Some Thoughts on Debt

I came across this article the other day about when you should and shouldn't get into debt. I applaud the fact that it called out our own government as acting in a way that the normal person shouldn't:

"The federal government is a good example of what ordinary folks should not do -- pile debt upon debt forever, taking out new loans to pay off old ones."

Next, the article discusses the potential need to incur debt in a true emergency:

"In a real emergency, you can justify almost anything. A legitimate emergency is a serious illness, or a car problem that will keep you from getting to work, a leaky roof that will ruin your home.

The need for a vacation is not an emergency. Basically, an emergency is something that will seriously undermine your life for years, not something that will put a little damper on your lifestyle."

The author of the article then goes on to give this wise counsel:

"The best policy: borrow only for a home and an education, two purposes with benefits outweighing the costs. If necessary, borrow to get basic, essential transportation, not to get luxuries like leather seats and navigation systems."

All-in-all, I thought it was a pretty good article, and it reminded me of similar counsel that those of us Mormons have gotten from our church leaders for years.

From Bishop J. Richard Clark (serving at the time as a member of the Presiding Bishopric) in 1980:

"Debt is always a burden, but some debt is necessary. Sound business debt, home mortgages, and other forms of 'secured' debt are unavoidable for most of us. However, extravagant use of credit, which comes from yielding to our emotions rather than reason, creates burden . . . Our guide for credit management should be: borrow only what we must, at the lowest rate available, for the shortest time possible."

From Elder Robert D. Hales (of the Quorum of the Twelve Apostles) in 2009:

"[S]ome debt incurred for education, a modest home, or a basic automobile may be necessary to provide for a family. Unfortunately however, additional debt is incurred when we cannot control our wants and addictive impulses."

In 1987, President Ezra Taft Benson (as Prophet and President of the Church), prophesied of a deep recession, similar to what we are in now, and then offered his counsel:

"Many people do not believe that serious recession will ever come again. Feeling secure in their expectations of continuing employment and a steady flow of wages and salaries, they obligate their future income without thought of what they would do if they should lose their jobs or if their incomes were stopped for some other reason. But the best authorities have repeatedly said that we are not yet smart enough to control our economy without downward adjustments. Sooner or later these adjustments will come . . . 

"In the long run, it is easier to live within our income and resist borrowing from future reserves except in cases of necessity—never for luxuries . . . If you must incur debt to meet the reasonable necessities of life—such as buying an automobile, a house, or furniture—then I implore you, as you value your solvency and happiness, buy within your means and use credit wisely. Resist the temptation to plunge into property far more pretentious or spacious than you really need."

I am grateful for these principles that have been taught to me throughout my life. I may not have adhered to this counsel as much as I should have at times (particularly as a bachelor), but Deidra and I are much happier in life because we try to stay close to this counsel in our marriage.

As the initial article suggested, our own government is a horrible example when it comes to managing finances and staying (or getting) out of debt, and he goes on to explain it further:

"The federal government shows what happens when common-sense rules are broken -- trillions of dollars of debt. Digging out will cause pain for many of us, if not most, through higher taxes or reduced benefits on things like Social Security and Medicare.

Economic recovery can help, as it brings in more tax revenue. But when the federal government uses rosy growth projections to argue its debt will come down, most people laugh. But then many of us turn around and do the same thing, assuming pay raises and investment gains will somehow produce money to pay off our ever-growing debts."

I know it is getting close to July 4th, Independence Day here in the United States, and we should all be paying tribute to this great nation we live in. But I can't help but think that our country is paying the price for bad financial decisions made years ago. And, as a nation, I don't know that we are learning the lessons that we should.