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I'm genuinely puzzled by the central importance of debt in the lives of Americans (reflected for example in the importance of the infamous credit score which is
by avz 12y ago
I'm genuinely puzzled by the central importance of debt in the lives of Americans (reflected for example in the importance of the infamous credit score which is something my country also has, but which barely anyone cares about).
Imagine you'd like to buy something you don't have enough cash to pay up front. Assuming you're not in immediate necessity, you're faced with the choice of saving up the money and delaying the purchase or borrowing the money and buying now. If you delay the purchase you can invest or lend the money and earn capital gains or charge interest. If you buy now you have to pay the interest to someone else. This means the ultimate amount you spend is lower if you delay the purchase (your savings are augmented with capital gains or charged interest and you avoid paying the interest to someone else). The upshot seems to me that unless you're buying something out of immediate necessity you are better off delaying the purchase.
Is the central role of debt due to the fact that most shopping done in the US is done out of immediate necessity (which may suggest wide-spread poverty) or is it simply wide-spread impatience or somethings entirely different or more complex?
- zo1 12y agoI think it's just a lack of education, and it's not limited to the US, mind you. People seem to have this belief that credit is free money that they can delegate to the future. Since the detriment is deferred, people don't really examine it for face value. There's that, and most are really bad at visualizing debt. I recently watched a documentary about the state of debt in the UK. It was quite shocking, normal regular people that got addicted to debt, and just spent, spent, and spent. Meanwhile, the banks kept rewarding their "debt" with higher limits and more fresh cards. These people took out ridiculous sums of money, sums that they need to spend probably decades paying off simply because their salaries are so low.