The Wages of Debt
With Christmas spending over and credit card statements ready to be mailed, many Americans made New Year’s resolutions to stop charging beyond their means.
While the practice of shopping now and paying later transcends generations, clearly borrowing now is easier than ever before.
“Credit has never been so accessible,” says Kyle Dana, senior vice president for AG Financial Solutions in Springfield, Missouri. “The mentality used to be spend down to zero and stop. Over time, the concept of going into the negative has been accepted, and that’s where a lot of people live today.”
Part of the problem is that the cost of certain goods and services — notably housing, college education, vehicles, and medical expenses — have outpaced income in the past generation. Subsequently, huge swatches of Americans have amassed credit card debt, student loans, or automobile financing. Wages haven’t kept pace with the cost of big-ticket items.
For Christians, smart use of credit can benefit both the church and themselves. For instance, some churchgoers pay a tithe on a credit card — which they promptly pay off — to accumulate points for less expensive airline flights or hotel stays.
On the other hand, for those who don’t have a good handle on spending, giving to church often is the first expense that becomes expendable in a crunch. In an effort to keep up with the cars, houses, clothes, or technological gadgets others may have, many have gone into an abyss of debt.
“Christians are not immune from deriving their self-worth from the things they own and the way we look,” says Dana, 38. “In our image-driven society, we like to put on Facebook what we’ve got and what we’ve bought.”
Dana, who has worked for AG Financial for 16 years, emphasizes that a bad credit rating can impede a person from securing an optimal career. Likewise, those with poor borrowing habits can end up paying much higher interest rates on car loans or mortgages.
Deborah Thorne, associate professor of sociology and anthropology at the University of Idaho in Moscow, believes people accrue unmanageable debt chiefly because of an unexpected job loss or medical bills. She notes that she had to pay more than $7,000 just in health-related co-pays in 2016.
Thorne, who has been studying debt for 20 years, notes that some people resort to using credit cards to pay off medical bills, and that various hospitals issue plastic at 19 to 24 percent annual interest.
With the soaring cost of college education in recent years, student loans have become a fact of life for many students seeking a bachelor’s, master’s, or doctoral degree. Dana says he advises parents to make sure they prioritize saving for their own retirement before socking away funds for their child’s education.
“Children will benefit more from paying some student loans in the short term rather than having to financially support their retired parents while they try to raise their own families,” Dana says.
While it’s certainly true that young adults usually have many more years of earning capacity ahead of them, sometimes they cling to an idealistic sense of indestructibility. They typically don’t envision a job layoff, medical crisis, or inability to sell a house disrupting their money flow potential.
“Many young people don’t have a grip on future reality,” Dana says. Few give a thought to saving for retirement, and many change jobs every couple of years instead of forming a steady career path, he says.
Part of the reason is that some have been living with parents well into adulthood, staying on their parents’ health insurance, car insurance, and phone plans. Once on their own, they expect the perquisites to continue unabated because they haven’t ever had to sacrifice, Dana says.
On the other hand, Thorne suggests the vast majority of people who file for bankruptcy have been drained by unavoidable circumstances.
“Most people in severe debt are good people who desperately want to repay what they owe,” Thorne says. “They will sell virtually everything they owe to try to avoid the mortification of going to a bankruptcy hearing.”
However, Dana suggests that some who fall deeply into debt have a complacent attitude that a few thousand dollars more of charging won’t matter.
A sense of entitlement and a carefree approach toward financial liabilities impacts relationships, Dana says. If one spouse in a new marriage has been responsible and the other rash in the past, that will cause a clash in the future, he says.
Various churches offer courses such as Financial Peace University to help people out of debt, but Dana says the dropout rate is high because people want quick and easy solutions to success and riches.
“They show up, but like diet and exercise, they don’t always stick to the plan because they find out how long it will take, how much discipline has to be applied, and how much behavioral change must occur,” Dana says.
The advent of paying via technology also has created a disconnect for some people, according to Dana. Rather than reaching in a wallet or purse for cash, an individual now simply can hold up a phone and swipe as payment. Apps that can be reloaded at zero balance leave no immediate sense of limits, Dana says.
BALANCING STUDENT LOANS
Nevertheless, Dana believes there is such a concept as “good debt” — when a person borrows against an appreciating asset that rises in value over time. Residential ownership customarily is such an investment, especially if low interest rates are locked in early so that net worth grows. Credit card bills that accumulate 15 to 25 percent interest if monthly balances go unpaid or loans on vehicles — which start to devalue the moment they are driven off the lot — aren’t beneficial ways to borrow, Dana says.
Most experts still view student loans as good debt, if the graduate secures high-paying employment in a specified field. Thus, over time the return on the education should outpace the cost of the loan.
Thorne notes that the cost for tuition has risen astronomically. According to the National Center for Education Statistics, the average net price of attending a private four-year institution in 2015 amounted to $24,690, compared to $7,759 three decades earlier. One in five students has student loan debt, according to Gallup.
“Students used to be able to easily work full time in the summer and pay for tuition,” Thorne says. “It’s no longer practical to save up enough money for an entire college education. It’s egregious what student loan debt is doing to young people. It’s abhorrent that we’re taking advantage of bright, determined, hardworking kids.”
Thorne notes that student loans cannot be discharged in bankruptcy, and that lenders are guaranteed payment for providing loans to teenagers with no credit or work history. What’s more, for students who fall behind in payments, fees and penalties can extend the payback period well into middle age. Thorne, who is 54, says she won’t jettison student loans until age 62.
In the short term, student loans have led to many Americans postponing marriage, delaying having children, and stalling on buying a home.
“If you have $30,000 in debt, you don’t want to marry someone else in the same boat,” Thorne says.
Occasionally, even Christians slip into fantasy thinking about how they might eradicate debt. When lotteries climb into the hundreds of millions of dollars, ticket buyers try to claim they could do a great deal for the kingdom of God, despite the infinitesimal odds of winning in gambling ventures.
Thorne agrees, noting that some indebted people postpone the inevitable financial judgment by telling themselves they soon will get a much better-paying job or that a rich relative will die and leave them an inheritance.