Runaway credit destroying American retirement

Published March 19, 2015   Posted in How to Retire

It is no secret that the spending habits of traditional Americans are not all that pretty.  Way too many Americans find themselves in a position where retirement seems like a lofty goal only accessible by either the old or lucky, and that most people – including them – are “regular Americans” just trying to get by in a harsh and unforgiving economy.

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Sadly, this poisonous thinking keeps way too many Americans accepting their 40 to 50-year jail office sentence.  But in truth, the only elements of spending and saving that are harsh and unforgiving are the things that Americans insist on blowing their money on – or in other words, discretionary spending.

In 2009, Americans spent a whopping $1.13 trillion on this type of spending.  First world problems, anyone?

A recent study offers up a sad graphic that depicts American foolishness with money quite well.  How are Americans actually spending their money?  Good question, and I’m glad that you asked.

According to this Consumer Reports study, it goes a little something like this:

Shit Americans spend money on:

  1. Electronics
  2. Appliances
  3. Automobiles
  4. Home Remodeling

Of course, three out of these four are downright losing propositions.  Home remodeling, one could argue, increases the value of your home and may be a wise investment.  And in truth, it is also possible for appliances to increase home values as well, so there may be a little wiggle room.  But let’s be honest – is that $2500 washer going to increase the value of your home $2500?  Of course not.

Electronics, like big screen televisions, offer zero financial benefit.  Like automobiles, these items lose value immediately after purchase.  Depreciation on this shit sinks faster than Bill Cosby’s popularity.  Instantly.  Electronics and automobiles are losing investments, but they are also what the majority of Americans spending so much of their money on.

I was at Costco this morning picking up some bulk items that my wife and I cook with throughout the month and saw a guy wheeling around a huge 70″ flat screen television on one of those flat carts.  A huge savings-killing television?  Seriously?  Why do we spend our money on this nonsense?

Because we can.

The cause of American spendiness

The biggest problem that contributes to our poor spending habits is the availability of easy and cheap credit.  Almost anyone can get a credit card these days.  Or a loan.  Or a mortgage.  In today’s society, it is no longer required to actually have the money before you spend it.

There was once a time in the not-so-distant past (primarily pre-World War II) where buying a house meant saving a substantial amount of money.  Same deal with automobiles or any other major expense of the day.

But today, credit lines on significant amounts of money are easy to come by.  The crash of our mortgage lending industry five years ago is testament to how easy it was for Americans to get themselves into over sized and expensive homes without the means to pay for them.

A story said that, though credit in the United States was incredibly simple to get, other countries like Germany (where the savings rate is markedly higher than in the United States) see much less credit abuse.  “In Germany, for example, people are much less likely to take out large mortgages, and home equity loans don’t exist.”

Home ownership is lower in many European countries than in the United States, in part due to a lower availability of credit.  Moreover, some nations, like France, connect your credit card to a bank account, making it much more difficult to spend ungodly amounts of money on stuff.

The majority of Americans over buy because they can.  Our economic culture of cheap credit has created a society that not only enables, but implicitly encourages, outrageous spending.

Credit card offers in the mail with high credit limits are nearly an everyday occurrence for most Americans.  My wife and I throw away 4 or 5 a week, easy.  Financial institutions and banks – not to mention our government – want you spending money and running up your credit line.  Paying interest is big business.

It is big business because financial institutions know Americans spend substantial amounts of money on huge 3,000 sqft homes, or $50k BMWs, or $10k wedding rings.  Overspending is what keeps so many of our financial institutions swimming in YOUR money, and cheap credit is the conduit to keep all that money flowing away from the American people’s pocketbooks.

Easy credit keeps Americans working years longer than they should.  Make it easy to spend money and, well, most people will.

How many credit cards do you have?

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4 responses to “Runaway credit destroying American retirement”

  1. Credit surely enables us, but I think that the driving factor lies within my own professional field: advertising.

    It makes me think back to my favorite quote from a movie (Fight Club):
    “[…] I see all this potential, and I see squandering. God damn it, an entire generation pumping gas, waiting tables; slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off. ”

    We have been brought up with the idea that stuff means success and happiness. I personally think all of the keeping up with the Jones’ is simply a consequence with being bombarded with thousands of ads per day starting when we are extremely young. Its a terrible cycle; I see that car , I want that car, I borrow to get the car, and work until 70 to pay for the car. And house, and clothes, and electronics, etc.

    • Advertisers and marketers these days are critically effective. They know how to get Americans to buy, and the right ad in front of the right person at the right time, as you know, can have extremely positive effects. Agreed, the field of advertising is most definitely the avenue where *desire* is established. The desire to buy that new car, or stereo, or NFL Sunday Ticket package, whatever.

      I think these two concepts probably work in unison. Advertising creates the desire (or the “want”), and credit enables the follow through to the purchase.

  2. Jason says:

    Totally agree. This morning I heard a report that the average car loan today is 74 months (this is my next blog post actually). 74 months to buy something that goes down in value. WTH?

    • The average?!? Wow, that’s pretty incredible. Yeah, not only do you not need the money (and I mean ANY money) to make a large purchase like that, but apparently you can take a half decade or more to pay off something a small, clumsy and inefficient as a car.

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