“I had more spending money in college when I was a student working a part-time job.”
–A friend who earns over $100,000/year.
How does this happen?
Factor in the following:
- Urban living, including going out frequently
- Expensive apartment
- Credit card debt from spending on things like going out frequently, shopping, travel
- Student loans
It’s a combination of high fixed costs (think $1k+/month in student loans) plus poor spending habits.
But it’s too easy to simply scoff and point fingers.
In social psychology, there’s a phenomenon called pluralistic ignorance. The prototypical example is of college students, who almost uniformly believe that their peers drink and have sex more often than they actually do. This causes all kinds of odd attitudinal and behavioral responses, like increased risk taking.
The same is true of people, especially high-earners, in credit card debt. After all, if you’re earning six figures in your 20s, you’re “supposed” to know how to manage your money, right? And since you work so hard, don’t you deserve to spend a little on yourself?
These are classic scripts employed by high earners in debt.
To be blunt, nobody would be surprised by someone making $35,000 who has some credit card debt. But it’s difficult to understand when someone earns over $100,000 (especially when I’ve written that a high income solves most problems). Spending matters, of course.
I have a lot of friends who earn this kind of money in their 20s, and a surprising number of them are in credit card debt. Yes, spending matters. But there are intensely important psychological factors at work for high earners in debt. Since nobody talks about it, none of my friends suspect that some of their other high-income friends are in debt.
It’s a terribly secretive and taboo situation.
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