It’s getting harder every day for regular Americans to honor financial commitments, especially when we see our own Federal Government raising its debt limits higher. Every night on the TV news, Americans watch fiscally irresponsible oil companies, auto manufacturers and banks all erasing their debts and posting huge profits while we struggle to pay our daily expenses.
“Many Americans feel that the banks specifically have wronged them and so they feel legitimized in sticking it to the banks and walking away from their mortgage obligations,” says Luigi Zingales, Professor of Finance at the University of Chicago Booth School of Business.
Are we Becoming a Nation of Financial Deadbeats?
Recent statistics from The 2011 Consumer Financial Literacy Survey from The National Foundation for Credit Counseling bear out American’s fiscally irresponsible attitudes about financial commitments. According to the survey, more than four in five Americans (82 percent) believe that certain circumstances warrant defaulting on a mortgage. Thirty-four percent of homeowners consider defaulting on their mortgage more acceptable than last year and more than half of adults do not maintain a budget or track their expenditures.
The National Bankruptcy Research Center also found a nine percent rise in personal bankruptcy filings since 2009. And, the average unemployment spell is more than nine months which is the longest average since the Labor Department started keeping track in 1948. “This lack of financial obligation is troubling down to the moral fiber of American society,” says Zingales.
He explains that the real use of mortgage defaults, bankruptcy and unemployment is to help Americans with an emergency situation. “A strategic mortgage defaulter is someone who could pay but chooses not to when they see how much more their mortgage costs than their house is worth now,” says Zingales.
Many financial deadbeats abuse the bankruptcy system, choosing a Chapter 7 bankruptcy instead of Chapter 13 (which requires a repayment plan) or by purposely remaining unemployed for another tier of federal benefits while still acquiring more expensive debt with their low credit. “These abuses come with a cost to society and we all pay that higher cost for credit, goods and services. It takes a certain moral cold-bloodedness to not honor financial obligations, but when you talk to people lately, if they haven’t done it already, they are considering it,” he says.
Low Credit, High Risk Borrowers
Dave Ramsey, best-selling author of “The Total Money Makeover” and host of a syndicated financial radio talk show agrees and adds, “When you don’t pay a debt, it shows up on your credit report as “charged off as bad debt.” The creditor wants everyone who looks at your low credit score to know that you are a high-risk borrower because you did not pay back what you owed.”
There is a sense in our culture today that debt is normal, says Ramsey. “Most Americans can’t envision a car without a payment, shopping without a credit card or a student without a loan. The culture we live in promotes instant gratification, so we get the idea that we can just “forget” about our debt or buy into some get rich quick scheme that will magically “fix” everything. The truth is, there is never a quick or easy, way out of fiscal irresponsibility and into financial freedom. It takes hard work and doing the right thing, no matter what everyone else is doing.”
Losing Our Work Ethic Leads to Fiscal Irresponsibility
Regular unemployment benefits usually last for 26 weeks. Extended federal unemployment benefits up to 99 weeks in states with high unemployment are in place through 2011. According to a recent article in The Detroit News, employers were finding prospective employees illegally turning down jobs as long as they were receiving unemployment benefits that were the same or more than the job offer. In the article, David Littmann, senior economist of the Mackinac Center for Public Policy said, “The federal jobless benefits extension is the most generous safety net we’ve ever offered nationally but that extra protection reduces the incentive to find work.”
Ramsey agrees there should be a connection between work and money and explains, “Go to work, get paid. Don’t go to work, don’t get paid. When you’re earning the money you receive, there is more of a sense of accomplishment than if someone is just handing it to you for doing nothing. When Americans choose to stay unemployed because it’s easier than working, the sense of work ethic is lost and fiscal irresponsibility gets a foothold decreasing the desire to get out of the financial slump we’re in,” says Ramsey.
Change Fiscal Irresponsibility for the Better
Change is never easy. “In fact, most people won’t change until the pain of where they are exceeds the pain of change,” says Ramsey. “But being a financial deadbeat is the wrong thing to do. It won’t move you forward in a positive direction aside from a temporary Band-Aid effect. The right thing to do is honor financial commitments and practice and teach discipline in all aspects of our lives, including how we handle our money. If most people are defaulting, struggling with debt and being fiscally irresponsible then I don’t want to be most people,” concludes Ramsey. Do you?
