7 ms·

The thing that i don't understand is how can people that live in the USA accumulate so much debt? As a 24yo European I never had more than 5k € of debt at any

The thing that i don't understand is how can people that live in the USA accumulate so much debt? As a 24yo European I never had more than 5k € of debt at any point in my life.

wmf 5y ago
Maybe your government provides more/better services...
julienchastang 5y ago
Do Europeans not go into debt (tens to perhaps hundreds of thousands of €s) to purchase a home, for example?
- mattkrause 5y ago
  Perhaps less so for education, medical care, a car, etc.
- deleted 5y ago
  [deleted]
- wink 5y ago
  Can't speak for Europe overall, but in Germany it's highly uncommon to buy a home until you've either finished studying and have a proper job, or in the case of vocational training, having worked a few years. We seem to be pretty averse to debt in general, so for most people "buying a home" is the only acceptable thing to take on a large debt, and even you're probably already 30-40. Of course this is a little different if you live where housing is really cheap, but good luck getting an apartment or a house for under 500k-1m € in a big city.
pwg 5y ago
Because it is, unfortunately, far too easy to obtain credit in the US (unless one puts a 'freeze' on one's credit reports, one gets about 1-2 offers for new credit cards in the mail daily). Additionally, credit cards are a way of buying things where the actual cost is wholly disconnected from the purchasing activity. Purchasing something for $1 using a credit card feels (and acts) identically to purchasing something for $2000 using a credit card. The only difference is the size of the number being added to the balance, so buying "more than one can actually afford" via credit cards is far too easy, because for many it does not feel like "spending". I.e., there's no "physicality" of having to count out cash bills and seeing the pile grow. As well, credit card payback rates as calculated by the banks are structured such that the principal is paid down as slowly as legally allowed, which naturally increases the banks profits at the detriment of the individual paying the bill (as most of the payment goes to interest, not principal, if paying the "minimum payment" calculated by the holding bank). So it is simply very easy to obtain plural credit cards, and to use them to fuel an instant gratification lifestyle well beyond ones means without considering the consequences of loading up 20k or 30k or more onto credit cards on a take home salary of 2-3k/month. And, once someone has gotten themselves dug into this deep pit of debt, it is extremely difficult to climb up out of the hole.
- ativzzz 5y ago
  > one gets about 1-2 offers for new credit cards in the mail daily FYI, you can opt out of receiving these https://www.consumer.ftc.gov/articles/prescreened-credit-and-insurance-offers#opt https://www.consumer.ftc.gov/articles/prescreened-credit-and...
alistairSH 5y ago
College costs money. If your parents aren't upper-middle-class, that means borrowing money. Then you show up at college, and on your way to class on day 1, you are accosted by various banks handing out credit cards (or at least this was the case in the late-90s when I was at UVA). Then, you finish college, and because real wages haven't changed in 40 years, you borrow more money to pay rent, pay back student loans, etc. Americans have an unhealthy relationship with consumerism and credit. Doesn't help that credit is currently cheap, so buy-now, pay-later is the norm. It's completely crazy, no disagreement. But, it's been this way for decades.
- mkmk 5y ago
  You’ll be happy to learn that the CARD act of 2009 limited credit card companies’ marketing activities on college campuses.
  - alistairSH 5y ago
    Good to know! When I was in school, they'd camp out for the day near the student section in the football stadium and hand out free stuff to anybody who took a card. Free gifts and big credit lines to drunk 19 year olds - bonkers.
    - mindslight 5y ago
      Did anybody actually give them real info? To us it was just a game of filling out made up details, and recalling enough to survive their quizzing to win the prize. That's probably impossible with online verification now, though.
  - kart23 5y ago
    what does it specifically say? I remember seeing prominent BofA and some other bank's booth at my college's welcome week in 2017, and a decent number of people crowded around. Felt very scummy.
    - mkmk 5y ago
jcranmer 5y ago
I'd categorize debt into 4 categories: * Student debt. University costs a fuckton of money in the US, and you can pretty much find some way to cover it in debt. For young people this is probably the #1 category of debt. * Mortgages. Basically, of all the debts, mortgages are the ones that don't really "count," since it's generally acquired for the purpose of specifically obtaining an asset and its bottom line on your net worth is going to be around 0. Also, there's some tax advantages to mortgages, so it's not really an issue to have mortgage debt. * Medical debt. Yeah, this sucks. * Personal debt, primarily credit card debt. Credit card debt is something that is likely to really screw financially literate people over: it tends to be very high interest, it tends to be marketed heavily to suggest that you're not being screwed by high interest (e.g., cash-back rewards!). The minimum payments are pretty low, so it's pretty easy to cut back on paying the card if finances are tight, without realizing just how much you're being screwed by the interest.
- CameronNemo 5y ago
  Auto debt has ballooned in recent years. Seems like lots of people are buying more car than they need because it is "only $x more per month". https://www.investopedia.com/personal-finance/american-debt-auto-loan-debt/ https://www.investopedia.com/personal-finance/american-debt-...
  - jcranmer 5y ago
    Auto debt is kind of a halfway between mortgage debt and personal debt. Like mortgages, you're acquiring a long-lived asset for the debt. However, autos famously have a very steep initial depreciation that makes me suspect that many people with auto loans are underwater--and an underwater auto loan is going to be like credit card debt in that it's buying more than you can afford. I vacillated as to whether or not to include it as a separate category, but ultimately I think it's reasonable to consider them as personal debt insofar as they contribute to a debt epidemic.
jerf 5y ago
Interest rates being held so low for so long disadvantages the working class. It may look like you're paying fixed "prices" for things, but that's just a cover over what always comes down to a bidding scheme. Sometimes that's even directly visible, like when buying a home. Since borrowing money is so cheap. you end up in bidding competition with people who took out the cheap loans, meaning you either have to come up with more money yourself through other means, or compete with them by taking out loans yourself. The worse off you are, the more likely you are to end up doing the latter. The end result is the entire working class is enmeshed in debt all the time just to stay even with where they would have been if the interest rates weren't so low. It's astonishing how effective the upper class was at coming up with this policy to endebtify the entire middle and lower class without ever once talking with each other about how to do this or coordinating any actions to produce this result. It just sorta happened. Neat for them.
- Ericson2314 5y ago
  Low interest rate are not the problem here. Household debt is overwhelmingly about home ownership, first of all which affects richer working people. Housing prices mainly have to do with housing scarcity in good areas, which is a density problem. Workers have been getting fucked, but blaming interest rates is simplistic and counterproductive as the ability to do more fiscal stimulus as aided by low interest rates would be in their favor.
  - phkahler 5y ago
    >> Low interest rate are not the problem here. No, but they are definitely A problem. Housing prices in a given market vary inversely with interest rates. Sure, scarcity has an effect which is why I said "in a given market". When someone goes to a bank looking for a home load, the first thing they are is what your income and expenses are. From there, they figure out how high your monthly payment can be, and from there using the current interest rates they calculate how much you can borrow. Everyone - sellers, agents, banks - pressure you to spend as much as possible, and one average they succeed. That means lower interest rates will enable you to pay more at the same monthly payment. In other words, the buyer will have roughly the same monthly payment regardless of interest rates. Those rates will determine how much money goes to the seller vs the bank over 15 or 30 years. Low interest rates cause artificially high prices which don't benefit society, just the sellers. They also lead to banks not paying interest on savings, which discourages savings. They also encourage all sorts of high prices. The current cost of a college degree is due to government guarantees on student loans, which largely didn't exist when I got mine (at a much lower price even adjusted for inflation). And finally, something I think is true but haven't worked out all the math. It's not lower interest rates that stimulate the economy, but the act of lowering them. If we were at a steady state, reducing rates by a fixed amount and keeping things steady should produce a short-term (perhaps a few years long) spike in GDP, after which things will return to an equilibrium possibly lower than before the rate decrease (or the same or slightly higher I don't know) but less than the short term bump. The opposite is also true, raising rates will cause problems so much be done very slowly. The Fed has the US economy backed into a corner of sorts. The only way out seems to be to ignite a lot of inflation and raise rates slowly so as not to cause another collapse like 2007 (which was triggered by an abrupt rate increase).
bwb 5y ago
Credit cards are also easy to get... I had around 22k to 30k in credit card debt by the end of my senior year. Part of that was building a business, but part was bootstrapping a business while living minimally... I learned a lot from that exp and in the end it worked out, but the ease to which I got those cards should terrify most people. My parents helped me with school a little bit, and I was before the recent increases, so I think I graduated with maybe 25k in debt for 5 years of college. I paid it off quick as I had an amazing job out of college and sold the business I built. I've watched my sister who is 13 years younger have a lot more debt and facing a really long march to pay it off. It is doable as she has a masters in a great field with great pay, but it is still a many year process...
aidenn0 5y ago
I knew multiple people who graduated college with over $10k of revolving (credit card) debt at over 20% APR! It is dreadfully easy to get lines of credit as a college student, and the banks specifically target students because they are a good combination of financially naive and likely to have high future earnings potential. My first week on campus I was handed over a dozen credit card applications.
mynameishere 5y ago
Probably because you are 24yo rather than from a particular continent https://en.wikipedia.org/wiki/List_of_countries_by_household_debt https://en.wikipedia.org/wiki/List_of_countries_by_household...
- mardifoufs 5y ago
  Yeah, the whole "as a European why is America so bad as X" gets especially funny in cases like this. As your link shows, the top 10 countries with the highest household debt to gdp ratio are mostly European. The US isn't doing great but it's not like Switzerland is hell hole so maybe it's not especially bad to have a higher household debt in the first place anyways. The European countries with lower household debt seem to have a higher public debt anyways. And to go a bit off topic here, I'm not American but it's very weird to see the almost alternative reality about how life actually is in (yes even western) Europe on the internet when it's much more bleak in real life. It's okay to be super critical of the US and it's issues but it's mind blowing to me that Europe is seen as an overall superior & a model of what should be done when it absolutely shouldn't be. (And that's not even touching how much more stressful debt is in some parts of europe. In the US the bankruptcy courts and laws make it so much easier to bounce back after a going bankrupt, whereas it can be a completely life shattering experience in the old continent. Unless things changed recently)
dragonwriter 5y ago
> The thing that i don't understand is how can people that live in the USA accumulate so much debt? Drowning people in debt is kind of what American society is optimized for. > As a 24yo European I never had more than 5k € of debt at any point in my life. Europe is...not America. “The average loan debt for a bachelor’s degree among the class of 2019 was $28,950.” [0] [0] https://www.nerdwallet.com/article/loans/student-loans/whats-the-average-student-loan-debt-for-a-bachelors-degree https://www.nerdwallet.com/article/loans/student-loans/whats...
pjlegato 5y ago
Notwithstanding the popular stereotype of the profligate American credit card user, personal debt is much higher in many European countries than in the US. Denmark, the Netherlands, Iceland, Norway, Switzerland, Ireland, Sweden, Portugal, Finland, Spain, Greece, Belgium, and the UK all run higher household debt than Americans -- much higher in the case of the ones earlier on the list. Source: https://www.oecd.org/sdd/fin-stats/statisticalinsightswhatdoeshouseholddebtsayaboutfinancialresilience.htm https://www.oecd.org/sdd/fin-stats/statisticalinsightswhatdo...
Santanlan 5y ago
https://en.wikipedia.org/wiki/List_of_countries_by_household_debt https://en.wikipedia.org/wiki/List_of_countries_by_household... Top 10 countries by household debt Switzerland Australia Denmark Netherlands Canada Norway Cyprus New Zealand South Korea Sweden But you as a European can't understand how people can have so much debt. Well maybe you don't understand that Europe is not homogeneous and vary a lot. So maybe your comment is relevant for a country but it's definitely not for Europe. Saying that you're European tells us nothing since it's to diverse.

The thing that i don't understand is how can people that live in the USA accumulate so much debt? As a 24yo European I never had more than 5k € of debt at any point in my life.

wmf 5y ago

Maybe your government provides more/better services...

julienchastang 5y ago

Do Europeans not go into debt (tens to perhaps hundreds of thousands of €s) to purchase a home, for example?

mattkrause 5y ago
Perhaps less so for education, medical care, a car, etc.
deleted 5y ago
[deleted]
wink 5y ago
Can't speak for Europe overall, but in Germany it's highly uncommon to buy a home until you've either finished studying and have a proper job, or in the case of vocational training, having worked a few years. We seem to be pretty averse to debt in general, so for most people "buying a home" is the only acceptable thing to take on a large debt, and even you're probably already 30-40. Of course this is a little different if you live where housing is really cheap, but good luck getting an apartment or a house for under 500k-1m € in a big city.

pwg 5y ago

Because it is, unfortunately, far too easy to obtain credit in the US (unless one puts a 'freeze' on one's credit reports, one gets about 1-2 offers for new credit cards in the mail daily). Additionally, credit cards are a way of buying things where the actual cost is wholly disconnected from the purchasing activity. Purchasing something for $1 using a credit card feels (and acts) identically to purchasing something for $2000 using a credit card. The only difference is the size of the number being added to the balance, so buying "more than one can actually afford" via credit cards is far too easy, because for many it does not feel like "spending". I.e., there's no "physicality" of having to count out cash bills and seeing the pile grow. As well, credit card payback rates as calculated by the banks are structured such that the principal is paid down as slowly as legally allowed, which naturally increases the banks profits at the detriment of the individual paying the bill (as most of the payment goes to interest, not principal, if paying the "minimum payment" calculated by the holding bank). So it is simply very easy to obtain plural credit cards, and to use them to fuel an instant gratification lifestyle well beyond ones means without considering the consequences of loading up 20k or 30k or more onto credit cards on a take home salary of 2-3k/month. And, once someone has gotten themselves dug into this deep pit of debt, it is extremely difficult to climb up out of the hole.

ativzzz 5y ago
> one gets about 1-2 offers for new credit cards in the mail daily FYI, you can opt out of receiving these https://www.consumer.ftc.gov/articles/prescreened-credit-and-insurance-offers#opt https://www.consumer.ftc.gov/articles/prescreened-credit-and...

alistairSH 5y ago

College costs money. If your parents aren't upper-middle-class, that means borrowing money. Then you show up at college, and on your way to class on day 1, you are accosted by various banks handing out credit cards (or at least this was the case in the late-90s when I was at UVA). Then, you finish college, and because real wages haven't changed in 40 years, you borrow more money to pay rent, pay back student loans, etc. Americans have an unhealthy relationship with consumerism and credit. Doesn't help that credit is currently cheap, so buy-now, pay-later is the norm. It's completely crazy, no disagreement. But, it's been this way for decades.

mkmk 5y ago
You’ll be happy to learn that the CARD act of 2009 limited credit card companies’ marketing activities on college campuses.
- alistairSH 5y ago
  Good to know! When I was in school, they'd camp out for the day near the student section in the football stadium and hand out free stuff to anybody who took a card. Free gifts and big credit lines to drunk 19 year olds - bonkers.
  - mindslight 5y ago
    Did anybody actually give them real info? To us it was just a game of filling out made up details, and recalling enough to survive their quizzing to win the prize. That's probably impossible with online verification now, though.
- kart23 5y ago
  what does it specifically say? I remember seeing prominent BofA and some other bank's booth at my college's welcome week in 2017, and a decent number of people crowded around. Felt very scummy.
  - mkmk 5y ago

jcranmer 5y ago

I'd categorize debt into 4 categories: * Student debt. University costs a fuckton of money in the US, and you can pretty much find some way to cover it in debt. For young people this is probably the #1 category of debt. * Mortgages. Basically, of all the debts, mortgages are the ones that don't really "count," since it's generally acquired for the purpose of specifically obtaining an asset and its bottom line on your net worth is going to be around 0. Also, there's some tax advantages to mortgages, so it's not really an issue to have mortgage debt. * Medical debt. Yeah, this sucks. * Personal debt, primarily credit card debt. Credit card debt is something that is likely to really screw financially literate people over: it tends to be very high interest, it tends to be marketed heavily to suggest that you're not being screwed by high interest (e.g., cash-back rewards!). The minimum payments are pretty low, so it's pretty easy to cut back on paying the card if finances are tight, without realizing just how much you're being screwed by the interest.

CameronNemo 5y ago
Auto debt has ballooned in recent years. Seems like lots of people are buying more car than they need because it is "only $x more per month". https://www.investopedia.com/personal-finance/american-debt-auto-loan-debt/ https://www.investopedia.com/personal-finance/american-debt-...
- jcranmer 5y ago
  Auto debt is kind of a halfway between mortgage debt and personal debt. Like mortgages, you're acquiring a long-lived asset for the debt. However, autos famously have a very steep initial depreciation that makes me suspect that many people with auto loans are underwater--and an underwater auto loan is going to be like credit card debt in that it's buying more than you can afford. I vacillated as to whether or not to include it as a separate category, but ultimately I think it's reasonable to consider them as personal debt insofar as they contribute to a debt epidemic.

jerf 5y ago

Interest rates being held so low for so long disadvantages the working class. It may look like you're paying fixed "prices" for things, but that's just a cover over what always comes down to a bidding scheme. Sometimes that's even directly visible, like when buying a home. Since borrowing money is so cheap. you end up in bidding competition with people who took out the cheap loans, meaning you either have to come up with more money yourself through other means, or compete with them by taking out loans yourself. The worse off you are, the more likely you are to end up doing the latter. The end result is the entire working class is enmeshed in debt all the time just to stay even with where they would have been if the interest rates weren't so low. It's astonishing how effective the upper class was at coming up with this policy to endebtify the entire middle and lower class without ever once talking with each other about how to do this or coordinating any actions to produce this result. It just sorta happened. Neat for them.

Ericson2314 5y ago
Low interest rate are not the problem here. Household debt is overwhelmingly about home ownership, first of all which affects richer working people. Housing prices mainly have to do with housing scarcity in good areas, which is a density problem. Workers have been getting fucked, but blaming interest rates is simplistic and counterproductive as the ability to do more fiscal stimulus as aided by low interest rates would be in their favor.
- phkahler 5y ago
  >> Low interest rate are not the problem here. No, but they are definitely A problem. Housing prices in a given market vary inversely with interest rates. Sure, scarcity has an effect which is why I said "in a given market". When someone goes to a bank looking for a home load, the first thing they are is what your income and expenses are. From there, they figure out how high your monthly payment can be, and from there using the current interest rates they calculate how much you can borrow. Everyone - sellers, agents, banks - pressure you to spend as much as possible, and one average they succeed. That means lower interest rates will enable you to pay more at the same monthly payment. In other words, the buyer will have roughly the same monthly payment regardless of interest rates. Those rates will determine how much money goes to the seller vs the bank over 15 or 30 years. Low interest rates cause artificially high prices which don't benefit society, just the sellers. They also lead to banks not paying interest on savings, which discourages savings. They also encourage all sorts of high prices. The current cost of a college degree is due to government guarantees on student loans, which largely didn't exist when I got mine (at a much lower price even adjusted for inflation). And finally, something I think is true but haven't worked out all the math. It's not lower interest rates that stimulate the economy, but the act of lowering them. If we were at a steady state, reducing rates by a fixed amount and keeping things steady should produce a short-term (perhaps a few years long) spike in GDP, after which things will return to an equilibrium possibly lower than before the rate decrease (or the same or slightly higher I don't know) but less than the short term bump. The opposite is also true, raising rates will cause problems so much be done very slowly. The Fed has the US economy backed into a corner of sorts. The only way out seems to be to ignite a lot of inflation and raise rates slowly so as not to cause another collapse like 2007 (which was triggered by an abrupt rate increase).

bwb 5y ago

Credit cards are also easy to get... I had around 22k to 30k in credit card debt by the end of my senior year. Part of that was building a business, but part was bootstrapping a business while living minimally... I learned a lot from that exp and in the end it worked out, but the ease to which I got those cards should terrify most people. My parents helped me with school a little bit, and I was before the recent increases, so I think I graduated with maybe 25k in debt for 5 years of college. I paid it off quick as I had an amazing job out of college and sold the business I built. I've watched my sister who is 13 years younger have a lot more debt and facing a really long march to pay it off. It is doable as she has a masters in a great field with great pay, but it is still a many year process...

aidenn0 5y ago

I knew multiple people who graduated college with over $10k of revolving (credit card) debt at over 20% APR! It is dreadfully easy to get lines of credit as a college student, and the banks specifically target students because they are a good combination of financially naive and likely to have high future earnings potential. My first week on campus I was handed over a dozen credit card applications.

mynameishere 5y ago

Probably because you are 24yo rather than from a particular continent https://en.wikipedia.org/wiki/List_of_countries_by_household_debt https://en.wikipedia.org/wiki/List_of_countries_by_household...

mardifoufs 5y ago
Yeah, the whole "as a European why is America so bad as X" gets especially funny in cases like this. As your link shows, the top 10 countries with the highest household debt to gdp ratio are mostly European. The US isn't doing great but it's not like Switzerland is hell hole so maybe it's not especially bad to have a higher household debt in the first place anyways. The European countries with lower household debt seem to have a higher public debt anyways. And to go a bit off topic here, I'm not American but it's very weird to see the almost alternative reality about how life actually is in (yes even western) Europe on the internet when it's much more bleak in real life. It's okay to be super critical of the US and it's issues but it's mind blowing to me that Europe is seen as an overall superior & a model of what should be done when it absolutely shouldn't be. (And that's not even touching how much more stressful debt is in some parts of europe. In the US the bankruptcy courts and laws make it so much easier to bounce back after a going bankrupt, whereas it can be a completely life shattering experience in the old continent. Unless things changed recently)

dragonwriter 5y ago

> The thing that i don't understand is how can people that live in the USA accumulate so much debt? Drowning people in debt is kind of what American society is optimized for. > As a 24yo European I never had more than 5k € of debt at any point in my life. Europe is...not America. “The average loan debt for a bachelor’s degree among the class of 2019 was $28,950.” [0] [0] https://www.nerdwallet.com/article/loans/student-loans/whats-the-average-student-loan-debt-for-a-bachelors-degree https://www.nerdwallet.com/article/loans/student-loans/whats...

pjlegato 5y ago

Notwithstanding the popular stereotype of the profligate American credit card user, personal debt is much higher in many European countries than in the US. Denmark, the Netherlands, Iceland, Norway, Switzerland, Ireland, Sweden, Portugal, Finland, Spain, Greece, Belgium, and the UK all run higher household debt than Americans -- much higher in the case of the ones earlier on the list. Source: https://www.oecd.org/sdd/fin-stats/statisticalinsightswhatdoeshouseholddebtsayaboutfinancialresilience.htm https://www.oecd.org/sdd/fin-stats/statisticalinsightswhatdo...

Santanlan 5y ago

https://en.wikipedia.org/wiki/List_of_countries_by_household_debt https://en.wikipedia.org/wiki/List_of_countries_by_household... Top 10 countries by household debt Switzerland Australia Denmark Netherlands Canada Norway Cyprus New Zealand South Korea Sweden But you as a European can't understand how people can have so much debt. Well maybe you don't understand that Europe is not homogeneous and vary a lot. So maybe your comment is relevant for a country but it's definitely not for Europe. Saying that you're European tells us nothing since it's to diverse.