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Who Must Pay for US Uncontrolable Spending and Borrowing?

By Dr. Joseph J. Horton

The student-loan checks for the fall semester have now been cashed. Round one of the Federal debt-limit debate is over, but round two may soon begin. Should we be experiencing feelings of control or bondage?

It is proverbial that acquiring debt is fun; paying it off, not so much. Yet research conducted by Rachel Dwyer and her colleagues at Ohio State has shown that reality is more complex than proverbial wisdom suggests. Young adults get a boost in self-esteem when they take on student loan and credit-card debt. The more debt the bigger the boost in self-esteem. The boost is largest for students at the bottom of the socioeconomic ladder, with students at the top experiencing no change in self-esteem from acquiring debt. Not until they are about 28-years old does the average young adult feel the power dissipate to feelings of bondage.

An education at the college of one's choice, a computer, and interview clothes are resources with lasting value, particularly for those on the bottom of the economic ladder. When borrowing is modest, investments such as these do provide greater control over one's life. This is as it should be-a win-win for both borrower and lender. Eventually, however, student-loan payments begin to hinder other goals, such as marriage.

The average age of marriage has been rising steadily and is about 28 for men today. Thus in the first few years after graduation from college, the young adult from a lower middle income or poor background has a sense of satisfaction of taking control of his destiny and using debt to get the education needed for a good job. But, later, with several years of student-loan payments left, he is approaching 30 and finding himself unable to afford the family he desires. Indeed, one reason given for the increasing age of first marriages is the desire to have one's finances in order before marrying. The dream of couples starting off with nothing and building a life together has given way to dreams of individual success prior to marriage.

Could it be that one reason young adults find family life difficult to afford is that young adults expect more material accessories than is reasonable for those just starting out in life?

For example, one study found that when subjects were given a cell phone with a generic battery they had lower self-esteem than subjects with a name-brand battery. Yes, that is right: a generic vs. a name-brand battery. The battery made a difference in self-esteem. The phones were loaned to study participants for merely a few minutes, and the brand of battery had no effect on the phones' performance.

What the study showed was that we long to use "the best" even briefly in the lab. In real life our disappointment is probably greater when we cannot fulfill our desires.

As individuals, and as a nation, we have a sense of control when we are able to spend, even if we are spending borrowed money that will be difficult or impossible to pay back. We end up paying for cowboy poetry and bridges to nowhere because spending feels good.

We need to change our thinking to recognize that we exercise control over our destiny when we choose not to spend tomorrow's money today.

This used to be called thrift and was considered virtuous. Choosing thrift requires effort. It is easier to find joy in tangible things than to appreciate the peace that comes with sound finances.

Modest student borrowing can be a good investment; on the other hand, the spring-break trip paid for with interest will constrain life in the future. Likewise, the government has legitimate constitutional roles which require spending, but choosing to spend far beyond constitutionally sanctioned roles has created a national debt problem-one far greater than any student-loan debt problems.

People save more money for retirement when they strongly identify with the senior citizen they will be in the future. We need to teach young people that a lifetime of happiness cannot be purchased with borrowed money at age 18. One day they will want to buy houses and start families. We need voters and elected representatives who remember that we and our children are the people who must pay for today's spending and borrowing. Only then will we as individuals, and as a nation, truly have control over our financial lives.

Dr. Joseph J. Horton is professor of psychology at Grove City College and a researcher with The Center for Vision & Values