Once again, Seth Godin has nailed it. His words about debt are spot on. Hear this:
“Charge it, they say. Put it on your card. Pay now, why not, it’s like it’s free, because you don’t have to repay it until later. Why buy a Honda for cash when you can buy a Lexus with credit?
One argument is income shifting: you’re going to make a lot of money later, so borrow now so you can have a nicer car, etc. Then, when money is worth less to you, you can pay it back. This idea is actually reasonably new–fifty years or so–and it’s not borne out by what actually happens. Debt creates stress, stress creates behaviors that don’t lead to happiness…
The other argument is that it’s been around so long, it’s like a trusted friend. Debt seems like fun for a long time, until it’s not. And everyone does it. We’ve been sold very hard on acquisition = happiness, and consumer debt is the engine that permits this. Until it doesn’t.
The thing is, debt has become a marketed product in and of itself. It’s not a free service or a convenience, it’s a massive industry. And that industry works with all the other players in the system to grow, because (at least for now) when they grow, other marketers benefit as well. As soon as you get into serious consumer debt, you work for them, not for you.”
Moreover, debt hurts the national economy on many levels, but perhaps the worst is that it sends fake signals to the economy. I agree with the Austrian school of economics that states that economies are like the environment; you can’t control it–you can only work with it. Debt creates an attempt to “game the system.” So, as plants can be tricked into blooming at certain times with the use of lighting, purchasing on debt tricks the economy into believing that there is more financial strength than really exists. This hurts in the long run because businesses and industries then make decisions on the information received (costs, income, etc…), so the signals seem to imply that income is rising (more sales), so either more people are hired or salaries increase. Yet, if the signals are false (eventually the power on the fake light will go out or the bulb burns out), when the people can’t pay the debt, they are forced to finally admit to how much money they really have. Purchasing ceases, people lose jobs, high salaries contribute to inflation, costs go even higher in a desperate attempt to keep the income stream steady and ultimately, the entire economy comes crashing down.
We made a poor choice back in the 1930-1950 period that put the entire country into this mindset of living on debt. Eventually it will destroy everything we know and cherish about our national life.