Social Question

Hypocrisy_Central's avatar

If people lived within their means, would there really be debt or as much debt that a people service?

Asked by Hypocrisy_Central (21138 points ) March 26th, 2014

If people were to live within their means stringently would they be in so much debt? There are things you most always have to go in debt for, a house, maybe a car, but aside from that if you were within your means should anyone be in debt over game consoles, jet skis, holiday trips, golf clubs, etc.? When did “living within your means” meant going into debt for things you could not pay out of your pocket? When I was a boy that is what people thought living within your means was, has the meaning socially changed?

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47 Answers

Symbeline's avatar

My guess is, yes. The fact that money and the economy exists relies on debt itself.

Dutchess_III's avatar

Well, we live within our means but we still have debt. Trying to get rid of it, too.

Hypocrisy_Central's avatar

@Dutchess_III Well, we live within our means but we still have debt.
Just wondering, is that short-term debt like the water bill, electric bill, or something you can’t avoid paying for or is that because some items that seemed needed, a TV, a cell phone bill, a boat, etc. one can live without because it is not a basic necessity was purchased on credit and not out of saving or a budget made to by it free and clear?

Dutchess_III's avatar

Aside from the house we still owe on, we bought 5 acres out in the country, and we want to build a house and retire there. To that end we also bought a tractor, which we just paid off. We also have two cars that we’re paying on.
I almost have enough saved up to build a barn out there and pay cash for it.

I would consider my phone to be a necessity! However, I just have a “dumb” flip phone, not a smart phone, which is quite a bit more expensive. My husband’s company pays for his phone.

I hate being in debt.

Kropotkin's avatar

Private household debt started increasing in the 70s, which is also when the finance sector grew rapidly. When a particular private sector grows, it also gets to buy the government and set policy decisions in its favour. The 70s is when wages and productivity decoupled and stopped rising together, and people started relying more on credit cards and loans to have the things they needed/wanted.

There is also an aspirational and materialistic culture. This is consumerism. It started when the working class were given a deal—that they can have more of the wealth they themselves produce, just as long as they don’t try to overthrow capitalism. With more spending power, the working class adopted some of the values of the rich and owner class, and the ones who earned enough to differentiate themselves from those on lower incomes would go on to call themselves “middle class”—as I’m sure many of you on Fluther do.

Now, what happens when the people producing wealth—the commodities and goods they consume—don’t earn enough to buy the very things they produce, but still feel they need or must have them? Well, they can work longer hours, take a second job, or buy things on credit, and have both spouses working—which is also what happened.

I suppose people could “live within their means”, but it would be a very austere lifestyle, and the economy relies on people consuming—whether they can afford it or not. And one must keep up with they neighbours!

Cruiser's avatar

When I grew up we paid cash for anything and everything we bought except for the house we lived in which had a mortgage. We had one TV, one old beat up station wagon, hand-me-down clothes and eat frugily to make ends meet. We weren’t poor nor were we well off…but my dad made enough money so my mom did not have to work. It was unheard of in my neighborhood in Chicago for moms to work. When I moved to the suburbs in my teens, my mom was the only stay at home mom.

And when my folks finally did get a bank credit card, they always paid off the bill in full and that is how I had done things my whole adult life. I hate debt and finance charges.

I am not smart enough to give an answer to what would happen to the economy if people lived within their means but I do know one thing the big financial institutions would not be any where near as big as they print make money with the finance charges and late fees they gouge get from their customers

KNOWITALL's avatar

Some people value ‘stuff’ or appearances more than being debt-free, I am not one of those people.

When my husband got ill a few years ago, we sold off everything that wasn’t necessary to build up our savings after paying the med bills, including the Wii, an extra freezer, all kinds of things. It worked.

We only have a mortgage and a few small bills we’re finishing paying on then we’re debt-free baby, and I’m looking forward to it very much. It’s hard though, we don’t go out as much as our friends, we have older cars that are paid off, not nice new ones. We haven’t taken real vacations for a several years because being debt-free is a priority for us.

On the other hand, my BIL is keeping up with the Joneses, has filed bankruptcy at least twice I believe, and still racks up the debt to buy nice thing’s for his family. I really don’t understand them and it makes them miserable at the same time it makes them happy, like an addiction.

A prime example of this was the housing lending crisis. We were approved for a large sum, bought a house for under $100k, and now friends who bought at the top level of the mortgage loan amount have lost their homes and some are even renting. It never made sense to me to get something more than what we needed, which seems to be the fundamental difference in the thought-process.

Seek's avatar

If the only people that ever bought houses were the ones who had $250,000 in the bank, the real estate market would collapse.

ragingloli's avatar

Yes there would.
The entire capitalist economic system is based on ever increasing debt.
It is all about growth, growth and growth.
The system requires an ever increasing amount of wares in the market, yet the amount of money is limited.
This would lead to deflation, and to counter that, more money is constantly printed.
And this money is only introduced into the system by someone, bank, business, private person, taking out a loan. Someone has to go into debt for this system not to collapse.
This is only made worse by the insidious concept of interest and especially compound interest.

janbb's avatar

Doesn’t living within your means mean that you are not in debt? What else could it mean?

Cruiser's avatar

@Seek_Kolinahr how about going back to the good old days where you had to have 20% down to buy a house? IMO people would be less likely to default on home if they had a good chunk of sweat equity invested in their home. So say on a $150,000 home people may be less inclined to walk away from a default with $15,000 of their money versus the person(s) that had to only put up $3,750 or in some cases 0% down.

KNOWITALL's avatar

@janbb Yes, I think it’s reasonable debt. The principle of making more than you spend still applies, but some people tend to think credit is like income, which is not true.

For instance, I have perfect credit so do I go buy a brand-new car off the lot or do I use my savings to buy a nice used car? It’s all about choices, and I personally would choose to reduce my liability/ debt, because who knows where you’ll be in five years when that vehicle is being paid off.

@Cruiser You can use that formula but loan officers do not make it a requirement anymore. Most people are only required to give $500—$1000 down (in my area) as long as their loan covers the rest and their credit is approved.

We bought a house for $90k, and put $8k down, and it was only our insistance that made that happen, we knew we’d spend it otherwise. They even told us, get this, that medical bills didn’t count against your credit because everybody would have bad credit otherwise. Unbelievable.

SpatzieLover's avatar

Short answer: yes.

Even living completely within one’s means and preparing for various disasters via various insurance policies, one can swiftly become buried in expenses via one medical or “act of God” natural disaster.

The reality is most Americans are living paycheck to paycheck. Even living within means, there’s very little you can save for “just in case” scenarios when income is just covering basic living expenses.

Cruiser's avatar

@KNOWITALL I do know this low down no down still exists and I also know these loans coupled with the low interest ARMS that once they go up in interest rates people get easily underwater or can no longer afford the payment…that with the predatory lending practices are what caused the huge housing bubble to burst and the bank industry to collapse 5 years ago. History WILL repeat itself over and over until someone in charge wises up to this fact.

KNOWITALL's avatar

Adjustable rates are wack. After my first three years, I went to fixed immediately. Talk about freaking out when you get a bill for $1200 after your payments have been $500 for three years, I had no idea what was going on, I felt betrayed by my lender.

I still think the lender should bear a little responsiblity for getting unsuspecting home buyers, esp first timers, into something they can’t afford. They were pushing us up to $150k or more and we knew we couldn’t afford that but they’d have given it to us and now we would have been in trouble. Not cool.

pleiades's avatar

If we all lived in our “means” I could assure you which ever tribe I’d be a part in would thrive thoroughly through my hunting and survival skills alone. There’s not a single day I think about a society where we would not be dependent on money but instead cultivated our own foods and shelter.

jerv's avatar

“Live within your means” means perfect health and no medical care ever, and usually no post-secondary education.

JLeslie's avatar

I’m a little puzzled. My thinking is similar to @janbb. If you live within your means you are not in debt. Debt carried for a few weeks that is paid in full is not debt by my definition. For instance I charge almost everything on my credit cards. Right now I very likely have about $1500 of “debt” but it will be paid in full when the bill is due. I consider that living within my means.

I guess you can expand the definition of living within your means to include a mortgage payment, since the other option is a rent payment. Those are the usual options when we are starting out as adults anyway.

Something like 35% of people own their house outright. I think that is higher than most people would guess. Probably a lot of that number is older Americans, but I didn’t really know how it breaks down. I happen to know several people who own their houses outright. They aren’t wealthy, they just made it a priority. Still, even if you pay off your house, you still have property taxes looming, and any repair that might need doing.

cazzie's avatar

Increased debt is a very poor basis for economic growth. There are different types of debt (secured and unsecured) and there are now more ways in the US to get into debt than ever before. People don’t know enough about how they are spending before they are earning and how much it is actually costing them. BBE was telling me about how auto finance is sold where he lives and how disgusted he thinks the tactics are. He had to school a few of the salesmen and get managers involved because he was catching them in so many errors and false tactics. (helps that when they think they are teaching him, he can explain he is a professor of physics and has taken and taught more math than they will see in their lifetimes.) He worries for the people who can’t do the complicated math in their heads and don’t realise they are signing documents that are padded with extras they never wanted because they are obsessive about the amount of the monthly payment and don’t care about anything else.

JLeslie's avatar

@cazzie The auto sales thing is disgusting. The first thing they ask is how much you can afford per month. People who would never step into a rent to own store for appliances or furniture, find themselves doing the same sort of deal with cars. I do sometimes. At least the internet makes it easier to get information now if someone bothers to look it up about the price of cars, but in the end when they finance or lease the information practically doesn’t matter.

I hate buying cars.

jerv's avatar

@JLeslie That is why my cars are cheap; if you have to finance $500, you have other issues. As for my wife’s car, we never specified a monthly payment, only what we had available to put down up front. Fortunately for them, they guessed lower than we were willing to go and made the sale. Salesmen aren’t the only ones that can hide information for their own benefit ;)

@cazzie What I find sad about that is that people find the math complicated in the first place. Granted, compound interest is something best left for calculators, but when a dealer once quoted me $395/mth for 5 years on a $12,000 car with 0 down, it only took me about 3 seconds to calculate the grand total in my head, and guess that the APR was at least double what a reputable dealer would try to charge. (Reading the paperwork confirmed it; 19.5% simple interest with no early payment possible, so basically $23,700 at 0%) Sadly, you are correct that all most people would see is “Zero down, less than $400/month!” and sign such a raw deal simply because they can’t be bothered to do even the simple multiplications that used to be taught in the third grade.

Even worse, many would simply compare their income to the payment and forget that that payment is in addition to other payments like rent. For most people, $400/month really isn’t much, so it’s easy to get into trouble that way; $400/month on top of other expenses is more than most can afford.

Failure to live within one’s means often is a sign of weak math skills. It also often leads to more borrowing, so people dig themselves deeper robbing Peter to pay Paul.

JLeslie's avatar

@jerv Of course. We never give a number to the monthly payment question. We want the best deal period on the car that we want. But, I can afford “any” car I want. It’s tougher when someone is tight on money, which I have been in that situation, and they are looking at inexpensive cars and their budget is tight. Then they can more easily be taken advantage of.

Seek's avatar

@jerv That’s why I bring my husband along. He does the math, I do the logic.

JLeslie's avatar

@jerv I just read what you wrote @cazzie and I don’t think we can chalk not living within means to weak math skills. Most people can add, some do have real math difficulties similar to dyslexia for reading. You only need to be able to add to figure out monthly expenses regardless of being robbed by interest rates. I think the biggest problem is some people think basic needs are not really how they define basic. To them it is normal and their right to have a certain type of house, car, get manicures, have a smartphone, order alcohol with dinner, buy Starbuck’s, and run out of money as the next paycheck comes in. I am not even thinking of the poor here, plenty of middle class people do this. People who could easily live within their means who don’t. It is normal to them, they think they are doing everything right.

Dutchess_III's avatar

I guess I consider being able to make the monthly loan payments easily and to be able to put some away in savings at the same time, to be living within your means. When you’re struggling to make current loan obligations and then take out yet another loan then you’re living outside of your means. My husband has a difficult time with this concept. That’s why I control the money.

jerv's avatar

@JLeslie I used to think so, but I’ve met enough people that cannot count change that I think it safe to assume that there are many people incapable of addition.

As for the other, I don’t buy that. My wife has dyscalculia, yet even she can do math in her head well enough to as least go, “Hey, wait a minute….”. Someone who literally cannot do 240 + 40 = 280 without pen-and-paper has no difficulty figuring out a raw deal. She may not be to calculate it out nearly as well as I can (assuming she can even put a number on it at all), but there really are people legitimately that uneducated.

Regarding the last, all I can say is…. ‘Murica!!!

@Seek_Kolinahr I do the math and the logic, my wife finds the diplomatic way to say, “Take that offer and shove it up your ass!” when they fail at one or both.

@Dutchess_III Pretty much.

Seek's avatar

I love your wife.

cazzie's avatar

My ex had and has NO idea about money. He earned shitloads and pissed it all away. I got a message from him yesterday, ‘Two men from the kommune (county assistance) were here today and try to help with my economy and other shit. They will likely contact you.’ Yes, a year into our separation and he is sending men over to probably demand that I stop asking for child support because he has a broken motorcycle he wants to fix and he is refusing to go back to work since Christmas. Ummmm….. Sure, let me inform them, as I have you, how much of an ‘f***’ I actually give. Go back to work and leave the town whores alone.

JLeslie's avatar

@jerv Counting change is subtraction. I do agree a lot of people cannot add in their head, but most can on paper. Many many people seem not able to subtract, divide, or multiply, there I completely agree. I think you and I are agreeing that figuring interest is not the sake as adding up a bunch of numbers. Also, it is ok to use a calculator, it isn’t math class in 4th grade. If they care about the math they could do the math. They don’t care, they just want their things.

I don’t expect the average person to be able to figure out the time value of money or interest rate, but the interest rate is listed somewhere. They also could just take the payment amount times the duration of the loan or lease and figure out how much they are actually paying. That isn’t a complicated math exercise. $240.36×60 months. Fairly simple math on a calculator for most people. But, for many that number does not matter anyway, they just need to know if they can afford the monthly payment. People who think month don’t tend to think year or future. Let’s say we don’t even care if the interest rate is loanshark rates, people living beyond their means who cannot afford the monthly payment is what I was focused on above.

Dutchess_III's avatar

I don’t think it’s really a math problem. It’s more of a denial problem. They refuse to acknowledge the difficulty it’s going to cause. They want the fun without the responsibility.
The shit my husband comes up with to justify not paying a bill! I am in charge of paying ALL the bills except one. He has one he is responsible for, one that I can’t access. He was required to buy a new car for his new job. He got it in September. He is now two payments behind and tends to get angry about it, as though it’s someone elses fault.
I told him there was money in the account to make one of those payments and he said, “What good is that going to do?? I’m TWO payments behind!”
I suggested he just pay an extra $50.00 when he pays the bill. He said the finance company won’t let him do that…that’s gotta be bullshit.
Christmas 2012 he took out a “90 day note” for $2000. The following March we HAD the funds to pay it off but he said, “No, we need to wait.” No reason given. Finally had to put it on installation payments. It still isn’t paid off.

cazzie's avatar

@Dutchess_III My ex still hasn’t paid off what WAS a pittance of a student loan and that is almost 20 years old!!!

Dutchess_III's avatar

My husband thinks that paying bills is a waste of perfectly good money.

JLeslie's avatar

@Dutchess_III LOL. That’s the thing, some people don’t connect the bill with what they bought. They have the thing and are in denial about the bill attached to it. They think “possession” makes it theirs, but it doesn’t.

Dutchess_III's avatar

EGGZACTLY @JLeslie!

He also tends to round the price of something down, rather than up. Sometimes it was pretty damn serious. Like, we had upscale riding mowers we sold at our shop. If the price of the mower was $6999.99 he’d tell the customer it was $6000.00. Oh, I kicked and kicked him until he quit doing that!!

janbb's avatar

@Dutchess_III You’ve been bitching a lot about your husband today. Maybe you need to talk to him – not us!

KNOWITALL's avatar

My husband is terrible with money, he gave over the reins a long time ago (thank goodness), and once I took him off the bank accounts and asked him to work with me for a few years while we paid of his medical, we finally got thing’s paid off and under control.

If it was up to him, we’d buy new clothes, new shoes, and eat out four times a week, the entire concept of ‘saving’ for a rainy day or emergency (like the new water heater a few months ago) doesn’t make an impression on him at all. Luckily, after reviewing our finances every month together (sometimes by force of will) he’s getting it, but still knows he can’t be in charge..lol

Dutchess_III's avatar

Believe me, he knows my complaints @janbb!

My husband lets me control the reins too, for the most part, thank goodness. Every so often he bitches because we have two checking accounts, one shared and one only in my name, but that’s only occasionally. If he knew how much money we actually havehe’d find some way to spend it ALL!

KNOWITALL's avatar

@Dutchess_III hahaha, I have to lie to mine sometimes, too.

I swear that man would spend our last $50 at the gas station on crap if I let him even if we had no food in the house. All that little stuff for spontaneous spenders, it callllllssssss to him…..lol

cazzie's avatar

Oh… I got an SMS message from my ex yesterday.. He is STILL trying to weasel out of paying any child support. he was expected to earn just over 130,000USD and now he is balking at having to pay less than 675USD a month for the care and housing of his child and care of his autistic older son.

Dutchess_III's avatar

But he’ll turn around and try to “save” money in the silliest ways. Choose a gas station clear across town because it’s 2 cents cheaper!

Dutchess_III's avatar

GAAAA! He did it again! We’ve been kicking around the idea of buying a motor home. Our reasoning is we could park it on the land to live in while we build our house and sell our existing house. Found a 95 Southwind locally for $10,000. Another guy may have a contract on it though, so just looking around some more Rick found another, a 97, on Ebay. The bid went as high as $9,700, but didn’t meet the reserve. We got the owner’s number and Rick called him to find out the reserve. $20,000. Oh HAIL no! The next day the guy called back and asked what we would be willing to pay. Rick said, “Oh, I’m thinking 12 to 15.”
Well, let’s see Rick. Do you think he’s going to call back and say, “OK! I’ll sell it for 12!” NO HE WILL NOT! He may agree to 15 BECAUSE YOU TOLD HIM YOU’D PAY THAT MUCH!
I’m getting cold on the whole idea any way.
Those damn things sell for $100,000 + new. Insane.

ragingloli's avatar

Well you could always steal one.
Rule of Acquisition #14:
Anything stolen is pure profit

jerv's avatar

@Dutchess_III If the man will burn $1–2 worth of gas to save $0.20 on a fill-up, I think it best if you keep control of the finances. Now, if he offered $12k and the seller came back with $15k, maybe, but after that blatant display if haggling ineptitude….

Dutchess_III's avatar

I have control of the finances! Yeah. I’m a much better haggler than he is. He just has this thing about wanting to be the good old boy, every body’s friend, and it comes out in ways that are frustrating to me.

KNOWITALL's avatar

@Dutchess_III I think we may be married to the same guy…lol, sounds just alike.

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