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The article everyone is talking about today

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…is the phenomenal New York Times article written about how a woman named Diane McLeod got into thousands of dollars of debt. It’s remarkable because it includes a rich set of multimedia features that let you understand how many of us get into so much debt — and also allow you to compare yourself to others. They include:

Want to watch it all? Click here to start.

Here’s my take: On one hand, we all know people like Diane, who make poor financial decisions, never take the time to get educated about money, and sink into a hole of financial quicksand. These people are easy to judge because they have all the visible signs of financial stupidity: New cars every two years, expensive high-definition TVs, vacations, houses they can’t afford. And yet, on the other hand, financial institutions, advertising, and social influence have all coordinated an attack on us to spend more. In fact, we’ve been told for decades that owning a house is the single-best financial decision we can make. It’s not.

Is education the answer? Maybe, but it’s not a panacea.

Should we just stop spending so much? Of course we should, but that’s like saying we should all lose weight by making better choices. Easy to say, extremely difficult to do. I’m hopeful that the current environment calls for a restructuring of our priorities. I hope that we get conscious about our spending and start prioritizing saving over spending. With extended hardship, this will become more likely. We all need to be conscious of our finances, but we’re playing in a world with the deck stacked against us.

I’m tired of demonizing people for making poor spending decisions. It might make you feel good about yourself, but it doesn’t actually change behavior.

And fundamentally, that’s what this site is about. It’s not about making people feel better about themselves by looking down at other people. It’s about getting behavioral change. In that vein, the 557 examples of changes people have made as a result of reading this site are probably my biggest success.

I fully expect lots of commenters to brag about how you got out of debt by making hard choices (just as they annoyingly bragged about their inexpensive weddings in the comments of this post). That’s great. But I’m sick of those comments that tell people to “just spend less.” Not everyone can stop spending 30% of their money on going out, because a lot of people don’t have that extra money.

There’s nuance to these arguments that’s missed by idiots who blather about how we should all “make better choices” and “start being responsible.” Of course we should, and if you’re reading this blog, you’re already doing this. But there are details that are missed by such superficial statements.

Here’s what I suggest: Read the New York Times article. Then, read the 152 comments from other iwillteachyoutoberich readers about how they got into debt. That’s 67 pages of startlingly honest stories, most of them having to do with educational loans. Then, I would encourage you to carve out some time for two resources to understand some of the nuances of why many people — especially poor people — can’t get ahead. Here are two resources I fully recommend:

51jbhcgc9ml_sl500_bo2204203200_pisitb-dp-500-arrowtopright45-64_ou01_aa240_sh20_.jpg

Nickel and Dimed: On (Not) Getting By in America

Also, check out 30 Days of Working Minimum Wage, a video in which Morgan Spurlock (who brought you Super Size Me) and his girlfriend work minimum wage. Sure, it’s gimmicky, but it’s a truly eye-opening movie that provides insights on why it’s nearly impossible to get ahead if you’re earning a certain income.

I’d love to hear your comments.

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57 Comments on "The article everyone is talking about today"

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Holly Hoffman
8 years 3 days ago
My parents wouldn’t let me get a credit card until I was out of college. By then, I had student loans out the wazoo and with no credit history, I was a bad candidate for credit cards. I had a secure card through my bank with a $500 limit, which moved to $1,000. That right there was too much for me to handle. I couldn’t pay it back when I was laid off – so I worked with my bank to close it and got put on a repayment plan. (I’m halfway through repayment.) It kinda sucks, but I’m glad… Read more »
Anne Keckler | ACSM Certified Personal Trainer

I don’t really get the impression that you want to hear our comments, Ramit.

JB
8 years 3 days ago

Thank you Ramit! That’s exactly how I feel when I read most PF Blogs! How can you save 30% of your income when 100% is dedicated to necessities for your family!

However, we can’t sit around and feel sorry for ourselves… we must take action, whether that be getting a 2nd job, or whatever we need to do.

Gootch
Gootch
8 years 3 days ago
Ramit, the NYT article goes out of its way to paint a sympathetic portrayal of this woman, and does a good job of that. But let’s not get carried away here. If she is emblematic of “why so many people can’t get ahead,” it isn’t much of a story. She’s not a nickel-and-dimed minimum wage earner who can barely afford food and shelter. She’s a middle-aged woman who, despite holding several middle-class jobs, simply failed to save any of her income and whose solution to soaring credit card bills was a series of ever-larger home equity loans. While a social… Read more »
Tage
8 years 3 days ago

We are just greedy here in America. Until we get our “wants” in check with our NEEDS, this will never end. Honestly, I’m tired of hearing about the horror stories of debt, because it is easier to avoid then most believe. Just don’t borrow money unless you need to buy a house or go to school That’s it! Don’t go into debt over a car, a TV???, clothes, etc.

Payday guy
8 years 3 days ago
In most cases people get stuck in these cycles of just putting money on the credit card. They rack up enough debt to put themselves in serious situations. When this happens it makes it increasingly more difficult to get yourself out of the situation. Credit cards make it so easy to lose track of how much you are spending because you don’t see how much you are spending until after you have done it. I know plenty of people like Diane and I would never make fun of somebody in such a terrible situation. I could only think of how… Read more »
Alan
8 years 3 days ago

On Nickel and Dimed –

I understand why you recommend Ehrenreich’s book – her interviews and personal interactions with America’s working class definitely shed some light on “why so many people can’t get ahead.”

I do remember, though, that her portrayals were a bit too stereotypical, something that the NY Times article certainly parallels. Gooch is spot on when he says to “be careful about drawing too many conclusions about the ‘stacked’ nature of our system based on her [Diane’s] example.”

Robert
Robert
8 years 3 days ago

Hi Ramit – Sligthly off-topic, but here’s one aspect of this whole topic I still don’t understand: who is buying all these terrible loans and why? This article (and others) talk about how the viability of these loans don’t matter as much as they used to since the loans are bundled & sold off. I’m just not understanding who buys them & why they would buy a bunch of risky loans?

CK
CK
8 years 3 days ago

When I read stories about this, I can’t help but feel exceptionally grateful for the example set by my parents as they raised me.

As a family, we lived below our means. They bought a house they could “afford”, only drove used cars (paid in cash), BIG summer trips included the Zoo or amusement park, our video game was pong and we often frequented the 2nd hand stores in town.

Only on occasion would my father comment that we had the money for that fancy new car or boat or > but he would ask me, ‘Why do we ‘need’ that??

BitterRenter
BitterRenter
8 years 3 days ago
I have a problem with the graphs in the NYTimes article, including the one you included in your post. Why do they compare debt to savings? The comparison should be debt to assets. It is true that a lot of people have large mortgages, but those who bought before the peak (2005) have a house whose value exceeds the debt. I would also add that thanks to the warped incentives in our tax code, over the past few years it made much more sense to take out a large mortgage than it was to rent and save cash. Interest rates… Read more »
Amy
Amy
8 years 3 days ago

I think a good response to ‘Nickled & Dimed’ is ‘Scratch Beginnings; Me, $25, and the Search for the American Dream’ by Adam Shepard. Barbara Ehrenreich goes into her experience with the attitude that she can’t get ahead, so she doesn’t get ahead. I’m not saying that’s the situation for everyone, but attitude makes a huge difference and Shepard sets out to be an example of that.

Kathryn
Kathryn
8 years 3 days ago

CK, you’d be suprised, but practically anyone can buy debt. And because the credit card companies have already written it off as a loss on their books, they will sell the debt for pennies (yes, pennies!) on the dollar. It can actually be quite lucrative. Case-in-point: my boyfriend is an attorney for a firm that specializes in buying credit card debt and collecting on it. Let’s just say, they’re doing pretty well right now.

Kathryn
Kathryn
8 years 3 days ago

Sorry! That response was actually for Robert!

Edward
Edward
8 years 3 days ago

Hi Ramit,

These are great insights from the readers. Thanks for sharing with us!

Just one reminder, in your link to “152 comments from other iwillteachyoutoberich readers about how they got into debt”, you probably should remove people’s email address or anything consider private.

Keep up the good work.

Edward.

mbm
mbm
8 years 3 days ago
What I find funny is that the article seems to be concealing the real problem in the third clause of each paragraph. Italics mine: “Separated and living with her 20-year-old son, she worked two jobs so she could afford her small, two-bedroom ranch house in suburban Philadelphia, the Kia she drove to work, and the handbags and knickknacks she liked. “Her first mortgage, originated by the EquiFirst Corporation, charged her $14,136 a year, and her second, held by CitiFinancial, added $4,000. Capital One, a credit card company that charged her 28 percent interest on her balances, billed $1,400 in annual… Read more »
Nicole Leonard
Nicole Leonard
8 years 3 days ago
I hear what you’re saying about people’s reactions. I know I often feel sanctimonious and judgmental when I read stories like Diane’s. For me it comes from a sense of unfairness. We have chosen to live simply and go without. I read stories like Diane’s and I think “Well I like shoes. I like TV’s. I’d like more clothes, I’d like more X….but I do without.” It hardly seems fair that people can just use credit and get all those things…and then not pay for it and we can all throw them a pity party. Between the lines is: where… Read more »
Barbara Saunders
8 years 3 days ago
I’ve read elsewhere — and didn’t see discussed adequately in this article — about two “technical factors”: First, some huge proportion of bankrupts hit the wall around medical issues. Either they lose work time due to illness or they go broke on the medical bills themselves. In fact, credit card bankruptcies obscure this reality – doctors didn’t used to take credit cards AND many doctors probably wrote off debt rather than force their patients or their survivors into bankruptcy. Second, credit card interest used to be tax deductible. So, even those purses and shoes and other unwise or reckless purchases… Read more »
Ryan McLean
8 years 3 days ago

To your question “Is Education the Answer?” then my answer would be Yes…partly.
Education about money can only take us so far, it is then up to us and our decisions to be able to use that education and take it to the next level.

Helen
Helen
8 years 3 days ago
I don’t think that people only fail because they go into something with the attitude that they will fail. True, attitude plays a large role in determining one’s success, but rags to riches stories don’t happen often (which is why when they do, they get publicity). Not everyone can start their own business from from nothing. I found the Nickel and Dimed book to be relevant–not stereotypical–and true the struggle of the working class. However, to another commenter’s point, Diane was not a minimum wage worker (sidebar: what kind of emails was she sending at work that got her fired?).… Read more »
Pierre
Pierre
8 years 3 days ago
Do you believe Diane ever considered her options i,e to not become over-leveraged? If not, should she “be allowed to fail” like a business venture i,e bank? If so, will we (as taxpayers) pay more or less for that failure? It’s easy to shrug without answering that question, and thus — even on this site — we are unlikely to solve this directly. As has been noted by Katherine Milkman: “Choice architects can use … insight to improve decision making by ensuring that the available default is the option that is likely to be best for decision makers and/or society.… Read more »
Writer's Coin
8 years 3 days ago

I liked Nickel and Dimed, but I feel like it’s one of those books only good for people like me (who, for the most part, don’t have to worry about making it on minimum wage) to realize how bad things are in the US today. But what’s the solution? Tough to say, but it may just be a reality that’s tough to accept: some people are going to be at the bottom of the ladder, forever stuck in a subpar financial life. Is that too harsh?

Lamar
Lamar
8 years 3 days ago
I think the cognitive dissonance occurs when we try to moralize subjects that are black & white. Money is black & white, it obeys not the laws of an imaginary god but of mathematics. Go read Dickens or just about any piece of classic literature and you’ll understand the inevitability of poor decision-making, and the harsh results. Even Jesus said “the poor will be with you always”. This inevitability gives me some comfort at least. As a society, we have made a conscious decision to provide safety nets for individuals, for better or worse. Whether playing the fool ant is… Read more »
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[…] The article everyone is talking about today | I Will Teach You To Be Rich How are/did you get in debt? (tags: debt economy financial finance usa) […]

Amy
Amy
8 years 3 days ago
Helen, to clarify: my point wasn’t that attitude is everything, just that attitude is important. If you go into something with the perspective that you’re going to fail, you’re more likely to fail… and if you go into something with the attitude that you’re going to succeed, you’re more likely to see the opportunities to succeed when they present themselves (or make your own). That doesn’t guarantee automatic success or failure… obviously there are a lot more factors that go into it… but it does play a role, and I think it plays a bigger role than people like Ehrenreich… Read more »
Sara
Sara
8 years 2 days ago
I feel fortunate sometimes that I am young. People in their fifties and older grew up expecting to be able to rely on pensions and social security and not realizing health care costs would be totally out of control, and I don’t think they can be blamed for that. At the very least, our generation should realize we are going to have to fund our own retirements and though that is daunting, at least we know relatively early. I do think, however, that when we get older, we’re all going to get a reality check when it comes to health… Read more »
JerichoHill(GRS)
8 years 2 days ago

I really don’t like the NYT’s graphic on how much debt you have (comparatively). For instance, my only debt is my mortgage. Is debt on a 15 year fixed mortgage bad debt? No. The problem debt isn’t mortgages/trad student loans. It’s CC’s, car payments, and other revolving debts.

JAlpino
8 years 2 days ago
If we as readers can’t offer fiscal responsibility as a solution to getting out of debt, then good luck to those people who are in debt. We all make our beds so to speak when it comes to finances and other life decisions. If you choose to spend more than you earn, then you are destined for financial hardship, plain and simple. Not everyone can save 30% of their income, that really only applies to those who can live off of the remaining 70%. To tell people to save a certain percentage of their earning isn’t always applicable, but what… Read more »
Tyler
8 years 2 days ago
Sara, you can set up an HSA without going through an employer. There aren’t very many good administrators for individual HSAs yet, but there are some out there that let you invest in Vangaurd index funds. Employers often help fund HSAs for their employees but that doesn’t mean that you can’t set one up on your own. As for the education issue, I think it would help a lot of people but not everyone. Everyone knows smoking is unhealthy but a lot of people still smoke. Everyone knows working hard in school will help your future, but many people don’t… Read more »
Ruth
Ruth
8 years 2 days ago
Thanks for your honest opinion that demonizing debtors does nothing to solve anyone’s problems. The truth is that Diane didn’t expect to be a bad case. Before her medical problems sent her over the edge, she was making it, albeit not in great financial shape, but she was paying her bills. We all hit unfortunate circumstances every now and then. Rather than telling someone deep in debt to “be more responsible,” maybe a more helpful approach would be to ask how it happened, how did they build up a lifetime of little habits that cascade together into a lot of… Read more »
Mike Varlese
Mike Varlese
8 years 2 days ago
Ramit, I completely disagree with the NYT’s story. Please read the following article: http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/TheBigLieAboutCreditCardDebt.aspx Furthermore, using NYT’s calculator, I plug in my numbers (under 35, 0 debt) and a respectable 14% of families are in the same situation, with a solid 22% of families with debts no larger than a seemingly-manageable $3,200. I am afraid (and I hate to say this) that once again, some media outlets are taking advantage of public hysteria. We could get into this but this blog is not a political one. It’s not even worth it. It’s very simple: live below your means. I’ve lived… Read more »
J
J
8 years 2 days ago
Hi Ramit, Yow! I liked Nickel and Dimed, but I felt that it made a few assumptions that were a bit presumptive. For example, BE never even tried to purchase anything at a thrift store, but she claimed that buying used was just as expensive as shopping at Walmart. I liked Elizabeth Warren’s Two Income Trap. Her claims are much more rigorous. I do agree that for many people it can be difficult to get ahead. I don’t, however, believe that the reasons are entirely financial or the result of a normal decision making process. Watching Dianne’s video, I couldn’t… Read more »
Eden
8 years 2 days ago
No doubt about it, Ramit. I have tried to get out of debt before in my life and failed (twice). I’m not out of debt yet, but I’ve paid off over $13,000 in less than a year. Of course, I am also earning more money now than I ever have before in my life. It’s amazing how much easier it is to pay off debt when you have more than $1,000 of income each month above your basic living expenses. *not really amazing, that is the point of why it is so tough for people who don’t earn a lot… Read more »
Bill in NC
Bill in NC
8 years 2 days ago

Why is she worried about her credit card debt?

With all her health problems, I bet her only income at this point comes from SS disability, which is not attachable by any private creditor (neither are any assets in an IRA or 401k)

She should simply contact her creditors and inform them (per FDCPA) that they are not to contact her further.

After foreclosure and eviction is complete, she can file bankruptcy to discharge all her debts, including any deficiency from the foreclosure.

She appears destitute enough that she would qualify for complete discharge, even under the new, stricter bankruptcy laws.

Rick Francis
Rick Francis
8 years 2 days ago
Do retailers want you to overspend? Certainly! Do all the ADs in TV, radio, print, internet encourage spending? YES! Do credit card companies enable overspending for their profit? Definitely! Does they force you to make bad financial decisions? NO! I think education has to be the answer. My 5 year old said something interesting to me: Why don’t you put it on a credit card so you don’t have to pay it? I immediately corrected him that I still had to pay off the full amount and would owe even MORE if I didn’t pay it all off when the… Read more »
Kelly
8 years 2 days ago
The problem with predatory lending is how far in debt you can get before your finances collapse around you. People who are making poor financial choices will always have problems. With better lending practices their finances will collapse sooner. Then at least their financial recovery will be less arduous. Take Diane for example. With traditional lending her finances should have collapsed when she maxed out her credit cards, couldn’t pay her car loan, couldn’t get any more credit, and couldn’t get another mortgage. Instead her second mortgage just allowed her to postpone the inevitable and get deeper in debt in… Read more »
Pierre
Pierre
8 years 2 days ago
Hi Ramit; I am glad you brought up Nudge, the novel point in that book being that it is more effective to change the environment — reducing people to “the default option” — instead of changing behavior. Again, Milkman: “It should be noted that many strategies designed to reduce decision biases by encouraging System 2 thinking” (…reasoning that is slower, conscious, effortful, explicit, and logical…) “have proven unsuccessful. For example, performance based pay, repetition, and high stakes incentives have been shown to have little if any effect on a wide array of biases in judgment.” Thus, Nudge does not speak… Read more »
KT
KT
8 years 2 days ago
Spend less than you earn is simple, and I agree not always easy, yet that doesn’t make it any less true or important. There are a dozen and one caveats, examples, what ifs, and’s, or but’s on both sides of the financial responsibility isle to push forth any particular agenda, or belief. The problem that I have with articles like the NYT and many others of a similiar nature is that they have a pitying and often conscending tone. Poor so and so can’t get ahead because the ‘system’ is set up against them, so let’s pat them on head,… Read more »
Lee Semel
8 years 2 days ago
Have you noticed that in recent decades, both debt and obesity have both increased? I don’t think it’s a coincidence. We now live in an environment that constantly encourages us to consume more, whether what we’re consuming is debt or food. Restaurants encourage people to super-size their drinks, server gigantic portions, and food stores making healthier food more expensive compared to cheap junk food. Financial companies are doing the same thing — encouraging people to super-size their loans, buy more house as they can afford, and sign up for more and more credit. If these companies could offer smaller portions… Read more »
Kimberly
Kimberly
8 years 1 day ago
I cannot feel sorry for this woman – she seems to suffer from the disease that many in contemporary times suffer from – entitlement. Obviously she feels as though she is entitled to “things” and will acquire them regardless of the consequences. Manage money poorly this is what happens. I cannot feel sympathy for someone who has, by her own free will, put herself into the position that she is in, nor can I feel sorry for her when the resulting events that are occuring are logical consequences of her decisions. You choose X = X will happen.
hja
hja
8 years 1 day ago
I completely agree with J’s comment about Nickel and Dimed and Two Income Trap. I’ve read both books, and think that Two Income Trap is not only the far better book, but far more relavent to the NYT article. I’ll repeat the first half of J’s comment here: “Yow! I liked Nickel and Dimed, but I felt that it made a few assumptions that were a bit presumptive. For example, BE never even tried to purchase anything at a thrift store, but she claimed that buying used was just as expensive as shopping at Walmart. I liked Elizabeth Warren’s Two… Read more »
mike
mike
8 years 1 day ago
For me, deciding to actually care about my financial well being was kind of an awakening. I graduated college without debt, thanks to my parents who helped pay the tuition and to some college jobs that earned me some income along the way. I even had a credit card since I was 18 and paid it off every month on time. Then, after graduation, I moved to CA and lived the bachelor lifestyle. I earned money at a career job (mid-$30k salary in the late 90’s), but that wasn’t much living in SoCal. I kept my routine expenses low (rent,… Read more »
ekrabs
ekrabs
8 years 1 day ago

Did I ever tell you you’re my hero, Kimberly?

😀

jsweez
jsweez
8 years 19 hours ago
To Robert’s question: – “Sligthly off-topic, but here’s one aspect of this whole topic I still don’t understand: who is buying all these terrible loans and why?” I covered this whole mess as a real estate and mortgage reporter. What predicated the credit crunch was an extreme run-up in subprime mortgage lending in early 2000s. We’re talking about a market that barely existed in the late ’90s skyrocketing to a substantial chunk of mortgage lending by 2004 and 2005. Wall St. figured out that investors could bank high returns on subprime loans because the interest people pay on these loans… Read more »
Pierre
Pierre
8 years 16 hours ago
Dear jsweez, et al; Regarding the lender appetite: “The low level which commercial morality has reached in America is deplorable. We have humble God-fearing Christian men (and women) among us who will stoop to do things for a million dollars that they ought not to be willing to do for less than 2 millions.” More Maxims of Mark, by Mark Twain Regarding the lendee appetite: You may be interested to see how this does / does not alter the financial education of children (at home or in school). As per Mike, “…kinda like maturity. Some of us figure it out… Read more »
MoneyBlogga
8 years 12 hours ago

The woman in the video,Ms. Mcleod, hit the nail on the head when she stated that she should’ve learned to deal with her emotions rather than shop. Emotions are at the root of self destruction. I know because I’ve been down that road and have made the choice to deal with my emotions rather than continuing to deny them. Before I got to this point, however, my financial impulses were uncontrollable and had already led me to bankruptcy.

Sara
Sara
8 years 9 hours ago

I’ll add another book recommendation: Not Buying It: My Year Without Shopping by Judith Levine.

http://www.amazon.com/Not-Buying-Year-Without-Shopping/dp/0743269357

I read it a year ago and I have been much more mindful about where my money goes ever since.

Evan
Evan
7 years 11 months ago
Let me toss this in because it’s something to watch out for if you have student loans. I graduated college in 2005 and promptly started making payments on my loans. Recently, I took some courses at a local community college and paid cash for them. I noticed that my auto-payments for my loans stopped. I went to my account website and there it was- next payment due: 2012. WTF? I called the loan company and they told me since I was back in school I didn’t need to pay any more. I asked if I had enabled that somewhere and… Read more »
reader
reader
7 years 11 months ago
I read nickel and dimed. The woman in that book never stuck with one job for very long. She never actually tried to see if her hard work would allow her to move up the corporate ladder. She never attempted to take college classes while she was working, to see if that was possible. The only thing I learned from that book is that being poor sucks. Her attitude about everything also annoyed me. For example, she repeatably said she was surprised that no one could tell how educated she was. She often got angry at costumers, and she made… Read more »
gjt
7 years 10 months ago
Whats up, Im 47 yrs old not young, and saddly enough this hits home with a resounding thud! I have a laptop that I otherwise wouldnt have if not for the giving of a thoughtful mom and dad. I am sober for over a year and desperately trying to come back. As long as I have a pulse I wont give up, but there are times I want to. I read and study hopeing I will catch up. I think I can but it really doesnt look too good. Makes you wonder why you even want to stay in the… Read more »
j
j
7 years 9 months ago

HA! I love responding to old posts! 🙂

I am self-un-employed, and save every penny i make! of couse i have 20k savings, own my house, and have old cars. of course they are porsches and an audi, but they are neat, cheap, and paid for.

kill your tv,
stop collecting junk, even if its new.
if its new, its junk.
if you didnt need if last year, you dont need it this year, so dont buy it.
oh.
and eat paste

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[…] don’t think most people intentionally sabotages their finances. It’s more likely that they spend and not keep track of income and bills. I had a problem […]

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