Common Misconceptions About Finances: Debt is Normal

Today, in our Misconceptions About Finance series, let's address one of the most widely accepted misconceptions: that debt is normal. That it's okay to be in debt. That our American life as we know it is impossible without incurring massive amounts of debt (okay, maybe the "life as we know it" idea is true...but we'll get to that later). First, let's start with the big ideas about debt.

Debt as a Normal Trend

Over the course of our lives, we often incur debt. It seems almost impossible to buy a car, go to college, get married, buy a house, have children, send those kids to college, etc., etc. without taking on a ton of debt. For that reason, the average American will go into debt in order to get ahead. And this debt trend has made it feel like debt has to be a normal part of our lives.

Why Debt is Not the Only Option...According to Past Practices

Years ago, debt was not normal. At least, the high levels of debt we see ourselves in now were not the norm. Houses were purchased with much higher down payments. Kids paid their ways through college. Saving for large purchases was encouraged.

Yes, I know: the days of yesteryear are over. Yes, the costs of some of our large purchases have been inflated. Sure, the pay rate in our jobs may not have kept up with the rate of inflation for goods. I agree: life may have seemed idyllic and easy in 1950. But I think there's something to be learned from our grandparents: we don't need to have as much debt as we do carry.

Ways to Avoid the Debt Trap, Grandma-Style

So what can we learn from 1950's spending practices? I asked my grandmother how she made it work in 1950, and here's some of her advice:

  • Save: This may seem obvious, but one of my grandmother's first tips was to save for large items. That new-to-you car you have your eye on? Save for it in cash, no matter what you have to do (like riding the bus for a few years).
  • Sacrifice: Along the lines of riding the bus to get that car, Grandma advised making sacrifices in all areas of life, like living in a smaller house, sharing a car, having one parent stay home with kids to save on daycare, taking in free entertainment and cutting back on unnecessary spending. Her big point? If there is a solution that will take a little sacrifice in any area of life, take it and save yourself from taking on debt.
  • Budget: Obviously, watching the Benjamins will help anyone avoid a financial catastrophe, but Grandma went the extra mile to advise cutting unnecessary grocery spending from the budget. Her advice: That package of cookies? Make them at home from scratch.
  • Make Your Own Rules: Grandma also thinks our financial rules have been too lenient. In her day, you had to have 20% down and very good credit to buy a house or you had to save two full years of salary to purchase it outright. If we went back to these rules, Nana thinks we'd be much better off.

This brings us to the idea that "life as we know it" should be challenged to help us end our dependence on credit. If we were to re-shape our general ideas about debt, we could potentially reach all of our life goals without taking on the average $85,000 in debt.

What do you think, MomVesting readers? Is Grandma right or have things changed too much to live a life without debt?

(Personally, I think debt is a part of our normal lives now, but I think we could all make some changes – myself included – that can decrease our American dependence on credit). Weigh in with your opinion!

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Anonymous's picture

AverageJoe wrote:

Wed, 05/23/2012 - 15:45 Comment #: 1

The tough part about debt is that our whole system of living is now built on it: get a mortgage, use a credit card, take on student loans. In the US you can partly blame the system: the government hands out lucrative tax deductions for people who spend money, but comparatively minimal rewards to savers. Heck, sometimes savers are penalized (taxing interest and capital gains on investment returns).

Christa Palm's picture

Christa Palm wrote:

Thu, 05/24/2012 - 14:58 Comment #: 2

Very true, AverageJoe! Our government does make it more difficult to live debt free, as does the banking system. I've known people who never had a debt in their lives -- who always paid in cash -- but who where unable to get a mortgage loan because of not having any credit. These people were very responsible and had saved quite a bit, but the banks need to see a history of credit responsibility to lend.

Anonymous's picture

Don wrote:

Fri, 06/01/2012 - 04:13 Comment #: 3

I'm debt-free right now, but without debt I wouldn't be driving a car or living in my house! Debt is great tool that I've used successfully to improve my standard of living, so I think debt is great as long as you pay your credit cards off regularly and use debt as a tool.

Christa Palm's picture

Christa Palm wrote:

Mon, 06/04/2012 - 20:35 Comment #: 4

Don, I agree that debt is a tool. In today's modern society, I find it would be difficult to get ahead without some debt. Maybe times have changed too much from 1950!

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