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Credit Card Debt Calculator”

My $100,000 friend

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“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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  1. Similiar to how people assume that wealthy people-high net worth, not high income- have a solid understanding of how money works. Not really the case, necessarily. I think the fortune 500 list of richest people has like 80% turnover over the last 20 years. That might not be the real stat, but it’s something similiarly high and shocking, so don’t worry about it too much. You’d think that people with a lot of money would know how to keep their money. Wealthy people don’t necessarily have any better understanding of money than non-wealthy money. They just happen to have more money at the moment.

  2. This reminds me of something my economics teacher told me in high school. He said Tom Delay (then Texas governor) had once looked at a homeless guy and said “I envy that man, he’s richer than I am”

    Somehow I don’t think Tom would’ve wanted to trade places though :p

  3. Stacy McKenna Seip Link to this comment

    I grew up in southern Orange County here in SoCal, and the “visibly wealthy, but immensely in debt” thing is incredibly common. Image is everything, so everyone is mortgaged to the hilt with debt of one sort or another (or several) but no one actually talks about how difficult their lifestyle is to maintain or how their money could more reasonably be spent.

  4. I always find it really interesting when people with high incomes have that much debt – especially credit card debt.

    Following the comments, I believe the problem is that we correlate “wage” with “personal money management skills.” While there likely is a correlation there it probably isn’t the perfect statistical 1.0 we would expect.

  5. People with that kind of income tend to be very focused, on their jobs while at work and at play the few days a year they are not working. This often leads to their being irresponsible outside of work, they can’t find the time. It also means that they place a high value on material items, they don’t have time for experiences.

  6. Jeremy Williams Link to this comment

    The topic of spending/saving money is the single-biggest deficiency of our education system.

    Books like Ramit’s, ‘Millionaire Next Door’, and Thoreau’s ‘Walden’ should be required reading of all secondary education…or at least part of a required college curriculum.

    My father used to say “if you can think of as many ways to save money as spend money, you’ll be rich”.

  7. If you make over $100,000 and have over $150,000 in student loan debts, that $100,000 gets used up pretty quickly.

    A lot of college kids are told to live like student when in college so they don’t have to live like college students when they get out. I think that this advice needs to be extended to the first 5 years after a student graduates. With 5 more years of living modestly (maybe with roommates, inexpensive rent, used car), a new graduate can build an awesome financial foundation for the rest of his life.

  8. Jeremy,
    I love the quote from your father. They are great words to live by, although not easy ones.

  9. @ Jeremy

    Your father has a wise quote there

    Thanks for sharing


    This post can be summed up as having “Lifestyle inflation”, the more we make the more we spend. It is almost human nature in America

  10. How about… “if you can think of as many ways to earn money as spend money, you’ll be rich”.

    I think that’s wise too.