Why Americans Go Broke

Stuart Vyse, the author of "Going Broke: Why American's Can't Hold On To Their Money," was online Monday, Nov. 17 at 2 p.m. ET to take your questions about the irrational behavior that leads people into debt and bankruptcy.

'Spending . . . Is How We Fill Our Time' (Post, Nov. 16)

A transcript follows.

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Stuart Vyse: Hello, this is Stuart Vyse, Professor of Psychology at Connecticut College and author of "Going Broke: Why Americans Can't Hold On To Their Money." I'll be here for the next hour answering your questions online. Let's get started.

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Minneapolis, Minn.: How do I control my impulse to go upscale on every consumer purchase? In general, upscale and new is better than cheap and old. Do I just tell myself I can't afford the best and feel satisfied with what suffices? Do I change my focus to people instead of things?

Stuart Vyse: Wanting to upscale all the time often has multiple causes. We compare ourselves to others and find ourselves wanting if we don't match up, and we see advertisements on television and in magazines that entices us. It is important to take stock of what the really important things in life are. Limit your exposure to advertising. Begin to recognize that most of the things that really matter are not about money or consumption. Education is one clear exception. It costs. But much of the rest is unnecessary. Try to think long and hard about what is a need--something you can't go without--and what is merely a desire.

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Santa Barbara, Calif.: Mr. Vyse: How about our counterparts in Europe? Have they been moving towards a credit based lifestyle? If this is true, why is it? If not, please explain.

Thank you.

Stuart Vyse: Yes, there is an expansion of credit and debt in Europe and elsewhere. We lead the pack on this indebted lifestyle, but England, Europe, Australia, even parts of Asia, are not far behind us. American-style consumerism and credit card purchasing are spreading and, along with them, debt.

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Washington, D.C.: Mr. Vyse,

Perhaps this is simplistic, but are there any cold facts or stats that reflect on the fact that Americans can charge up a small fortune on credit cards, then walk away from these debts through bankruptcy? Yes I know it has gotten harder to do, but have you found it relatively easy for a whole of folks to "game the system?" Congrats on the good reviews of your book on Amazon.

Stuart Vyse: As I wrote my book, I sat through bankruptcy proceedings and watched as people declare bankruptcy. I saw mostly people on the low end of the economic curve who had had bad luck, health problems or job losses. Very few of them looked like they were gaming the system in any way. It is not something you do lightly.

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Milwaukee, Wisc.: Is faceless credit to blame for the American spend agenda? In today's society credit is given out over the Internet We are far removed from dealing with our local banker who can truly understand and see one's financial situation.

Stuart Vyse: I believe this is a very important part of the problem. We borrow from faceless corporations. In the past people borrowed by running a tab at a local store, but they knew they had to face the grocer again if they wanted to eat. The social bonds of face-to-face lending and borrowing have been destroyed.

This is also quite obviously true in mortgage lending. We don't borrow from the local savings and loan. There is no social obligation any more.

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Orlando, Fla.: Is it just about living within your means?

Stuart Vyse: Living within your means is a large part of the solution, but savings is also important. Life involves shocks to the system. "Unexpected expenses," many of which could actually be anticipated. If your car breaks down you need to have enough cash on hand to have it fixed. Even if you otherwise live within your means, you may end up putting your "unexpected expenses" on a credit card. That can be the slow road to disaster.

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Coastal Oregon: What about me? We're retired from the school system, 68 and 75 years old; we're healthy and fit. And we can't spend. We're comfortable and we can't seem to stretch ourselves to spend. We just save. It worries me because that sounds so "out of it."

Stuart Vyse: Sounds like heaven to me. That you feel "out of it" may stem from the fact that so many people just spend like it is water. You should not have to stress over a small expenditure, especially if your saving remains on track. But enjoy. You are setting an example that many more people should follow.

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St. Louis, Mo.: What part do you think widespread and legal gambling (casinos, lottery, etc.) has to do with the problem? It seems to me that we Americans have an irrational belief that we could win the jackpot any day.

Stuart Vyse: There is no question that this has not helped. Gambling is another form of modern temptation that just did not exist--except in fairly limited destination locations--until a few decades ago. In addition to the expansion of casinos, there is the addiction of states to lotteries as a revenue stream.

Gambling is an extremely expensive form of entertainment on a per hour or per minute basis, and it is a losing proposition. In the long run the house always wins.

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Los Angeles, Calif.: Mr. Vyse: Is our current economic malaise enough to end our wicked ways of conspicuous consumption? Do you foresee that Americans will embrace Pay-as-you-go only until our economy recovers?

Stuart Vyse: I think that the current problem will reign some of us in. Nothing like an economic downturn to get you to reconsider the wisdom of buying on credit. When you buy something on a loan you are banking on the future working out favorably, and just about now the future is considerably more shaky.

Unfortunately, swiping to spend is just too much of a habit for it to go away entirely. This genie will not go back in the bottle very easily. We need a concerted effort to promote buying with cash and saving.

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Mons, Belgium: I have heard that one of the (powerful but unsung)reasons for the housing meltdown in the US was the understandable desire for families to buy houses in better school districts, causing them to pony up for houses they couldn't afford. Also, many parents (of all economic and racial groups) often try to keep their kids out of school districts deemed to have "rough" kids. What can be done about that problem, if anything?

Stuart Vyse: I think this is part of the problem. There has been some talk lately about uncoupling school funding from property taxes. This might help. But the housing meltdown has other causes, including the bizarre types of mortgages that were offered and the overconfidence of everyone that the prices of homes would go up indefinitely.

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Depression-era parents and grandparents influence?: My siblings and I are pretty frugal in comparison to the general U.S. population with the same income. Our parents were children of the Depression. While we were growing up, we had a great deal of contact with our grandparents and great aunts/uncles who lived as adults through the Depression. Having relatives who were either grew up or lived through the Depression, does this impact their children's or grandchildren's attitude about spending and saving?

Stuart Vyse: I believe this does make an important difference. Saving has gone out of fashion. We buy with other people's money now. There is nothing more important that teaching children to save, teaching them to take pride in having money in the bank, and teaching them to live within their means. These are old fashioned ideas but we need to bring them back.

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Visalia, Calif.: My neighbor makes a good living but he spends his hard-earned money foolishly. He gets a raise and then he buys a new T.V. when he already has a T.V. that is 2 years old. He buys new bicycles when he already has 2 ones that are within 2 years old. He then says that he does not have money to pay for his mortgage and utilities. He has even mentioned that he might has to take out a loan to get through the holidays. What makes a person spend their money so foolishly?

Stuart Vyse: Your neighbor probably spends too much time watching television and talking to people about consumer items. For many people, shopping has become a leisure time activity. Your neighbor is, in fact, doing what the American economy has asked him to do: spend to spin the wheels of business. But there has to be more to life than the next gadget. He should consider what his true needs are and engage in more meaningful and less expensive activities. Being a responsible person who pays his bills and can function (even during the holidays) without a loan, is an important value.

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Centreville, Va.: In getting out of credit card debt, should I concentrate first on paying down the higher dollar value cards or the higher interest rate cards?

Stuart Vyse: My first suggestion would be to consolidate all your cards into one relatively low interest bank card. Cut up all the rest. It is much easier to track your total indebtedness if it is in just one place. Then begin to work it down. Of course, you need to avoid spending opportunities as much as possible and examine your budget to make sure you can live within--if possible, well within--your means.

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Dayton, Ohio: It just seems so simple, though. For instance, with Christmas season approaching, if I know that I can't afford x amount of dollars to by gifts then, I simply buy x minus some dollar amount that I can afford. If I can't afford to buy something then, I don't.

It's not as if someone is holding us down and making us spend like crazy. We choose to spend ourselves poor -- not as if we're gaming the system (as you mentioned earlier) -- but, we certainly know that if we spend more than we have that our money is not going to last. This is not rocket science.

And, it applies to the poor and the rich equally.

It's all about free choice. I choose not to waste my money.

Stuart Vyse: I agree. There is an element of free will, but the problem is that there are so many impulsive spending opportunities presented to us every day that it takes much deliberate planning to make it through the consumer jungle. It is harder now to be responsible than it was before. We need more people like you who pay as they go, but it will take some effort to teach children not everything is "priceless." Those messages are far more scarce today.

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Alexandria, Va.: With debit cards and credit cards being used for almost everything, do people even sit down and balance their checkbook statements anymore? I've seen my college-age nephews swipe their debit cards to buy a $3 cup of coffee -- and then they wonder why they can't keep track of their expenses. Is moving to a cashless society making people not think about, well, actual cash? It seems like it's not really money, somehow, when it's a swipe of a card.

Stuart Vyse: This is an interesting phenomenon. Studies show that people who swipe almost immediately forget what they have spent. There is no reminder like the process of writing out the check and the check register or the declining amount of cash in the wallet. So if swipers quickly forget what they have already spent there is little to inhibit the next purchase. No question the cashless society--even when only using a debit card--poses challenges to our budgeting.

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Columbia, S.C. : SOS, I'm about to embark on being the finance department in our household to give myself some semblance of control over our budget and begin to teach our children smart money management (which I never learned). Where do I start?

Stuart Vyse: I think you start with communication. This is an area where bad feelings can result very quickly. I think it is important to make sure everyone is on board with the idea and endorses the overall goals. Making your family into a team working together will make it much easier for you and for them.

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Orlando, Fla.: Why can't people hold onto their money -- what can we do in this day and age to get ahead?

Stuart Vyse: I think that automatic savings plans are an important part of the picture. It is hard to save money and defer purchases in the name of building up the savings account balance. By setting up a payroll withdrawal savings account--much like the automatic deductions for taxes--savings can be relatively painless. Next, time an increase in the amount you save each month to the month of your annual cost of living increase, and it will feel painless. Try to use the banking technology to make it easy.

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New Brunswick, N.J.: A question about electronics: I am fairly disciplined about spending am reluctant to spend money on items I might not use, but in electronics, I feel as though I fall hopelessly behind the new technology. Only last year did I trade disposable cameras for a digital model. My television is at least 15 years old, no digital, HD, whatever. But, I hardly watch it, and it's hooked up to cable so I can ignore the cessation of analog signals next year.

So the minus side of being disciplined is that you DO fall behind in tech. I don't know the difference between HD and digital! I haven't really mastered the camera yet, even though I see 6 year olds walking around with digital cameras.

I am feeling like I MUST start spending more just to keep up with technology.

Stuart Vyse: Technology is a fast-moving area, and you can get "behind" easily. But I think it is important to ask yourself what you really want. Not every new thing is something we have to have. Product innovation is the way many new "necessities" are manufacture. 15 years ago no one had a cell phone, now pity the poor middle school child who doesn't have one. He will be branded as a loser. But we need to stop and ask what do I really want. What do I lose by no buying this now. The bright side of this problem is that, by the time you get around to buying the digital camera or the HD TV, it will be much less expensive.

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Richmond, Va.: Seems like kids with an allowance learn to plan ahead, save for later gratification, make choices. I hear my sister say "Well, if you use your allowance to get that, you won't be able to go to the movies this weekend. Which would you rather do?" Junior learns choices and saving for later. Kids who have everything paid for grow up thinking life is like that and you should always have instant gratification.

Stuart Vyse: I think that it helps to get kids working at part time jobs when they are young. There is always the balance between working and studying for school, but learning how money is earned is a great experience. Kids can also be taught to use the earned money to save for other things. Take on part of the responsibility for their educational and/or entertainment expenses.

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Washington, D.C.: Do you see danger in using a credit card as an expanded wallet? In other words, rather than carry cash around, I use credit cards and pay them in full every month.

Stuart Vyse: Yes, I do see a potential problem. The use of cash involves a bit of budgeting. To avoid trips to the ATM, you need to keep track of what you have. All that extra mental energy--eliminated by swiping--helps us keep track of our expenditures. Often when something is more "convenient" (e.g., paying with a card) there is a hidden cost.

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Stuart Vyse: This has been a fun and very lively discussion. Thanks for tuning in. Sorry if I did not get to your question, but feel free to check out my website at www.stuartvyse.com and email me additional questions or thoughts.

Thanks again.

Stuart Vyse

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