The Main Reason So Many Young People Are In Debt

Have I ever told you guys how much I love the interaction on blogs? Well I really do because if I was running a typical web site where someone just posts content and that’s it then I would receive very little feedback. Let’s be honest who wants to email someone to make a comment on a post? Having comments available for every post is what makes a blog so much fun. The reason I have started off with this is because a comment made yesterday by Grant Baldwin really got me thinking. Grant made an excellent point when he said ‘”I would agree with you that spending money is a good reward under 2 circumstances: 1) Always pay cash – don’t reward yourself by racking up debt on your credit card…”

This is exactly what today’s post is about. After talking to many students and young people that have racked up insane amounts of debt over the last few years I have come up with the main reason why so many young people are in debt- young people make purchases without having the money to pay for the item.

Before you start yelling at me and calling me captain obvious hear me out for a second. There are certain purchases in life that will almost always guarantee that you will not have enough money (first home or education). I’m not going to debate these purchases today because that is a whole other topic. Few people use their credit cards to simply build their credit rating because as soon as the purchase is made they electronically transfer the funds. Today I want to discuss some of the reasons as to why young people spend money that they do not have.

Convenience. It is so simple to swipe a card that literally anyone could do it. Well actually in the world of automated payments you may only have to swipe your credit card once and then get billed monthly. To make things even easier, when it comes to online shopping all you have to do is type a few numbers in and next thing you know you have a new wardrobe.

Reward. Yes yesterday I wrote about the importance of rewarding yourself but today I want to stress that there is no reward in putting yourself in debt. If you have the cash saved to go on vacation then do it. If you are going to have to put it on your credit card then maybe you should consider staying in town this winter. Think about it, after  coming back from such a fun sun filled vacation you have to deal with the stress of having to pay the trip off at 18% interest. Young people often feel that they should reward themselves a bit too often. Nothing wrong with going out to a nice restaurant after exams but is it necessary to go out every weekend?

Media. Yes the media deserves their fair share of blame. The media and pop culture are always influencing young people to make financial decisions that will have negative long term implications. I know it is foolish to not take responsibility for your own actions but all of the negative influences around young people definitely play a key role in regards to financial decisions.

That is all for today but you should definitely expect many more articles to come out on the issue of debt, a subject that I feel I have so much more to write about.

11 thoughts on “The Main Reason So Many Young People Are In Debt”

  1. The interactivity of blogs is a nice plus; you get actual feedback, rather than feeling like you’re simply shouting into the wind. Plus, by reading comments and other blogs, you can usually spark plenty of ideas of your own. But, onto the main thrust of your post…

    I agree with your three reasons, and would add one more: the disconnect between the real cost of the debt, and how much is actually paid each month. Many people unfortunately take the view that, if they can pay the minimum payments on their credit card bills (usually only 2-3% of the total account amount), then they can afford the debt. Add in factors like the media telling people they ‘deserve’ to take a vacation, or buy an expensive car, or otherwise spend money, and you have a recipe for people to get into debt, stay in debt, and add onto that debt, rather than reducing it.

  2. I agree with Roger about the disconnectedness and might even go further – there is no real connection even at point of sale between the item and the money you have to spend to get it. The psychological power of cash is very different to that of credit. Another swipe of plastic vs. having to rummage in your purse for change.

  3. A lot of times when I have discussed debt with people the number one feeling I get from them is entitlement. Since they are entitled to it, it winds up on credit. Our generation is known for that in a lot of regards (entitlement), unfortunately.

  4. Sure you can blame the media but that will not get you anywhere.

    The point is to become strong as a person and learn to think for yourself and distinguish what is good and bad.

    In the end it is your fault for buying that item.

    Roger, you make a great point about not knowing the true cost of debt.

    Overall, you can use cash or credit but it is all about personal preference.
    Carrying cash is a hassle and risky while credit cards is also risky because it is so easy to use.
    So you need to learn to control your spending first. The method is just a tool.

  5. I agree with what Tom says about placing blame on others and how you should take responsibility but that is the world in which we live.

    We are bombarded with advertisements and sometimes we don’t even realize it!

    I think what’s difficult, like all ‘addictions’ or bad habits, is to recognize you have a problem.

    From personal experience I’ve seen people with jokey Facebook statuses ‘boasting’ about the latest iPod they’ve bought or how they’ve spent half of their loan (3 days after receiving it). It’s almost banter but it’s quite serious if you really think about it. I don’t get why people think it’s cool to spend and brag? Fair enough if you can afford it but is life that inadequate that you can only achieve anything with money??

    This culture of spending money that isn’t ours (especially as students) is worrying but too difficult to control. I also think you cannot tell a person what to do. If anything it makes things worse as they actively want to rebel to prove their point.

    Some people have come to me to receive help their financial situation but when it came down to crunching numbers and creating a budget they got bored and said “I don’t think I really need to do it.” I really don’t know how to motivate people to take charge.

    A lot think that by spending a lot they are powerful and in control but it’s completely vice-versa. If you have control you will never be a slave to your money (or your boss!).

  6. Maureen, you bring up a great point.
    Recently one of my friends first comes to me telling me shes about to loose everything because she has no job for a few weeks now and lives on her own(at her uncles house) while paying off a brand new car.

    And then the next time she talks to me I start to ask her how shes doing with the money situation, and telling her she should be concerned because her uncle is not just gonna let her stay there for free. Her excuse was its my uncle so he won’t kick me out.

    I mean that right there shows that she is not really pressured to meet her monthly obligations for rent and bills.

    Also, what really ticked me off was that when i was asking her this stuff, she basically told me she does not feel like discussing it now.
    So i ended with telling her, are you doing to feel like discuss it when you lose your car and are about to live on the street.

    So that situation right there shows you people will complain and whine but they won’t really do much about it.

    I don’t understand, maybe it is the emotional attachment they have towards money that its so hard to talk about.

  7. @tom:

    that situation is incredibly serious. I can’t believe she said that her uncle won’t kick her out. As you say that is the point when you know you can’t help someone.

    Forgive me if this is offensive but it’s almost like she’s regressed to a child-like state. I know we can all have our moments but I fear this is just going to get worse for her. She’s gone back home when things have gotten tough (which is fair enough because family is the greatest support) but she’s not taking charge of the situation. She could be benefitting so much from the opportunity her uncle has given her.

    What you mentioned about emotional attachment is so key. The Simple Dollar always writes articles about how we live in a world where we believe money can replace love. (Not in these exact words but through buying things we try to fill a void). I also think that money is a really taboo situation and this needs to change. Okay we all know you don’t ask what your friends earn (unless you want advice on getting a raise and what’s a reasonable amount to ask – basically when it’s relevant) but women talk so openly about love and relationships that I wish the same attitude was adopted to money.

    I think money as a taboo subject of discussion needs to be abolished. It all starts at home. My parents (especially my dad) were never afraid to tell us the financial situation as it was. When he was unemployed we were told, when he lost £150 (in the 90s) we were told and I always knew what my parents earned and still do. Some may say this takes away the innocence in childhood but the reason that life is so hard is that we are shielded from the cold and hard realities of life for most of our childhood and teen years.

  8. Also, Tom, you may be interested in an english programme (that has unfortunately been axed) called Spendaholics. This helps spendaholics to gain control of their life by recruiting a lifestyle guru and a psychologist. As you can tell one half of the programme focuses on showing the true extent of the person’s spending and what their new budget is. (They also have a week of cold-turkey where they’re only allowed to spend about £20 on everything!) The second half deals with coming to terms with any traumatic experiences and difficult situations such as a parent passing away or jealousy of a sibling. The show tries to heal the person psychologically so that they don’t vent through spending money.

  9. Actually, she moved out of her parents house and is renting at her uncles which is still not really living on your own because of the family ties.

    But you definitely make great points. She is acting childish and I don’t take offense to that, I think when something is this serious and someone is so naive and dumb, there’s no being nice to them, just gotta tell it how it is.

    That is at least how my friend was with me to make me realize the situation I was in.

    I will check out the two links you provided, thanks.

    Also, one of the worst things parents can do is try to shield your from the real world and then when things start to happen, it shocks you so much more. I know this is how my parents are and its where i got my bad habits with money from plus my naive mindset that the world is a place full of happy and caring people. Hence why i say parents shield us form the reality, which in the long run is really bad for us.

  10. Yes it is easy to just swipe the cards but lets face it, it doesn’t make it bad, it is simply a tool.

    Steroids are bad right? Not really, if you know how to use it properly without mixing alcohol and other drugs with it.

    If things were just handed to us and it was fool proof, then it would be one predictable and boring life.

    These things are simply tools and you can use it to your advantage or not.

  11. Steve @ Start-Up

    I know this gets away from the point of the post a little bit, but credit cards definitely have positives for college students. I used my credit card when flying to get my ticket easier. It’s definitely convenient to have a credit card when flying. Also, it’s important for emergencies. When my mom was having brain surgery, I had to buy an emergency plane ticket and would not have been able to do so without a credit card. Finally, it’s extremely important to get started building credit as early as possible.

    I do agree with the points of the post, I just wanted to point out some positives.

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