It’s part of our culture. It dates back to when America was new. Plantation owners wanted to pretend we had a rich and powerful economy and history and culture. They made everything pristine and gaudy and exp wove looking but there was no substance. Look at the architectural decisions made in plantation houses and how the elements are still used in homes today.
We pretend we are better than we really are.
I’m guessing not admitting your finances are shit is pretty universal, no need to pick on 'Murica.
There is some truth to what you’re saying but the USA are special about it. It’s like, tbey try to (badly).act as if they had more than enough money but it’s obvious they’re struggling badly. Like a functional addict thinking he’s hiding it but everyone knows and there’s a shared social discomfort in the charade
In debt doesn’t mean broke. People with a mortgage that they are easily paying off have debt. Millionaires and billionaires have millions and billions in debt. Debt itself isn’t bad. Debt can be good.
The average American is living paycheck to paycheck with bad, high interest debt and killer monthly minimums. Many people roll their underwater car loan into a new underwater car loan. The housing market is taking a turn.
People are mostly broke.
The point is that being in debt isn’t the same as being broke and living paycheque to paycheque. Rich people have note debt than broke people because banks etc are far more willing to give rich people debt since they can actually pay it back.
Just a small correction there: debt can never be good.
But debt can be necessary, but that is only because some financial institutions have made it so, because many of them make their money from peoples debt.
So they spread the myth that debt is good, despite the fact that the world would be a far better place without debt.
No, debt can be good. If you’re making more money from an asset than the interest on the loan used to buy that asset, it’s good debt.
Good for who?
For the person holding the debt.
Broke, poor, and in debt are three different things.
Broke just means no cash on hand. You can have tons of cash flow and assets but at the moment you are lacking liquidity to pay cash for things. You may or may not have debt. You might have just blown all your cash on a big purchase.
Poor means you have little and earn little and can do little. Debt is often a factor here but you can be poor and not in debt.
People in debt owe money. They might not be struggling at all. Sometimes rich people borrow money because it costs them less than the interest they receive on the cash they have. Or it could be the opposite, it could be crippling every aspect of their lives.
Americans carry a lot of debt on average. My only debit is my mortgage plus the last two weeks of credit card spending. I pay off my card in full every month. I only use the credit card because it offers purchase protection and I get rewards. Not all debt is bad debt, but a lot of it is.
Because we want to spend our end of days in comfort
While I have no debts, sometimes my bank account is hovering at a $200. I hate the insecurity it gives me.
That’s called Modern Monetary Theory. It’s a fun game until the underlying physics of our little civilizational project fails, that is to say the energy return on pumping oil out of the ground.
Stupidity and the art of flexing.
I’ve dealt with people that made it to adulthood not really understanding that if they have cash in their pocket, but more debt than that, they don’t really have money available to spend on frivolous things. Some of them are my friends.
They will be “broke” 5 days of the week, but spend freely from when then cash their paycheck (or get that next payday loan!) until all they have is change.
But, I’ve been lucky. I got a degree without taking on debt AND the worst CC hole I had to dig myself out of was not even to the limit of one card. I think most people have to ignore student or medical or other debt just to function…
who’s pretending they aren’t broke?
Many US-americans.
I know that I’m broke and I’ll be working until I either go senile or die. It took me too long to start figuring things out.
And that you were never taught better was intentional.
Debt, used properly, makes you wealthy. Every billionaire you know has debt because of the advantages.
I grew up middle class. To afford my prestigeous university, I took out debt (before grant only financial aid). The value of my education allowed me to earn a higher salary to pay it off in two years. I kept earning that salary and more after the debt was paid. It had a high present value.
I bought my latest house four years ago. Mortgage rates were so low I decided to finance part of it at 2% even though I had the cash. I now earn 4.5% in money markets. After taxes, I earn 0.72% every year not to pay off my mortgage. With $350,000 remaining, this is an extra $2,500/year right now.
I shop with credit cards that give me 2-5% back on purchases. I pay off my balance every month and have never paid one penny in interest or penalties in over a decade. My credit cards therefore pay ~$1,500/year tax free.
Larry Ellison likes controlling Oracle and being a billionaire. Rather than selling stock of Oracle to fund his lifestyle, he instead borrows against the value of the stock. As Oracle appreciated, he got to keep the gains he doesn’t trigger capital gains taxes.
Most Americans do live paycheck to paycheck. They live at the ragged edge of their means and remain ignorant of finance. However, this is a global phenomenon. The difference is that much of the United States tax code is set up to benefit the wealthy. Adopt their habits and your wealth starts to snowball.
I shop with credit cards that give me 2-5% back on purchases. I pay off my balance every month and have never paid one penny in interest or penalties in over a decade. My credit cards therefore pay ~$1,500/year tax free.
I don’t really have anything to add as this is pretty much all spot on to how the wealthy live, but on this one I’d like to point out that you’re not actually making money - you’re just taking back part of the money that you already paid. That money isn’t paid by the credit card companies, they’d never be dumb enough to leave money on the table like that. They pay it through increased transaction fees for the businesses, who eat the extra cost through higher prices. There are states that do something similar with their recycling programs. They give you 5 cents per bottle you recycle at the center, but you paid a 5 cent bottle deposit when you bought them at the store. You’re not making any money, or even making back some of what you paid the store. You’re just getting your deposit back.
Maybe you somehow reduce your taxes by cycling that money through a cash back program? I’m not well versed on finances, so I won’t even try to theorize on that, but it certainly isn’t free money or something.
Yes, the credit card spending is technically a rebate, hence why it is tax free. However, I am going to purchase an identical basket of goods and services whether or not I use credit, so it is functionally identical.
Larry Ellison likes controlling Oracle and being a billionaire. Rather than selling stock of Oracle to fund his lifestyle, he instead borrows against the value of the stock. As Oracle appreciated, he got to keep the gains he doesn’t trigger capital gains taxes.
I never really understood this. He still has to pay the loan, and he isn’t doing that with his symbolic $1/year salary. What part am I missing?
Debt interest below investment yield means infinite money.
You’re missing the taxes they aren’t paying on the yield of the investment. That’s only taxed when sold. So if you borrow against investments tied up in the market then it never triggers the tax.
Theoretically their estate would get taxed on the value resulting in a nice cascade of tax triggers but they’re doing away with that asap.
You need to pay that loan with cash, right? I get that your assets secure the loan, but without another source of cash, how you pay back the loan and not sell your assets?
Just keep borrowing and pay with that. Debt interest lower than yield.
Can you provide an example? I’m not sure I get how that works out in their favor. In my view, paying debt with more debt is a terrible mistake and will get you in financial trouble. But I get that they have far more assets than I do. I just don’t quite see where it doesn’t go wrong.
Do they not have to pay the principle?
Other reply was good.
To answer your question, you can borrow against equity tied up in assets without down payment. For example, if you have a house you can borrow against the value less any mortgage up to some percent of the total value. In my situation i can borrow up to 60% of the value of a house.
Down payments are for purchasing assets where the purchased asset will act as collateral. The idea is that the bank walks away with something if you immediately fail to pay on debts.
Stocks can act as equity assets in a similar way as the house. Equity loans generally have relatively low interest.
As a side note, this is all bullshit, interest is evil, and the system should be burnt to the ground and billionaires rotisseried over the coals for dinner.
I borrow $1000, assuring you I can pay you back because I have $5000 worth of stock.
A few years later, I borrow $5000, assuring you I can pay you back because I have $10000 worth of stock (it’s not more stock, it’s just worth more now). I use that $5000 to pay off the $1000 debt plus interest, and then have some left over.
Few years later, I borrow $10000, assuring you I can pay you back because I have $50,000 worth of stock. I use that $10000 to pay off the $5000 debt plus interest and then have some leftover.
Repeat as necessary. The bank does eventually get their money (when you die or are for some reason forced to sell, paying off the debt with cash rather than promises). To the bank this is an investment. To you, it’s a way to get cash without having to actually sell your stocks, avoiding taxes, and letting your value continue to skyrocket.
Okay. Thanks. That makes sense.
I guess the cycle continues if you will the stock to your children. So it could be decades until anyone pays taxes.
And if the stock tanks, then I guess you declare bankruptcy.
What’s important is how much you can buy, not how much money you have.
I don’t know anyone pretending they aren’t broke in America…I know a lot of good people struggling paycheck to paycheck and that’s it. I love how Lemmy has become this echo chamber of hate for Americans when y’all are just as fucked in Europe and other countries too with so many similar or different issues. Imagine a little compassion for all people rather than assuming “America bad because America”. Just so incredibly sad and stupid to see how dumb so many people are… that kind of thought process is exactly the same type of people that vote for trump that have this same attitude about “insert race or country here”. Y’all need a reality check, yesterday…
I’m American
when y’all are just as fucked in Europe
I’m sorry, is this some joke I’m too publicly health insured and 6 weeks of paid holidays by law and so on to understand?
Are you pretending that no one is broke in countries that have mandatory paid leave and “free” public health systems? As someone who lives in one of those countries myself I can, with 100% certainty, say you’re incredibly wrong.
In previous centuries with colonialism Europe was the cause of much disgrace in the world.
After WWII with neo colonialism it was either us or ussr imposing their way of life and values over the media, but overly exploiting resources and weakening both local economy and healthy politicians and putting dictators everywhere.
us bad fame still didn’t catch up with all the bad stuff they did and are still doing.
Being in debt isn’t synonymous with being broke.
I could pay off my house tomorrow if I wanted, but financially it doesn’t make sense - so I keep the debt. That doesn’t mean my net worth is negative or that I don’t have disposable income.
I wish I had learned this nuance earlier. I started out throwing all the money I could at whatever I was trying to pay off as fast as possible because I had it hammered into me as a child that all debt is a personal moral failing.
I’ve since learned that having cash on hand and a relatively low interest loan like a mortgage or a car loan, is better than a slightly lower balance on said loan and having to use a high interest credit card when an emergency inevitably pops up because I didn’t have any cash.
Sorry, I’m dense. For me being in debt and paying off something like a loan on a house has the purpose of paying something you do not have the funds for to pay off in one go. Seeing as the longer you take paying it off, the more you actually pay since rates increase or whatever, depends on contract specififcs.
How is it not a smart thing for you? Is this about US credit rating system or something else.
Edit: thanks to all replies, not gonna spam thank yous to you all. Didn’t consider those options.
My savings are invested in the stock market, and the returns I get from that are higher than the interest on my mortgage. If I liquidated my investments to pay off the house, the savings from not paying mortgage interest would still be less than what I’d make from the market over the same period. I’d rather use the profits from my investments to cover the mortgage interest - that way I still have money left over. If I did the opposite, I’d lose that extra money.
What would happen if stock market dives?
The value of my portfolio dips too, but I don’t actually lose anything unless I sell. I just hold and wait for prices to recover - as they always have so far. In fact, when the market drops I buy even more, because the same money gets me more shares. People don’t lose their savings because of a crash; they lose them because they panic and sell for less than they paid.
Your personal financial situation is not really representative of the financial situation of Americans in general though.
No, even regular savings accounts have ~4% interest, so it makes sense for anyone who got a mortgage more than 2-3 years ago when the rates went up. Any extra money shouldn’t be going to pay down old debt faster, it should be in savings or other high yield accounts.
Besides what others have said, there is a mortgage interest deduction on taxes in the US. It’s basically the government saying “we want you to buy a house, so for the interest you pay on a home loan, you don’t have to pay taxes on it.” So combine that with a low rate, and it absolutely makes sense to have that debt and put the money to work elsewhere.
That is still technically true, but it requires filing your taxes with “itemized deductions” wherein you provide a complete list of all the things that you can deduct from your taxable income before calculating the tax owed. Stuff like mortgage interest, charitable donations, medical and education expenses. Back in 2013 up to 30% of tax filers did that. Mostly this was done by higher income people who had enough income and deductions to put them over the default standard deduction.
The “standard deduction” was increased in big changes to our taxes in 2018, and since then only about 10% of filers itemized. So mortgage interest isn’t usually paid with pre-tax money anymore by up to two thirds of those who did it before.
The other reasons for carrying a low interest rate mortgage are still true.
I didn’t realize the rate was so low now for people who itemize. I guess I’m outing myself when I say we still do it? I’m not loaded or anything, but we do enough giving and have mortgage interest to make it worthwhile.
It could just be that you are in a higher cost housing market, or have big charitable donations. But also, yeah, you’re probably also kinda loaded. 🙃
(at least when compared with the median American)
Well, we’ve been living the DINK lifestyle for a long time. It would be a very different story if we had only one income, or kids, or both. But yeah houses are pretty expensive where we are. Though from what I can tell, houses are expensive everywhere now 🫥
houses are expensive everywhere now
True 💀
I have enough to pay off my house right now but I’m not because the interest rate is both lower than inflation and what I earn from interest, and other invesents, plus the increase in home values. If I paid off the house today then I also wouldn’t have as much in my emergency fund. I have 5 years left of the mortgage, I’m paying roughly $50/mo interest which goes down every month.
I’m not who you are responding to, but I’m in the same position.
Interest rate on house mortgage is around 2%, currently looking to invest in an apartment in Europe. The current rates are ~4% here, so it makes more sense to keep the cheap money from the house mortgage than to trade it for more expensive money.
