Why do people take on so much debt?

[theMoreDisneytheBetter]

The government does not have a magic money tree. It funds itself by raising taxes (from individuals and corporations) and borrowing money (issuing debt). Individuals pay personal taxes directly and corporate taxes indirectly in the form of higher prices. Borrowed money will have to be repaid eventually, and also requires periodic interest payments (which come out of the federal/state budget, and have to be paid by taxes or even more borrowing).

Yes, it can also just “print” money that we don’t have, but there is a limit to that, and causes higher inflation (and will devalue our currency). Case in point…look at what has happened post COVID. The inflation we are all living with now is directly related to the massive spike in spending over the past few years.

To pretend like the government can spend indiscriminately - and yes, student loan forgiveness IS spending because there was an outlay made to the schools that is supposed to be repaid. but wasn’t - without consequences is naive.

 

[Babs Johnson]

With that said, most people don't "think out a plan" to pay off- they think in terms of payments. Can I afford THIS PAYMENT, not "this debt." It's not good and it's unfortunately often due to a lack of knowledge and understanding.

I once received a credit card offer in the mail whose entire presentation was “Lower Monthly Payments!!!” The little brochure had photos of people on exotic vacations, buying expensive clothing or purses, things like a jet ski and a motorcycle, etc.

“We know your primary concern is having lower payments. With XYZ card your payments would be $250 per month. With ours the payment would be only $150!!!”

Yes, the fine print on the disclosure had a 29.99% interest rate and a warning that making minimum payments would take 32 years to retire the debt. But they’re trying to snag people who only think in the present, not long term.

 

[Starport Seven-Five]

To pretend like the government can spend indiscriminately - and yes, student loan forgiveness IS spending because there was an outlay made to the schools that is supposed to be repaid. but wasn’t - without consequences is naive.

I don't disagree but I wish people would keep this same energy around other government spending as well. The entire amount owed to student loan debt is less than 2 years of our military budget, for example. Cut that a bit and you would more than cover the cost of forgiving a substantial portion of the student loan debt over the next decade.

The root cause has to be fixed first though because otherwise people will just take loans and wait for the next round of forgiveness.

 

[Dakota731]

According to Dave Ramsay website:
Millionaires probably don’t look the way you think they do. In 2017 and 2018, our team worked on the largest study of millionaires ever conducted and discovered that most of them didn’t inherit their wealth, drive fancy sports cars, or eat at five-star restaurants every night. In fact, most millionaires are just ordinary, everyday people who follow basic money practices.
The majority of a millionaire’s net worth usually includes money invested in retirement accounts or real estate (like a paid-for home). Not only that, but they also tend to stay far, far away from debt (73% of millionaires never carried a credit card balance in their entire lives
In fact, the majority of millionaires didn’t even grow up around a lot of money. According to the survey, 8 out of 10 millionaires come from families at or below middle-income level. Only 2% of millionaires surveyed said they came from an upper-income family.
Almost two-thirds of millionaires (62%) graduated from public state schools, while only 8% went to a prestigious private school. The top five careers for millionaires are engineers, teachers, managers, attorneys and accountants.
So contrary to popular belief, most people with money have worked hard and saved wisely, and weren’t raised in wealthy or even upper middle class families and they didn’t inherit money or go to Ivy League schools.

 

[Dakota731]

IMO the problem is most start in debt, get comfortable with it, and then inflate lifestyle to match increases in income. Breaking that cycle takes a conscious effort and many just don't realize the harm paying CC interest is doing on their life.

I also see people that have issues the opposite direction. For example, I have an uncle that has over 2 million in investments, still works in his early 70s, and refuses to spend money on anything. He will likely die without enjoying the fruits of his labor.

Balance is critical and while the US has a bigger debt problem, both extremes make me sad.

Some people enjoy working. I have several older relatives who say they will work until they die if they can. They love their jobs and enjoy the social aspect and the feeling of accomplishment from having a purpose in life. And you still can enjoy the fruits of your labor while working, hobbies, family activities etc. No one works 24/7.

 

[Dakota731]

Thinking you have to go into debt to make memories with your children is simply deluding yourself. Spending your time with your kids is free, and ultimately the best memories.

I’m not judging, we currently have a loan on our camper, It’s low interest and we bought it to vacation with our kids….both of which are justifications that are just that…justifications. Ultimately, we wanted it, so we did it.

But no way would we carry 20-30% credit card debt so that we could make memories with our kids. That’s a line in the sand we will not cross.

Agreed! When I asked my kids what their best memories were from when they were little, they said “when you played hide and seek with us” and “when you used to go sledding in the yard with us”. It wasn’t our Disney trip or anything fancy, and I was surprised and had an eye opening moment!

 

[Dakota731]

Higher interest rates on our debts. Lower dividends on our investments in the businesses that don't get paid. Yes, currently the government does bailout some with student loan debt. But otherwise, you and I pay for it.

And the government is us! If they are paying someone’s college loans for them then it’s out of our tax dollars. The government doesn’t make a product and make a profit. Anything they spend comes from the Americans who work and pay taxes.

 

[Dakota731]

How would you are I pay for an individuals mistakes. The government yes,

When someone goes bankrupt, we pay for it with higher prices on goods and services. When government is paying someone’s student loans, we pay for it with our taxes.

 

[DCLMP]

When someone goes bankrupt, we pay for it with higher prices on goods and services. When government is paying someone’s student loans, we pay for it with our taxes.

I don’t agree with the first statement.

 

[DCLMP]

Bankruptcies are deflationary. Higher prices are a result of reduced supply.

 

[Mackenzie Click-Mickelson]

According to Dave Ramsay website:
Millionaires probably don’t look the way you think they do. In 2017 and 2018, our team worked on the largest study of millionaires ever conducted and discovered that most of them didn’t inherit their wealth, drive fancy sports cars, or eat at five-star restaurants every night. In fact, most millionaires are just ordinary, everyday people who follow basic money practices.
The majority of a millionaire’s net worth usually includes money invested in retirement accounts or real estate (like a paid-for home). Not only that, but they also tend to stay far, far away from debt (73% of millionaires never carried a credit card balance in their entire lives
In fact, the majority of millionaires didn’t even grow up around a lot of money. According to the survey, 8 out of 10 millionaires come from families at or below middle-income level. Only 2% of millionaires surveyed said they came from an upper-income family.
Almost two-thirds of millionaires (62%) graduated from public state schools, while only 8% went to a prestigious private school. The top five careers for millionaires are engineers, teachers, managers, attorneys and accountants.
So contrary to popular belief, most people with money have worked hard and saved wisely, and weren’t raised in wealthy or even upper middle class families and they didn’t inherit money or go to Ivy League schools.

While I understand your premise there are a lot of issues with using the information you've used to back up.

1) lacks an impartial study in the sense that it wasn't connected to Dave Ramsey would be better. It was done by his own personal company and scientifically I wouldn't trust that with a 10 foot pole. Not because it's him but because the data is corrupted from the start by using his own research firm.

2) His information collected is missing key information such as stats (like age of participants (which is important on many levels), any geographical data, etc as well as margin of error not to mention gender. STEM degrees for example overwhelmingly favor men (engineers mentioned as a top degree is a big one). I'd like to know more about the 401K part because at the insurance company if I put in 5% they matched dollar per dollar up to 5%. My husband's prior company gave between 2%-4% but also matched dollar per dollar up to 6%, his current company gives 3% and the rest is in the form of company shares. So while I was contributing to my 401K lot of difference between what I was able to do in terms of building it compared to my husband and even then it's hard to know if the company shares aspect is working out long-term better than his prior company (he's only been at this new company 2 years).

3) He doesn't define what a millionaire even is. Is it a person who has assets at the time of the study equaling $1million? What are those assets-income, businesses, real estate, etc? It would be great to understand the spread of what millionaires even mean if he broke up the figures he was using on brackets (like $1-$5 million, $5million-$10 million and so on as random examples).

4) The figures are from late 2017-early 2018. I'd say it's time for new data to be collected but done MUCH better to give an overall better picture.

It's a lot of saying something without actually providing the full data to show it and it reads even in the "full" PDF of the study like an advertisement for Ramsey...this gem for example on the PDF “I want to get people to the place where they believe they can actually do it (become a millionaire). There are so many people in the marketplace who are hope-stealers saying it can’t be done. But it can be done.”— Dave Ramsey"

I actually think that a study done now (with the pandemic effect to help out our understanding) would be really neat to see and would help us understand more about the effects of things like college tuitions and stereotypes related to where you're getting your degree, family upbringing, 401K contributions (especially from understanding employer funded contributions) but it needs to be done better and not connected to someone looking to sell more of their books in order for the information collected to give us more understanding of just what the millionaires out there are comprised of.

 

[Starport Seven-Five]

Some people enjoy working. I have several older relatives who say they will work until they die if they can. They love their jobs and enjoy the social aspect and the feeling of accomplishment from having a purpose in life. And you still can enjoy the fruits of your labor while working, hobbies, family activities etc. No one works 24/7.

You can "work" without having it tied to income. Volunteer at a local homeless shelter, do woodworking in your garage, build cars or motorcycles, help out a family member on a house project, etc. No ones "fun" in life is waking up at 3am to drive a semi full of product to a customer warehouse to make a wealthy company owner even wealthier.

While I understand your premise there are a lot of issues with using the information you've used to back up.

1) lacks an impartial study in the sense that it wasn't connected to Dave Ramsey would be better. It was done by his own personal company and scientifically I wouldn't trust that with a 10 foot pole. Not because it's him but because the data is corrupted from the start by using his own research firm.

2) His information collected is missing key information such as stats (like age of participants (which is important on many levels), any geographical data, etc as well as margin of error not to mention gender. STEM degrees for example overwhelmingly favor men (engineers mentioned as a top degree is a big one). I'd like to know more about the 401K part because at the insurance company if I put in 5% they matched dollar per dollar up to 5%. My husband's prior company gave between 2%-4% but also matched dollar per dollar up to 6%, his current company gives 3% and the rest is in the form of company shares. So while I was contributing to my 401K lot of difference between what I was able to do in terms of building it compared to my husband and even then it's hard to know if the company shares aspect is working out long-term better than his prior company (he's only been at this new company 2 years).

3) He doesn't define what a millionaire even is. Is it a person who has assets at the time of the study equaling $1million? What are those assets-income, businesses, real estate, etc? It would be great to understand the spread of what millionaires even mean if he broke up the figures he was using on brackets (like $1-$5 million, $5million-$10 million and so on as random examples).

4) The figures are from late 2017-early 2018. I'd say it's time for new data to be collected but done MUCH better to give an overall better picture.

It's a lot of saying something without actually providing the full data to show it and it reads even in the "full" PDF of the study like an advertisement for Ramsey...this gem for example on the PDF “I want to get people to the place where they believe they can actually do it (become a millionaire). There are so many people in the marketplace who are hope-stealers saying it can’t be done. But it can be done.”— Dave Ramsey"

I actually think that a study done now (with the pandemic effect to help out our understanding) would be really neat to see and would help us understand more about the effects of things like college tuitions and stereotypes related to where you're getting your degree, family upbringing, 401K contributions (especially from understanding employer funded contributions) but it needs to be done better and not connected to someone looking to sell more of their books in order for the information collected to give us more understanding of just what the millionaires out there are comprised of.

Agree with all of this but want to tack on a couple criticisms:
1. Including primary residence in the qualification for a millionaire study really clouds the data. There are areas of this country where people could be flat broke but qualify because they bought their home 40 years ago and the value has skyrocketed. Nothing of that is repeatable or even valuable.
2. A million dollars just isn't what it used to be. Much of Dave's advice is based on the financial world of 1988 (his $1000 emergency fund for example) and the obsession with millionaires seems to be part of that. I want to hear how people with NWs in the 5+ million range got there because that is far more interesting and closer to what people picture when they think of the wealthy.

 

[ThereYouSeeHer]

1) lacks an impartial study in the sense that it wasn't connected to Dave Ramsey would be better.

The study included four phases and used a third-party research panel, as well as a Ramsey Solutions research panel. Three phases involved randomly sampling individuals that were not affiliated with Ramsey Solutions. One phase focused on individuals drawn from the Ramsey audience. When data between these two groups diverged, responses from the random samples were given greater emphasis.

2) His information collected is missing key information such as stats (like age of participants (which is important on many levels), any geographical data, etc as well as margin of error not to mention gender.

The study includes data broken down by geographic region, age, education, upbringing, etc.

3) He doesn't define what a millionaire even is.

He uses the standard definition of millionaire, which is someone who has achieved a net worth of a million dollars or more (assets minus liabilities).

4) The figures are from late 2017-early 2018. I'd say it's time for new data to be collected but done MUCH better to give an overall better picture.

This study was conducted as a modern-day response to Dr. Stanley's book titled, "The Millionaire Next Door." Considering that book was published in 1996 (over 25 years ago), this is new data.

It's a lot of saying something without actually providing the full data to show it and it reads even in the "full" PDF of the study like an advertisement for Ramsey...

The PDF is an advertisement for the full study, as it states, "Dave’s newest book, Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth—and How You Can Too, tells the real stories about ordinary people who overcame barriers and got out of debt so they could build wealth and become millionaires. The book also shares all of the findings from The National Study of Millionaires." The research methodology, questions, responses, interpretations, data, and appendices can be found in the final 100 pages of the book.

 

[Mackenzie Click-Mickelson]

The study included four phases and used a third-party research panel, as well as a Ramsey Solutions research panel. Three phases involved randomly sampling individuals that were not affiliated with Ramsey Solutions. One phase focused on individuals drawn from the Ramsey audience. When data between these two groups diverged, responses from the random samples were given greater emphasis.


The study includes data broken down by geographic region, age, education, upbringing, etc.


He uses the standard definition of millionaire, which is someone who has achieved a net worth of a million dollars or more (assets minus liabilities).


This study was conducted as a modern-day response to Dr. Stanley's book titled, "The Millionaire Next Door." Considering that book was published in 1996 (over 25 years ago), this is new data.


The PDF is an advertisement for the full study, as it states, "Dave’s newest book, Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth—and How You Can Too, tells the real stories about ordinary people who overcame barriers and got out of debt so they could build wealth and become millionaires. The book also shares all of the findings from The National Study of Millionaires." The research methodology, questions, responses, interpretations, data, and appendices can be found in the final 100 pages of the book.

Um yeah so you (general you) want me to buy a book to get study information? Nope nope nopety nope. Why would you hide that if you really want people to know? Rhetorical here, if that's the case then he simply wants to increase his own profits.

If you'd (personally now) like to get that for me I'd be happy to take a look.

I said it would be neat to find information from today especially as the conversation discusses debt of which the pandemic had an effect on 401ks, people's income, people's net worth and more. Our income is in a very different position than it was before the pandemic and our house valued at $150K more than Jan 2020. But really you think using a definition from the 90s and doing a study in 2017 means it's new data?

Goodness gracious this is textbook (no pun intended here) for awful data. No one should use this for actual facts surrounding debt. This is so chalk full of bias it's not even funny.

 

[ThereYouSeeHer]

Agree with all of this but want to tack on a couple criticisms:
1. Including primary residence in the qualification for a millionaire study really clouds the data.

Dave addresses this in the section titled, "What a Millionaire Is and Isn't." Being a millionaire is simply a mathematical formula regarding net worth, which includes assets like a primary residence. It isn't a statement as to whether or not individuals have a million-dollar income or a million dollars in the bank or a million dollars to invest. What they all have in common is at least one million dollars of total net worth.

2. A million dollars just isn't what it used to be. Much of Dave's advice is based on the financial world of 1988 (his $1000 emergency fund for example) and the obsession with millionaires seems to be part of that. I want to hear how people with NWs in the 5+ million range got there because that is far more interesting and closer to what people picture when they think of the wealthy.

Dave addresses millionaire perceptions in the chapter titled, "A Millionaire is Not a Billionaire." Note that the study included individuals who had a net worth of at least one million. Data from the study was often broken down by net worth categories of $1-$2 million, $2-$3 million, $3-$4 million, $4-$5 million, and +$5 million.

As for the $1000 starter emergency fund, in 2024, families are still struggling to save even that amount. My heart breaks for those who find that amount a hurdle, and I hope they can at least use it as a starting point until a full emergency fund can be saved.

 

[Starport Seven-Five]

Dave addresses this in the section titled, "What a Millionaire Is and Isn't." Being a millionaire is simply a mathematical formula regarding net worth, which includes assets like a primary residence. It isn't a statement as to whether or not individuals have a million-dollar income or a million dollars in the bank or a million dollars to invest. What they all have in common is at least one million dollars of total net worth.

The traditional definition of net worth includes primary residence but it was his study and he could have defined it any way he wanted. The data would have been far more useful excluding primary residence from the calculation for reasons stated above.

Dave addresses millionaire perceptions in the chapter titled, "A Millionaire is Not a Billionaire." Note that the study included individuals who had a net worth of at least one million. Data from the study was often broken down by net worth categories of $1-$2 million, $2-$3 million, $3-$4 million, $4-$5 million, and +$5 million.

Interesting. His "Full Study (pdf)" on his website (which is 9 pages lol) mentions no such breakdown. https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research

Does the book have cross tabs or any raw data? I am kind of a data nerd so while I might read others interpretations of the data I like to analyze it myself.

As for the $1000 starter emergency fund, in 2024, families are still struggling to save even that amount. My heart breaks for those who find that amount a hurdle, and I hope they can at least use it as a starting point until a full emergency fund can be saved.

What people struggle to do doesn't matter. The amount needs to be realistic to cover an emergency while paying off the rest of their debt and $1,000 isn't enough.

 

[barkley]

just going to say-

'millionaire' on paper is very different from someone having immediate or quickly accessible liquid assetts. perceived (current 'market rate') assetts do not nesc. equate to actual liquidated value.

someone whose net worth is based in large part on their home's 'market value' today can find themselves with much less (or a negative) net worth in the matter of months or days (ask those of us who owned when the housing market crashed....or sold just before).

 

[QueenIsabella]

The traditional definition of net worth includes primary residence but it was his study and he could have defined it any way he wanted. The data would have been far more useful excluding primary residence from the calculation for reasons stated above.


Interesting. His "Full Study (pdf)" on his website (which is 9 pages lol) mentions no such breakdown. https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research

Does the book have cross tabs or any raw data? I am kind of a data nerd so while I might read others interpretations of the data I like to analyze it myself.

What people struggle to do doesn't matter. The amount needs to be realistic to cover an emergency while paying off the rest of their debt and $1,000 isn't enough.

I don't know why you wouldn't count your residence in your net worth--with the understanding that it's illiquid and changes in value. It's still an asset that you own that has value.

The $1000 emergency fund IS a very low number. It's meant to be a starting point, so that if you're trying to get out of debt, you don't get derailed by a blown tire or broken washing machine.

About 10 years ago, we hit a 7-figure net worth. It changed absolutely nothing for us, in terms of lifestyle or spending. The majority was in retirement accounts--again, those are an asset, we could have tapped them in a dire emergency, but they would have been tapped only in dire circumstances. We still have "poor" months even now, when our net worth is higher--it doesn't mean we're actually poor, just that we want to be careful until the next chunk of money hits our checking account.

 

[amylevan]

someone whose net worth is based in large part on their home's 'market value' today can find themselves with much less (or a negative) net worth in the matter of months or days (ask those of us who owned when the housing market crashed....or sold just before).

But all investments have risks. A person who’s net worth is mostly in stocks could just as easily wake up to find themselves with much less. Why would you not count the stocks just because the market could take a dive? It’s why you should diversify, but it doesn’t mean you shouldn’t count it.

The definition of Net Worth is simply assets minus liabilities. Period.

 

[Dakota731]

Um yeah so you (general you) want me to buy a book to get study information? Nope nope nopety nope. Why would you hide that if you really want people to know? Rhetorical here, if that's the case then he simply wants to increase his own profits.

If you'd (personally now) like to get that for me I'd be happy to take a look.

I said it would be neat to find information from today especially as the conversation discusses debt of which the pandemic had an effect on 401ks, people's income, people's net worth and more. Our income is in a very different position than it was before the pandemic and our house valued at $150K more than Jan 2020. But really you think using a definition from the 90s and doing a study in 2017 means it's new data?

Goodness gracious this is textbook (no pun intended here) for awful data. No one should use this for actual facts surrounding debt. This is so chock full of bias it's not even funny.

A really frugal person like me would get the book free at their library or online at their kindle free library not buy it