Great today, worse tomorrow

The other day I wrote a couple posts about debt, one on how debt attracts debt, the other looked at the quick loan situation, where people are buying now and paying later, with very few hurdles to jump. I came across this in an article where they were asking for legal advice:

I’m a single mum with three kids and I really wanted to give them the best Christmas as last year was so hard on us all. I couldn’t get a bank loan so I borrowed money from one of the ‘same-day loan’ companies you see advertised on TV. I got wrapped up in the excitement and ended up spending over $10,000 all up. Now the reality has set in and I can’t make the repayments. I’m really worried as the company has been in touch saying that if I don’t start paying up it will be deferred to a collection agency. I’m terrified of someone coming to the door and taking away all of the kids’ Christmas presents. What are my rights?

Firstly, who the hell spends 10,000 dollars on Christmas presents for three children...

I think this highlights the problem with these services, as while some people might use them somewhat responsibly, I believe the general user doesn't, as they suffer from thought error.

In a hypothetical scenario where a person earns 1000 dollars a month and sees something they want for 100 dollars now, but don't have the money for it so take a loan, what makes them think that they will have a 100 dollars next month to cover the debt?

Under normal circumstances, we should probably know what our income is and general expenditure, meaning that we should also have some idea of what income we have disposable each month - the money that we can "waste" without having to cut back on anything. Of course, this disposable income should no be the percentage that is used for saving. For example, if there is 1000 dollars earned and the goal is to save 100 a month, if all costs are 900, there is no disposable income. However, if all costs are 800, there is 100 for saving and 100 that can be spent. Also, that 10% should really be,pre-tax amount, not post tax.

One problem is that many people don't "automatically" see their saving percentage as already gone, making it appear as disposable. This means there is a far greater chance of spending the saving, rather than actually saving it. If possible, it is best to set up an automatic deduction into a savings account for a salary, or making sure that once paid, it is moved out of reach. Make the assumption that your willpower isn't as strong as you think, nor your memory.

It seems however, that many, many people assume that while they have a set salary of the 1000, they can take debt and find a way to pay back extra the following months. If they were able to actually tighten their belt, they would have had the money upfront, wouldn't they? People who are good with money don't need to take loans for Christmas presents.

And I think that this highlights a cultural issue as well, where we seem to think that we "deserve" rewards after bad times, like dessert after a meal. The problem is (and this happens with meals too), that we keep lowering the barrier required to get the reward.

"I went to the gym today, so I deserve a candy bar." "It was a tough year - so I am going to go buy consumables on credit to make me feel better."

What is quite interesting to note is how few people "reward themselves" with something valuable. For example, last year I bought myself a birthday present - A couple hundred dollars worth of $5500 Bitcoin. I gotta say, it felt pretty good and continues to feel good in comparison to what else I might have rewarded myself with.

But, we life in an instant gratification culture where we continually expand our pleasure lifestyle, regardless of whether we can afford it or not. We keep going deeper into debt and as we can see in the quote above, it is stressful. This is what so many people don't seem to recognize, that the little bit of pleasure they get in the moment is a far lesser return than the stress it can cause in the future. It is like going back to that candy bar and while it is a quick pleasure return, done daily it will lead to weight gain, illness and likely a range of psychological problems, including depression. Is it worth it?

This is the same for entertainment too, where people seem to spend more and more of their time entertaining themselves in what are increasingly passive ways that offer no return or value past the moment. In the past, people used to entertain themselves in skill building activities that add to their capabilities, now it is largely sitting in front of a screen consuming nothing that generates any kind of value that helps build better life experience and well-being.

It is like someone who don't like to brush their teeth choosing not to as they, essentially making the choice to have rotted teeth (Is there a Tinder for crack addicts?). When they are sick and have to go to the dentist, they will then complain about the cost of having their teeth repaired. Not looking after your hygiene is costly in both money and possibility, and this includes economic hygiene also.

I have no idea what the woman above does for a living, but she is likely going to be under financial duress for some time to come and it will likely affect her behavior. Not only this, it is also likely to affect the relationship that her children have with her and money also - This is the epitome of short-term thinking without considering the long-term ramifications and consequences of actions. If a person really wants to give their children a better life, going heavily into debt is unlikely to achieve that end, in the same way that feeding them junk food is unlikely to help them become happy adults.

We all make decisions based on the best of what we know at the moment, but it also seems that many of us actively avoid learning better ways. Instead, we prefer to keep the habits we are a familiar with, even if it costs us everything that is important to us.

It feels good now, tomorrow it'll hurt.

Taraz [ Gen1: Hive ]