You are an indentured servant to your debt

Would you continue to work if you no-longer needed the money?

For most people, the answer is likely ‘no’ to both questions. So why do we work? Because we are owned by our creditors.

Think about where your money goes. You pay your mortgage, pay your car loan, pay for car insurance, buy designer clothes on credit, upgrade your kitchen using a home equity loan, purchase a new washing machine on an instalment plan…and for all that effort, you treat yourself to a dream trip to Athens. Oh yeah, you also buy food.

Some or all of this applies to most people. In summary, people can divide their expenses into essentials (non-branded life-giving products and services) and non-essentials (high-end, branded goods and services, including essentials that go beyond basic needs fulfillment).

Believe it or not, for those in the developed world the essentials portion is a very small proportion of the expense pie. If you really tried, you could cover your basic needs with a few dollars per day.

But then something happens. Someone builds a faster computer, your child needs a cell phone, your neighbour gets a new Gucci bag, and consumer products company XYZ informs you that if you really love your family you won’t buy generic brands. And then your banker calls to let you know that since you’re such a great guy you qualify for a bigger mortgage and car loan – don’t worry about the payments, you can just pay the bank interest for a while. Oh, and the credit card debt you incurred to pay for the computer, cell phone and Gucci bag…you can just tack that onto your mortgage.

Is it any wonder why you have no money left at the end of the month? Corporate America has perfected the art of persuasion, convincing you to part with every single hard-earned penny, and then some. Anyone who is caught saving a portion of their earnings is simply provided an incentive to spend bigger. It’s as if society’s goal is a 0 or negative savings rate (i.e. subsistence-level savings rate).

If wages can’t be lowered to subsistence levels, then the cost of subsistence must be raised to wage levels, with benefits accruing to the owners of capital. Middle class America, the envy of many emerging economies, has been sucked dry by a lifestyle sculpted by corporate America. We’ve been convinced that we ‘need’ virtually everything.

One cannot say the citizens are totally blameless, however. Individuals should have the will to avoid consumption temptation and plan their financial futures – and some have.

If it’s in our best interest, why do so many fail to save?

“Get down to Disney World in Florida.” This was George W. Bush’s September 27^t, 2001 answer to the 9/11 terrorist attack in New York. Why don’t individuals plan their finances the way they should? Because the PR machines in the government and corporate America say it is your patriotic duty to buy stuff.

Saving money is un-American. Our economy is built on keeping up with the Jones’. Spending money is sexy, savers are ridiculed as ‘cheap’ and frugality is synonymous to poverty. When inundated by all these messages, one truly has to admire the few that did manage to save anything at all over the past thirty years.

If you don’t love your job, I sure hope you love your possessions. Because thirty years of consumption by credit (which helped lift the average debt-to-income ratio to 130%) means we are now slaves to our creditors. Like the indentured servants of the New World (when it truly was a new world filled with opportunity and hope), we work to pay off our debts – we work for our freedom. However, our owners are so cunning that once freedom is near we are tempted with yet another morsel of the consumption economy.