American credit card debt has grown from $355 billion in 1980 to $2.4 trillion in 2010 according to the Federal Reserve. That is a 576% increase in the last 30 years! Americans are spending money that they do not have and they are doing it at an accelerated rate. This is an alarming trend that has all the signs of a national addiction: an American addiction to debt.
I became a financial advisor following a career in mental health and substance abuse counseling. Drugs, alcohol, and many other substances have a detrimental effect on our society as a whole; however, one area of addiction that is not widely addressed is the American public's addiction to debt. How many of you spend money that you do not have? Many Americans have no money to save because they are paying off debt. Credit cards, loans, unaffordable mortgages, and borrowing endlessly create a vicious cycle that may become addictive. Buying is a high. Debt is a low.
If you have four key symptoms from the following nine that define addiction according to the diagnostic manual (DSM-IV) that identifies addiction issues as they relate to your behavior about spending money that is borrowed, you need to realize that you will never have financial security.
Preoccupation with use of debt and spending
Using more debt or spending more money than had been anticipated
The development of tolerance to excessive debt and spending
A characteristic withdrawal syndrome when not spending and accumulating debt
Use of debt and spending to avoid or control withdrawal symptoms
Repeated efforts to cut back or stop borrowing and spending
Spending and incurring debt at inappropriate times and letting the behavior interfere with daily functioning (such as not being able to stop shopping during work hours, or negotiating new loan terms during work).
A reduction in social, occupational or recreational activities in favor of further spending and borrowing.
Continued accumulation of debt in spite of having suffered social, emotional, or physical problems related to debt.
Like addiction to drugs and alcohol, denial and avoidance keep many people from confronting their debt addiction. Furthermore, once people finally confront their addiction, many times they will "fall off the wagon" and "use" again. This may deter them and make them feel like a failure. Americans must control their feelings and be constantly vigilant. We do not need to buy that new television or novelty toys for the kids or weekend in Las Vegas or eat only in restaurants or prepared take-out food. The cure for debt addiction is to be debt free or be able to pay off your debts in full each month. Limit credit cards to one and cut up the rest. If Americans can break the addiction to spending and debt we can start investing in the future. We can plan and start saving for retirement. Breaking an addiction to debt is not easy, but the payoff is peace of mind and a secure future.
Investment Advisor Representative
Investment advisory services and fixed insurance offered through Gerber Kawasaki, Inc., a registered investment advisor.
This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. Investing involves risk including potential loss of principal.