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Breaking the Debt Cycle

Zombies. Vampires. Werewolves. They’re amateurs. Sure, movie monsters can be a little frightening, but if you want a real scare, take a look at your 401(k). Or hunt for a job. Or turn on the evening news for five minutes. Fake blood doesn’t send chills up the spine like red ink does. The economy is as terrifying as anything at the multiplex these days. And while few teens are feeling the pinch enough to impact their spending, they need to understand how we got into this recession … or risk repeating those mistakes.

The Creeping Terror
It’s easy to blame this present malaise on overextended businesses and subprime lenders who’ve been shambling around, looking for an infusion of cash to stay solvent. But it would be a mistake to stop there. The problem, which has been sneaking up on us for years according to many economists, is rooted in our country’s unchecked consumerism. And most frightening of all, teens may be adopting those same spending habits.

"Many of us are driven to keep up with the Joneses," Christian financial expert Dave Ramsey told Plugged In, "But the Joneses are broke!"

It’s a story familiar to countless people, including Ramsey himself. Even though he has become one of America’s best-known financial experts—a successful author with a TV show and 3.5 million radio listeners—Ramsey lost his first fortune to an avalanche of short-term debt in his late twenties. He knows about economic pain. So it’s hard to ignore Ramsey when he says America has gotten into some bad financial habits. We spend when we should save. We whip out the plastic when we should be counting our cash. And we’ve grown comfortable worshipping at the altar of huge, high-definition televisions and luxury SUVs.

"It’s the culture we live in," Ramsey says. "Most Americans can’t even envision a car without a payment, a house without a mortgage, a student without a loan, and credit without a card. We have been sold debt with such repetition and with such fervor that most folks cannot conceive what it would be like to have no payments. And guess who the credit companies are going after now? Your children."

That’s not surprising, since adolescents are among our country’s most prodigious spenders. According to market research.com, teens spent $124 billion in 2004—up 45 percent from 1999.

Sins of the Father
For decades, the United States rode an unprecedented period of prosperity fueled in large part by wanton spending. There were some rough patches here and there, but ever since the Reagan Administration spent its way out of recession in the early 1980s, we’ve buoyed the economy by doling out massive amounts of cash.

But in saddling ourselves with debt, we’ve put ourselves at risk. Many Americans cut down on saving or abandoned the practice entirely. The San Francisco Chronicle reported in 2005 that, for the first time since the Great Depression, we were actually spending more than we were making.

"You’re seeing a situation where the consumers are spending every penny they possibly can and borrowing on top of that," economic consultant Joel Naroff, told the Chronicle.

American consumerism is aided and abetted by the entertainment industry (including the world of sports), filled as it is with fancy cars, designer wardrobes and private jets. What we see—the ads, the programming and the merging of the two—influences what we buy. For proof, look no farther than the current advertising trend of product placement.

"The stories that most influence our children these days are the stories told by advertisers," wrote Jean Kilbourne in her book Can’t Buy Me Love: How Advertising Changes the Way We Think and Feel. "As George Gerbner, one of the world’s most respected researchers on the influence of the media, said, ’For the first time in human history, most of the stories about people, life and values are told not by parents, schools, churches or others in the community who have something to tell, but by a group of distant conglomerates that have something to sell.’"

Indeed, some entertainment seems to be more about product placement than plot. "It’s not really a movie," wrote Stephen Whitty of New Jersey’s Star-Ledger regarding Sex and the City. "It’s a clothes catalog that talks." Similarly, trend spotters have called The CW’s Gossip Girl the biggest fashion influence in the youth culture market. Not every viewer runs out and buys a pair of Jimmy Choos, but entertainment has done nothing to discourage the nation’s long-term spending splurge.

"As a country, we are in this financial mess because of the way we’ve been behaving for decades," Ramsey notes. "Your grandmother was right to save for a rainy day. Today we spend every cent that’s coming in and then finance the ’stuff’ we think we need."

All of which leads, inexorably, to a sea of red ink.

A Debtor Generation
Many experts believe things won’t get any easier for our children. In a 2008 poll taken by the Pew Research Center, 21 percent of respondents believed their children would be economically worse off than they are—more than twice as many as said the same thing in 2002. That gloomy assessment may come true, simply because today’s youth have been told that debt is a part of life.

Ramsey points out that many students take out their first loans before they get their first jobs. "We have spread a myth that you can’t be a [college] student without a loan," he says. "More than 65 percent of students are taking out loans. Once you have them, you can’t get rid of them. They end up sticking around so long they become a house pet!"

Often, these loans are simply unnecessary. According to Ramsey, the average college student spends $5,000 to eat and live off campus, rather than living in the dorm and eating cafeteria food.

"Student loans were not needed to earn their degree, but only to look good while getting it," Ramsey says. "Then they sign up for ’Discovered Bondage’ or ’American Excess’ just to get the free T-shirt. Before you know it, they’re living off these credit cards, and that debt follows them beyond graduation."

Ramsey doesn’t believe that debt is an essential part of anyone’s portfolio, particularly that of our children. It’s important, he says, to teach good financial habits now. But it will require some fiscal discipline of your own.

"They learn by watching what their parents do," Ramsey says of our children. "You can’t tell them one thing and do another." That means modeling fiscal restraint and patience. Spend less than you make. Delay gratification. Save money. And most importantly, put away your credit cards and buy things with cash. Ramsey insists, "If you carry cash, you spend less."

It’s common sense, when you think about it—just as it would be common sense for a sure-fire victim in a horror flick to turn on a light prior to walking into a room, or call for backup before storming a zombie-infested crypt. (Of course, where’s the drama in that?) But sometimes even real people don’t listen to the saner voices inside their heads. "Hopefully this recent economic downturn has served as a wake-up call for many people," Ramsey says. "In order to win, you have got to change your view on debt. You’ve got to live on less than you make. Debt is not a tool."

Tools for Success
Ramsey emphasizes that it’s important to train young people to handle money before they leave home. His children have their own checking accounts, complete with debit cards. Although he fills those accounts with cash for living expenses, it’s up to his children to manage their own money.

"If our daughter buys one dress and blows [the money for the month], she can’t go to the movies," Ramsey says. "If our son eats at expensive restaurants with his friends, no new clothes for school. It was very rewarding to watch the lessons that we had been teaching them over many years go into overdrive. The bargain shopping, the conscious decision making and the discipline were extreme, adult-like and gratifying."

Ramsey has created a teaching tool for parents of pre-teens called Financial Peace Jr. for Kids, and another for teens, Financial Peace for the Next Generation. He also endorsed a great book from Ron Blue and Focus on the Family titled Faith-Based Family Finances, which includes a chapter dedicated to teaching children about money.

Dave Ramsey believes it’s time we ended this economic horror show and returned to a semblance of financial sanity. Because you know what will happen if we don’t. Sequels. We’ll rehash the same nightmare again and again for years to come. But not if we teach our children to be prudent with the Lord’s resources and possess a healthy fear of debt. Treat the scary economic downturn as a time to teach, not a time to panic.

Published January 2009

If you found this helpful, you may also benefit from the article Teens Are Buying Now, Paying Later.