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Debt: ‘the American way’

By Marcie Geffner · Bankrate.com
Thursday, April 21, 2011
Posted: 10 am ET

Young people may be smitten with credit cards and debt, but their elders enable such tendencies by encouraging the younger generation's use of a credit as a sort of "safety mechanism."

That's one finding of a new study by researchers Michelle Barnhart, an assistant professor of marketing at Oregon State University, and Lisa Penaloza of the Ecole des Hautes Etudes Commerciales du Nord of France.

"New" is a relative term here; the study was published online this month, but the research was conducted five years ago, well before the 2008-09 financial crisis. The study also suffers from smallness, because it's based on case-study interviews with only 27 people, all white, middle-class and living in the United States. Not incidentally, half of the participants had debt they couldn't pay while one-third were dealing with collection agencies.

Still, the findings offer an intriguing window into how some of the attitudes, perceptions and cultural meanings that surround the use of debt and credit could have contributed to the economic recession.

The researchers found that consumers take on significant debt, even though they say they believe they shouldn't, because doing so has become normal to them. One participant even said taking on debt was "the American way."

The researchers also found the subjects suffered from a lack of financial literacy. All of the participants reported that they'd learned about credit and debt primarily through personal experience, not at school or home. Most said they didn't discuss their family's finances with their children.

Moreover, participants talked about credit as a measure of their own worth, saying that if they were approved for a certain loan, they felt they were "good enough for that car."

Several younger participants said they didn't want to use credit, but felt they had to, so they could finance cars and homes in the future. Most said their parents encouraged them to have credit cards.

"Over time, credit card use and heavy debt has become normalized in our culture," Barnhart said in a university statement about the study. "Even though we, as a society, say 'don't get in debt,' the overwhelming messages being sent out -- from the way credit is used to approve or disapprove us for services to political leaders telling us to spend after a big disaster to prove our patriotism -- all of this has created a culture of debt."

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6 Comments
Seen it coming
June 06, 2011 at 2:08 pm

What we are seeing is nothing more than the inevitable end result of using a monetary system that is based upon nothing but debt. ie, using someone elses promise to pay, as money.

What it comes down to is the simple fact that if you over consume, there always comes a time that one must under consume in order to pay for that over consumption of the past.
Well, either that or get a big raise at work, or get a better paying job, or a big fat inheritence from a rich uncle, make a killing in the markets, win the lotto, etc etc etc. Problem is, it's hard seeing any of that really happening for America as a whole, so odds are it'll be time to under consume for awhile.

So just how long does it take for our economy to generate an extra few trillion dollars in order to start paying down debt with?
By "extra dolars", I mean other than the dollars that keep food on your table and a roof over your head.

Well, there is one other option. Continue to roll past debt into new debt in order to finance current levels of consumption.
But then you're right back to needing that better job again, but where are those jobs at?

Can you say, "debt saturation"? Saddly, tis' the point we are at.

But y'know all this is not really surprising in a nation where the vast majority are, as the article states, financially illiterate.

Think about it. Did the subject of this article get himself and his family into debt-bondage due to his financial prowess? Or lack thereof?
Beyond that, the only real difference between him and us is that there have been good paying jobs in relative abundance here.

readme8
May 23, 2011 at 9:03 pm

America wants us to get into debt to prove our reliability and character, well that is the noble side. The reality is life in America is work - home, work - home, work - home, at least for the working class like me. So shopping becomes an institution to get rid of stress, and with all the temptations, 75% off, coupons, discounts, refunds, pay 36 months from now, emergency buying (who does not have an emergency?), we become a nation of debtors, bad debtors, good debtors, but still debtors, and student loan debtors (can you believe you have to be in debt to get a certificate or a college degree). It is a vicious cycle for a nasty lopsided social ranking, but for me, I guess, I just have to survive, count my blessings, whatever.

Jocelyn
April 25, 2011 at 12:25 pm

I guess that makes me anti-American Way. I just used the calculator to determine how large a payment I needed to make to have my car paid off in a year. Next victim: the student loans. When I am done, FICA will have no idea who I am and that's OK because FICA is only a way to more debt. Yes, I rent and live simply, but the worse that will happen is people will find me weird. So what: my first house will be bought with cash, my retirement will be fat, and I will be owned by no one. That's worth it to me to spend a couple of years renting and buying from thrift stores. There are many people, and our federal government, who could learn from that.

Debra James
April 21, 2011 at 5:43 pm

Although there are many problems pointed out in this article regarding debt education, I think a key one is that people are only taught half of the story; you need to have a credit history for larger purchases, like homes. What they aren't taught is that you don't have to go into debt to obtain that history. If you pay off your credit card balance every month, you build a good credit record. It actually hurts, not helps, your credit profile when you maintain a balance that is reported by the credit agencies.

Ray
April 21, 2011 at 4:50 pm

They're absolutely right. If you do not use credit, you do not build enough credit history. If you use credit, you risk falling into debt and all the predatory lenders out there. The system is flawed, I chose to discontinue paying my cards. I need to reprogram my brain to live a credit/debt free existence. I think America needs to be reprogrammed as well.