Dodgy Dave, trying to scrape the barrel in searching for the last vestiges of grit in the British collective psyche, started off well by suggesting we “man up and pay down your credit card, suckas”. Well, he put it with an Eton twang in different words, but that’s what he meant. Apparently we have run up a collective credit card bill of Ā£57Bn.
So far so good, but he backtracked when he was warmed up to the paradox of thrift and the British Retail Consortium suggested this was incompatible with growth. That’s always the trouble with debt, it never looks like a good time to pay it down, because the original good time you had running up the debt is now a distant memory, and you get to miss out on new good times.
The trouble is, that debt means that somebody owns you. Some of the time you can run away from the debt, with a bankruptcy or an IVA. In a modern capitalist society you need to either have no assets, in which case you can do that. I can’t do that, because I have assets and I presume I’d get cleaned out of assets before I could walk away from the rest. So I avoid buying stuff I can’t afford.
Even if you don’t walk away from it, debt limits your options. Owe a mortgage on a house and you can’t afford to take time out from your job or shift your work:life balance to less work and more life. You have to pay high rates of tax if you need to spend the money you are left with on the debt you incurred servicing your lifestyle. One of the other paradoxes of thrift is that once you have reduced your outgoings by eliminating debt (and a mortgage is still a debt) you can save at a much higher rate, because you can save in tax-efficient ways.
I happen to think Dave is right. Pay down your debts, suckas. Debt incurred to buy consumer goods is never good debt. I can’t afford 1 a Maserati GT to go to work. So guess what? I don’t buy one. It’s not hard, is it š
Consumer debt traps people is miserable lives doing miserable jobs so they can buy crap that they see on TV. Britain has been doing too much of this over the last 20 years. It’s time to take the red pill and wise up, because it can’t go on for ever. If you really have no assets, then sure, carry on, play the system for all it’s worth. You will never be free of the threat of the repo-man, but you may have a decent hedonistic lifestyle for a while.
It’s the middle classes that I don’t get – those that acquire debts and assets at the same time.It seems to be a curious version of the iron cage where people trap themselves into debt slavery for the TV dream. It can’t go on for ever, and you have to opt out or lose out. At least the guys that know they have nothing and find mugs enough to lend them money know they have nothing. That’s better than thinking you have something only to find out you don’t when the repo-man comes. You only have assets when you have no debts that could force you to liquidate what you have.
Not all debt is bad, borrow for productive assets like machinery and you can grow your business faster than you could otherwise. But pretty much all of what the British consumer is offered is bad, from credit cards to student loans to >80% mortgages. People managed without credit cards before the 1970s, and in the hard times to come there’s a good case to be made to discourage all unsecured consumer debt. It’s just too dangerous an economic weapon in people that believe the TV ads telling them
“you can have it all, now. Because you’re worth it”.
The reality is that you generally aren’t worth it and you can’t have it all now without shafting your future self, because that’s who you’re borrowing from, not the bank.
I’m with the original Dave. Sooner or later we have to live within our means. And since we borrowed for the party from our future selves a while back, we’ve now become those future selves. We can’t build an economy on endlessly ratcheting real debt values, because at some point we will run out of mugs to lend us more money.
1 Okay, so it appears I could afford to buy one secondhand if I stick to the lower part of the price range. But I’d have to do without a lot of other things or capabilities that mean more to me than being a ponce and driving into work in a Maserati GT.
Simple Living In Somerset 
I remember this guy I worked with once who made a pretty good tax free income, but still had no savings and lots of debt. He wanted to buy a new loaded BMW with a small down payment. I remember at the time asking him where he would live were he to lose his job.”I don’t think about things like that.”, he said. A couple months later he found the payments too high, even for his salary. He decided to sell the BMW at a considerable loss and bought a brand new Opel. He always used to bother me about not owning a car. Well, I have my house now and paid for and a rental property that more than pays for itself. I still don’t have a car, though I looked at an “economy car” today. When I looked at the price tag I thought about how many acres that might buy me at a tax auction. Maybe I’ll put off the new car for another year. My point is, you can’t live in your car, no matter how nice the seat leather feels.
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Very good post. Exactly what I thought about Dave’s original wording: “well, good for him”. But no, it was not to be.
“those that acquire debts and assets at the same time”
Arbitrage is all the rage. Borrow from one bank at 3% (secured on your house), and you can lend it right back to another bank at 4%. What’s not to like?
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Yes, I don’t really buy the Paradox of Thrift — at least not the way it is sometimes presented. When people save, they don’t usually stuff it under the mattress, but lend it to various institutions who can then use it to invest in people who have good ideas for starting/expanding businesses rather than just blowing it on consumption.
People save heavily in the far East and those economies tend to grow strongly. A healthy savings level would seem to be quite a good thing individually and nationally.
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@g, a wise path trod there – I don’t understand why people in the US buy new cars with finance. I’ve never bought a new car – the 50% loss in value when you hit the public highway always bothered me…
@Lemondy “Arbitrage is all the rage.” – but it’s dangerous in inexpert hands š Plus the three main assets midlle calss folk acquire are all illiquid or depreciating – house and car risk depreciating as well as illiquid, and pension if any is illiquid.
But yes, Tesco 0% was too good to pass up, even if ity’s only in the hands of ther Nationwide at the mo. That’s about as much of that as I’m ready for!
@SG I didn’t gret that either. It may shift things away from consumer spending, where I am probably very low compared to people earning the same. But as you say, I don’t pack my matterss with used fivers or gold coins, most of my holdings are shareholdings, and not all of it can go on magnums of champage for the board as they do get to make profits and share out dividends š
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I feel so sorry for my friends who lived that short-term hedonistic lifestyle you mention during the boom, and racked up massive credit card debt. Funny thing though, the ones who had it worst were those working in financial services themselves. They’d often give me really good financial advice, but not necessarily follow it themselves.
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Hi Ermine,
I work for “the company” too and echo your regular frustrations about the way everything works these days – a truly great place to work gone bad.
I too am working to fund an early exit, and am effectively debt free (1% mortgage with the same funds in accounts paying over 3%, so currently just pocketing the difference, some after tax, some in ISAa).
so I’ve done all that David never quite suggested, and now would be interested in your views of what income/drawdown is required for a reasonable life with no money coming in. I’ve read most if not all of your back posts and I’m not sure a number has come up.
This would be assuming no mortgage on a decent sized house, with all the expenses needed to run it (and currently assuming no ground pumps or free timber).
I realize there’s no standard answer, but i’d be interested in your views and the other regulars.
Maybe worth a full post on the topic?
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@Sandra – seems strange, though I think there is a bit of the rock’n’roll lifestyle in finacial services, with the long days and high stakes making it hard to be grounded at times!
@TNT, you got it š There is another post referenced in that which is a more typical view, however Suffolk is a reasonably cheap place to live, so you’d probably lie somewhere in between. I know of one retired couple in Ipswich who live very well on a little under Ā£20k running three holidays a year.
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