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

Aug 2013
167
Finland
#41
human nature. people do stuff that isn't in their best interests.
people make mistakes, or retarded stuff.
humans are imperfect.
I think this is really what's it about, we are wired to prefer instant satisfaction over strategic long term planning. E.g. eat well today or save up to potentially prevent going hungry in the future. Kids have a very hard time making long-term choices and even as adults it's difficult to make the logical decision every time, because the quick short-term decisions award us with a sense of dopamine-fueled good feeling.

Then once you make the wrong decision, making the right decision to fix it becomes harder and harder, so you basically start throwing good money after bad. Game theory explores this part of human nature quite well.
 

tomar

Ad Honoris
Jan 2011
13,755
#42
I think this is really what's it about, we are wired to prefer instant satisfaction over strategic long term planning. E.g. eat well today or save up to potentially prevent going hungry in the future. Kids have a very hard time making long-term choices and even as adults it's difficult to make the logical decision every time, because the quick short-term decisions award us with a sense of dopamine-fueled good feeling.

Then once you make the wrong decision, making the right decision to fix it becomes harder and harder, so you basically start throwing good money after bad. Game theory explores this part of human nature quite well.
True, but on the other hand we are also unique creatures in that we worry about the future -ours and that of our children (I dont think animals do that).... So there is an arbitrage between instant satisfaction and worries about the future.... BTW satisfaction can be had by having enough money aside so as not to worry about future financial problems (of course then one can worry about how safe the money is and whether one is missing out on good investments)
 
Aug 2013
167
Finland
#43
Yes we do worry about the future, but when the need to make the correct long-term decisions appears, we have to face a small a struggle against our nature every time. Most of the time we win, but every now and then we give in.

Most of the time the decision is of little importance and sometimes the short-term instant gratification choice turns out to be the right one, which all serve to muddle the waters.
 
Aug 2014
4,675
Australia
#44
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....
People were buying on spec rather than as an investment. Anyone who actually ran the numbers would never have bought an investment property in any Australian capital city in the last five years. Even now, after the correction, property is still over-valued in those cities. But there are plenty of opportunities elsewhere in the country.
 

Rodger

Ad Honorem
Jun 2014
6,169
US
#45
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.
You always make plenty of assumptions about posters. You also like to bring politics into the discussion, despite its prohibition here. You must be special. So , to you I say Karl Marx approves. If he was here he would say kudos to the well indoctrinated. The commune will solve all the issues you have about personal debt. By the way, I know several people who refuse to use credit, other than for a home mortgage. They don’t buy until they have the cash. They live simply. It is an option, a choice if you will. I would imagine it’s how Marx wanted it, at least for the foot soldiers. Let the revolution begin!
 
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Likes: Runa

tomar

Ad Honoris
Jan 2011
13,755
#46
People were buying on spec rather than as an investment. Anyone who actually ran the numbers would never have bought an investment property in any Australian capital city in the last five years. Even now, after the correction, property is still over-valued in those cities. But there are plenty of opportunities elsewhere in the country.
well, I am no expert on Australian real esate.... here's a failure story though... This lady in red (there are several story in this piece) managed to get about $6 million in debt buying rental properties, which now stand empty because there was a bust in her town... and they cannot be resold, at least not in away that allows her to cover debt

I have 2 stories of my own from people I personnally know

Story 1:

this gentlemen likes to buy "expensive" real estate (over $1 million) , remodel and resell (flipping).... Of the last half dozen he did, 2 were sold with decent upside, one was located in a place that unexpectedly became "drug central" and cannot be resold, 2 required so many repairs that the total price (with repairs) well exceeds market value, and 1 has not found a buyer so far
Overall a bust

Story 2
This gentlement buys small properties (1 or 2 rooms) in decent areas (not the most expensive neihborhoods, but not run down either)... He plays it safe, so that value does not go down.. .he has about 20 properties, overall value (I am rounding): about $3.5 mio (bought at about $3 mio and then there is repair + upside over 3 years which is when he started investing).. he buys with 20% down, so his current debt is currently over $2mio.... And he has invested about $1mio all together between the 20% down, the repairs, the transaction costs etc.... His return is from 5 to 7% (not too high because conservative neighborhoods) gross, so about 2 to 3% net.... Which is less than what he needs to repay the mortage (20 year mortgage means one has to return about 4% per year in capital) principal... So he basically has to chip in about $30K per year, which is more or less OK if prices stay stable or increase, because he is essentially just moving his cash into bricks with similar or higher value.... Of course the 2 to 3% return is on the whole amount (including the borrowed money).... So really he is making 6 to 9% on his investment, again assuming prices stay stable...
Stil he cannot live off it until the loans are fully repaid (or he sells some properties)... And not everyone has $1mio to invest.....
Overall a long term investment requiring significant starting capital... Performance can only be assessed on the long term when loans are paid off or when properties are sold...

 
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stevev

Ad Honorem
Apr 2017
3,422
Las Vegas, NV USA
#47
The average american for example is estimated to have some $40 000 worth of personal debt (not including mortgages). That would be $160 000 for a family of 4. Way above 1 year of average revenue even if both parents are working
I'm not sure where you got that statistic but if it were true on a per capita basis, it must include corporate debt and probably government debt as well. If so it would not be out of line with most developed countries and in and of itself is neither good nor bad. For government debt, it should be evaluated in relation to GDP and growth rate. For corporate debt it should be evaluated against shareholder equity, growth and interest rates. For households it should be evaluated against income, savings, interest rates and future earning prospects.
 
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Scaeva

Ad Honorem
Oct 2012
5,629
#48
Wages have not kept pace with the cost of living.

In many cities the working class are effectively being priced out by the costs of owning a home in the city of their employment, and rent may leave them with little in the way of savings. Add to that the disappearance of many blue collar jobs and the rising costs of education and the associated debt that many people take on.

That isn't to say that some people don't also get themselves into trouble by making poor financial decisions, but politicians shouldn't be let off the hook for the sorry state in which the working class now finds itself.
 

sparky

Ad Honorem
Jan 2017
4,798
Sydney
#49
" Why do people in developed countries still fall into the "debt trap"
people in developed countries are just people , Indian farmer get into the debt trap too
a story in progress is Chinese people falling into the debt trap , they are willing and eager and it only want a better debt trap

debt is sweet , and like sugar , highly addictive
 
Likes: stevev

stevev

Ad Honorem
Apr 2017
3,422
Las Vegas, NV USA
#50
debt is sweet , and like sugar , highly addictive
Yep. Just sign over your house , your car(s), half your salary, your bank account, stocks and bonds, and your right kidney as collateral.o_O They would ask for your wife and children if it were legal (husband if the wife is the debtor).
 
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