NPR: Why Do We Borrow So Much?

Posted by Kendall Harmon

In 1982, Americans saved more than 11 percent of their disposable income. The personal savings rate dropped to just 0.4 percent last year. An economist blames easy credit — and how we think about money.

Twenty to 40 years ago, economist and Financial Times columnist Tim Harford says, "a lot of people were denied credit" because of their income, their gender or their race.

"It seems to me that we've always been willing to borrow, we've always been keen to borrow, if the lenders have been willing to lend to us," Harford tells Steve Inskeep.

People have "suddenly been given the ability to borrow more — credit cards, mortgages, unsecured loans — and they've taken advantage of that," Harford says.

Read or listen to it all

Filed under: * Economics, PoliticsEconomy

Posted April 28, 2008 at 7:32 pm [Printer Friendly] [Print w/ comments]

1. Philip Snyder wrote:

We borrow because we don’t want to limit ourselves.  We have bought into the lie that we exist on this earth for happiness and that stuff can make us happy.  So we borrow against the future to get stuff to make us happy and we spend time with the stuff trying to make it make us happy.

The only true path to joy in our lives (not happiness - which is fleeting) is through God.  No amount of stuff will ever fill that God shaped hole in our hearts.

Phil Snyder

April 28, 7:50 pm | [comment link]
2. KevinBabb wrote:

People borrow so much because they can. The nature tendency is to consume to excess. That is why a horse will eat itself to death if given access to an unlimited amount of food.  Discipline and self-restraint are learned behaviors, not the presumptive approach to life.
Restraint comes with maturity.

April 28, 8:09 pm | [comment link]
3. DonGander wrote:

When my wife and I started our business 20 years ago I could not get even a modest loan for the effort. My wife applied and got a better loan immediately in spite of the fact that she had no history.

Yes, there was discrimination, there is discrimination, and there shall always be discrimination. Government is not the answer. When law replaced ethics we were doomed to the tyrany of the endless multitude of laws. It makes the Blue Laws look totally benign.


April 28, 8:42 pm | [comment link]
4. DonGander wrote:

“Why Do We Borrow So Much?”

Answer: Because if I earn $1,000 I only get to spend $800 of it because the rest goes to government, but if I borrow $1,000 I get to spend it all.


April 28, 10:58 pm | [comment link]
5. MargaretG wrote:

In New Zealand I think the answer is because we expect to live at a particular standard of living—- but our ability to earn does not provide that level of income.

That is true both at an individual level and at a national level—and I believe that you also are running not just individual debt, but also have a very significant balance of payments deficit as well—so that gradually you are further and further into debt with the rest of the world,

I think that as it grows your indebtedness to countries like China and the Middle East may become more of a security issue than the current dependency on imported oil or imported food. How will you stand up against a country that can bankrupt you?

April 29, 12:10 am | [comment link]
6. Irenaeus wrote:

“Why Do We Borrow So Much?”
“Answer: Because if I earn $1,000 I only get to spend $800 of it because the rest goes to government, but if I borrow $1,000 I get to spend it all”—-Don Gander [#4]

Nonsense!  In 1982 tax rates were higher than they are now and people saved more. For that matter, in 1964 tax rates were higher than in 1982, and people saved even more.

April 29, 12:52 am | [comment link]
7. Irenaeus wrote:

“It is the easiest thing in the world to possess this life and this joy; all you have to do is believe and love; and yet people waste their whole lives in appalling labor and difficulty and sacrifice to get things that make real life impossible”
—-Thomas Merton, New Seeds of Contemplation

April 29, 12:54 am | [comment link]
8. John Wilkins wrote:

The economist does a good job of demonstrating how we are wired.  Today we want chocolate.  Next week, Fruit.  But its always today. 

We can, however, create incentives where people are encouraged to make immediate decisions that benefit them long term.  The alternative is that we have institutions that benefit from the irrational incentives that exploit people’s natural desires.  It’s a good combination when economics takes into consideration human irrationality (or sin) rather than remain in its autistic form.

April 29, 12:55 am | [comment link]
9. Statmann wrote:

Econ 101. One can do two acts with disposable income: spend it on consumption or save it. Which one is fun? Consumption of course! AND if you are strange enough to save, you will become richer than your neighbor and that is bad. SO, Congress must act to tax those savings by taxing interest and dividends while you are alive and by inheritance taxes after you die. So, we are back to consumption and fun.  Statmann

April 29, 3:18 am | [comment link]
10. Echolord wrote:

You most definitely have a point the incentives to save money and earn a dividend on your investment at a modest to moderate rate is nearly exhausted by inflation, which leads people to take riskier options.

April 29, 7:38 am | [comment link]
11. William Witt wrote:

People often borrow because it is the only option in a difficult situation.  I have maxed out my credit card twice in my life.  Both cases were the direct result of unemployment.  In the first case—eight years ago—I was unable to receive unemployment compensation because my previous job had been a contract position.  I did find another job, but it took about eight months.  In the second case—two years ago—I willingly left my job and moved across the country for six months to live with my mother and help care for my father after he had a debilitating stroke.  In both cases, I would have been unable to pay basic bills without borrowing.

April 29, 8:28 am | [comment link]
12. DonGander wrote:

6. Irenaeus:

Sir, when you criticize me, I take it very personally:)

Perhaps it is nonesense but I have invested both earnings and borrowings and it is very much easier to invest borrowings. The US tax code is a nasty affair.

I have never been bankrupt. I have always paid my bills (eventually).


April 29, 10:38 am | [comment link]
13. Sick & Tired of Nuance wrote:

I think #9 and #10 have got it spot on.  I would only add that fiat currency is a major contributing factor, too.  Inflation constantly erodes the purchasing power of our currency and is often at a higher rate than the interest one can get in conventional savings, to include CD’s, etc.  This is no accident.  It forces money either into consumption [good for business] or investment [also good for business] in bonds or stocks.  The entire system is rigged to keep us “working” our entire lives for someone else.

I have an almost unrelated question.  #2 said: “That is why a horse will eat itself to death if given access to an unlimited amount of food.”  If that is true, how can there be wild horses in the world?  They have nearly unlimited grazing available to them.  They eat when ever they want [excluding winter].  Maybe domesticated horses would eat themselves to death on what we are offering them.  Wild horses don’t seem to have the same problem.  Is there an analogy there for our relationship with government and the Federal Reserve?  I think there might be.  I think our Constitution encodes that analogy.  I think we are living with a broken Constitution.

April 29, 12:18 pm | [comment link]
14. Words Matter wrote:

One can do two acts with disposable income: spend it on consumption or save it.

One can also give it away. For me, I find that the more I give, the less I spend.  And it’s fun, to boot.  Oddly enough, my debt load decreases, and I never seem to go without. I do use credit some for special things, but, again, the more I give away, the less I seem to need credit.

April 29, 5:54 pm | [comment link]
15. Bob Lee wrote:

All wrong. It is smart to pay for things in the future with depreciated dollars. As long as we have inflation, it makes no sense to pay for things in today’s dollar, when tomorrow’s will be cheaper.


April 30, 3:25 pm | [comment link]
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