with the Ph.D.s at Google and you show them your degree from the DeVry Institute, do you think they're going to congratulate you on your good financial sense? Um, no. But to attend MIT you're going to have to compete with the people who are willing to go into debt -- and, because the easy credit of the last decade has encouraged colleges to raise tuition through the roof, you will need lots of debt of your own, or a very big pile of cash. Colleges wouldn't be so expensive if credit weren't so easy to get. Being financially prudent is smart, but it's hard to do it on your own when society is swimming in the other direction.
  - tialys 18y ago
    I'm not saying all debt is bad, in fact I have a decent amount of debt towards my college education. However I manage it responsibly. Debt as a necessity is one thing, paying $750k for a house because your bank will loan it to you is poor judgement.
    - mechanical_fish 18y ago
      Debt as a necessity is one thing One person's necessity is another person's luxury. I was prudent: I turned down MIT because it was too expensive and took a full-tuition scholarship to a less prestigious school, and it hasn't hurt my career any... or has it? It might have been fun to have been living in a startup hub just before the web was born, back when PG was still a grad student... It's also much easier to see, now that the bubble has burst, that $750k for a house is a bad move. It wasn't so clear back in 2002, when my friend was kicking himself for having refused to pay $350k for a house back in 1999 because he knew it was terribly overpriced (he was new to the Bay Area). In 2002 the equivalent house was selling for $450k. Such houses may have hit $700k before the bubble burst four years later. (Fortunately, my friend stuck to his guns, perhaps with some help from the housing-bubble-related articles I sent him two years ago. He's still a renter. But remaining a renter was an extreme fringe position in 2004: No newspaper would tell you that buying was a bad idea (real estate agents buy ads!), so you had to find out from blogs, or by having older friends who had noticed the housing crash of the early 1990s, or by reading Malkiel or Charles Mackay. I'm proud of being numerate, but I can forgive most of society for being less numerate than I am.)
- huherto 18y ago
  I totally agree with you. It is the responsibility of the individual. Still there is a wide cultural problem in the U.S. that has to be recognized. My sister and her husband who live in the US,started making a lot of stupid decisions. The rest of the family who live in Mexico warned them. My sister said that that is the way is done in the U.S. and that everybody lived like that. Needless to say they buried themselves in debt and went bankrupt. It was so weird for us since our grandparents and parents were very, very thrifty.
  - anamax 18y ago
    Not so fast. "Everybody" does not live like that. In fact, even before the credit crunch it was common to hear about folks who got in over their heads with debt. (The ads for "credit counseling" and "debt relieft" are commonplace.) The US culture gave them more opportunities to succeed. Those same opportunities can let them fail. If they can't handle the opportunities....
    - huherto 18y ago
      I understand that not "Everybody"lives like that. But that was her perception anyway.
- elai 18y ago
  There's a difference between ambition and being an idiot with credit.
- scott_s 18y ago
  When the problem is this big, there's generally no single "real problem."
sofal 18y ago
>The Treasury and the Fed are trying to stabilize the system while still ensuring that those who made mistakes feel the pain. I'm not clear on how the "ensuring" part is coming about. Can someone fill me in?
- MaysonL 18y ago
  IndyMac stockholders took a big bath, so did Countrywide, so did Bear Stearns. Whether the management at those companies were given due anguish is another question.
ALee 18y ago
The salient point of the article is that between the towers of personal responsibility and social protection, the community determines the culture. In this case, the culture of credit card debt (plus more) became socially acceptable. This point gave me pause because our startup changes our spending habits depending on the community we're around. Let's take the small example of cooking. When it was just us, we would focus on the product, and then each night, someone would cook (cheapest possible method). Then when we started getting into the tech community and received a little bit of seed funding, our culture shifted toward eating out more and we stopped being as stingy. The more we read Techcrunch, go to SXSW, hang out with designers, the more we get lax. We aren't on fire, we're just in a hurry.
bokonist 18y ago
For the past 7 years, the federal funds rate has been around 2-6% while the monetary inflation rate has been between 4-8%. In other words, interest rates have been negative. This isn't a problem of "culture". People are responding to incentives.
- fallentimes 18y ago
  The inflation rate has not been between 4% and 8% each year;it's been between 1% and 4%. Source: http://www.inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx http://www.inflationdata.com/Inflation/Inflation_Rate/Histor...
  - bokonist 18y ago
    That's the number for price inflation. Price inflation is monetary inflation minus increases in productivity. Price inflation is useful for determining how standard of living has changed. Monetary inflation ( another word for it is money supply growth or dilution) is the right number to use to determine if interest rates are negative. I was using nominal GDP numbers as the number for money supply growth, although some people use M2, M3 or MZM. Each number has its pros and cons.
aspirant 18y ago
"...people and communities learn and adopt different social standards." No kidding. To give you an idea of just how wide ranging the standards can be, consider this passage from Gandhi's autobiography. "...there was an unwritten law among the Porbandar Memans living in South Africa that death should be preferred to bankruptcy."
weegee 18y ago
well all I can say is I owe my lifestyle to the payday loans store on the corner. If it weren't for those nice people, I wouldn't own all the nice things I own.
edw519 18y ago
Sorry, I just don't see what's so complicated. This isn't about "buy vs. rent", listening to what popular media says, keeping up with the Jones's, maximizing your long term possibilities, competing with anyone else, and certainly not about "society". It's about paying your frickin' bills. A bill unpaid, for any reason, is a broken promise, and gets little sympathy from me. It will, however, get help from me on April 15. Something's really wrong here.
patrickg-zill 18y ago
There are two financial "Worlds" you can live in. One is the world of Debt, the other is world of All-Cash. You can prosper in either one of them - but if you get stuck having to go back and forth between them, you will feel pain.

21 points by robg 18y ago

The real problem is our culture of entitlement. People have been lead to believe that NOTHING is outside of their grasp, leading them to live well outside of their means by buying expensive houses and cars that they can't afford because they can make the payments now. I have no sympathy for these kinds of people, it's absurd to say it's not their fault. Good financial planning is common sense: Pay yourself first, save for emergencies, live within your means. Don't pass this off on society, it's an issue of choice. You choose to buy a house you can't afford, or a car. The only person to blame for your debts is yourself.

Tichy 18y ago
I think you are making this too easy. Yes, technically it is the people's own fault. However, not everybody is a supercomputer making perfect rational decisions. People look to advisors and also their neighbors and peers for orientation. If advisors tell somebody he can afford something that somebody can not afford, they are also guilty to some extent. And why does anybody have to be guilty anyway (I hate scapegoat mentality). And why no sympathy? Be happy that you are smarter and maybe had a better education and smarter peers that enabled you to make better choices. Personally I feel that kind of luck could also enable you to feel with the less lucky ones. Edit: I just saw your one submission to HN so far, "recommendations for investing books". So apparently you acknowledge that it is not a trivial problem. You may say that everybody is free to go buy such books. But believe it or not, depending on your environment, it may not so obvious to do such a simple thing. Another example, to clarify what I mean by luck: occasionally you hear about "wonder investors" who started trading while in school and made millions before they came of age. But if you look closer, usually they have some family member who led them down the path of investing. To their peers, it does not even occur to get interested in investing while still in school. I say that kind of thing is luck on behalf of the young investor, not stupidity on the part of the non-investors.
- tialys 18y ago
  I suppose I was harsh, my intention was not to say that anyone who has debt is an idiot and could have done better, I have sympathy for the poor kid from nowhere who gets himself way in debt so he can become a doctor, or so he can do something with his life. My lack of sympathy is for those who continually make poor decisions. In the article the woman felt bad because of her medical issues and continued shopping from home even though she already had previous debts, as well as her new medical debts. I have issues feeling for a person like that. I suppose I was too broad. Her issue sounds like a pyscological one, and perhaps she simply had no one to help her, but in the end she is still ultimately responsible for her own desitiny.
  - scott_s 18y ago
    She is responsible, but so are we, unfortunately. Because when you get enough of these people making bad decisions, it impacts the economy as a whole. Figuring out why people are continually making poor decisions regarding debt is not about finding someone other than them to blame. It's about trying to figure out what needs to change in our system so we can avoid hurting the whole.
mechanical_fish 18y ago
I'm not going to say that you're wrong. Your approach is a wise one, and it's one that I follow myself. But there is more to it than that. You shouldn't let society off the hook, here. The problem with a society where credit grows on trees is that it pushes the price up on everything. Why does that tiny house on the corner cost $700k? Because if you offer $350k in cash you will be outbid by the unemployed guy down the block whose bank is willing to loan him $700k. If you won't take those loans... perhaps you don't get to own a house. That's okay with me, but I'm relatively well paid and can afford some fairly well-located rental housing. A less well-paid person like a schoolteacher or a librarian might have to choose a two or three-hour commute, or leave the city of their birth altogether, unless they're willing to become debtors like the rest of their peers. Think about college. Does your determination to avoid debt extend to college? Is your desire to attend MIT evidence of your "sense of entitlement"? When you're interviewing with the Ph.D.s at Google and you show them your degree from the DeVry Institute, do you think they're going to congratulate you on your good financial sense? Um, no. But to attend MIT you're going to have to compete with the people who are willing to go into debt -- and, because the easy credit of the last decade has encouraged colleges to raise tuition through the roof, you will need lots of debt of your own, or a very big pile of cash. Colleges wouldn't be so expensive if credit weren't so easy to get. Being financially prudent is smart, but it's hard to do it on your own when society is swimming in the other direction.
- tialys 18y ago
  I'm not saying all debt is bad, in fact I have a decent amount of debt towards my college education. However I manage it responsibly. Debt as a necessity is one thing, paying $750k for a house because your bank will loan it to you is poor judgement.
  - mechanical_fish 18y ago
    Debt as a necessity is one thing One person's necessity is another person's luxury. I was prudent: I turned down MIT because it was too expensive and took a full-tuition scholarship to a less prestigious school, and it hasn't hurt my career any... or has it? It might have been fun to have been living in a startup hub just before the web was born, back when PG was still a grad student... It's also much easier to see, now that the bubble has burst, that $750k for a house is a bad move. It wasn't so clear back in 2002, when my friend was kicking himself for having refused to pay $350k for a house back in 1999 because he knew it was terribly overpriced (he was new to the Bay Area). In 2002 the equivalent house was selling for $450k. Such houses may have hit $700k before the bubble burst four years later. (Fortunately, my friend stuck to his guns, perhaps with some help from the housing-bubble-related articles I sent him two years ago. He's still a renter. But remaining a renter was an extreme fringe position in 2004: No newspaper would tell you that buying was a bad idea (real estate agents buy ads!), so you had to find out from blogs, or by having older friends who had noticed the housing crash of the early 1990s, or by reading Malkiel or Charles Mackay. I'm proud of being numerate, but I can forgive most of society for being less numerate than I am.)
huherto 18y ago
I totally agree with you. It is the responsibility of the individual. Still there is a wide cultural problem in the U.S. that has to be recognized. My sister and her husband who live in the US,started making a lot of stupid decisions. The rest of the family who live in Mexico warned them. My sister said that that is the way is done in the U.S. and that everybody lived like that. Needless to say they buried themselves in debt and went bankrupt. It was so weird for us since our grandparents and parents were very, very thrifty.
- anamax 18y ago
  Not so fast. "Everybody" does not live like that. In fact, even before the credit crunch it was common to hear about folks who got in over their heads with debt. (The ads for "credit counseling" and "debt relieft" are commonplace.) The US culture gave them more opportunities to succeed. Those same opportunities can let them fail. If they can't handle the opportunities....
  - huherto 18y ago
    I understand that not "Everybody"lives like that. But that was her perception anyway.
elai 18y ago
There's a difference between ambition and being an idiot with credit.
scott_s 18y ago
When the problem is this big, there's generally no single "real problem."

sofal 18y ago

>The Treasury and the Fed are trying to stabilize the system while still ensuring that those who made mistakes feel the pain. I'm not clear on how the "ensuring" part is coming about. Can someone fill me in?

MaysonL 18y ago
IndyMac stockholders took a big bath, so did Countrywide, so did Bear Stearns. Whether the management at those companies were given due anguish is another question.

ALee 18y ago

The salient point of the article is that between the towers of personal responsibility and social protection, the community determines the culture. In this case, the culture of credit card debt (plus more) became socially acceptable. This point gave me pause because our startup changes our spending habits depending on the community we're around. Let's take the small example of cooking. When it was just us, we would focus on the product, and then each night, someone would cook (cheapest possible method). Then when we started getting into the tech community and received a little bit of seed funding, our culture shifted toward eating out more and we stopped being as stingy. The more we read Techcrunch, go to SXSW, hang out with designers, the more we get lax. We aren't on fire, we're just in a hurry.

bokonist 18y ago

For the past 7 years, the federal funds rate has been around 2-6% while the monetary inflation rate has been between 4-8%. In other words, interest rates have been negative. This isn't a problem of "culture". People are responding to incentives.

fallentimes 18y ago
The inflation rate has not been between 4% and 8% each year;it's been between 1% and 4%. Source: http://www.inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx http://www.inflationdata.com/Inflation/Inflation_Rate/Histor...
- bokonist 18y ago
  That's the number for price inflation. Price inflation is monetary inflation minus increases in productivity. Price inflation is useful for determining how standard of living has changed. Monetary inflation ( another word for it is money supply growth or dilution) is the right number to use to determine if interest rates are negative. I was using nominal GDP numbers as the number for money supply growth, although some people use M2, M3 or MZM. Each number has its pros and cons.

aspirant 18y ago

"...people and communities learn and adopt different social standards." No kidding. To give you an idea of just how wide ranging the standards can be, consider this passage from Gandhi's autobiography. "...there was an unwritten law among the Porbandar Memans living in South Africa that death should be preferred to bankruptcy."

weegee 18y ago

well all I can say is I owe my lifestyle to the payday loans store on the corner. If it weren't for those nice people, I wouldn't own all the nice things I own.

edw519 18y ago

Sorry, I just don't see what's so complicated. This isn't about "buy vs. rent", listening to what popular media says, keeping up with the Jones's, maximizing your long term possibilities, competing with anyone else, and certainly not about "society". It's about paying your frickin' bills. A bill unpaid, for any reason, is a broken promise, and gets little sympathy from me. It will, however, get help from me on April 15. Something's really wrong here.

patrickg-zill 18y ago

There are two financial "Worlds" you can live in. One is the world of Debt, the other is world of All-Cash. You can prosper in either one of them - but if you get stuck having to go back and forth between them, you will feel pain.