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

Jun 2017
429
maine
So who owns these houses that people are paying rent for?
Fewer and fewer people are owning more and more. There is such a thing as "wealth inequality" just as there is "income inequality". For the past few years I've been working on house genealogy here and the trend is clear even in this small Maine town: a few large commercial enterprises along with a few wealthy individuals have been buying up houses--especially the big ones. These houses become rental properties and are frequently broken up into apartments.
 
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sparky

Ad Honorem
Jan 2017
4,961
Sydney
some misconception about rent , the money is not paid for ownership but for use
when one put its car into a parking one pay for the use not for a share of the property
( owning parking spots in big city are excellent investment by the way, very low cost and high returns )
 

Rodger

Ad Honorem
Jun 2014
6,171
US
The debt clock is about government debt..... not household debt... Just use the link I provided
While the OP seems to refer to personal debt, I can understand the concern about national debt. And while national debt can be mitigated by a number of factors, most people are directly experiencing the consequence of personal debt, as they, and nobody else, is responsible for eliminating it.
 

Dan Howard

Ad Honorem
Aug 2014
4,745
Australia
Debt-free besides mortgage? That's probably the biggest debt you'll ever have. And no, you can't argue that rent is debt. And of course you can live debt-free if you have more money than you need...but if you want to live like the vast majority of people live, debt is the only way. That's how things work from the individual to nation-states.
I only needed to work ten years to pay off my mortgage. It required a regiment of brutal financial discipline. No vacations, no dining out, no take out. We sold the second car and I walked to work (or the wife drove me). We only bought used items. We invested early in a solar power and hot water system. We grow over half of our food.

We also got lucky in that we had no unexpected medical or legal expenses during that time.

I've just turned 50 and have absolutely no debt. All that money we used to put towards the mortgage is now being spent on having a good life. We eat well and exercise well so nobody is fat and has need of any kind of medication.
 
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Rodger

Ad Honorem
Jun 2014
6,171
US
I only needed to work ten years to pay off my mortgage. It required a regiment of brutal financial discipline. No vacations, no dining out, no take out. We sold the second car and I walked to work. We only bought used items. We invested early in a solar power and hot water system. We grow over half of our food.

We also got lucky in that we had no unexpected medical or legal expenses during that time.

I've just turned 50 and have absolutely no debt. All that money we used to put towards the mortgage can now be spent on having a good life.
My relative is doing something similar. She is purchasing the family homestead from her mother. Her mother is not charging her interest, but is doing her daughter no favors as she is charging a premium for a house that is is badly need of much repair. She and her husband are doing the work. They have no cable, two used vehicles, take no vacations, raise much of their food, and live like Spartans. She will have her debt to her mother satisfied in about 7 years. This relative hates using credit and refuses to buy aytos that way. It's second hand vehicles that they repair and maintain. These relatives are by no means rich. He is a self employed handyman, getting $15 per hour and she works as medical assistant, making a little more. It can be done.
 
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Dan Howard

Ad Honorem
Aug 2014
4,745
Australia
Keep in mind that when you save a dollar it is worth a lot more than earning a dollar. For every dollar you earn, you only get to use a portion of it because of overheads and taxation. If you reduce your cost of living by $5000 a year it is the equivalent of getting a pay rise of around $8000 (depending on your level of taxation).
 
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tomar

Ad Honoris
Jan 2011
13,802
I only needed to work ten years to pay off my mortgage. It required a regiment of brutal financial discipline. No vacations, no dining out, no take out. We sold the second car and I walked to work (or the wife drove me). We only bought used items. We invested early in a solar power and hot water system. We grow over half of our food.

We also got lucky in that we had no unexpected medical or legal expenses during that time.

I've just turned 50 and have absolutely no debt. All that money we used to put towards the mortgage is now being spent on having a good life. We eat well and exercise well so nobody is fat and has need of any kind of medication.
well done

however some will argue (along the lines of "you cannot take it with you") that you should also spend your money to get enjoyment out of life.... so maybe worth paying out the mortage somewhat slower and use the rest of the money to enjoy life (or at least enjoy it earlier).... but of course it is a personal choice for each
 

Dreamhunter

Ad Honorem
Jun 2012
7,481
Malaysia
This is about countries with relatively high standards of living and comparatively high revenue with a significant portion of the population in the middle class

Countries where education is mandatory till the age of 16 and where a majority go on way beyond that.

So in essence, a wealthy well educated population.

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

Yet the principles of sound financials for an individual/family are fairly simple, and can be summarized as

1. Spend less than you earn, this include:

  • postpone non essential purchases until you have saved the necessary amount
  • live where you can afford it (so outside expensive areas such as city centers), drive what you can afford
  • avoid non essential expense (restaurants, gadgets etc...)
  • avoid any loans except mortgages .... if for any reason a loan cannot be avoided, avoid high interest loans (including credit cards)... never max out on your borrowing (allow for a possible drop in your revenue)
  • optimize your expenses

2. Always keep a reserve of money for emergencies

3. Optimize (mazimize) your revenue


Not rocket science. Yet a significant number of people fail those basics.

Why ?
Because many, if not most, of us are either hopeless optimists or self-blinding to reality. We like to believe that everything around us will somehow miraculously sort itself out to our complete requirement & satisfaction.

While OTOH we simply refuse to contemplate & countenance any scenario where we eventually find ourselves in deep trouble financially, until it's already way too late.
 
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Dan Howard

Ad Honorem
Aug 2014
4,745
Australia
well done

however some will argue (along the lines of "you cannot take it with you") that you should also spend your money to get enjoyment out of life.... so maybe worth paying out the mortage somewhat slower and use the rest of the money to enjoy life (or at least enjoy it earlier).... but of course it is a personal choice for each
I plan to live to be 100 so I have 50 years to live well. It only took 10% of my life to achieve it and it wasn't particularly onerous anyway. We took camping vacations so they never cost anything. Take-out food is crap so we were better off cooking at home anyway. We still got together regularly with friends but we did it at someone's home instead of at a restaurant. I deliberately picked hobbies that didn't cost much in the way of money - they mainly involve gardening and building stuff. My two primary hobbies at the moment are bonsai and making toys and miniatures.
 
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fascinating

Ad Honorem
Dec 2011
2,371
Fewer and fewer people are owning more and more. There is such a thing as "wealth inequality" just as there is "income inequality". For the past few years I've been working on house genealogy here and the trend is clear even in this small Maine town: a few large commercial enterprises along with a few wealthy individuals have been buying up houses--especially the big ones. These houses become rental properties and are frequently broken up into apartments.
I do believe that is the nub of the problem. The majority in the US are feeling that they cannot improve their lives, basically because, overall and by and large, the wealthy have control of the essentials of their lives and make them pay.
 
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