Independently Indebted

My in-laws are moving to a serviced apartment this month, after pulling the trigger and making the decision that they should do it before they can't do it themselves. I respect that, as they have handled nearly everything themselves so they don't have to be a burden on their daughters. It makes them feel better about it, making it their independent choice, something that they value highly.

Independence is something that most people value, as long as it works in their favor. Most people want to make their decisions when the outcome is a success, yet want protection when their decisions fail.

Fairweather independence.

I think there is more and more of this now, which I suspect is largely being driven by the consumer economy, as people are making their purchasing decisions, but not worrying about the debt they are racking up. It is like it doesn't even register that there is debt at all, which could be in part to the ease at which it is to not only get lines of credit, but also spend through various channels.

This is something that has been on my radar for a long time, however it was highlighted again to me yesterday, as I talked with one of the mothers from the kids' birthday party Smallsteps attended. While the children were together with the hosts, I had 45 minutes to kill and asked if the mother wanted to join me for a coffee, which she did, after doing some shopping. While I had spoken to her before, I don't actually know her, so we ended up doing the where are you from and what do you do dance for a bit.

When I eventually asked her what she did, she was hesitant to say, which I joked about because I had already suggested the reason she had moved so much as a kid was because her parents were involved in criminal activity. It was funny, and not as weird as it sounds. But, she said that the reason she was hesitant, was because she works for a large debt collection agency, and some people don't respond positively to her saying.

However, this isn't a company like you see in the movies with heavies of the bookies who break knees to chase gambling debts, it is just a company that collects on the debts when the company involved is unable to chase it. She asked if I knew the company and said, "Of course! I have missed bills from time to time to."

Debt can come in many forms, where for instance when we moved house a few years ago, some information didn't update to all companies in the system, and bills were being sent to the wrong address, but not getting forwarded to the right one. So, the first I would hear about it, was when a collection agency would track down the right address. Shit happens.

But, as I said in the conversation with the mother, a debt collection agency is chasing debt, it isn't chasing savings, and a lot of what they are chasing is from people who have managed their finances poorly. Especially when the cost of living expenses are up and times are tough, the collection agencies are going to be the bad guys that don't understand the situation, but that is normally not the case. A lot of the debt is consumer spending on unnecessariness, which after the expanding interest payments, will see the necessities fall into arrears also, requiring taking on more debt.

It is called a debt cycle for a reason.

Financial independence shouldn't be seen as what you can spend, it should be seen as what you can save or invest. A lot of people feel "financially secure" in the good times, spending freely, but when the economy inevitably turns, they find themselves struggling, and increasingly so if they are going to try and maintain their fairweather independence. However, real financial independence would mean being able to generate increasing value in the lowest of times also, even if it isn't much. At the very least, it should be about being able to maintain position and ride out the rough seas, anchored in a safe harbor until the storms pass and the growth journey can continue again.

Independence is about being able to make one's own decisions, but also be able to wear the consequences and ramifications of those decisions. A lot of people over the last decade or two have chosen to spend rather than prepare for the future, and as personal economy situations degraded, they found themselves unable to grow or maintain, but instead slide further into the claws of debt. There is a huge amount to purchase these days and a lot of it brings no value to the financial health of the individual. not all spending is the same, as the return is going to differ.

For instance at work the other day, we were talking about buying a Porsche, or the reasons not to. For pretty much everyone at the table, no matter the amount of money they had, they wouldn't. However, if I had a massive amount, I might, because with the rest of it I would be able to earn that value back anyway. But, since I am not interested in cars much, I still probably wouldn't buy something like that, because it won't bring me any satisfaction. I don't care what people think of me who care about what kind of car I drive, and I don't care if strangers down the street look at my car or not. There is no value at all in a "status car" for me, though there might be some for someone else.

However, while we might not ever be in a position to dump cash on a new Porsche, we all tend to buy a lot of stuff at a lower price point that doesn't return anything much in terms of value, like subscription services to streaming content, clothes, restaurants, food, various brands, electronics - whatever. It is not that all of this is valueless, but how many of us really build a hierarchy matrix and discover how meaningful it is to our own lives?

What would be interesting to know is how much of the debt people carry is "necessary" debt and how much has been facilitated by unnecessary purchases. For instance, I know many people who have bought what would be considered by most, luxury cars on finance. There is nothing wrong with that of course, but if it is a decision made in the good times but is unsustainable in the bad times, and the length of the contract is going to extend into the bad, was it a good decision?

Many bought overpriced houses during the start of the pandemic in an economy that had government decisions taking on enormous amounts of debt, which is of course going to impact on inflation. This means that it was entirely predictable that the response to inflation was going to be an increase in the interest rates, making what was the cheapest cost of debt in history, significantly higher. When people took their housing maximums in the interest rate fairweather times, they are making a decision that is going to be subject to interest rates for the next 20-40 years, perhaps more in some countries.

They made the decision.

And over the last few years that the weather has turned, they are of course going to struggle as their debt obligation percentage increases, whilst simultaneously other costs of living are increasing, driven by degrading global political conditions, which are of course, part of the overall plan of the governments to maintain or increase what they value - control.

Which is interesting, because the more people tend to make their own financial decisions, the more they tend to spend on non-generative purchases and ultimately, their independence erodes away and they become more controlled, slaves to the debt cycle, reliant on handouts and people to look after them.

There is a cost to independence, but often, it isn't until the fairweather becomes stormy, that the collectors come to demand payment.

Taraz
[ Gen1: Hive ]