How Did We Get into Such a Mess?

A lot of the people who watch my show are not in debt. They watch because they find the stories so compelling. But over and over I’m asked, “How can people get themselves into such a mess?” I’m less aghast. I know falling into the debt hole isn’t as hard as it looks.

First there are the people who’ve had a significant change in their life, but haven’t come to terms with the financial implications. Whether it’s through divorce, the loss of a job, sickness or death, changes in our lives don’t necessarily translate into changes in how we manage our money. So later, when we suddenly realize what we’re doing isn’t working, we’re stunned at the mess we’ve made and at a total loss as to what to do about it.

There are also some psychological factors that play into our Dance with Debt. At a website called The Frontal Cortex there’s an interesting article on how the subprime crisis happened. It boils down to the fact that we’re wired to be more responsive to short-term gains than long-term risks. It’s the old, “bird in the hand” principal. Johan Lehrer says, “Our feelings are thrilled by the prospect of a new home, but can’t really grapple with the long-term fiscal consequences of the decision. Our impulsivity encounters little resistance, and so we sign on the bottom line. We want the house. We’ll figure out how to pay for it later.” Whether we’re talking about subprime mortgage or zero-down home-ownership or whipping out our credit cards so we can go on holiday, the same principals apply. The reward now is more powerful than the potential cost in the future.

There are also a fair number of people who feel entitled. “I work hard, I deserve a vacation.” If I had a dollar for every time someone has said this to me, I could cruise around the world…twice. People believe that just because they want something they have a right to it, regardless of whether they can afford it. That’s how Buy Now Pay Later became such a hit. “I want it. I have to have it. If I can’t pay for it, I’ll just find a way to get it without paying for it.” Then when the bill comes due at a whopping thirty-something percent, people whine about how rapacious the rates are.

And then there are the people who are Delusionally Wealthy. They have a big screen TV, a late model car, computers, the latest cell phone (which, like dopes, they lined up for when they could have been working)… the list goes on. Instead of measuring ourselves by the amount of money we have accumulated (which is what wealth is), we use stuff, things, crap to create the delusion of wealth.

The brother-in-law to Delusionally Wealthy is Capriciously Credit-worthy. These are the people who measure their success in life by how much credit they’ve been granted. I’ve met people who brag about how much borrowing power they have. I remember when we used to braq about how much we had saved. Not anymore. Now it’s all about how deep in the hole we can go. Wow!

And then there’s Hubris, or the belief that god-like we will always be able to magically escape whatever mess we’ve made. There’s nothing magic about money or economics or the process of debt repayment. The belief that we’ll never have to pay the piper, that we’re above the rules, is what gets us into a mess and then keeps us there.

Sadly, even in today’s very difficult economic times (will it get worse?), there are people who cannot smell the coffee burning. For them, and those who love them, the caca is still to hit the fan, and there will be hell to pay and pay and pay. 


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8 Responses to “How Did We Get into Such a Mess?”

  1. I was brought up in a household where you didn’t have credit – you had to have the money before you bought anything. Our house wasn’t very big, but it suited us. We weren’t trying to show off to anyone – and we were happy. So often now I find people who want to be the first to have the newest gadgets, because they think it makes them look better. The Jones theory. I don’t get it – but I can understand how easy it is to get caught up in the whole one-upmanship stuff. The bigger house, the better car, the playground in the yard for the kids, etc. Unfortunately, this generations kids are seeing this, and will do the same thing. I am trying to raise our kids (7 and 4) to be generous to others, and not have to have all the latest fads. I just hope they continue to be that way. Thanks Gail for all you do – just wish your show was compulsory in school – we need Financial Education in schools today (elementary and secondary).

  2. It’s the “Child in the Supermarket” syndrome.

    I want it and I want it now! And I don’t care if I scream at the top of my lungs to get it.

    These people need a good smack to wake them up.

    Act your wage!

  3. Brenda: I admire your parent’s strength and wisdom in choosing to live that way. That is the path I have chosen for my family (and my husband is fully on board).
    Peer pressure is strong, but the instant gratification isn’t good enough for me!
    I alone am responsible for how I react to crisis and how I deal with my future… the gremlins can just shut up.

  4. I laughed at “Capriciously Credit-worthy”. Since I fully paid down my penultimate loan, I have received three loan offers from my bank. Each larger than the next! Although I am still US$9K in debt, the bank is now willing to loan me US$30K plus give me a ‘free’ laptop. What?!? To me it’s nothing to brag about because I see it as a sign that my bank thinks I’m stupid enough to borrow that amount! IMO, the term “borrowing power” is a misnomer.

  5. Thanks for this blog entry. It inspired my last post about whether I deserve a vacation or not. It’s certainly important to consider the costs of traveling, but are you advising those of us in debt not to take a trip at all, or we just should put it all on a credit card?

  6. For a girl who calls herself an Unspender, you’re doing a lot of shopping: there’s the trip to Hong Kong, the new laptop (yeah, I know, the ipod was free), the wedding in Calgary and now the trip to Vancouver. Only you can decide if these are worth the long-term costs. It’s your money and your life. But don’t delude yourself. If you are spending money you haven’t yet earned, you’re not going to be in a Happy Place when a crisis hits. And if you think having a 5-year-old laptop was a crisis, think again. You may think you NEED a vacation, but you WANT a vacation. You NEED a roof, enough food, and clothes to keep you warm. You NEED to be able to get to and from work. (Okay, if you work on the new laptop, it might be a NEED, but only if you couldn’t work on the old laptop.) I’m not going to tell people they shouldn’t take vacations when they have debt. I do believe you shouldn’t spend one iota on unessentials until your debt is repaid — and while your vacation is a frugal one, you seem quite resigned to being in debt for a long time. Hmmm. Little Debt Fatigue rearing it’s ugly head? Have you calculated what it’d take to be out of debt in three years? Two years? One year?

  7. To be clear, I didn’t take a vacation in Hong Kong, I was working and living there. That said, I know I’m not perfect, but I am trying to find some kind of balance.

  8. Pwned.

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