Why do people in developed countries still fall into the "debt trap" ?

Rodger

Ad Honorem
Jun 2014
6,169
US
#31
your phrasing, like that of the OP, makes this sound like the result of a personal failing. The Mentality of the people.
That is the narrative the rich would like everyone to believe, rather than realize that the powers that be are Driving people to have no other choice in living their lives.

In fact- this is how our economy works and the ownership class and political leadership actively encourage and manipulate the citizenry into behaving in this way.
No other viable option is presented nor available.

When they tout the growth of jobs numbers- they are celebrating their success in getting people to incur debt. Real inflation adjusted wages have not risen for the working class in over 25 years in the US and most of Europe.
ALL 'increases' in productivity have actually been productivity borrowed from future labor in the form of interest payments on last year's borrowed labor.

Its a scam- but its a scam we can not escape from because the minute people stop spending money they don't have yet- swathes of their fellow citizens get laid off- which means fewer people who can afford to spend money- which results in more layoffs.
and you end up in a convergent series- like in 2008-2009. The only way that was stopped after 2008 was thru extending the wars in the middle east so that All those soldiers ( half of whom were reservist's whose jobs had disappeared ) continued to have a government paycheck.

The crash of 2008 was initiated by a spike in GAS prices.
2001 started off with the recession of the burst dotcom investment bubble ( itself a product of deregulated banking and IPOs- encouraging ever more risky investment speculation ) The government, in trying to make the economic numbers look good further reduced the banking regulations and pretty much gutted the SEC. This was an attempt to spur house purchasing and, thereby home building because it takes ten million iphone sales to make the same impact on GDP as just a few thousand house sales. Thing is- everyone who could qualify for a loan had already bought a home.- so the only way to spur 'growth' was to make it easier to borrow more money, with less down, and approve folks who would not have been approved previously. The only way to do this was for Banks to be allowed to have smaller reserves in comparison to their leverage- and the government deregulation efforts allowed this. So a lot of folks who were barely getting by were told that this was their golden chance to get their foot in the door of home ownership- traditionally the best investment for the working class. ( and a bunch of would be property tycoons used the easy money to try and leverage a real estate empire - and THAT speculation resulted in inflated housing prices that could not be supported by increasing incomes )
The government followed this by de-regulating ENERGY trading. This resulted in ENRON and significant inflation in the costs of electricity- further stressing those homeowners who could barely make their mortgages already.

All those SUV driving folks who had bought homes thru deregulated mortgages- and all those wannabe real estate tycoons were THEN hit with the government deregulating OIL trading. Despite a worldwide glut in oil supply- this resulted in market manipulations that abruptly doubled the price of gasoline in 2007.
Suddenly the overstressed working class was hit with a choice of being able to pay their mortgage- or being able to fill their gas tank so they could get to work.

They started defaulting on their mortgages, and the entire house of cards of an economy based on future labor came crashing down as layoffs caused a lot of that future labor to evaporate.

But the ownership class not only got the working class to pay off the losses created by their own mismanagement and their own lobbying for less regulation... they also got to buy up all those peoples' homes for pennies on the dollar- the single largest transfer of wealth from the working class into the hands of the 1% in human history - As government bailouts gradually got the economy rolling again- all those folks whose homes had been seized - and all those folks whose retirement investments had been destroyed were now paying rent to the new owners of the foreclosed properties. Still paying off mortgages with their future labor... just someone else's mortgages.


you can not say Today's folks have an attitude of wanting it all, now... without pointing the finger of blame at the people RIGGING the world so that that is the only way to live.

You have to have a smart phone to operate in the modern world. You sign a contract to pay for it over time.
You have to have a car.
You have to have a wardrobe.
You Have to buy gas to get to work, even if you ran out of money because of an unexpected cost like injury or sickness.

And moreover- if just 10% MORE of your fellow citizens chose to live a life where they never incur debt- then there is a good chance the ripple effects of that action could mean losing your job.

Today- the Super rich have pretty much destroyed democratic rule of law- they now unashamedly bribe politicians and manipulate your access to information and divide public opinion so that the electorate can not form any consensus of action that might impinge upon their kleptocracy.
They have convinced people that government BY the people can not be trusted, and that corporations do everything better. They have gotten the working class to blame Taxation for their woes- rather than the fact that the ownership class REFUSES to increase your real pay for a over a generation, and does everything they can to slap a massive profit AND interest payments on every good or service you require to keep on working to pay them rent and buy the things they have made necessary to a career.

Its not people's attitudes.

We are ALL being played by the emergent properties of the avarice of the 1%.

welcome to SURFDOM 3.0
You can be the serf, not surf dude, if you wish. And my argument is as if I am one of the rich. LOL. Most personal debt is by choice, even college. Ask those who chose to get degrees that can’t pay their loans, while those who go into trades don’t have that problem. Some people just don’t believe people should own their choices.
 
Likes: Abraham95
Jul 2019
86
Pale Blue Dot - Moonshine Quadrant
#32
True, but once you have gotten hit over the head a few times, should that not (pavlovian principle) change the attitude ?

Like, you bought that super duper 4K giant TV that barely fit in your living room and now you cannot make rent... Just the stress of that situation should be an incentive NOT to buy the super couch, made of pink unicorn leather that will make your neighbours jealous ?
Some people do learn, but some don’t - and that is certainly on them.

But there is a dis-incentive to save and a reward for borrowing. Some debt is deductible on taxes while returns on savings are taxed.

And the downward change in currency value over time also encourages debt.

It seems completely backward to me - especially since they are policy decisions that in theory could be reversed.
 
Aug 2014
4,675
Australia
#33
Here are two scenarios:

Take out a mortgage on an investment property.
1. The cost of the loan is set at the time of purchase but inflation means that your repayments steadily decrease over time.
2. You can expect pay rises/rent increases over the term of the loan so you have a greater capacity to service the loan as time goes on.
3. You get capital growth on the asset, which, for property, trends a little higher than the inflation rate over the long term.
4. You get tax deductions for the interest payments plus all inputs into the property.
5. You get deductions for the depreciation of all the assets associated with that property.

Put your money in a savings account.
1. The interest rate is generally lower than the inflation rate so you LOSE money each year.
2. There is no asset, so there is no opportunity for capital growth.
3. You get taxed on the interest, which is already lower than inflation.

So the moral is to never put cash in the bank. Convert that cash into an asset who's value increases over time. Buy gold, or building materials, or food that won't spoil such as sacks of sugar, crates of alcohol, barrels of honey, and so on. NOT CARS - as soon as you drive them out of the showroom they lose value. You should only keep just enough cash to meet expected operating costs.
 
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Likes: Iraq Bruin

sparky

Ad Honorem
Jan 2017
4,798
Sydney
#34
personal debt is a powerful tool ,
if used with care and much thought it can be a boon
if used for purchasing frivolities who have no other value than entertainment , it will sink you
live within your means , including credit repayments

the key is the value of the need ,
should someone control their needs then credit can provide great value ,
if not it's a trap
 
Aug 2014
4,675
Australia
#35
There are only two things you borrow for.

1. An asset that can generate an income. Example: a business, or rental property.

2. Something that can reduce your operating costs or cost of living. Example: I borrowed money for a solar installation. The repayments are less than the reductions in electricity costs so I get to pocket the difference. And those savings get bigger every year because the loan repayments decrease in line with inflation while electricity costs rise each year.

Your domestic residence falls into category 2, not 1. You have to determine whether costs of owning your own home and paying off a mortgage are less than the costs of renting. Usually they are, but not always.
 
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tomar

Ad Honoris
Jan 2011
13,755
#36
your phrasing, like that of the OP, makes this sound like the result of a personal failing. The Mentality of the people.
That is the narrative the rich would like everyone to believe, rather than realize that the powers that be are Driving people to have no other choice in living their lives.

In fact- this is how our economy works and the ownership class and political leadership actively encourage and manipulate the citizenry into behaving in this way.
No other viable option is presented nor available.

When they tout the growth of jobs numbers- they are celebrating their success in getting people to incur debt. Real inflation adjusted wages have not risen for the working class in over 25 years in the US and most of Europe.
ALL 'increases' in productivity have actually been productivity borrowed from future labor in the form of interest payments on last year's borrowed labor.

Its a scam- but its a scam we can not escape from because the minute people stop spending money they don't have yet- swathes of their fellow citizens get laid off- which means fewer people who can afford to spend money- which results in more layoffs.
and you end up in a convergent series- like in 2008-2009. The only way that was stopped after 2008 was thru extending the wars in the middle east so that All those soldiers ( half of whom were reservist's whose jobs had disappeared ) continued to have a government paycheck.

The crash of 2008 was initiated by a spike in GAS prices.
2001 started off with the recession of the burst dotcom investment bubble ( itself a product of deregulated banking and IPOs- encouraging ever more risky investment speculation ) The government, in trying to make the economic numbers look good further reduced the banking regulations and pretty much gutted the SEC. This was an attempt to spur house purchasing and, thereby home building because it takes ten million iphone sales to make the same impact on GDP as just a few thousand house sales. Thing is- everyone who could qualify for a loan had already bought a home.- so the only way to spur 'growth' was to make it easier to borrow more money, with less down, and approve folks who would not have been approved previously. The only way to do this was for Banks to be allowed to have smaller reserves in comparison to their leverage- and the government deregulation efforts allowed this. So a lot of folks who were barely getting by were told that this was their golden chance to get their foot in the door of home ownership- traditionally the best investment for the working class. ( and a bunch of would be property tycoons used the easy money to try and leverage a real estate empire - and THAT speculation resulted in inflated housing prices that could not be supported by increasing incomes )
The government followed this by de-regulating ENERGY trading. This resulted in ENRON and significant inflation in the costs of electricity- further stressing those homeowners who could barely make their mortgages already.

All those SUV driving folks who had bought homes thru deregulated mortgages- and all those wannabe real estate tycoons were THEN hit with the government deregulating OIL trading. Despite a worldwide glut in oil supply- this resulted in market manipulations that abruptly doubled the price of gasoline in 2007.
Suddenly the overstressed working class was hit with a choice of being able to pay their mortgage- or being able to fill their gas tank so they could get to work.

They started defaulting on their mortgages, and the entire house of cards of an economy based on future labor came crashing down as layoffs caused a lot of that future labor to evaporate.

But the ownership class not only got the working class to pay off the losses created by their own mismanagement and their own lobbying for less regulation... they also got to buy up all those peoples' homes for pennies on the dollar- the single largest transfer of wealth from the working class into the hands of the 1% in human history - As government bailouts gradually got the economy rolling again- all those folks whose homes had been seized - and all those folks whose retirement investments had been destroyed were now paying rent to the new owners of the foreclosed properties. Still paying off mortgages with their future labor... just someone else's mortgages.


you can not say Today's folks have an attitude of wanting it all, now... without pointing the finger of blame at the people RIGGING the world so that that is the only way to live.

You have to have a smart phone to operate in the modern world. You sign a contract to pay for it over time.
You have to have a car.
You have to have a wardrobe.
You Have to buy gas to get to work, even if you ran out of money because of an unexpected cost like injury or sickness.

And moreover- if just 10% MORE of your fellow citizens chose to live a life where they never incur debt- then there is a good chance the ripple effects of that action could mean losing your job.

Today- the Super rich have pretty much destroyed democratic rule of law- they now unashamedly bribe politicians and manipulate your access to information and divide public opinion so that the electorate can not form any consensus of action that might impinge upon their kleptocracy.
They have convinced people that government BY the people can not be trusted, and that corporations do everything better. They have gotten the working class to blame Taxation for their woes- rather than the fact that the ownership class REFUSES to increase your real pay for a over a generation, and does everything they can to slap a massive profit AND interest payments on every good or service you require to keep on working to pay them rent and buy the things they have made necessary to a career.

Its not people's attitudes.

We are ALL being played by the emergent properties of the avarice of the 1%.

welcome to SURFDOM 3.0
well, the systems is far from perfect but in any case it will never be

the question facing the individual is of the best actions considering the system (environment) he is in... One can complain that he lives in cold climate... or one can wear warm clothes and reduce exposure to cold


1You have to have a smart phone to operate in the modern world. You sign a contract to pay for it over time.
2 You have to have a car.
3 You have to have a wardrobe.

4 You Have to buy gas to get to work, even if you ran out of money because of an unexpected cost like injury or sickness.

1. Smart phone prices vary widely like everything else... You do NOT have to buy the latest i-phone at over $1000.... there are options around $200 or lower

The cheap smartphone market is better than ever - here are the best under £200
and you do not have to always get the latest gizmo.... You can keep the phone 5 years or more, instead of changing it everyone one or 2 years

2. Again prices vary widely... From a used car for a few thousand dollars to $100k and more... Plus not everyone needs a car.... Those living in cities with good mass transportation do not... Then there is sharing, uber and the like, leasing etc.... Lots of options

3. Same story .... you can get simple pants for a few bucks or fancy ones, for 100$ or more... .Your choice

4. Gas is really not the main expense in a budget

As for the housing bust, primarily it was caused by people over borrowing (sometimes ridiculously so) to buy houses they neither needed nor could afford....

You are right, each of us does not control the economy and we cannot foresee wild fluctations... All the more reasons to be cautious, to avoid debt and to never max out on mortgages... Plus to have savings...
 

tomar

Ad Honoris
Jan 2011
13,755
#37
Here are two scenarios:

Take out a mortgage on an investment property.
1. The cost of the loan is set at the time of purchase but inflation means that your repayments steadily decrease over time.
2. You can expect pay rises/rent increases over the term of the loan so you have a greater capacity to service the loan as time goes on.
3. You get capital growth on the asset, which, for property, trends a little higher than the inflation rate over the long term.
4. You get tax deductions for the interest payments plus all inputs into the property.
5. You get deductions for the depreciation of all the assets associated with that property.

Put your money in a savings account.
1. The interest rate is generally lower than the inflation rate so you LOSE money each year.
2. There is no asset, so there is no opportunity for capital growth.
3. You get taxed on the interest, which is already lower than inflation.

So the moral is to never put cash in the bank. Convert that cash into an asset who's value increases over time. Buy gold, or building materials, or food that won't spoil such as sacks of sugar, crates of alcohol, barrels of honey, and so on. NOT CARS - as soon as you drive them out of the showroom they lose value. You should only keep just enough cash to meet expected operating costs.

Your investment property scenario is fine when things go well..... When they do not (as has been for example the case in Australia recently)it can lead to financial disaster.... If there is no one to rent your property, you'll be making a loss every month, one which you will have to cover somehow (and which can lead to the loss of the property).... Your property can and does lose value if you bought at or near the peak (not to mention depreciation over time, as houses do get old and require repairs).... and interestingl enough the best rental yields tend to be in the worse neighborhoods (properties are cheaper, rents not so much) but resale is problematic in those areas... That is before the whole nightmare scenario of a tenant who does not pay, takes years to evict ( in some countries including Britain) and ruins the property before finally leaving... or of someone deciding to build a nuclear power plant , an airport, a railroad, a jail and an incinerator just in front of your property...

This said, I do think it is a good strategy, but again to be used carefully... In particular you need several such properties so that the risk is spread and that no single one is too expensive to handle in case of failure...
 
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tomar

Ad Honoris
Jan 2011
13,755
#38
I agree, you are responsible for your own actions. And ignorance is no excuse for behaving foolishly.
However, I had a colleague; her and her boyfriend bought a house and lacked furniture, when I said something about a recycling shop. She just smiled and said that the bank had said their monthly repayments would not be that much higher if they lent the money to the furniture.
I was just speechless; you will still have to pay for the furniture when it have ended up at the landfill. And she looked at me like I was the stupid one.
Of course, a bank is a business that is going to make money one way or another.But there must be limits.
Danske Bank has by the way just been reported to the police to mislead customers about an investment product. So, fortunately, the law obviously puts limits on how much banks are allowed to mislead customers.
Well your colleague made a choice... To have nice furniture taking a cost and a risk along the way.... Both the bank and the furniture shop are selling as much as they can (do not get me started on the cross selling and up selling rant - literally everyone is doing that nowadays from the cashier at Mc Donalds who thinks you may not have noticed they have a "desert" - with their menu being soooo rich and all to the real estate agent who will try to convince you to borrow more in order to buy that house that is soooo much better than the one you can actually afford)
The way I look at it, there is no use complaining about a dog barking and biting, that is what they do.... Like wise no use complaining about sales people , selling... that is what they do..... It is everyone's responsibility, even duty, to learn to say "no" to these people (and to one's unreasonable cravings as well)
 
Likes: Runa
Oct 2009
3,605
San Diego
#39
You can be the serf, not surf dude, if you wish. And my argument is as if I am one of the rich. LOL. Most personal debt is by choice, even college. Ask those who chose to get degrees that can’t pay their loans, while those who go into trades don’t have that problem. Some people just don’t believe people should own their choices.
And some people believe what they are programmed to believe by the ownership class.

Like in the power of personal choices.

y'know- like how the koch bros CHOSE to inherit billions.

If you don't comprehend that the ownership class is actively manipulating our laws to benefit them and transfer the wealth of the working class into their bank accounts, then you just haven't been paying attention.

Personal gumption can account for a TINY percentage of people's fortunes.
Mostly- its where you're born, who your born to, and who you just happen to meet as your life unfolds- ( which is largely a result of who you're born to )

No doubt Oprah had a lot to do with her own success- but another woman with all her same traits and talents and drive could never be the next Oprah because there is only room for one.
The pyramid gets mighty narrow at the top.

And sure- you can go into a trade- but tradesmen end up needing to leverage purchases like houses and cars and end up in debt as often as college students.
 
Likes: Kirialax

VHS

Ad Honorem
Dec 2015
4,547
Florania
#40
I believe we hear more about student loan debt today compared to in the past because the media outlets are bigger, information travels faster in our age. And of course the sheer # of folks with high debt today is larger compared to those of the past in the USA at least this can be said.

One reason of higher debt today is possibly related to the fall of the Steel and Auto jobs in the USA. In 1972 starting out at many steel or auto companies after 90+ days on the job you would get equal pay for equal work. One would be making what the men or women who was on the job for 12 years made over 30$ an hour adjusted for inflation. 30$ an hour is a solid middle class wage today. But most of those middle class jobs are gone today. And The same companies such as Ford and GM that used to provide great middle class jobs now pay less then 20$ an hour, and at times do not come with a Union. Ford still does have a union but its new hires no longer get a pension and they start with a wage considerably lower then what multiple generations made before them.

Union jobs used to make up 35% of all jobs in the USA. We live in a world that differs from the world of the past in some ways good and in some ways bad. Union jobs in the present only make up about 11% of all jobs in the USA. Today its Wal mart that employs over 2 million Americans, the largest employer in the USA and in the world is wal mart. Wal mart is a company that IMO provides a bad product(often unhealthy frozen food and poor meat, expired products) with low pay and poor benefits to its workers, walmart does not allow Unions as well. Where as the Steel and Auto companies of the past employed millions of Americans while also providing millions of Americans with very useful products. McDonalds is the 2nd largest employer in the USA today. We all know that McDonalds does not provide healthy food, yet McDonalds takes in billions of dollars. McDonalds does not provide Americans with a great product as did the Steel and Auto companies. OP, Americans do not have the savings they used to have. The middle class has fallen, but we still have an upper class and a remnant of a middle class. The USA still has the worlds strongest military and there is still the dream(a false hope in some ways) poor immigrants have that by coming to the USA without a college degree and no English that they can still make it in the middle class...that was the case in the past but not so much today.


What Really Made America Great? To a Large Extent, Unions—and They Can Do It Again

Yes, Half of Americans Are In or Near Poverty: Here's More Evidence

For most Americans, real wages have barely budged for decades

Part of the reason why more Americans are in debt today is because unlike in the past, there is not the opportunity for masses of Americans right out of high school to get a job at a steel or auto plant and be set for life like it was the case for almost 100 years going back to the early 20th century. By 1914 Ford had implemented the 5 $ workday and by 1941 Ford had finally reached a deal with the UAW one of the largest and most important unions in all world history.

Today we lack visionaries such as Henry Ford, men whom wanted to get massively rich but also whom had a desire to help the world. And today it seems more young Americans are pressured to get a college degree that costs tens of thousands of dollars if not more, and these young Americans do not always complete the degree and even if they do they have the task of finding a good paying job in the field they desire. Where as in the American past we had a stronger middle and upper class we have a lesser middle class today and seemingly a lesser upper class.

The fall of the Union jobs is blamed on poor Union leadership, bad Gov policy, greedy employers and employees...w/e the case the middle class was strong and had considerably less debt for multiple generations in the USA. In going forward the US and other countries should figure out how for multiple generations families thrived due to the high # of middle class jobs in the USA for most of the 20th century. At one point in US history at one Ford Plant alone in The River Rogue complex, 75,000 Americans were employed. Today the River Rogue employees 6,000 people. That downfall has been felt all over the country, in my city we went from 100,000 steel and auto jobs to maybe 5,000 of them. So whether its the steel or auto industry or a different industry, a way out of huge debt for Americans is to have a strong middle class where right out of high school people can get a job that will set them for life.
On these lines of thinking, I would suggest a good read of Yuval Noah Harari's 21 Lessons for 21st Century.
One chapter is: "Work: When you grow up, you might not have a job".
Check this long thread for details:
Is the end of employments really likely?

If Homo Deus is correct, even professional jobs such as medical specialists can be replaced sooner or later; the transition will not be instantaneous.
 

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