Chapter 26 – Change the Debt Culture

Some people aren’t really all that they ‘post’ to be.~Unknown

In my controversial last chapter, I discussed why your home is not an asset.  I also talked about how our culture is backwards when it comes to how we view debt.  For example, one of the most popular posts on social media, in terms of engagement, is when someone posts that they bought a new house or a new car.  According to a Realtor’s Real Estate summary, 90% of homes bought in 2018 were financed.[1]  So, the most engagement on social media comes from when we take on the most debt.  In this chapter, I’m going to discuss what happens if we were to change the debt culture of our society, and the impact it would have on our economy.

The first step to change the debt culture is for people to be more open about personal finances.  Specifically, imagine if we discussed the financing details of our new home or car purchase on social media.  Instead of just posting, “I bought a new house,” we could also add, “I put 3% down and got a 4.2% interest rate on my a 30-year mortgage.”  Many of us experience the keeping up with the Jones’s effect.  So, when our social media friends or neighbors buy a new house or car, it puts social pressure on us to also a buy a new house or car.  I would like to see this same effect applied to financing details.

I would love to see social pressure on putting a bigger down payment than our social media friends or neighbors, or getting a better interest rate, or financing for only 15 or 20 years.  To get a bigger down payment, we need to save more money.  To get a better interest rate, we need to improve our credit score.  To finance for less than 30 years, we should strive for a good financial position where we work for higher income and lower expenses.  This social pressure could yield major benefits by being more open about the financing of our purchases.

The second step to change the debt culture is to improve our financial literacy.  When I was in high school, our economics project was to get a simulated job and income and then to simulate an adult life.  The people with higher simulated incomes were encouraged to buy a home, start a family, and get a nice car.  The people with the lower simulated incomes (like me), were encouraged to get an apartment and find a way to live on the remaining income.  The problem was, we never discussed what buying a home included.  We never discussed the impact of having an optimal credit score, and we never discussed what amortization meant.  The problem is that many adults still don’t understand how an interest front-loaded, amortized mortgage works.  We need to improve our financial literacy to change the debt culture.

The third and last step I’ll discuss in this chapter is to change the American dream.  I discussed this a little in the last chapter.  Until the recent Financially Independent and Retired Early (FIRE) culture emerged, for many, the American dream was to get a great job with a high income, buy a nice house, a nice car, go on an annual vacation, start a family, and then retire in your upper 60s.  And hopefully, in the final 20% of our average life span in America, we can stop working and spend time with the family we created.

I would love to see the “American dream” change.  When we strive for the highest income, we often sacrifice our family and health, and work for jobs in unpleasant conditions.  As our income grows, the taxes we pay increases progressively.  This means that as our income grows, we get taxed more.  Regardless of your income, many of us are socially pressured to buy houses and cars above our income levels.  To keep our incomes high to afford the house and car, we work harder and longer, so we work right through our kid’s childhood.  When we finally retire and have time to spend with our families, our kids are now implanted into their jobs and don’t have time to spend with us.

Many people in our culture react violently to people pursuing a different path.  Entrepreneurs (excluding Multi-Level Marketing schemes) are chastised in the first couple of years as their business grows.  The FIRE community takes a lot of heat (no pun intended) from people who are stuck in the system. One of the most popular personal finance celebrities, Suze Orman, has come out against the FIRE movement.[2]  I share some of Suze Orman’s cautions, specifically, as it relates to the future or health care costs.


 If we change the debt culture in America, it would represent a recessionary action, but I would caution thinking that’s a bad thing.  In America, we measure growth based off production and consumption regardless of how it was achieved.  We do the same thing to measure a person’s growth as well.  When we see people on social media buying new houses and new cars, we assume growth.  This is the opposite of how we should be thinking.

For many middle-class Americans, purchasing a home plunges their net worth by assuming a massive liability.  We tell ourselves it’s a good investment because we hope the house will appreciate, and in 30 years, it will be paid off.  With cars, they’re a massive liability for many, and they depreciate.  This is the same way the Federal Government works.  We produce and consume through deficit spending, while the national debt continues to grow.  Both the government and its people can’t continue this debt-fueled growth for much longer.

If the government or its people decided to put every next dollar to paying down debt, it would represent a loss to future consumption.  Instead of buying a new car, we would pay off our current car.  People would delay purchasing new homes until they have a substantial down payment (e.g., 20% or greater).  It would create a recession.  This would be a good thing.

For most landscaping, you must prune your trees and bushes.  This creates stronger roots and puts you in control of the shape and future of the plant.  Nature does this all the time.  It temporarily destroys to maintain balance and strengthen the base.  This is how the recession would be if we all stopped consuming and paid down our debts.  To change the debt culture, we would need to change our consumption culture.

I went on Twitter and asked some of the pillars of the FIRE community what would happen if we changed the debt culture.  Everyone agreed that paying off our debts would be a recessionary, but healthy action.  Follow me on Twitter and see for yourself.



1 thought on “Chapter 26 – Change the Debt Culture”

  1. I wish I could comfortably post that I purchased my #th home, with a low down payment, and a 15-yr mortgage. Unfortunately, that would come across as cocky and showing off. We are definitely a bassackwards culture.

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