I owe! I owe! It’s off to work I go…
All the planners here in the office can share so many stories about how the misuse of credit has torpedoed so many people. Credit is easy to get. You practically have to have a credit card now to do anything. Many people view their line of credit as money that they have and not as money that the credit card company is loaning them.
When I originally wrote the book twenty-two years ago, it was my belief that one of the biggest reasons people misuse credit is that we are an instant gratification society. It’s even more so today. We don’t have to wait for hardly anything anymore. We know what’s going on around the world within minutes of it happening. Fast food hasn’t gotten any slower (or better). Online shopping has replaced going to the store. Amazon even offers same day delivery in many cities.
One of the best lessons we can learn and teach our own children is the idea of delayed gratification. I learned that lesson early on in life:
When I was eight, we lived in a small town in Kansas. At the hardware store, there was a beautiful black Schwinn bicycle, and I wanted it bad. It had white sidewall tires and was a two speed. It cost $105, which might as well have been $105,000, because I had no money and my parents were struggling to get by. Dad said, “If you really want that bike, go out and work for it.” But what if it’s sold before I get the money? I wondered. I was able to get an after-school paper route. It didn’t pay much, but I pedaled my old bike around town throwing papers and every day I’d ride past the hardware store making sure the bike was still there. It took a little less than a year to save up the money, until one day when my dad and I went to the bank and withdrew $105, went to the hardware store, and bought the bike. Today, most parents would have just put it on the credit card and put the kid on the bike.
Now we have 30-year mortgages, 6 to 8-year car loans, loans for furniture and appliances at 0% for the first year, credit cards promising to take you around the world. The average amount of debt per adult here in the U.S. is $58,604 and 77% of all U.S. households have some kind of debt.1
The major problem with debt is that it obligates future money, and it increases the actual cost of what you are purchasing when you buy it over time. There are instances where credit is good to use. Buying a house on credit is fine because you are buying an asset that generally appreciates in value over time. Putting a vacation on credit and paying it off over time isn’t such a good idea because once it’s over, it’s over, but you’re still paying for it.
Debt is kind of like sliding down an iceberg. It’s fun and exhilarating and quick on the way down. But climbing back to the top (getting out of debt) is hard and slow and it feels like at times you’re not making any progress.
https://www.ramseysolutions.com/debt/average-american-debt
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
Copyright ©2022 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.
