RE: Debt sucks! So use credit productively.
Dear @fijimermaid
It's quite and old post so I'm not even sure if you would read my comment. Hope you will :)
You're saying that debt isn't good for anything. And to some degree I would agree with you. However ... would we witness any economy growth without debt? I often wonder.
Perhaps from macro-scale point of view debt is a necessity?
Also morgage = debt. And getting morgage in times of high inflation can be one of the easiest way to pay off that morgage. Since value of debt is decreasing (in times of inflation). Wouldn't you agree?
If it takes me 4 months to save up $1000, I am going to be very very careful how I spend that money.
Credit however is easy. It doesn’t take any time or energy to obtain
I actually disagree with you. Based on my own spending and experience (watching others) I would say that people spent their own earned money very easily. But they think twice before they will create more debt. And if they are forced to get into debt -> they will most likely be very careful with spending those money.
Interesting choice of topic. Upvoted already :)
Cheers, Piotr
“I would say that people spent their own earned money very easily. But they think twice before they will create more debt.”
I agree that when people go through the decision-making process, they are wary of debt. But people's actions do not back up their thoughts and words. I posted this to explain the psychology of credit/debt.
The data suggests that debt is exceeding income earned as debt becomes less expensive to maintain (lower interest rates). People are spending credit easier than they are they're own money earned. Here is some data that I’m going to put in a future post.
In 1983, the federal discount rate was 8.50%, which made debt a lot more expensive than it is now. At that rate, American households on average had a debt to income ratio of 55%. Fast-forward to 2019, with a discount rate of 3%, the debt to income ratio was 160% for households. That means households have 160% more debt than they have in annual income. Credit seems to be used at a higher velocity, even as savings rates have increased in the past 16 years. People are conserving cash, but using credit.
https://fred.stlouisfed.org/series/INTDSRUSM193N
https://www.stlouisfed.org/~/media/files/pdfs/hfs/assets/2017/moritz_schularick_the_great_american_debt_boom.pdf
https://www.newyorkfed.org/microeconomics/hhdc.html
https://fred.stlouisfed.org/series/MEHOINUSA646N
Thank for being so responsive @fijimermaid
Perhaps it's cultural thing. I live in Poland (east europe) and it has been drilled into my brain (and most people around me) to always build savings. To never spent more than I earn.
Access to credit has been difficult here (until we joined EU) so it may be the reason why our mindset here seem to be different.
Borrowing money to spent on consumption seem to be super rare here. And idea of having financial buffor is something we're all learning even when we're a kids. (at least my generation did).
So ... my experience with debt seem to be slightly different.
"Perhaps it's cultural thing."
That is a very good point.
I'm also not considering other economic and political dynamics. Where a nation is economically speaking, fiscal and monetary policy, where they are in the debt cycle, etc... Whether the former and current generation had to go through hard economic times. After the Great Depression in the 1930s in United States, people were very wary of using credit and didn't start really using it until the 1960s.
I should probably be clear that my post are US centric, because the data that I post is US centric. And ask questions about other people's experiences and how they view credit and debt.