Is Debt Immoral?
When I got to the chapter “The Myth of the Immoral Debtor” in The Two Income Trap, I was reminded of an exchange between A.B-G. and Markus at BREN. A.B-G. wrote:
“We may lose a little in the first year or two, but if we can make the payments and we’re there for the long haul–then what’s the problem?”
Markus responded:
“No problem–as long as you have a written warrantee [sic] signed by God Himself guaranteeing that you will not lose your job, be transferred, get sick or have any major unexpected household emergencies over the next five years.”
Elizabeth Warren and Amelia Warren Tyagi explain that most people who get deeply into debt are not profligate. Many get into trouble because of emergencies. They then gave examples of who survives financial setback. They wrote:
“Of course, not every job loss, divorce, or illness ends in the bankruptcy courts. Some families collapse under the weight of too many bills and not enough income, but many families do not…”
They tell the story of a couple they call Jamal and Trish Dupree. Jamal, at forty, had a heart attack. He lost five months of work. Trish lost income, too, because she took time off to be helpful to Jamal’s recovery. Health insurance exclusions and deductions added up. Yet they were a couple who did not end up bankrupt.
How did they make it? Luck and planning: Luck, in that nothing else happened while they were vulnerable. Luck, in that Jamal had a job to go back to. Luck, in that Trish was able to get overtime pay after the crisis was over. Planning, in that they had health insurance. (But, health insurance is not nearly enough; 240,000 families with continuous health insurance file for bankruptcy every year.) The big advantage was that the Duprees had long-term disability insurance. Even so, they drained their long-term savings and did without essential things for a time.
Nothing is sure in this life. If you bought a house, ever, what made you sure enough to take the leap? Do you feel more financially secure when you own your house? Do you need a warranty signed by God Himself?
Reprinted from BREN, March, 2010