January 27, 1997.
Our people are inundated with health advice—don’t drink, don’t smoke, wear a condom, wear your seat belt, don’t eat red meat, lose weight—and on and on and on. But as a practicing physician of 15 years, I have noticed a health risk that is never publicized—intolerable debt. No, it is not the debt caused by my bill. I know what some of you cynical readers are thinking. It is debt caused by big houses, new cars, boats, big-screen TVs, Disneyland vacations, trendy clothes, and expensive toys that the kids destroy within two weeks.
More Americans are in hock than ever before. Even with a supposedly good economy, the number of personal bankruptcies is at a record high, over 1,000,000 a year. The average household debt excluding housing payments is $50,000. By the year 2000, it will be $65,000! Some readers may feel that you only live once and you may as well enjoy it. The fallacy in this reasoning, is that when debt becomes unmanageable, it causes unending misery. Why? Because you are now an indentured slave who is no longer in control of your life. You do not own your possessions, they own you. Unmanageable debt causes stress and stress causes heart attacks, bleeding ulcers, strokes, and maybe even cancer. Stress causes substance abuse, back pain, obesity, headaches, diarrhea, and dizziness. Stress destroys marriages.
Part of the problem is that we have a tax structure that encourages debt and speculation rather than savings and investment. It you buy an expensive house, you get a larger tax write off. You can even take out equity loans for nonessentials and deduct the interest payments. When my wife recently balked at paying some ridiculous price for furniture, the sales person suggested that we obtain a tax-deductible home equity loan. She even had the paperwork
By offering credit, merchants are able to sucker customers to overpay for things. Cars are a perfect example. Thirty years ago when people bought a car, they looked at the sticker price. If they had cash, they bought it. If they didn’t, they looked at a cheaper model. As prices escalated, the car companies came up with clever financing plans with supposedly low interest rates. But as the prices continued to skyrocket, the companies came up with a new plan—leasing. This means that after paying $12,000 over a three-year period, you don’t even own the car! What a scam.
There are those who argue that debt is good for the economy. After all, if all those people weren’t out there leasing cars, how could Ford and GM hire people? Perhaps. But it is also possible that if people weren’t willing to put themselves in hock, the price of the cars would come down significantly. The skeptical reader is invited to offer to pay cash the next time he or she purchases a car. Watch how the sticker price plummets. The same phenomena occur with college tuition. The government offers loans to the poor and middle class and then the tuition goes up 10% a year. Some colleges are now costing 30 grand annually. Surprise. Surprise. Generation X will still be paying off their loans when they are being fitted for bifocals. But the main advantage of keeping personal debt to a minimum is that you are in control of your life and this is good for your health. You are not dependent on some arrogant boss because if you lose your job, you lose your house.
As the bankers say, there are two kinds of people: those who pay interest and those who collect it. My bet is that those who collect it live a lot longer.