Debtor Personality
Posted by John Draper | Filed under Bad Habits!, Credit Wise, Take Control
I recently worked with a new couple that made go, “hmmm”. She’s only 26 and already owes over $40,000 in consumer debt, even though she doesn’t pay a cent in rent and has virtually no real expenses. Sure she has a cell phone and a nice car, but they’re toys, not tools of her trade.
He went nuts with his credit cards when he first got them – yes, he join three separate gyms – and then froze his cards. He’s been working to pay them off ever since. He’s paying in the high teens and mid-twenties when it comes to interest, but has never considered negotiating his rate down.
So what happens to us to make us think that when we’re using our credit cards we aren’t really spending real money? How do we come to delude ourselves? What lets us rack up thousands of dollars in debt without batting an eye? And what lets us carry around balances on our credit cards, at huge interest rates, without losing our minds?
Hey, I know there are people out there who use their credit to make ends meet. Lose a job, have a child get sick, or watch your car die in the middle of a highway, and the idea of putting it on a card and carrying a balance becomes a secondary issue to taking care of the BIG problem.
I’m not really thinking of those people. I’m thinking of the people who bemoan their debt while booking their next cruise. I’m thinking of the people who can’t drive a regular car, they have to drive a car they really can’t afford. I’m thinking of the people who can’t seem to find the money to repay their old bad spending habits because they’re too busy traveling (on credit), eating out with friends (on credit) or shopping (on credit.) What makes those people immune to the gut-wrenching stress that other people feel when they owe money?
Is there such a thing as a debtor personality? Or is it simply a case of being clueless?
Psychologists have done some research on the issue of debt personality. Some believe that people who accumulate debt also:
- Lack the ability to plan
- Are not reflective in their thinking
- Have an urge to be active
- Are impulsive
- Can be anxious or apprehensive about making the wrong choices
- Need excitement and novelty
- Tend to disregard possible negative consequences.
When I ask my fams what they spent their money on when they were going into debt, they can’t tell me. When I look around their homes I may see some evidence of their debt, but very often they don’t have a lot to show for the amount of debt they’re carrying. And when I show them how much money they’re spending, they’re stunned. Some accuse me of making the numbers up. Ha! I don’t have to; they’re great all on their own.
So how do we get so far away from the idea that what we’re doing is SPENDING MONEY and that at some point in the future that money will HAVE TO BE REPAID?
Part of the problem stems from the “Minimum Payment” … the idea that you can have what you want now, for as little as $10 a month. Hey, but that’s $10 a month FOREVER. Do that a couple of dozen times and now you’re up to $240 a month. Do that four years and now you’re up to $960 a month… and you’re no closer to ever being paid off. Ouch!
It’s easy to use credit. It’s hard to pay it off. And if your circumstances change and you find yourself with less money in the family pot, you can really strap your ability to roll with the punches if you’re carrying around a bag of debt.
It’s time to become a little more reflective in your thinking. It’s time to learn to plan. And it’s time to stop disregarding the possible negative consequences of your rampant spending.
Want some real excitement? Try living on half your income so you can put the rest to debt repayment. Have the urge to be active? Get another job and use all the income to pay off your debt. Impulsive? Eliminate the temptation: don’t carry your cards and stay out of the malls.
There’s always a solution. If you really want one. So, do you?
July 23, 2008 at 11:22 am
This is a good one Gail. I have some family members with that other personality. They don’t seem to care when they owe people money. (or at least they don’t appear to care) They always have stories about the ‘clever’ remark they made when the bill collector called and seem to go on about their business owing thousands if not tens of thousands of dollar. I on the other hand, wake up at 6am on payday to e-pay everyone before they send the bill! The idea of someone calling me to collect debt makes me nauseous. Bizarre.
July 23, 2008 at 11:46 am
“Tend to disregard possible negative consequences.” I think that is a big one for so many young people!
I don’t know if it is the same across Canada, but I know out west there is a real employable-youth issue! I admit I am painting with a broad brush here, but it seems to be the norm for the young’ns to really not know what consequences and hard gains really are. If they even bother going to look for a job, they treat it as if it’s the employers privlidge to hire them, (“what’s in it for me?” instead of “what can I do for you?”) They have been told they are wonderful, everything will work out, “good effort” so many times in their childhood that they can’t see anything bad really ever happening to them. They have simply never been asked to sacrifice anything to achieve something worthwhile. (Is this the positive-only parenting backlash? What are these sheltered ego-maniacs going to be like as parents? Parenting is HARD and it HURTS sometimes too.)
Balancing wants and needs, delaying instant gratification, being accountable, paying attention, these are the qualities that make financial success possible.
July 23, 2008 at 12:21 pm
I knew my husband and I were very different types when it comes to money and budgetting, but Gail, this blog showed me he has a debtor personality. He actually knows he does, so tends to listen to me as much as he can when it comes to money management. If it weren’t for me, he knows we would not have a house because he would never have been able to save the down payment on his own, and not because he doesn’t make enough money. We have been on the jars for nearly two months, and money is actually accumulating in our account (quite a bit actually!). In fact, now that I see how much we don’t need for “life”, I am setting up automatic withdrawals for savings and RRSPs. It is very exciting to me and my husband has noticed how much happier I am. I love knowing we have money in the bank. He, on the other hand, tells people he is following the budget and it is good we can save money, but he doesn’t actually like living like this. He would like to be able to buy things whenever he wants. It is difficult for me because I feel like I am being the bad guy, even though our jars have more in them than any other family I have seen on TDDUP. He keeps saying he wants to increase the jar money, but we always have money left over, so I don’t see the point. I guess I will have to accept that this is his personality and luckily he knows it and is willing to do what is best for our financial future, even if he doesn’t like it.
July 23, 2008 at 12:32 pm
That was me to a “T” and, sadly, not that long ago, either. I’ve learned the hard way (at least several times) that instant gratification isn’t gratifying if it doesn’t make you happy and you end up with bullying phone calls from collectors daily. Even then it didn’t make me stop. I only (mostly) stopped when I started honestly paying attention to the fact that being in debt, paying all the money you make to someone else for something you don’t even remember buying, and wondering where you were going to find just a couple of bucks to buy milk for crying out loud, that I started to realize that it really, really sucks.
I had to consciously decide that I deserved to keep some of what I make and almost overnight, the stress was gone. I have funds for various emergencies, am building a safety net of 3 months wages (at this point), and just feel so much better. I do as Lynn does, pay myself first and then my bills on the morning of payday, so it’s done. When I get the bills in the mail, it’s already taken care of.
I also really like what Tracy had to say at the end there, about “balancing wants and needs, etc.” Very true!
July 23, 2008 at 2:42 pm
What makes a debtor personality? Denial.
July 23, 2008 at 5:04 pm
My wife and I love to travel, so we set up an account and put an affordable amount of money into it monthly. But I got asked to travel to Alberta (from Ontario) for my cousin’s wedding and it just doesn’t fit our budget, so I took up umpiring this summer.
I love being outside, being active and now I get to make some extra cash to pay those asinine plane ticket prices.
That’s exactly what spenders wouldn’t do. Why take up time spending to work a second menial job for $12 or $15 an hour.
But hey, I’ve earned my trip and know I haven’t hindered my family in the process.
July 23, 2008 at 9:49 pm
I have at numerous times wondered where the economy would be if it wasn’t for credit. Even with the s**t hitting the fan in the States they are still shopping away with most of it on credit. The day is coming that it will go from the mortgage crisis to the credit crisis and then we are in for a world of trouble!
GAIL, when does your new season start? I am getting antsy!
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July 23, 2008 at 11:53 pm
For those parents on here — this might be informative as to origin of the debtor personality – the marshmellow test tells all – http://en.wikipedia.org/wiki/Deferred_gratification
July 24, 2008 at 2:03 am
Just picked up the book “Predictably Irrational: The Hidden Forces That Shape Our Decisions” (Ariely) from the library (so it’s FREE!).
Ariely talks about his idea of a self-control credit card, which he took to a major US bank. The concept is to allow users to limit their spending in different categories in a set time frame, after which the card is rejected. The bank listened but, of course, didn’t follow up as they make too much money from the interest people pay – US$17 billion in the US in one year! Perhaps I should contact the author to explain “jars”.
There’s a chapter titled Why Dealing with Cash Makes Us More Honest. This book looks like it will be interesting reading.
As for Gail’s comment about “real excitement”, I got that when I received the letter confirming the debt to my penultimate creditor had been fully paid down. Lots of “yes, yes, yesses” and a dance around the living room were involved. Far more exciting and rewarding than shopping, IMHO.
July 24, 2008 at 10:20 am
Tracy J: You are so right about todays youth expecting everything. It’s a real challenge on the east coast as well to find good quality employees. Everyone expects good jobs to be handed to them and not to work hard to get these positions.
My friend has teenage children and we were discussing this issue. She said the kids now tell the employers when they will work instead of taking the shifts they are scheduled.
We notice that many of the younger people who are hired by our company have very little work ethic. They call in sick because they don’t feel like coming to work. They don’t care if they are on time. They don’t dress appropriately for the office, which is a big issue. They don’t take pride in the job they are doing.
That’s the joys of parents handing everything over to their children and not expecting them to work for anything.
Oh I could write a book about this topic!
As someone who works for a bank, it also amazes me how many people expect that we will lend them money just because they have been a long time customer. They don’t understand that we have to look at other criteria. A customers credit score and debt ratio are the major deciding factors. When we decline someone because they cannot afford to take on more debt, they are insulted and think we owe them the world. People don’t think late payments or other accounts in collections are a big deal at all. “Oh I paid that ages ago” Really? Why is it still on your credit report then? (Thankfully there are a lot of responsible people out there who make my job much nicer ).
Okay, I’ll get off the soap box now : )
July 24, 2008 at 8:06 pm
As a counterexample to the “young people these days” comments, I just started my first full-time job recently after obtaining an MSc degree, I’m NOT going into debt, I’m keeping track of my expenses, and I’m saving for emergencies and retirement. My parents, on the other hand…let’s not even go there. I’ve met plenty of older adults with entitlement issues, so please let’s not pretend that my generation invented instant gratification.
July 24, 2008 at 9:40 pm
No offense intended Rebecca, I’m just in my early 30’s myself. Good for you for starting off your career on the right track. I can totally relate to the “My parents, on the other hand”.
I don’t blame the younger people I have worked with, I blame the parents for handing everything over to them and not teaching them the value of hard work and earning things.
August 4, 2008 at 12:58 pm
I blame the banks and credit card companies for making us a debtor nation. Debt is like nicotine. They are both highly addictive and people will do extreme things to get more. Banks and Credit Card companies should be stopped from advertising their version of crack, just like cigarette companies have been stopped from advertising.
Take our son for example. He was working a part time job in a grocery store making about $9.00 per hour. Unfortunately he already had a small credit card from a certain Canadian “Tire” branded store, which was maexed out. He then made a Royal mistake of applying for another credit card at the largest bank in Canada. This bank gave him a $10,000 credit limit.
Now tell me how it is possible to get a $10,000 limit on a part time $9.00 per hour wage? Needless to say, he maxed out the card in about a year and has been paying the interest ever since – for about 5 years now.
The reason the banks allow this crookery is that they now have a great money making “ASSET” in the shape of our son.
They are deceptive and hugely seductive in their advertising methods and this needs to be stopped.