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Why do we get in debt?

I am still in Atlanta and although this is not my first visit it looks like I am never going to learn. Every time I come over here I check the weather forecast and because the temperature looks rather high I don’t bring a jumper. Guess how many Georgia Tech tops do I have? Today I bought another one and they don’t come cheap – just paid around $50 for a lovely, soft and warm top. But still, I could have done without spending so much on a top. So I started questioning whether I am getting back to my old ways and naturally my mind drifted towards reflecting on debt and why do people get in debt.

There is much written on this one again; just like most matters of personal finance. What we find in the personal finance  literature and on many blogs is some (or all) of the following:

  • Spending more than you earn;
  • Not differentiating between ‘needs’ and ‘wants’;
  • Being irresponsible with your money;
  • Making bad financial decisions;
  • Wanting the latest gadgets;
  • Not having an ‘emergency fund’;
  • Important and disruptive life events ;
  • Buying on credit instead of saving for things; etc.

This is all correct and many people I have talked to about debt agree that one, or a combination of these, are to blame. Where such and similar accounts go wrong though is that they confuse mechanisms with causes. All of the above are ways to get into debt but none of these is a reason, or a cause, for that. Interestingly enough, to change a situation, or not to get in debt in this case, one ought to work from the causes for it. Working from the mechanisms can have only temporary and limited effect.

So, while sitting in Starbucks and having a really bad espresso I started thinking about causes rather than mechanisms. I came up with three causes but if anyone reading can think of others please do share.

Being people ‘to have’ rather than ‘to be’

Erich Fromm was the one who made the distinction between people ‘to have’ and people ‘to be’. Most broadly this has to do with the advent of consumerism where even experiences and happenings are consumer goods. One expression of this is that most of us have started to crave having things most of the time and that possessing and owning have gained far too much important. There are different ways to move away from ‘to have’ towards ‘to be’ and I intend to discuss these separately. One of these is to master our wants.

Making comparisons

Making comparisons is a natural part of life – as behavioural economists have found all our judgements (decisions) are made in comparison. What makes us get in debt, however, is not the act of comparison but how to we act on our judgement. Do you want to have a boat because your friends have one? Do you buy a big flat screen TV because you are the only one amongst your acquaintances who doesn’t have one? A way out of the misery that comparisons bring – and comparisons have been linked to feeling unhappy as well – is to stop comparing yourself or what you have with others but work out a standard that suits you. Top athletes do not compete against others, they compete against the clock. Similarly, you should not compare yourself or what you have, against others but against an absolute standard. Where do you wish to be is what counts.

Not daring to be different

Not building up debt often requires non-mainstream decisions and measures. In other words, not building debt, or for that matter getting out of debt, may need you to be different. All your friends wear labels so do you have the courage and character to meet them in clothes from Primark? All your friends and neighbours buy their food in M&S so do you have the character to shop in ALDI? Even the most determined and single-minded amongst us wobble when it is about our children. Do you have the strength to take your children with you away from the ‘herd’ and make it fun?

I know that intuitively these are the three dimensions John and I have been working on. We have been moving towards people ‘to be’ by mastering our thirst for possessions (including not being so hung up on staying in our house); we have a big, fat, old TV and have no intension of changing it before it stops working; and we have been daring to be different. Come on, I have become a blogger!

3 thoughts on “Why do we get in debt?”

    • Hi Graham, and thanks. This is a good example of what I mean by the difference between ’causes’ and ‘mechanisms’. Yep, we buy things that cost too much when we earn too little to be doing it. But this is not the reason – the reason is that for one or other reason we want this things. Otherwise, it has been true from the early day of capitalism that goods and services are priced at what the ‘market will take’ and that the workers/employees are paid enough to restore their labour. Pay is also moderated by scarcity – the harder it is to purchase the skills and competencies you have the more likely it is to be paid higher.


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