In the past few days I’ve received a few related articles on the impact of debt on retirement and the stress it causes. Here are a couple of the recent ones: Majority of Retirees Carry Debt and Boomers will Retire in Debt.
Before I carry on though, it’s important that you understand that this discussion is not to be interpreted as advocating reckless spending. I have to begin with this disclaimer because money and debt have such strong connections to negative emotions that it’s critical to pre-empt any mention of anything slightly unconventional with the caveat that there are proper strategies for all of this and that money isn’t something that most adults received a foundation of knowledge in. Dealing with financial matters requires good communication with financial professionals, but professionals are not money counsellors, or teachers, and most of this isn’t part of the standard financial curriculum in any case. You need to do your part in understanding your options and work with professionals to implement the plans!
What is so upsetting about this emphasis on debt reduction in favour of asset accumulation is the seemingly absent recognition that consumer spending and consumer confidence fuel our economy. The continuous emphasis on ‘get out of debt’ so you can save a big pot of gold so then you’ll have more money to spend is only a half truth.
We actually don’t need savings – we need an ongoing source of income to provide for our basic lifestyle needs and other opportunities and emergencies that come up along the way. The fuel for spending is income. Income can be generated in many ways, yet the conventionally accepted view is that income is a more or less static variable in the financial planning process and that providing for financial needs after work will come from selling off assets (the accumulated pot of gold).
I am not aware of anything more stressful and unsettling than to life day in and day out with a nagging voice of doubt that maybe you shouldn’t be spending money on this or that because you have to get rid of the debt and add to your savings.
This commonly accepted view not only creates uncertainty, it also creates an environment where the scarcity mentality it feeds is prone to inappropriate financial decisions, bad investmenst, and isn’t generous towards others and social causes.
The lessons we’re teaching our young people who are watching their ‘retiring parents’ is that its perhaps better to not even ‘try’ to do something significant because the cost to get there is going to be too high and they ‘won’t be able to afford it’. (check out the CBC report on ‘Olympic Dreams and Olympic Debt’). Instead of pursuing worthwhile dreams, many people simply resort to a life of silent bitterness or resentment where they slowly become more and more self-centred and fearful of running out of money and not being able to support themselves.
This self-centredness becomes a distraction for a whole range of social issues because people go looking for an outlet – hmm, look at how sex has become so commonly accepted in mainstream media. People look for a way to manifest their desires somehow. Unfortunately, we are fed a constant stream of enticing images and messages about how to fuel some sort of desire we might have forgotten about or not realized we had with some kind of material good. Of course, the fulfilment of desires through possessions has an economic advantage to the business selling the goods and on some level will fulfil needs and desires of the person purchasing so there is certainly some benefit to the marketing information – until, however, the reality sets in and guilt and fear occupy thoughts with no end in sight other than further denial. It’s a cycle that isn’t good for the individual, for the family, for our communities and for our entire economy.
So what’s the answer if it’s not go ‘cut back spending, to get out of debt, and to save a bigger pot of gold for the fairyland called retirement’?
The answer actually isn’t rocket science but seems to be a huge struggle for many people because they have grown up in this culture of self-centred financial support which focuses on getting a good education so you can get a good job, then learn to manage your money on your own once you’ve got the job.
It seems that conventional teaching has completely left out the fuel for the entire plan which is the creation of income. There are many many ways to create sustainable incomes besides a job or two or three. It doesn’t take a big pot of gold for you to be able to retire and create more income from your investments, it takes independent thinking that knows the difference between earning less than you spend, and spending less than you earn. It also takes financial confidence to know how to maximize the effectiveness of your finances so you are ‘leveraging’ all your assets including access to credit, to create sustainable income that creates wealth that creates further income and so and so on.
We have to realize that getting out of debt by cutting back spending will actually reduce our freedoms, lower our standard of living and NOT provide the peace of mind or independent thinking that will assist in creating the extra funds for the additional spending money you’re looking for to satisfy your personal interests, desires and higher causes.
Remember, I didn’t say to continue to spend recklessly and to hold on to high interest non-deductible debt or to just spend on selfish desires. I’m saying that the way to win the war on debt and to create financial independence that will enable you to choose to leave work if you want (ie enable you to retire) is to learn how to earn sustainable income, to manage that income and all your other financial resources effectively (not just by looking at interest rates and rates of returns), so you can maintain your personal economy, while also helping others and ultimately our entire society!
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