Personal Debt - Who is Really at Fault?
Written by: Kristy Welsh
Last Updated: July 6, 2017
Every day we hear about how the cost of higher education is soaring, car prices increase each year, the value of our dollar is shrinking, so it is no wonder no one can save any money. Not being able to save money, and higher cost of goods and services, leads one right down the path of overwhelming debt. Is it really your fault you have a mound of personal debt and no savings to speak of? Not entirely. Now we are not saying you can blame all your debt on someone or something else, you do have to take responsibility for your spending and saving actions. But what we are going to point out, is the fact there are some circumstances beyond your control that are driving you and thousands of other Americans, down the road of crippling debt and ultimately into bankruptcy.
Difficulty Saving Money
If you are lucky enough to have a job, how discouraging is it when you have deposited your paycheck into your savings or checking account, only to see a near zero balance by the end of a week or two. A student loan payment, cell phone, rent, car payment, these are all just a few of the monthly expenses the normal person has to pay with their measly paycheck. After all of these expenses are paid, it does not leave much in the bank to even try to put aside the recommended 10 percent into a retirement account. Why is it so hard to save money these days when your parents or grandparents were able to put aside money?
Compounded interest, that is the missing ingredient in today's banking environment. With the Federal Reserve's zero interest rate policy, this causes decreased savings and the ability to grow your savings. Even if you saved the same amount each month as say your grandparents did, without compounded interest, the money in your savings account is not growing as it did back then. Your grandparents were earning interest on their money, you are not.
Borrowing Money is Cheap
On the flip side of saving money is the aspect of borrowing money. Today, the Federal Reserve has made borrowing money extraordinarily cheap by any historical comparison. When the cost of borrowing money is too low, it becomes too irresistible and lures people into debt. For example, that annual tuition to Yale of $63,000 doesn't seem so bad when your monthly payment is only $650 and deferred until after you graduate. Sounds great now, but when you can't find a job because the economy is faltering and the dollar does not buy as much as it used to, that $650 seems like a heavy burden in the real world.
Also, when credit is too cheap, people buy what they want even if they really don't need it. This pushes price points up on goods and services making things more expensive. More expensive purchases equates to borrowing money, which brings us to overwhelming debt. It is a vicious cycle and one that is hard not to get caught up in.
Who is To Blame For Your Personal Debt?
If you asked your parents or grandparents this question, they would probably say your debt is your own fault and yours alone. They may also try to offer you advice or make you feel guilty, which is not really helpful nor does it really address the underlying issue of why more and more young adults are finding themselves in debt up to their eyeballs, so to speak. Can young adults really control the cost of a college education or how much a car will cost or what AT&T is going to charge for cell phone service? Not really. With the Federal Reserve's zero interest policy, the low cost of borrowing money, and the false sense of security of our dollar, there is not much young adults or any person can do about the growing personal debt in America. Until we start to back our currency with gold and get out from under the control of the central bank of the Federal Reserve, there is not much we can do but ride the tide of growing debt until we eventually fall off the cliff.