Why do so many people struggle financially? In the wealthiest country in the world, the vast majority of people, including most of the lower and middle class, struggle to merely pay their bills. Very few have the ability to build any real wealth at all.
Despite what most people think, it's not because wages are too low. The prices of goods and services generally adjust to be in-line with incomes, so average wages should be enough to buy what we need. Unfortunately, many people choose to pay more for goods and services than they need to, whether they realize they're doing it or not. Rather than building an investment portfolio that will pay for goods and services, most Americans choose to allow debt to be part of their life. Accepting debt means we pay interest instead of earning it, and when we pay interest we pay more than we need to.
If accepting debt creates financial struggle and requires us to pay more and work more, why do so many people do it? There are a number of reasons;
Debt acceptance is often hereditary. It's not part of our DNA (at least I don't think), but we model the financial behavior of our parents and other family members. When we see others borrow for anything from houses and cars, to big screen TVs, we often do the same and write it off as how life works. Some
people are even 'educated' by family members that this is the way to manage money. Those that don't seek out a real financial education on their own will actually believe this nonsense and allow their lives to be more difficult than they have to be.
Culture of Consumption
Everything everywhere tells us to spend money. Credit card commercials, models in fancy clothes and Matthew McConaughey driving a Lincoln MKX all make us want to spend more money. Few have the willpower to prioritize what they need and can afford. Most of us buy whatever we want because people are there willing to help us find the money. Banks, car dealerships and credit card companies make it easy to buy things we can't afford. They make it easy because it makes them rich while making us poor.
Government's Fine Example
Just as our family members don't always model good behavior, it certainly doesn't help that our government doesn't either. With a national debt around $21 trillion or about $70,000 for every person in the country, our leaders, who lack financial education just as much as our citizens, can't help themselves from digging a deeper and deeper hole every day.
The ramifications of accepting debt are severe in terms of financial, psychological and physical health for millions of people. Money problems are also the primary reason for divorce, and it's safe to assume debt plays a large role in creating those financial challenges. Yet, we can continue to buy what we can't afford in an attempt to look good and impress people we don't necessarily like.
What if we accepted Equity?
If accepting debt creates lifelong financial struggles, let's think about what would happen if we did the opposite. If instead of accepting debt as part of life, what if we avoided debt and instead built
investment portfolios that could help us buy good and services. Rather than allowing compound interest to be our worst enemy, we'd be using it as our best friend. Instead of needing to earn $30,000 to pay for a $25,000 car, we'd use $20,000 and the balance we'd get from returns on our investments. We would struggle less, our physical and mental health would improve, the divorce rate would decrease and fewer people would need to rely on the government for assistance. Speaking of the government, just imagine if they accepted equity. If our $21 trillion in debt were instead a $21 trillion surplus, the interest alone could subsidize the cost of tuition at a private college for every student in America. This is what happens when compounding interest is used in our favor.
While this may sound pie-in-the-sky to many people, I can tell you that I personally know people that choose to accept equity. Many of them leave the workforce decades earlier than the average worker, they worry less about money, and they would tell you that it's not very hard to do. The process is very simple, live below your means, invest the difference, and don't borrow money. Following this process and allowing time and investment returns to do the rest of the work will bring you the ultimate financial reward. Peace.