\'Buy Now, Pay Later\' Philosophy Comes With A Bite

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John Rolfe(Photo: Alex H. Wagner/Poughkeepsie Jour)

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When a family friend said she wants her 21-year-old son (we’ll call him Rollo) to get a credit card so he can secure a car loan when he needs new wheels, my wife replied, “I told my kids to start a car savings account and give themselves the payments now so they’ll have the money when they need a new one.” (We trust they’ll purchase a buggy within their budget and not use the moolah for a down payment on a Rolls Royce.)

From our friend’s reaction, you’d think my wife was suggesting that Rollo, who has a job and lives at home, build his next car from scratch using common household objects. Save for it? Preposterous!

It’s painfully clear that Americans been sold lock, stock, barrel and suspenders on the “buy now, pay later (and how)” approach to life that’s been ingrained since the 1950s. Eighty percent of us are in the throes of The Big Owe, according to a 2015 study by The Pew Charitable Trusts. "Americans have a love-hate relationship with debt,” Diana Elliott, Pew’s research manager for financial security and mobility, said in news stories about the study. “They know they need debt, but they don't actually want it.”

“Why do they need debt?” my wife responded when I showed her the quote. “That’s ridiculous.”

Many people automatically assume the best or only way to get what they need or want is to jump into a financial hole and that there’s some benefit to being there. But when you pay interest, you spend more and could have pocketed the difference if you’d used cash. The popular “value” of a mortgage (a tax write-off) doesn’t come close to offsetting what you overspend by the time you finish paying off your shack, and many people refinance so they can buy more stuff. Credit feels good. The bill is an abstraction. But once it comes due, and if it’s grown too large or your dough stops flowing in, welcome to the tension convention.

According to Pew’s new study, 53 percent of respondents said they struggled to meet regular expenses after a job loss, health issue or major car repairs. The Federal Reserve says 46 percent of Americans can’t cover a $400 emergency without selling something or borrowing. Debt not only dogs your days, it can follow you to the grave only to rise and haunt your survivors. Fox Business recently reported that consumers have been passing away with an average tab of $62,000.

Government budget woes only add to the urgency of managing personal spending wisely. The national debt, racing to $20 trillion, has inspired proposed cuts that could deeply affect our lives on many fronts. On a local level, Poughkeepsie, soaking in a $13.1 million vat of red ink, is trying to stay afloat while residents deal with the bite of a huge property tax hike that makes it tougher for them to make ends meet.

My wife’s simple daily frugality and resourceful ideas helped pay off our first mortgage in seven years on mainly one hardly sky-high income, buy our abode here outright, and put our four kids through college without loans. She’s now trying to impart her wisdom via Red Hook Continuing Education  and her big challenge is convincing people that going into debt is often unnecessary and staying out of it isn’t as hard as they believe.

If you watch what you spend, live within your means, save whenever you can, and pay off what you owe as quickly as possible, you’ll sacrifice time and some luxuries, but end up with the things you really need, some security, and peace of mind. It’s one of the best lessons you can teach your kids, and it doesn’t mean building a new car from scratch.

Columnist John Rolfe lives in Red Hook. Write to him at PersonallyPojo@gmail.com

 

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Source : http://www.poughkeepsiejournal.com/story/opinion/2017/04/21/buy-now-pay-later-philosophy-comes-bite/100699050/

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