- The Washington Times - Tuesday, February 7, 2006

Debt has proliferated at all levels of society in part because the stigma that once attached to borrowing in the United States has disappeared. Debt shapes the lifestyles of both rich and poor.

Mortgage bankers say many consumers no longer have the goal of owning a house or car, but rather seek to “lease a lifestyle” that they covet or admire by leveraging their incomes as much as possible.

Rather than paying off the debt, the only aim has become to pay the monthly debt service, bankers say.

Consumers with modest incomes use credit to purchase basic necessities like food and clothing, while Wall Street brokerages advise their wealthy clients to take out as much mortgage debt as they can to free up cash for luxury purchases and investments.

The loss of shame about living large on debt reflects generational differences between elderly citizens, who grew up during the Great Depression learning to carefully budget and save, and their baby boom children and baby bust grandchildren.

Older people who saved and waited until middle age or even retirement to buy the house and car of their dreams, or to go on the vacation of a lifetime, see neighbors and relatives enjoying it all now using gigantic mortgages that consume most of their monthly paychecks.

Ruth Williamson, a recent home buyer in Fairfax, said she was stunned by the huge mortgage lenders were willing to provide so she and her husband could buy a good-sized starter home — one that would have required 80 percent of her husband’s salary to pay.

The Williamsons balked at incurring such a large debt load and chose to buy a smaller house instead. “It was ridiculous,” she said. “I’m fairly conservative with money by nature. As a result of this, we live in a 1950s duplex.”

California has led the way in the debt binge. Mortgage brokers there joke about the millions of “refi junkies” who refinance their homes several times a year to take advantage of soaring home prices and extract rapidly accumulating equity so they can spend it on other items and even use it for income.

Going deeply into debt to buy what once were considered luxuries has come at the cost of financial peace of mind for many people, however, according to Jonathan Rich, a financial adviser and author. He has found that Americans are no longer happy making average incomes.

“We’re under increased financial pressure, due to soaring real estate prices, increasing taxes, and other economic realities,” he said. “But at the same time, our material expectations are increasing. People believe they need more, but they can afford less. So they’re borrowing to the hilt and working to exhaustion.”

John Podesta, president of the Center for American Progress, a liberal think tank, said consumers took the plunge into mortgage debt to cope with subpar growth in wages and the rising cost of living in recent years.

“Americans are being forced to borrow in historic amounts against their homes to deal with stagnating wages and skyrocketing costs in health care and education,” he said.

“Families used to borrow against their homes so they could make improvements to them. Now they are having to borrow against their homes just to pay their bills.”

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