Consumer Debt and the Coming Recession

For those that pay attention to such things, the news is filled with extreme views about the current and future state of the economy. At the same moment in time, there are pundits arguing that most Americans are in abject economic misery, while others argue that life has never been better economically. One group is arguing that imminent economic doom is upon us, another tells us that things are only going up from here.

If most of us are honest, in the decade since the Great Recession, things have generally gotten better for most people. However, in many cases, people do not feel great about the economy and, at the same time, are setting themselves up for problems during the next recession.

The Inevitability of Recessions and Stock Declines

News reports predicting a coming economic recession or a significant stock market decline are correct. They have no idea when those things are going to come, but some sort of economic perturbation is pretty much inevitable.

One of the more interesting aspects of our attention economy is that when the next economic dip happens, its significance will be determined, in large part, by how people respond. For example, if people get skittish and sell during a stock market decline, that will make the stock market decline even worse. If people alter their consumer behaviors radically during a recession, that is likely to make the recession worse.

More significant than whether and when a recession is coming (it is and who knows) is how we are living day to day in anticipation of those events.

A Plea for Simple Living

There is no question that some people are struggling to meet basic necessities already. Due to a medical condition, loss of a job, a very low wage job, or bad debt choices earlier in life, many people are living paycheck to paycheck. If that is you, then feel free to check out. This post is written to the vast majority of us who are in the middle class and have some economic margin.

We once received a gift subscription to a magazine called Real Simple that amounts to an advertisement for a high-end consumeristic minimalist lifestyle. All the pictures were of perfect rooms with “simple” solutions to problems like magazine storage or whatever, but the solutions always cost hundreds of dollars. The result was an aesthetic simplicity, but that’s not how they got there. According to that style magazine, simplicity is a consumer good that is really expensive.

Simple living is less about what stuff you own and more about what activities and services you deem necessary. Simple living at its best is simply asking what aspects of life are necessary and eliminating those that don’t fit that definition. Another definition is that simple living is asking what we do that glorifies God and minimizing the extras.

When we stop asking risk vs. reward questions about our lifestyle choices, we put ourselves into the situation like the couple making $160,000 who were described as living in “modest oppression” because they “couldn’t afford” everything they wanted. Alyssa Quart’s description of the largely self-caused mental and emotional stresses of the middle class in her 2018 book, Squeezed, should serve as a warning to rational minds to make better choices.

As Christians in the American middle class, we really need to begin asking “why” questions if we are going to be effective stewards of our time, treasure, and opportunity. We have the means to get the gospel to the ends of the earth and instead we are spending our money to overflow landfills with useless plastic.

The simple life is about being focused on what adds gospel-value to the world and spending our money on that.

Avoiding Comparisons

Also in Squeezed, Quart writes, “While Americans overall may live better than medieval aristocrats could even dream of, that means nothing when oligarchs live next door, flaunting their luxurious homes.”

The funny thing about comparisons is that we tend to make them with those living above our means. Very few of us look at those who are legitimately struggling financially and go home thankful for our abundance. Instead, largely due to the mystique of television and movies in which everything is always perfect, we continually moan about the inadequacy of our resources.

There is a reason God gave us the 10th Commandment.

Did you have a nice vacation at home? Well, the other guy at work took his kids on a safari adventure. Now that vacation doesn’t look so good.

Does your daughter enjoy soccer? The neighbor down the street does, too, so they’ve invested thousands into clinics, travel teams, physical training, and other goods and services designed to get their child ahead. Suddenly the local rec league isn’t very compelling.

There isn’t necessarily anything wrong with a big vacation or pursuing excellence in sports, but those are often excesses that we try to have without making sacrifices to compensate.

The result is that many people who are making a whole lot of money are spending all of it and a little bit more.

Rising Debt Loads

One of more frightening statistics, in my opinion, is the rise in household debt to the levels prior to the 2008 recession.

The Great Recession was rough for a lot of people in large part because people were up to their ears in debt when the problem started. For a few years society seemed to learn a lesson, but now it appears that we have forgotten.

I’m not on the “no debt ever” train, for a variety of reasons. However, I do believe that we typically position ourselves better to survive economic downturns if we minimize debt and seek to eliminate it when times are good.

A lot of the debt right now is being driven by a perception that the stock market is going to keep going up and up. In the long run this is probably true, but there may be a point at which half of the money invested in the market will “disappear” just like it did in 2008 and 2009. That is never a great feeling, but it is a really terrible feeling when you know that your pay is likely to stagnate for a while, you may lose your job, and the company bonus you budgeted to pay for your vacation is unlikely to materialize. In other words, when you are up to your ears in debt, the clouds of economic doom look a lot more ominous.

Market expert is not a title I’d claim, but I remember the pain of debt-ridden people who had a high salary but large payments and weren’t seeing the economic growth they were counting on. One way to eliminate that pain is to avoid debt and eradicate it. To do that, we should consider the common causes of debt.

The Cause of Debt

The problem most middle-class Americans have is that they are spending too much on things that they enjoy too little and bring too little glory to God.

Instead of comparing ourselves to our neighbors, we ought to be regularly asking of every expenditure how this glorifies God. We will certainly get things wrong from time to time, but a gospel-focused consumer mind will likely resist the urge to overspend on things that really do little good for anyone.

Once we get above a certain financial level, most debt is driven by buying more car than we need, a nicer house than necessary, services that we only use occasionally, and products that offer little benefit in the long run. Evaluate your household spending for the last year with a critical eye and this will likely become self-evident.

This means that rather than being trapped in system that makes us do bad things, we are in a culture that encourages us to do dumb things and we usually don’t invest the will power to stop.

For most of us, our debt is a problem we have created by being unwilling to limit our consumer choices to that which glorifies God.

We are setting ourselves up for misery in the future with our choices today. Why not begin making simple, better choices that will leave us happier when the next downturn comes?

Now and Later

We err as humans in placing either too much or too little focus on money. On the one hand, we can spend recklessly and damage our futures by locking ourselves in a cycle of debt. On the other hand, we can hoard money and focus on always having a growing savings account.

Both positions are errors. Both positions place a person under the lordship of money. Both extreme positions must be avoided by the Christian, though likely there are a range of positions between the two poles which are acceptable.

Instant Gratification

Money by bfishadow, used by Creative Commons license. http://ow.ly/4n6FxR

The tendency to err on one side of a balanced approach is part of human nature. As recent history seems to indicate, human nature is biased toward instant gratification rather than the delay.

No doubt an anthropologist could explain to us that such a bias toward immediate gratification is a result of evolutionary heritage. No doubt our ancestors, they might argue, lacking refrigeration must have gorged themselves on meat before it spoiled. This natural and explicable urge would explain in logical terms the human bias toward immediate consumption.

I struggle to accept such an explanation. First, I doubt some of the basic allegation that such social behaviors as inherited instinctively rather than largely learned. Second, I see a stronger explanation in the psychological reward of receiving something or consuming something. It simply feels good to get something now.

Whatever the reason for the quest of instant gratification, it has deleterious results for many people in contemporary culture.

Financial Struggles

A recent article in the Atlantic provides a testimony of someone who has decent earnings, but still lives from paycheck to paycheck. A week by week approach is reality for many more than just the working poor or the poor of any kind.

Neal Gabler, who penned the article, rightly points to his own choices for his family’s continued struggles. At least mostly.

Gabler notes that when struggling, his family failed to downsize. They made the choice to send their children to private schools, to live in New York City and later Long Island though his work could have been done anywhere. This led to his being in the large group of Americans who would be unable to cover a relatively modest $400 emergency. His choices paid a large part in the problem. In most cases, there are reasonable justifications for these decisions, but they led toward a state of seeming perpetual financial struggle.

But some of his decisions were made by using an expectation of the economy that differed from reality. Gabler notes that the economic conditions have changed since his childhood. The economy has not seen the robust growth in wages of earlier days. In fact, as he notes, the hourly wage has largely stagnated since 1972. Despite this, the value of benefits has grown significantly. This historic expectation colored Gabler’s vision of future potentialities.

Most of us expect to make more next year than we make this year. We expect to see our salaries grow due to cost of living increases and due to merit increases. But Gabler’s article shows the danger of counting on a particular future outcome.

Predicting the Future

Before going on, I must submit two qualifications. First, I am not condemning Gabler for his errors. Given past history, expecting growth in income would be a fair prediction. Many have made the same mistake. Second, some sort of reliance of future income is reasonable. Otherwise very few people would take a mortgage of any length. The trouble is not that Gabler and others count on future earnings, but that they are too optimistic about the future.

We do not know what tomorrow holds. However, we have pretty good evidence there will be a tomorrow. Put those two things together and we should, it seems, make reasonable and unassuming predictions about the future.

Such cautious predictions about the future are what make the difference (often, not always) between a week by week budget crisis and a path to financial solvency. We cannot know the future so any expectation may be proved wrong, but it is easier to adapt to a brighter future than we expected than to rely on future growth in earnings.

God’s Control of the Future

James cautioned his audience against expecting too certain a future.

Come now, you who say, “Today or tomorrow we will go into such and such a town and spend a year there and trade and make a profit”— yet you do not know what tomorrow will bring. What is your life? For you are a mist that appears for a little time and then vanishes.  Instead you ought to say, “If the Lord wills, we will live and do this or that.” As it is, you boast in your arrogance. All such boasting is evil. (James 4:13-16)

Some traditions have taken this passage and created a pattern of speech that adds the proviso, “Lord willing,” to every futuristic statement. That may be a helpful didactic tool to remind people that the future is depended upon God, but I don’t think it is necessarily the intended result of James’ instruction.

James is teaching people to depend on God and not to rely on their own wisdom and plans for the future. This should lead us to be cautiously optimistic. When it comes to managing money that we have stewardship of today, it should lead us to ask whether God is providing for future needs with money that he has given us today.

There are certainly many applications of the principle that James is teaching here. However, one of them should be that we should be cautious about spending tomorrow’s dollars today. God controls the future. He may choose to grow our income in a way that outpaces inflation. Or, he may choose to move us to a different vocation with a lower salary. In the end, we can trust in his providence to meet our daily needs, but we should not presume that his providence will include funding our present desires.

As we steward the resources God has allotted us, we should be generous toward the Lord, but more cautious toward our own desires. God will meet all our needs, but he may not give us whatever we want.