For some reason I have a ‘gift’ (probably more like a curse) for remembering commercial jingles. I mean how many other people remember the jingle for Commander Cigarettes? I was sitting the other day and a jingle came to my mind that was just awe inspiring. It was for Household Finance (HFC) from the 1960’s. It starts “Never borrow money needlessly, but when you must…”. Imagine a lending company doing that today, recommending that you never borrow needlessly.
The US has become the debt society. It’s a badge of honor when you can finally qualify to get a credit card, get a low interest rate on your car, qualify for a mortgage. What was a dreaded second mortgage 30 years ago (“Fran, did you hear that the poor Jones family had to take out a second mortgage?”) is now the ubiquitous home equity loan. Auto loans of 3 or 4 years are now 6 or 7 years. Everyone has 5 credit cards and they are looking around, not for ways to pay them off, but to get more frequent flyer miles.
So one might ask, what’s the big deal? Answer, it’s bloody expensive to buy everything on credit. Example: say a couple sees a great last minute deal on a cruise to Ensenada for $1,200. They put it on their 12% credit card and off they go. They have a great time for those 4 days. And they slowly pay off that debt over the next 10 years, meaning that $1,200 cruise costs $4,000. It’s just killing people’s financial well being. How can someone save any money when they pay $4,000 for a $1,200 cruise, or $100 for a $30 shirt? How can they retire?
The truth is, if someone can’t pay cash, they can’t afford what they want to buy. There are really only two times to borrow money. One, is as in the HFC jingle, when there is a real need. The breadwinner loses her job and now it’s borrow for a few months or live on the street. That’s a need. The other is when you can invest the money and earn a higher rate of return than what you pay in interest. But I define ‘invest’ very broadly. A student loan gets you a college degree, which is a heck of a good investment. So is a mortgage on a house. And certainly borrowing money to buy a car that gets you to work is a good return on your investment, (though if someone can’t pay cash, with the quality of automobiles today there is no reason not to finance a low mileage 5 year old car instead of a new one). But that’s it. Real emergencies, or investing. After that, if someone doesn’t have the cash, they can’t afford whatever it is they want. Period.
The easy access to debt is a hard one to resist. Why wait for that new home theater when you can have it now? I think there’s a good argument for actually making it less readily available. My weakness isn’t debt, it’s brownies. If I had brownies in the house all the time I’d weigh 500 pounds. For many people, they’d do well to treat debt like I treat brownies. ‘Cause let’s face it, the inevitable diet to come, whether it’s a spending one or an eating one, is just no fun.