I was reading a financial report on a new kind of app that offers instant loans to consumers so they can buy products online. Unlike traditional loans, this new financing is offered at no interest charge, so borrowers feel like they’re getting a really good deal. The fees are charged to retailers who of course pass the costs on to consumers in the form of higher prices. So, as always, nothing is free. What worries me about these new lenders is that they are largely targeting young people, who are flocking to them by the millions. I find it disturbing that these companies are essentially pushing young people into easy and cheap debt. Like any other addiction, the long-term effects could be disastrous.
My grandparents grew up during the Great Depression. They understood firsthand what real suffering and poverty looked like. They saw the grief that came from living beyond their means as they saw many of their friends lose everything when the good times turned sour. We all know about the Great Depression, but sometimes we forget that it was immediately preceded by the “Roaring Twenties,” a period of great prosperity that many thought would never end. After experiencing it and seeing the pain it caused, my grandparents wanted nothing to do with the debt. They borrowed money to buy their house, then made as many additional payments as they could and quickly paid it off.
They would not have been considered exceptionally wealthy, but living largely debt-free made them rich enough that the family never ran out of everything that was important to them. I learned from them and tried to follow a similar pattern. There are things in life that most people need to borrow to buy a house, a reliable car, a good education, and start a business. All of these add value to your life and help you build additional wealth. Borrowing money to buy things that you don’t need or that don’t contribute to your wealth is almost always a bad idea.
When I was young, big business tried to get my generation addicted to cigarettes in order to have lifelong customers. In modern times, vaping companies have also taken on young people. It now appears that some lenders are trying to make young Americans dependent on debt, an addiction that has ruined countless lives. I assure you, it’s not because they care about their new young clients.
I hope that the coming generations will recognize that they can lead prosperous lives if they manage their financial resources well and avoid unnecessary debt. I hope they will reject these new lenders who want to take them into debt when they are young, so that they can profit from it throughout their lives. And I hope there are still enough grandparents who will take the time to teach their grandchildren to be wise with money because the world these young people live in certainly won’t.
Dan Wyson, CFP® is the author of “The Gold Egg” and “21 Financial Myths” and owner of Wyson Financial / Wealth Management 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525 – Securities and Advisory services offered by Commonwealth Financial Network, FINRA / SIPC member, a registered investment advisor.