America: Land of the Free, Home of the Free Spenders
September 24, 2019
- Millennials have more debt from credit cards than student loans
- US debt now exceeds the country’s entire annual economic output
Overspending is an issue for individuals, states, and the government as a whole.
It’s no secret that student loans are the bane of Millenials, many of whom say they would be homeowners if it weren’t for high debt and the rising cost of real estate. But although more than 80 percent of millennials who don’t own homes said it’s because of student loans, that’s actually not their biggest source of debt. As it turns out, first place in the debt race goes to credit card debt.
While some of the $27,900 average amount of personal credit card debt for millennials is due to emergencies and other necessary spending, most millennials rack up personal debt because they have not wanted to sacrifice a spendthrifty lifestyle.
Across the entire age spectrum, Americans have about $38,000 in personal debt excluding mortgages, and the number of people with no debt decreased from 27 percent in 2016 to just 23 percent in 2017.
Debt doesn’t just burden consumers, it also burdens the government as a whole.
The growing national debt has taken our government by storm and has continued to balloon at a rate of $1 trillion per year since 2007. As we enter an election year in 2020, the ways in which politicians plan to spend taxpayer dollars will become an even hotter topic to debate.
When you hear candidates talk about policies that will cost trillions of dollars, keep in mind the burden it could represent for future taxpayers – i.e. our children and grandchildren. The most important question to ask is, “will this policy grow our economy and lower our national debt significantly, or will it just add to it?”
So what can the government do to stay out of debt?
As of 2019, the US has more total debt than the amount it generates in economic output each year – officially reaching $22 trillion on February 11, 2019. The only other time the country has had debt higher than 100 percent of GDP was in 1946 when we had to pay for World War II.
The easiest way to tackle the debt problem is to cut spending. Another solution, although pretty unpopular, is to raise taxes. One solution that’s a little more complicated is to grow the economy faster.
What can you do to stay out of debt?
One of the most sure-fire ways to stay out of credit card debt is to only spend what you can pay off each month. It’s easy to use a piece of plastic willy-nilly, but it’s important to remember that the tiny piece of plastic you swipe is tied to your very real dollars. Don’t spend more than the amount your Paycheck can afford to pay each month to prevent your debt from growing.
Another way to avoid racking up a ton of debt is to limit your expenses to what you can actually afford. For example, if your house payment or rent is more than 50 percent of your monthly salary, then you may have to sacrifice in other important areas like health care or retirement savings. Do your best to live within your means.
Save first, then spend. Make automatic contributions to a savings account from each Paycheck just like you would tithes to church or taxes to the government. The only way to ensure your financial well-being is to ensure you’re paying yourself first, not last… because that usually results in little to no savings at all.
To understand why it’s so important to save instead of splurge, just look at the difference in what you could make investing instead of what you would owe spending. If you had $5,000 in credit card debt with a 19 percent interest rate (the average rate in the US), you would pay back $5,950, $950 of which is just interest on the debt. Now, if you saved that $5,000 and it grew at the average rate of the stock market (about ten percent each year), it would equal over $8,000 after five years.
Which would you rather: spend $5,000 and owe about $6,000 in debt, or save $5,000 and watch it grow to $8,000?
- Spend what you can pay off each month
- Don’t live above your means
- Save before you spend
The bottom line
Consumers aren’t alone in their efforts to get out of debt and save for a better tomorrow. States and the national government are also tackling the problem of how much to spend, where to spend it, how much to save, and when to cut back. If you want to be debt-free, spend only what you can pay off, limit your expenses to what you can actually afford, and always prioritize saving before splurging.