Why do people take on so much debt?

[tvguy]

I think there is a big difference between unexpected debt like medical costs, and debt people make a choice to take on. I don't have a lot of sympathy for people who get in a credit bind because they decided to buy a more expensive car or home than they could actually afford. We make choices and we have to live with them. I am at a point in my life where I don't anticipate taking on any debt any more. I have every thing I need and want and able to afford a Medicare Supplement plan that covers everything that Medicare doesn't pay for.

 

[TheDailyMoo]

IMO the problem is most start in debt, get comfortable with it, and then inflate lifestyle to match increases in income. Breaking that cycle takes a conscious effort and many just don't realize the harm paying CC interest is doing on their life.

I also see people that have issues the opposite direction. For example, I have an uncle that has over 2 million in investments, still works in his early 70s, and refuses to spend money on anything. He will likely die without enjoying the fruits of his labor.

Balance is critical and while the US has a bigger debt problem, both extremes make me sad.

I mean this is the right answer...to this and everything...balance

I think this post assumes a level of financial literacy that many are lacking. I was raised by lower middle class parents who taught me nothing about saving or investing. They themselves never saved. I went to college and got my BA and came out with loans, which was just seen as "normal." I married and we went into debt which, again, felt "normal" at the time.

We know better now. We are almost completely debt free. We will be debt free in a few more months. We did finance a DVC loan but intentionally and with a plan- we paid off our first 110 point contract in 6 months and are on track to pay off our 2nd 100 point contract in a similar time frame. In total the interest accrued is minimal, but that's bc we are throwing EVERY PENNY at it, and cutting from our lifestyle to make it happen. It was a thought out plan.

With that said, most people don't "think out a plan" to pay off- they think in terms of payments. Can I afford THIS PAYMENT, not "this debt." It's not good and it's unfortunately often due to a lack of knowledge and understanding.

I made a post on the original thread that the OP referenced and I will repeat it here...financial literacy is something we don't teach to anyone and yet we expect everyone to be responsible and know how to set themselves up for success. They don't and won't unless they've learned from somewhere. And that's usually the parents or family that know how to not get behind the 8 ball financially and set up their children for future success (or at least a chance at it).

Since we can't rely on that then financial literacy MUST be taught in schools. What else are schools good for if not teaching how to be a productive member of society. The government should make it a fully funded and mandatory class so that everyone has the knowledge and ability to know the right moves to make if they want to at least have a chance of financial freedom. If at that point they want to spend frivolously or take on UNNECESSARY debt that buries them, well...they've made an informed decision.

PS I think most of us know exactly what constitutes poor financial decisions. Debt is not a dirty four letter word. Many great business leaders have made their fortunes with the use of debt. But it's obvious what most are referencing here...reckless discretionary spending with no way or plan of how to pay it off. It's hard to argue that that's a good thing no matter how you want to spin it.

 

[LuvinTheWorld]

My parents saved for my undergrad

So you didn't have to pay for your 4-yr degree, but judge people who do? Paying for 6 years of college costs more than only paying 2 years. I'm fine with student debt cancellation. Not every one wins the family lottery and I'd rather a young adult who grew up in poverty get educated, get a good job, and pay taxes instead learning to rely on TAFN, SNAP and Sec8 for their adult lives (as well as any children they have). Costs tax payers less in the end. Got to look at the bigger picture.

 

[barkley]

financial literacy is something we don't teach to anyone and yet we expect everyone to be responsible and know how to set themselves up for success. They don't and won't unless they've learned from somewhere

financial literacy MUST be taught in schools.

The government should make it a fully funded and mandatory class so that everyone has the knowledge and ability to know the right moves to make if they want to at least have a chance of financial freedom.

i am in total agreement that it should be a basic general education requirement in school. that said, it is taught but not to the general student population. i have an autistic son who met the requirements for special education in high school. it's common in special education to include a 'life skills' class. along with the household skills taught in the long gone away home economics classes came a LARGE curriculum on fiancial literacy. i had 2 kids attending the same identical high school w/in 2 grades of each other and the one who was preparing to go to college and would be embarking on an entirely independant adulthood could'nt so much as take a financial literacy class as an elective while my special education student who was absolutly destined for financial guardianship was learning all the basics and beyond on budeting, credit, student loan pitfalls, simple and compound interest, home ownership vs renting...............

there are curriculums in existence yet schools (the district i live in for certain) have chosen to entirely focus their curriculums for mainstream students on 'highly selective/highly competative' college entry requirements.

 

[Bellex917]

I mean this is the right answer...to this and everything...balance


I made a post on the original thread that the OP referenced and I will repeat it here...financial literacy is something we don't teach to anyone and yet we expect everyone to be responsible and know how to set themselves up for success.

Since we can't rely on that then financial literacy MUST be taught in schools.

NJ requires it for graduation, but it is a newer requirement and def wasn't in place when I went to school.

 

[TheDailyMoo]

i am in total agreement that it should be a basic general education requirement in school. that said, it is taught but not to the general student population. i have an autistic son who met the requirements for special education in high school. it's common in special education to include a 'life skills' class. along with the household skills taught in the long gone away home economics classes came a LARGE curriculum on fiancial literacy. i had 2 kids attending the same identical high school w/in 2 grades of each other and the one who was preparing to go to college and would be embarking on an entirely independant adulthood could'nt so much as take a financial literacy class as an elective while my special education student who was absolutly destined for financial guardianship was learning all the basics and beyond on budeting, credit, student loan pitfalls, simple and compound interest, home ownership vs renting...............

there are curriculums in existence yet schools (the district i live in for certain) have chosen to entirely focus their curriculums for mainstream students on 'highly selective/highly competative' college entry requirements.

I hear ya. And yes it should really be part of a much larger course called life skills...because let's get real...many adults don't even have basic life skill comprehension at this point.

Seriously though we can teach them some extra niche skills and info that they will guaranteed never use again or we can help set kids up for success so that (gasp) we as a society can succeed. It almost makes too much sense!

 

[buzlite]

No offense to OP but I think you may be coming from a privileged position.

Needs and wants are very difficult for consumers to discern especially as marketers and wealthy consumers consistently label wants as needs. It’s also common from wealthier groups to consider their own purchases as needs but don’t necessarily understand the purchases of less wealthy consumers.

The common refrain of judging food stamps users for having a new IPhone is a classic example. However people may not realize a smart phone is almost a mandatory purchase in today’s world and required for things such as your job or online booking of medical appointments. These same people may not have a laptop to use. Also with financing it becomes much more affordable.

Another common issue is buying a new car. So many vloggers push used cars and say it’s dumb to buy a new car. But what if you spend 10k and end up with a lemon? Are you gonna rack up credit card debt at 20% to get it fixed. Also you don’t want to have your car break down so you miss work and loss your source of employment. You might also be hauling kids and who knows what safety levels you’ll find in that old beater. So now you’re at the dealership and planning to finance. What’s a few more dollars here and there to upgrade to nicer seats and a little more power. Plus you don’t want your kids to know their poor.

Lastly most people that are financially struggling don’t plan to financially struggle long term. They have hope this is temporary and that times will improve. And they don’t want to waste these years living miserably vs just using some of tomorrows wealth today.

Anyone that has had a possible future debt paid by parents would have a difficult time understanding this. I remember a medical student telling another one: We are already 200k in debt for school. What’s another 5k for a nice vacation. This 2 broke students travelled and the wealthy one didn’t because “he couldn’t afford to ask for 5k cash”.

Also some people are very wealthy and the tax burden of pulling out extra income is considerably higher then interest so they will “smooth out” their income with low interest loans.

Understanding finances is complicated and it’s not as simple as poor people are stupid.

 

[ruadisneyfan2]

NJ requires it for graduation, but it is a newer requirement and def wasn't in place when I went to school.

Ah, you beat me to it. Our kids both had to take it to graduate but I attended the same school district and it wasn't even an elective in the 80s.
Our kids are both savers because of it.



Both of our kids attended trade schools (welder & electrician). The welder, 23, attended 4 months of school at a cost of $9k, which we paid, and earned 6 figures last year. One year into a 5 year car loan, he has paid off 80% of it and saved $40k for a house down payment.
The electrician, 27, has been working FT since he left college after 1 semester, and wasn't sure what he wanted to do for a career for a while. I offered to help him pay for trade school and he told me money is not an issue. It was $12k. He just finished a few weeks ago and is still job searching. He has $60k in a Vanguard investment fund to someday buy a house. Both have been saving for retirement for years.

I don't mind that they're both still living with us because if they were paying rent, they'd never be able to save for a house. I'd much rather them save for extra down payment plus some extra on top of that, so they can afford to paint, decorate, buy furniture, etc without wiping out all of their savings.

A lot of high-paying jobs require a college degree but not everyone who doesn't attend college is earning low wages. Most of ds23's friends can't afford the fun toys he enjoys such as riding his dirt bike or snowboarding. Sometimes he goes alone because of it. He seems to have a good balance between having fun while he's young but still saving money too.

When I was in HS, college was only for the really smart kids. Now they have kids convinced that college is for everyone and it's the only path to a decent job and good life. Lately it seems that unless parents foot the bill, it's a path to a life full of soul-crushing debt. Kids are graduating with student loans that are more than what we paid for our house. That is insane.

I would rather them work on lowering the cost of college for everyone, look at factors that have college costs soaring way faster than inflation and everything else, instead of cancelling loans for some.
Colleges are gouging kids and getting away with it. It's criminal.

Cancelling student loans does nothing to control the cost itself.

 

[barkley]

When I was in HS, college was only for the really smart kids. Now they have kids convinced that college is for everyone and it's the only path to a decent job and good life. Lately it seems that unless parents foot the bill, it's a path to a life full of soul-crushing debt.

as much as i worry for the younger folks with this debt i am terrified for allot of folks around my age who put paying for their kid's college out of concerns for their kid's financial futures before being concerned about their own. so many i know spent so much on their kid's college but shortchanged themself with retirement savings. i don't know when the mindset about it being the norm, let alone an obligation on the part of a parent to pay for their child's college education. it certainly was'nt the case when i graduated high school in '79. i went to a very economicaly diverse high school with kids from some insanely wealthy kids but their parents were not funding their college aspirations any more than the average middle class kid let alone the low income kids. those wealthy family kids for the most part were working after school and summers just like the rest of us to save. you might have the rare one with old family money and a trust fund that they were going to use but it was not the norm for their parents to pay.

i think of how hard it is even with a great education and no student debt for younger people to financialy get by these days, i don't want to think how much harder it would be to also be a bit older with a couple of kids and learn that your senior parents did'nt save for themselves and are now in dire financial circumstances.

 

[Chili327]

People just want stuff so they talk themselves into it… basically.

Im sure it has been said and I think is a big problem:
1. DVC is not something you should finance (or even buy) if you are in debt, and I mean like IN DEBT, not just financing your car, have a mortgage, etc. but also have extra.
2. A lot of people don’t realize that paying the minimum each month isn’t helping them get out of debt, it’s basically keeping them IN debt. But I think a lot of people just assume that’s how credit works you just pay the minimum and it eventually gets paid off. Thanks public school.

I didn’t read past 1st page before posting, but I assume this has probably been posted already.

 

[Matty B13]

PS I think most of us know exactly what constitutes poor financial decisions. Debt is not a dirty four letter word. Many great business leaders have made their fortunes with the use of debt. But it's obvious what most are referencing here...reckless discretionary spending with no way or plan of how to pay it off. It's hard to argue that that's a good thing no matter how you want to spin it.

Difference is that business leaders just declare bankruptcy when it fails, but individuals have a much higher requirement to declare bankruptcy to get out of their debt.

But I do agree that people who can't afford debt, taken it on anyways.

 

[Dakota731]

I think you should be asking congress that question.

No I think we should be asking ourselves since we voted for these members who keep putting us farther and farther into debt.

 

[Dulcee]

So many of these conversations leave out the nuances of generations...

My husband's parents bought their first house and then their second house, keeping the first as an investment, for peanuts. Then had growing wages that continued to match increases in the cost of living. That continued for the period when they raised their kids. They also raised their kids in an era when childcare was still arguably "affordable."

For my generation, millennials, just the cost of safe and reliable childcare, juggling moderate (less than 40K) student loans, and trying to buy a house or afford rent in today's market? Try doing it on a teacher's and a cop's salary when both you and your spouse choose professions that give back to society without being paid appropriately.

I'd like to meet the people who do that without incurring some level of debt.

 

[Dakota731]

One of the biggest reasons for debt nowadays is college costs. So many of my kids’ friends are in debt for over $100 thousand and have degrees that aren’t worth the debt ratio. It’s one thing to have debt for a medical degree, but to have huge debts for a degree in sports management or art history just doesn’t make financial sense. Some of these kids are now working as servers or baristas while paying back this massive debt. We need to be a little smarter helping our kids to choose a college and a major. Some would be better off learning a trade making six figures without huge debt. Some would be better off attending a state school or a community college. Some parents are more interested in bragging about the prestigious college their child attends rather than worrying about their child’s financial future. I was thrilled my kids were able to support themselves totally after graduation without living in my basement, or my husband and I helping them financially. Our goal was for them to be economically independent and to be educated about money and debt.

 

[Matty B13]

Some would be better off attending a state school or a community college.

Sadly a lot of State Universities have lost their way and have raised their costs exponentially in the last 20 years. In Massachusetts the State Universities cost almost the same amount as the private schools, and are cheaper since you can usually get a scholarship to them. I have several friends who have kids that are now attending Private Universities because they were cheaper than State Universities.

 

[amylevan]

We need to be a little smarter helping our kids to choose a college and a major.

I cannot emphasize this enough. I coach high schoolers and there are always a bunch that are planning on something like teaching that ignore our two, semi-local, reasonably priced state colleges for a more sexy choice. You are never going to be a high earner as a teacher, and there’s nothing wrong with that, so don’t saddle yourself with higher debt than you need if there are cheaper options.

College is a tool to earn an education. It should be treated as such. Sometimes it needs to be a less emotional choice.

 

[mjkacmom]

Sadly a lot of State Universities have lost their way and have raised their costs exponentially in the last 20 years. In Massachusetts the State Universities cost almost the same amount as the private schools, and are cheaper since you can usually get a scholarship to them. I have several friends who have kids that are now attending Private Universities because they were cheaper than State Universities.

UMASS Amherst offered around $18,000 a year to my oos kids, even more to my 27 year old with lower (but still high) stats. My 27 year old decided just to go in state at Rutgers for the same cost, both are flagships. It’s still $30,000+ a year.

 

[barkley]

So many of these conversations leave out the nuances of generations...

My husband's parents bought their first house and then their second house, keeping the first as an investment, for peanuts. Then had growing wages that continued to match increases in the cost of living. That continued for the period when they raised their kids. They also raised their kids in an era when childcare was still arguably "affordable."

For my generation, millennials, just the cost of safe and reliable childcare, juggling moderate (less than 40K) student loans, and trying to buy a house or afford rent in today's market? Try doing it on a teacher's and a cop's salary when both you and your spouse choose professions that give back to society without being paid appropriately.

I'd like to meet the people who do that without incurring some level of debt.

just curious-what does childcare run these days? i was paying what i felt was exhorbitant amounts for my littles in the late 90's (and our wages in no way shape or form were keeping up with the cost of living).

 

[Matty B13]

UMASS Amherst offered around $18,000 a year to my oos kids, even more to my 27 year old with lower (but still high) stats. My 27 year old decided just to go in state at Rutgers for the same cost, both are flagships. It’s still $30,000+ a year.

I think UMass Amherst is 40k now (In-State), but they have a D1-A Football Program now........ that losses almost every game. And a head coach that makes $800k/year. Should have stayed at the D1-AA level or what every it was before.

 

[barkley]

UMASS Amherst offered around $18,000 a year to my oos kids, even more to my 27 year old with lower (but still high) stats. My 27 year old decided just to go in state at Rutgers for the same cost, both are flagships. It’s still $30,000+ a year.

college cost variances for public schools these days floor me. my oldest graduated from one of our state universities in '18 and the cost then was about $8k per year. the top public university here (which ranks in the top 40 nation wide) is still fairly reasonable with 2023/2024 tuition at just shy of $13,000 per year.