It wasn’t that long ago that our parents, grandparents and great grandparents lived, worked and raised families (big families) without incurring thousands of dollars in debt. Have you ever wondered how they did this? How is it that entire generations of people not only survived but in many cases thrived while making and spending less money than we have available today. Clearly the cost of living has increased dramatically – however the same can be said for our wages. So how was it possible for people to live their entire lives without falling into the debt trap? It’s a safe bet that the introduction of credit cards in the 1970′s had a lot to do with the change in spending habits.
Let’s take a look at how our ancestors managed to survive pre-plastic:
Debt was a four letter word. One of the biggest and most obvious changes when it comes to debt is the way in which it is viewed. In earlier generations debt was looked at as a bad thing. Pride and a strong desire to not “owe” others made people look at debt as something they didn’t want to accumulate. Considering the fact that in today’s society many folks think of debt as just another part of life shows how far we have come in our attitude toward debt. While many people are justifiably concerned about all the changes in our economy, hopefully this can serve as a wake up call that living in debt doesn’t have to be part of our daily lives.
Saving for goals. If the thought of having to wait to purchase something that catches your eye sends shivers up your spine, congratulations you are a product of the instant gratification generation. As hard as it may be for some people to imagine, before credit cards came along, that is what almost everyone had to do. Save, save and save some more to buy what they needed or wanted. Do you know what happens when you have to take the time and energy to save money? Sometimes you discover that whatever caught your eye in the first place really isn’t as “necessary” as you thought it was.
Living within your means. This is a simple yet forgotten way of life. Do not buy what you cannot afford. The introduction of credit cards brought increased purchasing power to families. With this ability to buy things and pay later, the temptation to buy things that you really can’t afford increases as well. Overtime it becomes easier and easier to whip out your plastic and continue to fool yourself in thinking that you will be able to pay off your balances. Unfortunately what millions of people have learned or are about to learn is the fact they really didn’t have the money to support such spending habits.
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Have an emergency fund. While it may not have been called an “emergency fund” years ago, the concept remains the same, put money aside today for unexpected expenses tomorrow. Saving money was and remains the best method of living a debt free life. This was especially important before credit cards when buying things on “credit” was not a option for most families. Studies show that as the debt load is increasing for families, the amount of money in savings is decreasing.
It goes without saying if you live off of credit and are unable to pay off your balance each month there will come a day when you reach your credit limit and are forced to address your real financial situation. By taking some tips from previous generations you can begin the process of becoming less dependent on credit cards and focus on attaining a life free from debt.
Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.
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It’s sad that we’ve reached a point where our debt-based economy is in serious disconnect from sound financial practices and what’s best for individuals.
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How did we get so far off?
Living within one’s means is a good concept, but living below one’s means is an even better goal to strive for. That will almost certainly assure people of maintaining the ability to save while still paying the bills. It’s probably a very difficult thing to accomplish in this environment, but there are people who are able to do it, and The Millionaire Next Door by Thomas J. Stanley and William D. Danko documents such people quite well (in my opinion).
Eric J. Nisall’s last blog post..What makes for a good financial professional?
I think one of the reasons it’s difficult to save is because we want so much. Let go of the stuff and it becomes easier. And I love Millionaire Next Door. It teaches you that the guy driving the beat up pickup truck might be doing much better than you think!
I know. I enjoyed it so much that I purchased 20 copies off of Overstock. Now, whenever I get a client who is in over their head I give them a copy for themselves. I figure if even one person can gain some insight from the book my outlay was justified, not to mention it was a deductable business expense!
Eric J. Nisall’s last blog post..What makes for a good financial professional?
Great idea!
Suze Orman addressed the issue of living within your means on her show last Saturday. She said that if you cannot pay your credit card bill in full at the end of each month, you are NOT living within your means.
I definitely agree that living below your means is a much better scenario. That way when there is an emergency, you don’t have to resort to using your credit card to pay for unexpected expenses (car/home fixes, doctor’s bills) – that’s what your emergency fund is for!
I think that people forget how much you are really paying for something when you put it on your credit card and don’t pay it off right away. Even though you might find something that is an “incredible deal,” think about how much you really paid for it after you let interest build up. Not such a great deal anymore.
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@ Hannah – You know what happens? Instead of not paying the product company the full amount (when you get a deal and finance w/a credit card) you pay the difference to the credit card company! Still the same amount if not more.
Do you think people’s mentalities toward savings and buying will change? Even after the economy bounces back I don’t think people will change their lifestyles. Spend what you have, you can’t spend what you don’t have is something I grew up with and take very seriously. If there is a bigger purchase I would like, I save up for months and do the proper research before I can buy with confidence.
@ Craig – I don’t think as many as we’d like will change their mentalities but I do think many are re-thinking their spending habits. Hopefully for good but I guess time will tell.
@ffb A lot of it deals with being informed from a younger age. I’m not sure why there is no real education in the schools. I’m a recent college grad and don’t remember dealing with these real world issues in high school.
Craig – I don’t know why it’s not taught in school either. It can be done as applied math or social studies, somewhere! Of course the issues of school education is a matter for another post.
We can learn a lot from “back in the day”
What about:
They didn’t have the government there to shell out cash to live on. No “social security”.
They had to create their own security…
…what a thought.
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I think we are entering a time where you have to count on you to take care of you. The company won’t do it. Who knows if the gov’t can do it? Take care of yourself and everything else is gravy.
Isn’t that how it should be anyway? Each person taking a vested interest in their own lives and future and not relying on anyone else to “take care” of them?
Eric J. Nisal’s last blog post..What makes for a good financial professional?
@ Eric – That sounds about right but somehow we’ve gotten away from that.
It’s also strange to think about how my grandparents who lived through the Great Depression hardly say a word about it. We act like the recession we are in now is the end of the world – try living in a dustbowl!
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@ Hank – Relatively recessions are short periods. It’s supposed to be part of the economic cycle. This time may be different but, hopefully, it’s not the end of the world. Though it stinks for many we’ll come through it.
I’m not that pessimistic. You guys are taking for granted that people won’t be able to change the live above your means way of life. But look how this changed from one or two generations to today. With these recession and financial disasters coming once and again in cycles, people is starting to change this, starting to think that those jobs they thought were forever are no longer so. Look at Europe. They lived with the ilusion that no matter what when people retire they will have a government signing more or less generous cheques until they die. However, more and more this is starting to change, and with more cut offs coming up, many people is starting to think that maybe they won’t get that much money as their parents did. Although the hard way, people will learn the lessons and will go back to a more savings mindset. After all, didn’t our elders learn to save and have patience the hard way?
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