Why do people take on so much debt?

[mjkacmom]

Exactly. Crazy income spread for middle class in the same area. I'm sorry, but how can an income difference of over $130,000 put both incomes still in the middle class in New Jersey?

In my county, not a big area geographically, it really varies town to town. The median household income in Newark is $33,000, in Essex Fells it’s $175,000. They’re around 10 miles apart. Make a wrong turn and you can go from mansions (not McMansions) worth millions to housing projects. The median home price in Newark is still $560,000 (Essex fells 1.5 million).

 

[tvguy]

In my county, not a big area geographically, it really varies town to town. The median household income in Newark is $33,000, in Essex Fells it’s $175,000. They’re around 10 miles apart. Make a wrong turn and you can go from mansions (not McMansions) worth millions to housing projects. The median home price in Newark is still $560,000 (Essex fells 1.5 million).

Well, there is a difference between median income and middle income. Just in the zip code I live in there is a HUGE difference. The median income is $41,438. But if you make less than $60,050 in our county you are considered low income and qualify for special assistance.
We have more subsidized housing than any other zip code in the county, on the west end, and more homes valued at over $1 million, on the east end 3 miles away.

 

[tvguy]

I get the frustration about people taking on too much debt, but honestly, life isn't always straightforward. For me, I had to take out a loan when I started my own business. It wasn’t really optional; I just didn’t have the savings to buy the equipment I needed upfront. It was stressful, but I made a plan to pay it off as fast as I could.

Never thought too much about independent business people. I knew it was tough, and involved risk, but never thought about the challenges small business owners face when they want to retire. My neighbor is still running his business at age 73, because he can't find anyone to buy his business so he can't retire. Not only does he have money tied up in equipment, there is a lot of value in his 30 years reputation for how he runs his business. He has been fighting cancer for 10 years, but if he shut down his business he would lose hundreds of thousands of dollars and put 6 people out of work. And the business still makes a nice amount of money most years. The pandemic it went sideways, and he made the mistake of taking pandemic relief so he didn't have to lay off his employees. But as many of us experienced, the pandemic unemployment benefits were more than we would have earned working. His company, and his workers would have been better off financially if he HAD laid them off.

 

[DCLMP]

One of the biggest things I have learned on the DIS is how much money some people consider to be a middle class income in most parts of the country. So what IS middle class income? U.S. Census bureau using 2023 income figures says between $54,009 and $161,220 for a household. Some here have said an individual income of up to $150,000 is middle class. So we can't even agree on what middle class is. I would say an individual income of $150,000 is upper class.
But you are correct, everyone's experiences are different. Some people think it is normal to spend $400 a month on clothing. I think the most I ever spent for clothing when I was working was $400 for a YEAR, and that included a new suit.

A household between 54k and 160k would be middle class in my state. Depending on the size of your household and your age would determine how difficult your life is. A family of four with teens or college age kids it's going to super hard.

I agree a single person earning 150k is living the good life in terms of income...... and those people probably want to be married with kids LOL.

 

[tvguy]

A household between 54k and 160k would be middle class in my state. Depending on the size of your household and your age would determine how difficult your life is. A family of four with teens or college age kids it's going to super hard.

I agree a single person earning 150k is living the good life in terms of income...... and those people probably want to be married with kids LOL.

Well, I think how you live your life may be a bigger factor. Our combined income never exceeded $120k. 2 kids, put them through college, but it wasn't like we didn't have 18 years to save for College and in our oldests case, took advantage of Student and Parent loans. We paid off our house 5 years before our oldest started college and we kept making the house payments, not to the mortgage lender, but to the kids college fund. Started making payments on the student loans as soon as we took them out, had them paid off in 9 years, 5 years after our oldest graduated.

 

[Maistre Gracey]

I confess I did not read the thread, but…

Too many people look at the per month payment and say “I can afford it”, without looking at the total cost.

 

[LuvBulldogs]

For the life of me, I just cannot fathom willingly taking on a lot of debt.

So many reasons -- I read somewhere once that all happy families are fairly alike, whereas each unhappy family is miserable in its own way -- going into debt may be like that:
- Impulse purchases /lack of discipline
- Medical bills or other emergencies
- Overspending on "big ticket items" such as houses and cars, then not having enough left over for smaller necessities.
- Divorce
- Job loss or lay-off
- Death of a spouse
- They're offered credit cards and figure "why not?".
- They start out poorly in life, and it's hard to "catch up".
- A foolish belief that "everyone" is in debt, so no point in even trying.
- They don't think through the reality of paying back a loan.
- It's easy to say, "I need to spend now while I earn so little" OR "I need to spend for 1-2 years until I'm established, then I'll start saving".
- Fast-talking /seductive advertising -- for example, some people don't realize a car "lease" is just a rented car.

I will say this much - sometimes these people that are working their butts off and struggling so hard they deserve a vacation even if it’s a little tiny one can you imagine going your whole life and never taking a vacation?

Everyone needs time off /a good solid rest every now and then, but -- no -- we don't need to go away and spend money to accomplish that goal. While I don't agree with them, I know a number of people who solidly have no desire to go anywhere that won't allow them to come home and sleep in their own bed every night.

Personal debt is at an all time high and so is government debt. I don't think any of is going to end well.

I'm afraid of the same thing.

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

Financial literacy IS taught in school! It's a required class in high school -- lessons on saving, lessons on budgeting, lessons on interest. The kids think these lessons are really easy -- and the facts themselves are easy; it's the IMPLEMENTATION that's hard. Thing is, THE WORLD is pushing kids in a completely different direction (because our economy is based upon consumer spending), and those lessons are stronger than what's taught in school:

- Advertising tells us constantly we "must" have this product, drive that kind of car, eat at these restaurants, etc. We each see /hear literally THOUSANDS of these messages every single day, and they speak more loudly than the lessons from the classroom.
- Similarly, we're constantly told that we "save" when we buy a new outfit, etc. on sale. No. We save at the bank. Even if we're talking about buying basic groceries, that's spending. Advertisers have done a great job confusing the general public about what "saving" actually is. For example, today is the day after Christmas, and I went out and bought some things at 50% off -- but I didn't "save" a single penny. I may've found some good bargains, but I spent money.
- We're teaching kids lessons they cannot yet "practice" in reality; that is, we talk about saving and compound interest, but by the time they get their first jobs, they're no longer thinking about how compound interest can be their best friend or their worst enemy.
- So many households model bad financial habits.
- School teachers facts, but self-discipline is largely learned at home. Just like everyone knows how to lose weight, everyone knows how to save -- but self-discipline keeps many people from doing what they know is right.

So please don't blame this on the schools. I specifically remember lessons on financial literacy from my own high school education back in the 80s -- I remember my algebra teacher making us say over and over, "I want a simple interest loan with no pre-payment penalty." It's being taught. It's been taught a long time.

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.

I was a poor kid. A really poor kid.

A couple things saved my bacon: Pell Grants, working as a resident advisor to get a free room, and working multiple jobs /having no time for anything but school and work. I didn't finish college in 4 years, but I did graduate without debt. Looking back, I can see ways I could've done a whole lot better /made better choices. The government invested in me /helped me earn my degree, and I was a good investment: I've been a taxpayer instead of a taker all these years, and I was able to write checks for my own kids to go to college. That's the goal of those Pell Grants -- but you've gotta be genuinely poor to qualify.

The kids who are really screwed aren't the poor kids -- no, it's the middle class kids who can't qualify for Pell Grants AND whose parents didn't save /aren't willing to help them.

Both of our kids attended trade schools (welder & electrician) ... Now they have kids convinced that college

Trade school can be a really good choice. My brother the Electrician makes a lot more than I ever did with my degree.

Having taught high school seniors for three decades, I assure you all kids do not have college plans.

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

That's true. College will take your money whether your goal is a degree that leads to a solid job -- like nursing, engineering, or accounting. Or whether you want to study something less profitable -- like music, philosophy, or women's studies.

We definitely need to convince our kids that some classes are a lot of fun /expand your mind /make you a better version of yourself -- but that's not the same thing as preparing you for a job.

I really think those types of student loans are predatory & something needs to be done about them.

True, true, true. We were able to pay for our own kids to go to college, yet EVERY SEMESTER they were offered student loans. And the language was so seductive: No need to struggle to balance your studies and work, you deserve a spring break trip, you need a safe vehicle. Honestly, thinking back to my own college years -- when I was sometimes hungry and cut cardboard to cover the holes in the soles of my shoes -- if it'd been this PREDATORY back then, I probably would've fallen victim.

I can’t tell you how many amazing memories I have as a kid

When it comes to finances, one of my favorite words is BALANCE.

My college built some amazing new gyms, sports facilities, dining halls, etc. since I left. That’s where a lot of the money is going. Making colleges shiny and attractive to applicants. But none of that affects the quality of education, unfortunately.

I know you're right. I just said I taught high school seniors for years -- they'd go off to college visits, and they'd come back excited about the stupidest things: State has granite counter tops in their on-campus apartments! Oh, the pool tables in the Student Union! They serve sushi in the cafeteria! You can check out an iPad tablet or a gaming system from the front desk in the dorms! (All real things students have said to me.)

And parents allow their kids to "super size" their college experience. After outfitting their dorm room fancy-fancy for a single year, the kid "needs" to move out into an apartment. The kid "needs" a car and a spring break trip. But a job? Noooooo.

And the government is us! If they are paying someone’s college loans for them then it’s out of our tax dollars. The government doesn’t make a product and make a profit. Anything they spend comes from the Americans who work and pay taxes.

Yes, anything that's given to you for free was taken from someone else.

I think a lot of people take on debt because it feels like the only option at the time

Or it seemed like the easiest choice -- I'll deal with the reality of paying it off tomorrow!

 

[mjkacmom]

Keep in mind when one accepts financial aid the tax payers are paying for that too.

 

[mi*vida*loca]

Some people take on debt just to make ends meet. For some what they make is less than their monthly bills. And that’s not always because they live extravagantly. There are people that are such low earners it’ll never be enough for basic lifestyle.

Growing up my mom didn’t make much. She had two kids with no child support. We didn’t have a car, house phone or cable, we never vacationed, never went out to eat, never had truly nice things. We lived in a terrible neighborhood (our slum lord actually set one of the row homes on fire while we were home. I guess hoping he’d get the insurance money). I know my mother didn’t have credit cards but she’d borrow money to buy us winter coats or boots, etc. Basic necessities. But with that you had to pay these people some kind of interest. Eventually she could get credit cards and I’m sure she ran them up. It’s just a never ending trap.

Where I live a studio goes for $1400-1500 in a decent neighborhood where you don’t have to worry about being killed or robbed. Most young people I know can’t afford this. Even if they make 50k a year, After taxes, 401k and other deductions one paycheck would barely cover rent. Add in transportation, utilities, food, etc. there’s no money to save for an emergency. So if there is an emergency you’ll most likely have to use a credit card.

It’s not so easy as “get up and move” if COL is too high, especially if you have kids that family helps with. You have cheap or free childcare here and if you move you’re looking at 1k++++ in childcare added to your budget. It defeats the purpose.

I think multigenerational living is going to make a comeback due to COL. I grew up in a Hispanic and black neighborhood and this was very normal for me growing up.

 

[barkley]

Never thought too much about independent business people. I knew it was tough, and involved risk, but never thought about the challenges small business owners face when they want to retire. My neighbor is still running his business at age 73, because he can't find anyone to buy his business so he can't retire. Not only does he have money tied up in equipment, there is a lot of value in his 30 years reputation for how he runs his business. He has been fighting cancer for 10 years, but if he shut down his business he would lose hundreds of thousands of dollars and put 6 people out of work. And the business still makes a nice amount of money most years. The pandemic it went sideways, and he made the mistake of taking pandemic relief so he didn't have to lay off his employees. But as many of us experienced, the pandemic unemployment benefits were more than we would have earned working. His company, and his workers would have been better off financially if he HAD laid them off.

we've sadly seen a number of very well respected privately owned businesses close in recent years b/c the owner operators could not find buyers nor had anyone within their families that were interested in taking over. these were incredibly well regarded with tremendous reputations but involved specific skill sets that just are not that popular for younger folks to go into and gain the skills to work within let alone run. as I see the owners aging up but continuing well into their 70's with other businesses we utilize I strongly suspect we will encounter the day in the not too distant future when they too close up shop

 

[gmi3804]

People these days have too many water bottles. How many does one need? I'd argue that most people don't even need one, yet people who don't have a pot to piss in have a dozen unused ones laying around the house. Now this is mostly a metaphor, of course, but people spend money on s$%t they don't need. We're constantly fed the idea, from external and internal forces, that we need these things or our lives will be incomplete and we'll never be happy.

 

[mjkacmom]

People these days have too many water bottles. How many does one need? I'd argue that most people don't even need one, yet people who don't have a pot to piss in have a dozen unused ones laying around the house. Now this is mostly a metaphor, of course, but people spend money on s$%t they don't need. We're constantly fed the idea, from external and internal forces, that we need these things or our lives will be incomplete and we'll never be happy.

You can get one for under $25 and then you never have to buy drinks out. It saves money.

 

[gmi3804]

You can get one for under $25 and then you never have to buy drinks out. It saves money.

You don't need six of them. Or if you stop buying drinks out (which you probably don't need either) you don't even need that. That's my point.

 

[barkley]

People these days have too many water bottles. How many does one need? I'd argue that most people don't even need one, yet people who don't have a pot to piss in have a dozen unused ones laying around the house. Now this is mostly a metaphor, of course, but people spend money on s$%t they don't need. We're constantly fed the idea, from external and internal forces, that we need these things or our lives will be incomplete and we'll never be happy.

it's telling about the number people have when some of the home design/Reno shows are incorporating custom water bottle storage racks into their kitchen designs I honestly don't think we have any but we do have more than our fair share of travel coffee cups (in part b/c my oldest's former employer gave them to staff for every freaking occasion and how many can one single person reasonably need?).

 

[gmi3804]

it's telling about the number people have when some of the home design/Reno shows are incorporating custom water bottle storage racks into their kitchen designs I honestly don't think we have any but we do have more than our fair share of travel coffee cups (in part b/c my oldest's former employer gave them to staff for every freaking occasion and how many can one single person reasonably need?).

Go to any home decor store and there are shelves and shelves with water bottles of all shapes and sizes. And they keep making new ones, like everyone doesn't have one already. W T F ?! Definitely a want vs. a need.

 

[tvguy]

Go to any home decor store and there are shelves and shelves with water bottles of all shapes and sizes. And they keep making new ones, like everyone doesn't have one already. W T F ?! Definitely a want vs. a need.

People actually BUY water bottles? We have about 20 on the shelf, after taking about that many to Goodwill. All swag given to us by employers, University alumni associations, our electric company, home improvement companies.
I worked for one company for 16 years that had 6 different corporate owners in that time, and every time we got sold, we got a new water bottle with the new corporations name on it.

 

[tvguy]

Keep in mind when one accepts financial aid the tax payers are paying for that too.

Not necessarily. My son went to a private University and got $10,000 a year in grants from the University's endowment. Not a single taxpayer dollar. I can't speak to what cost our student and parent loans had to the taxpayers. We paid market rate interest, and did not default, so I suspect the government broke even on that.

 

[gmi3804]

OK, this is creepy. I was scrolling through YouTube and this came up.

 

[tvguy]

we've sadly seen a number of very well respected privately owned businesses close in recent years b/c the owner operators could not find buyers nor had anyone within their families that were interested in taking over. these were incredibly well regarded with tremendous reputations but involved specific skill sets that just are not that popular for younger folks to go into and gain the skills to work within let alone run. as I see the owners aging up but continuing well into their 70's with other businesses we utilize I strongly suspect we will encounter the day in the not too distant future when they too close up shop

There is a story in the news here today about a flower shop closing after 74 years. Same owner all this time, and she is 96 and still active in the business. But when her daughter died a few weeks ago at age 74, she said she knew "it was time"
We had a very popular restaurant close 2 years ago that had been under the same family ownership for 87 years.

 

[Starport Seven-Five]

People actually BUY water bottles? We have about 20 on the shelf, after taking about that many to Goodwill. All swag given to us by employers, University alumni associations, our electric company, home improvement companies.
I worked for one company for 16 years that had 6 different corporate owners in that time, and every time we got sold, we got a new water bottle with the new corporations name on it.

I was thinking the same reading through the thread. We purged an entire bin of old ones last year that were gifts from suppliers and employers. Seems like those replaced the coffee cup as the go-to gift.