LendingTree Blog
February, 16, 2013 | 0Comments

Debt addiction in America

In the US, many people feel enormous pressure to flaunt the trappings of success — two or three cars in the driveway, exchanged for new ones at appropriate intervals, snowmobiles, ATVs and Jet Skis in the toy shed, the latest electronic gadgets, “statement” jewelry and expensive shoes, and of course, the biggest house they can buy.

What’s wrong with this picture? The cars are all leased, the debt for the toys will last longer than the toys themselves, the motor home has a ten-year loan against it, the credit cards are over limit and the house is under water.

All flash, no cash

It’s easy to fall into this trap. My neighbors, for example, make their living by designing and building very expensive homes and selling them to exceedingly wealthy folks. They are surrounded by the fixtures of filthy richness, they deal with people who can afford the best there is, and they have absorbed a taste for extremely high-end everything. The only problem is, they don’t have the filthy richness needed to purchase these things outright. And so they go into debt — car loans for a new Lexuses and BMWs every year, their own house is in a constant state of redecoration, they refinance homes, including vacation homes in several parts of the country and they drool and dream of media rooms and wine caves. They’re also approaching retirement with zero savings and debt up to their nostrils.

Studies show that insecurity drives spending

In the London School of Economics publication, The Plastic Trap: Self-Threat Drives Credit Usage and Status Consumptionresearchers experimented with the effect that perceived threats to self-worth have on the desire to purchase status-related goods and the preference buying them on credit. They created scenarios in which subjects were hit with positive or negative feedback (creating the threat), and then some of them were given an additional chance to receive positive feedback, offsetting the previous negative experience. They found that participants who received negative feedback and did not get a chance to offset it with a positive experience were much more likely to purchase high-status items and exhibited a definite preference for buying on credit. They concluded that people whose self-worth is threatened try to recover their self-esteem by making a high-status purchase, and that because they were experiencing psychological pain, they bought on credit because it’s less painful than whipping out the cash.

What does this tell us about avoiding debt?

When researchers engineered threats to the subjects’ self-worth, those who were given the opportunity to get positive feedback didn’t feel the same urge to purchase expensive crap and to buy on credit. We can use this information! Whenever we have a rough day at work, or our kids don’t want to be seen in public with us, or our skinny jeans don’t fit, we can lock up our wallets, step away from Ebay and Zappos, and do something that we’re good at, something that makes us feel positive about ourselves and our lives. For me, that’s teaching my dog a new trick, making a new piece of jewelry, going for a run or playing a couple sets of tennis. For you, it might be working in your garden, taking a drive, or going to yoga class. The important thing is having a positive (and inexpensive) antidote to life’s bumps.

“Temptation greets you like your naughty friend” – Artcic Monkeys

I recently experienced this spending urge myself. My husband and I had just paid off both of our cars. The plan was to drive them for at least three more years and add to our savings. And then, after one of Jeff’s commissions fell through and he was terribly disappointed, we went to a local car show, just “for fun.” The vehicles were gorgeous, expensive and sexy. The salespeople were ready to deal. We went from zero interest to 100 percent hooked in 5.2 seconds!

“We need to think about it”

Salespeople will do anything to keep you from getting away and thinking about a prospective purchase. Because they know that without the new car smell in your nostrils, your racing pulse will calm and your brain cells will (probably) kick in. We took a deep breath, made reservations at a favorite restaurant, and talked ourselves out of the purchase over a really great dinner. The dinner was positive reaction number one. The next day, Jeff called a mobile detailer, who came to our house and put our vehicles into showroom condition. He even sprayed them with new car smell. Positive reaction number two.

Crisis averted.