Tag Archives: student loans

spending inequality

Spending Inequality: Yes, It Really IS Your Fault.

COMMENTARY, , , , , , , , , , , ,

By: Chris Warren.

In a political year where income inequality is a major theme, not much attention is being paid to what I’m going to call “spending inequality”. We have little control over how much we earn in relation to everyone else, but we have quite a bit of control over what we buy. When one lives beyond their means, or carries debt for the purpose of appearing more affluent than they really are, they are practicing spending inequality.

For all the liberal screeching about how the middle class is being ripped off and sucked dry while the rich get fat at the expense of everyone else (a claim that is overplayed but not complete bullshit, by the way), there’s not even a whisper about one’s personal responsibility to  handle carefully the money they do have. The rich may indeed be getting richer, but that’s not a license for us average folk to go into debt up to our eyeballs. How many people resent the rich while at the same time wanting to be like them? That unhealthy envy is what fosters spending inequality.

The other day I heard on a talk radio show that 47% of American adults could not raise $400 liquid cash on a day’s notice. That figure, which I accept as accurate if not generously low, is telling and disturbing.

We’re not talking about people who are broke due to exceptional circumstances: They got some horrible disease or their house burned down or their ex-spouse drained the bank account and skipped town. Forty-seven percent is not an outlier. It’s mainstream. How did we get to a place where it’s “normal” that nearly half of America cannot come up with a few hundred bucks for an unexpected emergency, yet they are constantly acquiring stuff?

There are millions of Americans who have practiced spending inequality to the point where they have elaborate home entertainment systems, upscale cars, go on luxurious vacations, and dress their kids in expensive trendy sportswear while every cent of the money used to pay for all that bling is money they have not earned yet. Sadly, having these things and going into heavily debt to get them is considered normal life.

What used to be quaintly referred to as “keeping up with the Joneses” has been elevated to unprecedented levels mostly because there is more stuff to buy and more ways to avoid paying cash for it.

Graphic courtesy arkansasbaptist.org
Graphic courtesy arkansasbaptist.org

Decades ago, there was no iPad, smartphone, laptop computer, and flat screen TV for everyone in the house. There were no spring break trips to Acapulco. There were no $170 pairs of kids’ Nike shoes. And there was no “instant credit.” Spending inequality was difficult because most stuff was paid for in cash. There was a built in ceiling on how much one could afford to show off.

Spending inequality starts in the young, as exemplified by the all the soon-to-be graduated high school seniors who, with the whole blessing of their parents,  are at this very moment signing up for decades of heavy student loan payments in exchange for on campus excitement at a name brand four year university because living at home and attending the local community college for a year or two and saving tens of thousands of dollars isn’t cool enough for them.  Well over half of them will not make it to commencement;  they’ll still be on the hook for a ton of money without even having a degree to show for it.

I have to admit the concept of spending inequality is a bit foreign to me because I’ve never been inclined to buy a lot of stuff just because everyone else was. Furthermore, my circle of family and friends are financially sensible, so there is no peer pressure or sense of competition. None of us are living large, or pretending that we are.

As I get older I’m less and less impressed with other people’s showing off, nor do I care what others notice about me. I drive an average car, live in an average house, and buy my clothes at the outlet mall.

It’s important to point out that spending inequality is a problem that is completely within our individual power to control. Those of us who sleep well at night knowing a $400 unplanned expense won’t sink us don’t understand spending inequality, nor do we want to. There is no man more free than the one who does not care what others think.

Beating The Higher Education Hustle.

COMMENTARY, , , , , , , , , , , , , ,

By: Chris Warren.

The last decade has slapped us with a bucking stock market, bouncing gas prices, and the crash and sort-of rebound of the real estate market. Well under the economic radar and seldom mentioned in the media is the bubbling student loan meltdown. Unfortunately, all of the proposed solutions are reactive. They address cleaning up a disaster that was predictable and avoidable in the first place.

Those who think this problem doesn’t concern them because they or their kids are not in college (or are wealthy enough to pay for it out of pocket) will change their mind when they find out that student loan debt in the United States is at 1.20 trillion dollars and climbing. The problem shows up in our tax bills, the cost of everything we buy, as well as in the skills (or lack of them) in the workforce. Everyone owns a piece of this mess, whether they want it or not.

The exact origins of the student loan chaos are indistinct. In 1993 President Bill Clinton pushed for and won reforms that made it easier and cheaper to get financial aid; the program was expanded by President George W. Bush and still exists today. The intent of the policy was inherently solid, but it did come with unintended consequences: Seeing a big payday, schools started admitting students who did not have the maturity, the discipline, or the academic strength to do college level work. Many of them barely made it out of high school. These borderline students drop out after a year or so, still on the hook for thousands of dollars of debt without completing their degrees. It’s true that they disproportionately have socioeconomic class disadvantages not of their own making but that is not a good enough reason to hand over a pile of money for them to fill space in a classroom in a misguided quest for “fairness”.

Unknown numbers of young people are getting triple-screwed by well intentioned adults pushing them into an academic environment they can’t handle, by colleges willing to bend admissions rules for dollars and “diversity,” and by banks who are eager to underwrite (usually) government-backed loans. College is a worthwhile endeavor…I get that. It’s not lost on anyone that having only a high school diploma severely limits lifetime earning potential, but who is better off: The debt-free kid who went from high school directly to a crappy low wage job, or the kid in the crappy low wage job with thousands of dollars of outstanding student loans from the degree he never finished?Graduation-cap-and-diploma-1

It’s important to point out that not everybody with five or even six-figure education loans on their backs are the innocent victims the media and  politicians want everyone to think they are. Students knew or should have known the terms of their loans and that some degrees have almost no market value. I sincerely respect anyone who pursues a gender studies or anthropology major solely for the love of scholarship, but spare us the “poor me!” crybaby act when you can’t land a decent job and the student loan bill comes due. You’re not a victim.

Community college is the obvious but often overlooked partial solution to the student loan meltdown. Two year schools are the diamonds of higher education, but no one ever gives them credit for it. Typically costing less than half of four year schools, they deliver a huge bang for the buck. The biggest reason Community colleges are not considered: They don’t offer the cool “college experience” that is such a big deal to today’s iPad-toting kids.

Back when I attended College of DuPage, it was derided as the “high school with ash trays.” By 3:00 pm every Friday the place became a ghost town. Nobody was there to be trendy, including me. I was earning college credits on the cheap. When I eventually transferred to a university and graduated, there was no disclaimer on my diploma stating that half of it came from dorky, uncool C.O.D. Like any young person I would have loved to get four full years of exciting big university campus vibe, but there were certain realities I simply had to accept. I graduated owing a lot less cash than my trend-seeking peers.

It bothers me that junior colleges get such a bad rap because without them I along with many others would not have made it to graduation. Yes, College of DuPage made that profound of a difference to me. COD classes were not easier than they at a big name four year institution, but I was able to study without the usual distractions or worry about how I was going to pay for my education. I was neither wealthy nor a stellar student; COD was a place where I had breathing room to make decisions and focus on my coursework without being demoralized by it. A lot of high school seniors who go directly into a four year undergraduate program and subsequently drop out for academic or financial reasons would have succeeded had they attended community college first. What a sad, life-altering, missed opportunity.

I’m under no illusion that the trillion dollar-plus student loan mess is going to be solved by junior colleges alone, but it’s obvious that a big part of the problem is too many students are in way over their heads and their wallets at four year schools. Aspiring to earn a degree is not justification enough and a lot of college loan debt is really the debt of vanity. College is not a party or an “experience” to be had at any price, nor is it (for most of us) a place to pursue highly idealized fields of study with no real-world application. If would-be undergraduates gave their education the same due diligence that they give to any big-ticket investment, there would be a lot more success stories and a lot less balances to pay off.