Monday, June 18, 2007

"Buy now, make no payments for…"

I was reading comments posted on a message board about whether financial literacy needed to be taught in our schools. One of the comments regarding debt was, “Just teach people that they shouldn’t spend what they don’t have.” That person went on to say, “It’s not brain surgery, is it?”

In today’s society there’s an underlying belief that people who get themselves into debt are either too lazy, too dumb, or too spoiled to understand how to stay out of debt. I believe many people are under the impression managing debt is really as simple as “don’t spend what you don’t have.”

Do you know what you have? Many of my clients have no idea how much money they have. There’s more to it than just looking at your annual salary. In fact, your income really tells you nothing about what you have. You have to look at your expenses. And many people don’t take out the time to calculate their expenses. We should all realize, it’s not what you make, it’s what you owe. Two people that both make $60K a year can have very different lifestyles based on their expenses.

Our whole culture is designed to encourage people to spend money you don’t have. Do you think the average American is going to wait until they have the money to buy a new washer and dryer when the old one breaks down? How many people can be convinced to wash their clothes in the sink until they’ve saved up enough to buy a new washer? “Buy now, and make no payments, pay no interest for 12 months!”

Debt doesn’t ruin lives, not managing debt does. This point may be arguable, but I firmly believe it. Being in debt is not causing all the problems with debt in our society. It’s the inability to manage debt that ruins many people. Now, I can believe that this statement can’t be applied across the board. There are many people out there, that don’t have sufficient income to pay their bills. But I’ll argue that even more go shopping when the stack of bills arrive because they can’t deal with the stress. Or people who can’t resist a new pair of shoes or paying the tab on Guy’s Night Out, even though they know they can’t afford it. Just one month of ignoring bills can rack up a huge amount in late fees and interest that could have helped people get out of debt. I’ve learned that stress, denial, and vanity keep people from managing their debt much more than lack of money.

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