Wednesday, July 30, 2008

In Your Debt

As the American government continues to spend money that it doesn't have, The Common Man is encouraged by a study done by Javelin Strategy & Research that suggests that Americans are beginning to eschew their credit cards in favor of debit cards or, perish the thought, paying in cash. CNN reported in May that, in light of rising food and gas costs, more Americans were having to rely on their friends Visa and MasterCard to get by from month to month. The Federal Reserve reported that, "Americans' credit card debt jumped 6.7% in the first quarter of this year to $957.2 billion. This spike comes despite the fact that nearly one in three banks is tightening guidelines for credit cards." The Javelin study contradicts these findings, reporting that "The sharp decline in credit card spending challenges the popular belief that more Americans are charging basic goods in order to sustain their quality of life. Consumers are making deliberate cutbacks like shopping at superstores, eating out less and watching what they charge. We believe this is because most people have already been impacted by the downturn or they’re anticipating that we haven’t seen the worst of it. It’s very cautious behavior.”

Maybe so, or maybe Americans are getting close to their credit limits, and therefore can't spend more on their cards ("Delinquency rates on credit cards are at their highest rates since 2002," according to But consumers should make dramatic cutbacks on their spending and their debt. After all, two of the largest problems with the financial system in this country, the mortgage crisis and the budget deficit, were caused by people spending money that they did not, and could not hope to, earn. The Common Man has heard the argument that the U.S. economy will suffer if its consumers do not consume and, while that's unfortunate, each family must do what is right for itself, and that certainly involves not carrying around massive debt that will curb Americans' abilities to save for retirement and spend later in life. Despite what the Bush Administration has seemed to argue in the past, it is not every American's civic duty and responsibility to go out and consume. To spend until it hurts. To tear through that paycheck like a little boy tears through corn on the cob.

It's time for Americans to realize that, quite frankly, debt is not manly. Debt takes away your control over your life; you become beholden to others and are at the mercy of their generous spirit. In this case, The Common Man must agree with Proverbs 22:7, which says that "the borrower is the slave of the lenders." Of course, The Common Man is not talking about not borrowing to pay for a home (The Common Man has a common mortgage after all) or for school (especially given the disparity in earning potential for college graduates versus high school graduates, and those with advanced degrees versus those without), but not being a slave to your credit will only help you in the long run, so you don't keep having to make minimum payments into your 90s. Living within your means is the surest way to be the master of your own destiny, rather than subject to the whims of American Express.

If you haven't already, The Common Man suggests you watch the documentary Maxed Out, about the practices of credit card companies, the nature of American debt, and the repercussions of it. Heck, you should probably buy it. With a debit card.


Kevin (ReturnToManliness) said...

I can feel a "Tough Love" post coming on the RTM site. This is a great post. The issue is soooo huge it is frightening.

The Common Man said...

Many thanks, Kevin. This is, in The Common Man's opinion , the biggest issue facing this country today. If the U.S. is going to continue to meet its foreign obligations, in Iraq, Afganistan, Africa (with the AIDS pandemic), and sending aid to those who suffer from natural disasters, it needs to get control of the its spending. And, if it's going to keep control over its own sovereignty, it needs to pay down the debt it has accumulated around the globe.

Similarly, if Americans are going to continue to spend enough to keep the economy moving, they need to reign in their irresponsible habits and find a more sustainable and healthy level of consumption. There was a great story on NPR last night about boat repo men and their booming business. Americans, maybe, are finally getting the message that luxury items are just that, luxuries. The Common Man appreciates your support, Kevin and looks forward to the next Tough Love Monday.