The Debt Trap: Factors That Have Led Us To Our Debt

By Silicon Valley Blogger. Last updated 4 November 2017. 15 comments
Photo: Debt Trap

We're a nation of borrowers. This reality is quite well illustrated by the personal stories and profiles covered by various media publications on the subject of consumer debt. Recently, The New York Times published a series on debt, which I found to be both highly intriguing and sobering, as it shed light on the plight of debtors and took a peek at our saving and borrowing habits. When I hear and read about these debt stories, I sense a common thread in the discussion, as people ponder what got them into this kind of trouble in the first place. In many cases, we point fingers at lenders, banks and credit card companies for creating financial products and developing an environment that is conducive to lending and borrowing (and that which allows us to shoot ourselves in the foot).

Let's review how we've found ourselves so heavily in debt as a nation of consumers.

Easy credit

In the past, it was simply too easy for consumers to obtain access to credit. Not long ago, I remember the slew of 0% interest credit card offers that would invade my mailbox. Because credit was so easy to get, consumers figured out how to leverage their credit card rewards as well as balance transfer cards in order to make money. Many tried to perform credit card arbitrage by taking out cash advances and balance transfers from these cards, then investing the amounts into a rising stock market. This was just one of those things you'd consider to be a "sign of the times." Of course, things are different today, but the 2000s was a decade during which our debt ballooned due to these types of products. Subprime loans, jumbo mortgages and other forms of costly debt are inventions of our capitalistic society; these are high-risk financial tools which countless consumers have used and gambled with, often with dire results.

Need for instant gratification

As a society, we're quite an impatient lot. It's ingrained in us to be able to get immediate access to the things we covet, even if we can't really afford these things at the moment. We live in a highly consumerist society that encourages materialism and is not ashamed of excess. Have you seen just how huge the portions are served in most American restaurants? It's all about more, more, more right now! So it's often the case that funds that should wisely be funneled into high interest savings accounts or into high yield savings are instead being used to keep up with the Joneses, a syndrome that many of us harbor, and which has caused many a household to fall into debt.

Lack of financial education

I don't believe that we're giving our finances enough priority; after all, personal finance isn't given importance in schools. A lot of us don't learn about finance while in school and instead are picking it up through experience and trial and error. Unfortunately, this lack of understanding and awareness about money management can make us vulnerable to making many financial mistakes, particularly those that land us squarely into the depths of debt. We should take it upon ourselves to learn the ropes: you can become informed and educated for free, if you check out libraries and the Internet for financial material and resources such as money management tools, budgeting tools and investment software that are available at no cost.

Lack of accountability

I don't think we're accountable enough for ourselves either. It's too easy to procrastinate about our finances, go in denial or sweep things under the rug when we get into trouble. But also detrimental is when we can't take responsibility for our own actions and mistakes. We readily blame the government or the financial industry for causing the rifts in our economy, but we're just as guilty about causing the crisis as they are. Both lenders and borrowers contributed to the subprime lending boom, subsequent bust and credit crisis, but guess who's getting the lion's share of the blame?

Debt as a cultural phenomenon

You've heard the saying "it's the American Way," a statement most applicable when referencing our relationship with consumer debt. In other cultures, debt is heavily frowned upon and is only gingerly used by households. But in America, debt is socially acceptable and ingrained in our culture; it carries no stigma. If bankruptcy, foreclosure, debt and being broke are things we easily accept in our culture and way of life, then these aren't things we'd readily condemn (or worry about) until too late or until we're forced to face the painful consequences.

When the economy blew up last year, it prompted the government to start making some changes; they've since introduced policies that help regulate the financial industry to some degree (e.g. credit card rules) but in many respects, it's still pretty much "business as usual." Instead of worrying about what the Fed or Obama is going to do next, we should focus on the things we have control over, and take responsibility for our own financial predicaments.

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The Debt Trap: Factors That Have Led Us To Our Debt

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Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Guest's picture

Take some time and read Web of Debt.. Many, as does your article, attempt to address the symptoms, but not the disease.. the Web of Debt shows and outlines the disease.. and it's pretty insidious, to say the least. Money comes from debt, that's what runs our monetary system, without debt there is no money and the machine stops running.. Appears to be an anachronism, but it definitely is not.

Financial Samurai's picture

We have our delusions. We think we DESERVE something, when we have no business deserving anything.

If you slacked off in school, don't work hard, and have minimal pay, why do we deserve to have the same things that those who worked their b&tts off? We don't.

We shouldn't delude ourselvs in wanting more.


Financial Samurai
"Slicing Through Money's Mysteries"

Guest's picture

Very nice post.

Guest's picture

Very nice post.

Guest's picture
Sabrina Bremmer

here are some links for understanding banking and our debt

7 Page article in The Times on Goldman Sachs

Article in Rolling Stone on Goldman Sachs

The great American bank robbery:

How banks gained control of America:

How to fix bad commercial banks that take in money from depositors. Simple. People power. The Dutch brought an arrogant bank to its knees in twelve days:

Guest's picture

my debt is due to student loans, and simply spending more than i have. I was aware I was doing it and I have learned my lesson

Guest's picture

Go to some of the recent immigrant blogs that are out there and you'll see quite a different sense of debt. Debt is considered very bad for everything but a house and even then most of them want to get that paid off quickly. Embracing debt at these levels is truly an American phenomenon. Its root comes in the notion that we deserve a certain lifestyle, whether we have earned it or not. Keeping up the Jones' mentality. Unfortunately, nobody said that the Jones' were broke.

Debt is simply the result of wanting things before you have the money to pay for them. The banks, auto dealers, mortgage brokers only made it easier and easier over time to fulfill this want.

Go back to when cars were bought in cash only. Then came 3 year loan with 30% down, then came 5 years with nothing down, then came the lease---not even owning it. Sure American companies did everything to create the desire, but Americans knowingly took on massive amounts of debt to fulfill their wants. Unfortunately, our government has exactly the same affliction and we will all be paying for it for the rest of our lifetimes.

Silicon Valley Blogger's picture

Supposedly, there's this thing called a "debt gene" that has been blamed for some people's disposition for overspending.  I can believe it.  But the environment has a lot more to do with it, I think. If you grow up developing a mindset that borrowing is the way to go and that you need to own something right now (vs waiting till you can afford it), then you'll most likely be facing some financial challenges in your life.  Your mindset needs to be readjusted so that you fear bad debt.  I believe that feeling sufficiently uncomfortable about debt is a good thing.

SVB @ The Digerati Life

Guest's picture

I look at it a little differently.

There are three things that people generally go into debt to acquire: a car, an education, and a house. On top of that, people also acquire additional debt. Some unfortunate people go into debt due lack of health insurance or inadequate health insurance.

The pernicious thing about debt is that mismanaging, or even having debt can lead you into situations where you fall deeper into debt. Student loan debt can cause you to use credit cards, and thus, can lead to long-term credit card debt.

We need some real information about why people are in debt. Blaming it on greed or impulse spending or wanting something you can't afford seems simplistic.

Guest's picture

It may be a less conventional way of handling it, but I worked after high school graduation, saved for several years, got scholarships and paid work during college and came out without debt. It takes longer but is much better in the end. Most of us don't know what we want to do with our lives at 18 anyway. As a family we save for our (used) car before replacement. We have never been in a position to buy a house. So we haven't, and we probably won't.

Guest's picture

@wildgift - it might help people on an individual level to know why they get out of debt, but on a societal level we just need to regulate and force banks to take their own losses on bad loans so they tighten up credit.

Individuals might be bad at judging their ability to handle debt, but banks are in the business of making good decisions about credit - or they should be.

Guest's picture

Saving for retirement by making a 401k contribution is getting harder and harder. The general theme of how the money system works and how debt drives that engine makes me want to figure more ways to save enough for that early retirement.

Guest's picture

The problem starts with education. As a whole, we do a poor job instilling strong personal financial habits in our children.

Couple that with the fact that most college graduates are already under the heavy thumb of debt by the time they graduate and things get out of hand quickly.

This lack of discipline only intensifies two of the points made in the article - instant gratification and lack of accountability.

Case in point - my wife and I are friends with a couple who seem to buy a new car every nine months. Tomorrow, they plan to drive half way across the state to look at a fancy sports car to replace a car they bought seven months ago that is "dying."

I asked what "dying" meant and was told it need a new transmission. So, they are going to replace a $1,500 expense with a $40,000 one. Oh, and they'll roll their negative equity on the "dying" car into the new one. However, they weren't willing to pay their church $80 per week for childcare as they felt it was too expensive.

Guest's picture

I disagree with reader's comments that debt starts with a lack of education. Debt starts with selfishness. Plain and simple as that.

It is the attitude of I "deserve" that thing, that I can go in debt now, and "pay" later.

It's all selfishness. Cut most the selfishness, and you can end the problem in your personal life.

I did, and am now debt free. And, yes, I have a college education, and no, I didn't go in debt to do it, and yes, it took me twenty years, but I did it anyway.

People, stop living on the "if come" and for selfishness.


Guest's picture

I know we should all spend within our means but let's face it, it ain't going to happen.
The banks and other finance providers have got to be taken to task about this and stop sending us junk mail with special offers, discounts, "you have been accepted"" coupons and flyers that just push people into debt. I know that individuals should take responsibility but it really doesn't help when you are force fed this stuff on a daily basis from these companies.