The secret shame of the middle-class isn't their credit debt, it's that they are poor decision makers. The author completely glosses over this, only dedicating a single line to the elephant in the room:

> "I made choices without thinking through the financial implications"

That's it. Full stop. You bought a car without having a stable job. You bought a house way outside your earning ability. You bought fancy clothes and gadgets without having the cash to pay for them. Don't blame credit, you did this to yourself.

This guy made a lot of financial mistakes. His earnings are many many multiples higher than people from less fortunate countries, even after adjusting for cost of living.

>"Ate eggs for days, while waiting with my last 5$" ?? Eggs are no-where near the cheapest food you can get. eggs are 12$/2000 calories!! He should've gotten oatmeal -> at 70c per pound, it comes out to less than 1$ per/2000 cals. And I'm sure this is only the tip of the ice berg of financial mistakes, as he's making over 50K per year average.

But, there's a bigger message we can draw from this. 1. We desperately need better personal finance training - it should be a primary subject taught in k-12

2. We need to get housing costs down. The most important money you spend is shelter - everyone needs shelter, everyone deserves it. It's appalling that in over a hundred years we haven't made any progress at all in this industry. And by progress, I mean, nationwide: the cost of housing relative to inflation has not decreased at all. Some states have been regressing to the extreme: California. Part of the solution: Get rid of all housing regulation that prevents innovation in this industry.

Outside of housing cost, there's many ways to save, it just takes some research.

Building safety and energy regulations are great. Pretty sure they prevent innovation.

Safety regulations are especially important for cheap block housing.

Building safety and energy regulations are essentially the minimum wage, with the same arguments for and against.

But they don't come free.

I wasn't claiming otherwise.

I'm simply pushing back against the idea that investors need to be free to innovate people to death.

Eggs are $1/dozen which is 1000cal, unless you buy pasture eggs.

Oatmeal is low on fat and protein

Oatmeal is moderatly high in protein. Normalized for a 2000 calorie diet, it would provide 70g of protein, much more than the recommended 50g.

"Eggs are $1/dozen "

Where is that?

ALDI.

Clearly he should be on the Stigler diet.

The theory I came up with: at middle class income level, spending money gives hope of increasing happiness, or reducing stress. So if you have an unreliable car, it may be cheaper to keep spending money on car repairs -- but it can leave you stranded when you really need to get to work. So buying a newer more reliable car reduces that stress. But it increases financial stress.

I wonder if people are wired to prefer a single stress source (financial), instead of a bunch of smaller stresses.

Are they poor decision makers, or were they poorly taught financial concepts? Were they ever taught how to budget, how to see the actual cost of borrowing, etc.?

I think what we see there is that humans learn a lot from social cues from their parents, relatives, and peers. For many cases this is an advantage because you don't have to explicitly break down a topic for teaching and learning - there's probably a 1000x times when this implicit learning ends up better for the group than not. But when the middle class is shrinking, then there are a lot of built up tribal approaches for handling finances which are diverging from stable choices in reality then that copying breaks down - especially if you're in a cultural group where it's taboo to some degree or other to discuss finances.

e.g. You have to go to college - modern explicit caveat: studying a major that has a chance of paying back the college debt.

It's a good to buy a single family house - modern explicit caveat: only if you have sufficient income stability and down payment saved - before a house was a small enough portion of middle class income that it could generally work out well in a wider range of cases.

Keep up with your peers spending on social cues: vacations, new cars, etc - keeps you networked into a social group for work/business opportunities (but if the group as a whole can't sustain some lifestyle... then this becomes a negative...)

etc...

I don't think this is the sole problem, but I think it's a big social driver of it.

Speaking only for myself, I'm a poor decision maker.

I could easily teach a class on financial planning for young adults, but it's everything I can do to keep my own financial house in order. It's certainly not because I don't know what I'm doing wrong.

May I offer an unsolicited tip?

Multiple bank account with automatic payroll deposits are your best friend as weird as it sounds.

I appreciate it, and it doesn't sound weird at all. I've tried several solutions ranging from separate bank accounts by purpose to physical cash in envelopes. The issue doesn't seem to be one of organization but of mindset.

FWIW, I strongly suspect that I've turned the corner on that in the past few months.

It's amazing how difficult it is to break the habits acquired while younger and less financially secure. The mindset of "If there is money, spend it on things that you need before it's not there" has been taken me almost a decade to shed.

Sure, let's go through that cycle again:

"People shouldn't be able graduate high school until they can understand the financial implications of a loan!"

"Schools and teaching are ruined because they blow all their time teaching to the test! My little mini-me is held back from graduating because he can't calculate compound interest!"

I don't think those two things are necessarily permanently linked together.

Does buying something you don't actually have money for, something that requires education? I mean, that's just self explanatory.

Understanding "don't actually have money" is something that requires education.

With the way things are, it's very easy for someone who hasn't been explicitly educated otherwise to look around and just assume that buying all you can and making minimum payments is just how things work.

I think understanding this is a big part of it, and is something Megan McArdle mentions sometimes in her columns.

The idea is that we see lots of people around us who we think are very much like us. And we see that lots of them have a house with 3000+ square feet. And lots of them drive an Escalade. And lots of them have their kids on travel sports teams. And lots of them have this and that and the other thing. Every time we see that people around us tend to have such a thing, that suggests to us that we can afford it too.

The thing is, we make each of those observations independently. We don't generally take a complete inventory and see that Family A is paying for those sports activities, but doesn't have the top-of-the-line cable TV package; while Family B has the cable TV but goes without the annual vacation to the Caribbean.

We tend to want all the things that we observe that much of our community has, without thinking too deeply about the fact that none of them actually have all of it.

EDIT - spelling

It's not just people making these choices on the basis of what they observe: they're actively being influences to make poor financial choices.

Advertising spending is at around $200B/yr in US media alone.

... And how much of that would you say is targeted at getting people to make good financial choices for themselves?

I agree. It's funny to hear so much "it's self explanatory" on a forum where UX is praised and the results of the current system are obvious (with so many people with so much debt). A good friend, years ago, was paying the minimum payments on his credit card for years was complaining the balance was higher than he started. I thought it was obvious, but it wasn't to him. I really like seeing newer things on bills like, "At rate X the balance would be paid in Y months." The credit card company isn't incentivized to do that on its own.

There's clearly a problem and it should be addressed both by education and better UX (likely through legislation).

I think the CARD Act of 2009 required them to put "At rate X the balance would be paid in Y months" on CC bills.

It's very normal to buy a home, car, or other major purchase with credit. This normalises the idea of using credit, as does it's wide availability for other, less essential spending. In the UK, Martin Lewis and others are campaigning to have personal finance taught in schools. I think that's a good idea, given all the misconceptions I have encountered on the subject.

I don't think that's what the original commenter meant. Most people understand that, but don't know how to budget for things that ARE necessary. I myself am terrible at budgeting, yet have a huge safety net so that even if I go past my budget I am safe.

Mint was a pretty big game changer for me in the world of budgeting. But it's not as if that is rocket science. It's just good to see spending trends. You make X dollars per month, don't spend more than that. That's a basic budget everyone should adhere to for starters.

I actually just reset my Mint account yesterday to try and budget better! It wasn't connecting to my bank and credit card accounts before but it seems to be okay now.

I'm so sick of reading these articles about how horrendous our financial habits are, and they end up pointing the finger at everywhere else but the individual. There's so much literature out there on how to better oneself that it's near-inexcusable nowadays, especially when nearly everyone has access to the greatest library in the history of civilization (if they don't, they most likely know someone who does or can get access to it [public library and such]). 30-40 years ago I can see financial illiteracy being more forgivable. But not today.

Yeah, shit fucking sucks today. Wages haven't increased, student loan debt, etc. etc, but there's a point where people have to stop whining and start protecting themselves against the reality of the times.

If enough people are having problems that it becomes a systemic issue (student loans might be in this category), then personal responsibility isn't cutting it. The big flaw of a true free market is information imbalance and externalities. I only have one chance to save for retirement while a financial company may deal with 100s of thousands so it's harder for one side to learn from mistakes than the other.

Like regulations around children's toys I think both sides have fair arguments--neither is 100% correct. I just don't think it's 100% personal responsibility in a modern society.

Yup! And there's even more ways to save today than 30-40 years ago. You have pay per mile insurance (metromile) that costs less than half of traditional drivers insurance. Phone plans that cost 10$ per month or less (www.usmobile.com), 2nd hand places to buy (craigslist, close5, letgo, etc) and countless other ways to save. And yet, people choose not to.

> That's it. Full stop. You bought a car without having a stable job. You bought a house way outside your earning ability. You bought fancy clothes and gadgets without having the cash to pay for them. Don't blame credit, you did this to yourself.

Your conclusion assumes that marketing doesn't work. (It does.) The people who get consumers to do those things are more sophisticated and organized than most consumers. Many people do need to use more discretion with spending, but that isn't the whole story.

Another thing to consider is that it's very difficult to improve one's situation when you don't have modern things that save time: transportation (car), housing that isn't too far from work, and other things that save enough time to allow one to invest time into increasing total assets. Making money often requires investing money. People who do have sufficient money don't think about the small things that give them enough free time to make more money.

To be fair to the author, he does say this

"I don’t ask for or expect any sympathy. I am responsible for my quagmire—no one else. I didn’t get gulled into overextending myself by unscrupulous credit merchants. Basically, I screwed up, royally. I lived beyond my means, primarily because my means kept dwindling."

He still makes the false excuse that his problem is earning, not spending.

Vicious cycle / feedback loop.

I recall there being a few studies suggesting that being poor can lead to poor decision making, and I certainly agree that poor decision making reinforces negative outcomes such as credit card debt. Thus they are individually responsible for what they've done, but the impoverished middle-class as a whole shouldn't be blamed for where they're headed.

Poverty Impedes Cognitive Function

http://science.sciencemag.org/content/341/6149/976

You're right but there is a lot of predatory lending. Should people even be able to get a $20K limit on a credit card? How many could ever reasonably pay that off? What about payday loans, etc.?

I'd still like to be able to get a $20k limit on my card. In another comment, you proposed a $2k limit; I go over that nearly every month and pay it off before the due date, as part of my planned and expected monthly cash flow.

The problem that I see here is that I was never forced to prove my ability to pay my debt, and the limit isn't raised and lowered to match my current circumstances.

I agree that someone who couldn't reasonably recover from $20k in debt shouldn't be given the opportunity to accrue that much. It doesn't do anyone any good, aside from the leeches that make things harder for people in trouble, while purporting to help. I'd like to not be hamstrung by someone else's difficulties, though.

So get rid of all of that, and I think you will find the problem remains. You can get paid in cash with no loans and STILL blow your entire paycheck in 2 days. Or you can get paid in cash and STILL save 50% of it in a bank and live in your means.

Not that we should not touch predatory lending. But so much of our economy is built on advertising and stuff, just shutting off the loan tap will not fix the problem.

Of course that's possible, but I think more people will avoid that if they know they won't be able to afford food the next day. Easy credit is a big factor allowing people to continue making the bad decision to keep living outside their means for quite a long time without directly feeling the negative effects until farther in the future.

By then they end up with a hefty amount of debt and their lifestyle preferences are ratcheted up; they don't want to downgrade from their BMW to a Honda, move to a less fancy neighborhood and start cooking more meals at home. They are more inclined to keep scraping by with their luxuries, overburdened by debt service.

You would think that logically, but I am not sure research backs that up. i.e. states with very strict predatory loan laws do not have less instances of "cannot come up with $400 within 7 days" people.

Happy to be proven otherwise...

Blowing all your cash is trivially obviously better than running up credit card debt

What about a cell phone with a $100 monthly bill? How about $250 cable tv package? Neither are loans. Both are as bad if not worse than credit card debt.

It won't get rid of everything but I think it would help a lot. You'll max out a $2K limit way quicker than a $20K and you have a chance of recovering from that. I liken it to parenting. You can't take a stance that your kids make no mistakes as teenagers, the best lessons are learned the hard way. What you do want to do is make sure they make small mistakes so they can learn without ending up in jail, pregnant or on heroin.

>Don't blame credit, you did this to yourself.

How casually we disregard the people whose poor decision making underpins capitalist society. Falling for carefully crafted messages to alter human behavior, they work in near-servitude to purchase their dreams and happiness.

Someone has to pay interest on credit cards - I don't :)

I don't know if financial literacy can be taught effectively; it may link back to fundamental behaviors.

I'm always baffled by one thing in these sorts of articles - the belief that paying the minimum due on your credit cards is the right thing to do.

I'm not going to pontificate about living within your means or whatever, obviously people have reasons for doing what they do. But I don't understand how so many people are cheerfully paying the minimums and treating credit as basically an extension on their salary.

I have seen this at work as well, people making low six- figure incomes paying minimums. I've even had someone tell me that paying in full is bad for your credit score.

Is this a generally held belief? Do most people pay the minimum?

> I've even had someone tell me that paying in full is bad for your credit score

That one I always find interesting. The credit bureaus definitely try hard to make it as confusing as possible, but even then, the amount of urban legends is baffling.

I moved to the US a few years ago knowing nothing of how that stuff worked. 3 years later after getting my SSN I had a credit rating of 760 and got a jumbo mortgage at a pretty good rate. The core of the "formula" for credit rating isn't too complicated. And "keeping a balance on your card and using it regularly" is absolutely not part of it (beyond the fact that many banks won't let you raise your limit if you don't use it, and your total unused credit IS part of the formula)

Credit cards have ridiculous interest rates (like 20%+ min.). It's far better to take out a loan and pay your credit dues since the loan will be at a far better rate (at least half).

Why would any sane person do this (pay min. balance)?

Yes, exactly. That's why I don't get it. I can understand going through a rough patch where you pay the minimum cause you can't afford it, but I cannot understand constantly paying the minimum when you can afford to pay much more

Its possible they are perpetually in a "rough patch" Americans do have a mind set of "temporarily embarrassed millionaire" That would lead to this kind of behavior.

Loans are not given out freely like that, easiest loan you can get is credit card and loans from loan sharks. But a bank loan? You have to explain for what, and have a collateral.

I guess this depends on your credit, but I was able to take out a personal loan from my bank with a few clicks on their website, no big deal at all.

I other words, banks know that people can't pay back credit card debt.

42% of respondents from a 2006 gallup poll said they paid off in full: http://www.gallup.com/poll/22879/Credit-Card-Owners-Average-...

I don't know how much people tie this to paying the minimum instead of paying nearly everything they owe, but there is perverse, pervasive belief that you have to carry a balance on your cards to build credit.

My understanding is that having 0% credit utilization is slightly worse for your credit rating than having 1%-10% credit utilization. That doesn't mean that you should only pay the minimum. My approach is to regularly pay them down to a $10 balance; it's possible this is pointless because it's rounded down to 0% in their calculations anyway, I'm not sure.

If you carry a $10 balance, you're probably giving up the free float. Since I pay the card off each month, I get between 31 and 61 days of free float on purchases. If I don't pay it off in a given month, finance charges accrue from the date the charge is posted.

As to having utilization on the card, normal usage is enough to ensure that there is always a balance due on the card anyway. (If you spend money on the card regularly, the payment you send in August is for things you bought in July and by the time it posts, you have more August charges on the card, meaning the balance is only ever zero if you do a massive return or if you have a multi-week spending embargo hit at just the time the credit company pulls your report.)

> If you carry a $10 balance, you're probably giving up the free float.

Not sure what the mechanics are behind the scenes, but I keep an eye out for interest charges and I haven't seen any for years.

> meaning the balance is only ever zero if you do a massive return or if you have a multi-week spending embargo hit at just the time the credit company pulls your report.

I think I implemented the $10 policy because I wasn't using my cards very much at the time. Your system makes the most sense for anyone who uses their card regularly.

Your credit card utilization is a snapshot at a random day in the month. I pay off all my CCs in full every month, every credit report I have seen of myself show 1-90% utilization of all of my credit cards.

(The 90% is my Target Redcard with a $300 limit, pretty easy to max that puppy out... in fact its bad for my credit to even use, as the 90% utilization makes me look in trouble, but it can be hard to pass up 5% savings..)

You can ask for a credit limit increase.

Hah they actually told me "we are not giving credit card increases at this time" for like 3 years. Then they finally sold the business. Then I think I got a bump to 1000? Which still means if I buy an electronic device, I hit 50% utilization pretty quick.

That is simply not true. There are many factors influencing your credit score in the US, however as far as credit utilization goes, the lower the better. Your credit score is based on how much unused credit you have.

Your bank may not want to increase the limit on a credit card you never use, but that's about it. If you want a high credit score, get the highest limit you can, always pay it off, keep it around for a long time, and never miss a payment for over a month. You also want multiple lenders (a single credit card won't, or multiple ones from the same bank won't cut it).

>“You are more likely to hear from your buddy that he is on Viagra than that he has credit-card problems,” says Brad Klontz, a financial psychologist who teaches at Creighton University in Omaha, Nebraska, and ministers to individuals with financial issues. “Much more likely.”

What!? This... Isn't even remotely true. Maybe it's just my peer group and family but complaining about money problems is extremely, extremely common. Other than my coworkers I know more people who talk about lack on money then don't.

It kinda gets old though because I see the complainers complain then go out and make terrible financial choices. I have a friend whose always complaining about money yet he's buying expensive clothes for his wife, bought two brand new cars (one for the wife), and a motorcycle. While complaining he can't afford groceries. Then goes on several vacations. These people actually have enough money to fund a pretty decent lifestyle if they just worked to get out of debt then worked to budget.

Seems people just want to buy the things they want no matter their ability to pay for them. And banks are happy to lend money to finance this lifestyle. So we have more advertising, more credit, and more things to buy.

I think there's a cultural expectation of perpectual debt. Like everyone always has multiple "car payments" and a "house payment." Need something? No need to save for it, just take out a loan and add it to your monthly payments. That's how people get in trouble - leaving no cushion.

I just find it hard to get through this sort of article, making it seem like average-to-good income earners, someone earning $50,000 a year, are victims of some sort. I went without for a long time to get myself out of student loan debt and the get myself to a place of economic security. If I can't afford something, I don't buy it. It's not hard concept, but it does require going without. I also don't think paying these people more would help - they would just spend more.

Yup. I essentially learnt how to manage my finances by watching my parents fuck it up over and over. Burning so much money on a wedding that they had to file for bankruptcy. Carrying balances on their credit cards for years (even when they could easily pay it off). Finally getting a chunk of money as a lawsuit settlement and buying a $18,000 TV (yeah, a $18,000 TV. What the ever living <beep>. They had their share of bad luck, but nothing that couldn't have been worked around by making even marginally better decisions ($18,000 bucks used the right way can go a loooong way...)

If you could have written this article, read every post in this blog: http://www.mrmoneymustache.com/

I was a spendthrift for years, and even regular raises couldn't get me ahead. This guy teaches you how to not only save money, but take pride in not having the latest and greatest everything. This, IMO, is what makes spending within your means sustainable in a society that looks down on those without the proper social status markers.

If you're in an economically depressed area where the richest family in town doesn't have a pot to piss in, your poverty isn't you fault, and we should have a better safety net that helps people up to more valuable careers. If you have means, save your money, and take pride in not being suckered in by people selling you stuff that won't make your life better!

It's easy to say "they are stupid, they should have thought about it before making those decisions."

When I think back i was very stupid at 18, but that's the age everyone expected me to go to college, and everyone told me it's ok to take a loan because with a great education I'll have the best job, and it will be easy because I'm super smart. Everyone encourages an young dumb 18 year old to get in a large debt like it is nothing.

Then, "do you have good credit? Get a good car cause you don't want to be thinking about fixing it, you want to focus on your studies"

Then, "buy a house, otherwise you are throwing money away every month while you could be investing in your own home"

This is something totally normal, it's the system. It's so ingrained in us (at least in the US) that not having these debts is socially shameful.

I'm sure it is partially a cultural thing. What steps did you take to reduce your debt after you realised it was holding you back?

I got lucky, i was denied all these things. Sure at that age i was ashamed to say i dropped out of school cause i could no longer pay out of pocket. My school mates were uncomfortable when i talked about taking the bus. And when i couldn't buy food with at lunch with a credit card, i simply didn't eat.

Today i can pay $400 for an emergency, most my friends can't.

At the heart of it is piss-poor basic education. Math, reading comprehension, decision making, critical thinking.

Budweiser is the king of beers, it says so on the label. The World Series is the world championship in baseball. etc etc etc.

However - this is great for the overall economy. The US is breeding the perfect customer, that can be sold anything at any time.

You can see it in startups too, you can sell product based on a powerpoint, a "vision". 9 out of 10 with nothing behind it. It would never, ever, fly in Germany for example. People there assume a scam before anything else.

So, shit for individuals, great for the overall economy. Pick your poison.

You only need 3rd grade level math to understand budgeting. The problem is lack of discipline.

This article is from May 2016. Previous discussion: https://news.ycombinator.com/item?id=11533567

The best line i heard from a guy in my route is this

When i was 20 i wanted to make 100k by 30

When i was 30 i wanted to make 1m by 40

When i was 40 i didnt care about money

And now in my 60s i want to die $3m in debt.

Put another way (I saw it on a Citibank billboard, but it probably originated elsewhere):

"Why do we spend our youth chasing money and then our money chasing youth?"