When I Grow Up I Want to be in Debt
June 13, 2008 · Print This Article
Does that line sound familiar? Of course not. Kids grow up saying things like they want to be a doctor, an astronaut, or a zoo keeper. No one grows up saying they want to be in debt one day, so why is it that Americans have a combined credit card debt of over $900 billion?
There are many theories and possible explanations that all have some truth behind them. One possibility is that most people have simply forgotten the basics of sound financial planning. Traditional financial planners will tell you that you need to have a reserve emergency fund with enough cash to last you at least six months should something unexpected occur, such as job loss. If your emergency lasts longer than six months then maybe, just maybe, you will use the little piece of plastic to buy food or pay for utilities-just the absolute bare necessities. Once you are back on track you do all that you can to rebuild that emergency fund, pay off that credit card, and then put the credit card away so that it will be used only in the next dire emergency. Yes, this may mean some months of clipping coupons and postponing that vacation, but that is what being financially responsible is all about.
That was then; this is now. Credit cards are no longer used just for emergencies. They are used every day to pay for everything from utility bills and groceries to shoes and vacations. So how did this happen? Well, first there’s the convenience factor. Carrying a credit card is definitely easier than carrying a wad of cash in your wallet. It makes your purse a little lighter and if your purse gets stolen, you can cancel your credit cards. Cash, on the other hand, cannot be canceled and issued to you again. Convenience is great.
Second, once you get accustomed to using credit cards to purchase daily needs, the line of demarcation between necessity and want blurs. For example, food is a necessity. A $100 per person dinner at the new trendy restaurant is a want. A credit card can marry the two, such that you can satisfy your basic need and your desire at the same time. Since credit card use has become a habit, the $100 dinners continue and then voila, and 3 years later you’re still paying for that dinner. This is great…well, not really.
Does this mean that I believe everyone in debt is in their situation because of poor money management, distaste for cash, and lack of self discipline? No, of course not. As I mentioned above, there is not one single answer to explain all of this; rather, there are many factors fueling America’s growing debt problem, including the job market, legislation and credit card companies themselves. However, I think that if Americans are to start trying to resolve this problem, and more importantly, teach our kids how to avoid putting themselves in this same situation, we all need to go back to the basics of sound financial planning and responsible credit card use as soon as possible.
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