As an advisor I meet a lot of people—all of whom have unique stories. Given that, they do tend to fall into two categories, ants and grasshoppers. The ants tend to live below their means and save for the future. The grasshoppers tend to live above their means, take on debt, and are generally ill-prepared for retirement.
This week let’s focus on a critical problem for many in the grasshopper camp—overspending and debt. A recent article by DaVida Plummer discusses this issue. She talks about “compulsive buying” as a topic of academic research. According to the research nearly 7 percent of Americans are compulsive buyers. In addition to academics who study this disorder there are self-help groups that work with people to overcome compulsive buying.
One such group, Debtor’s Anonymous (DA) lists some key warning signs for people who may be addicted to debt and spending. The first warning sign, “You have a ‘live for today, don’t worry about tomorrow’ attitude”. Sounds a lot like a grasshopper to me. Two other warning signs jumped out. “You frequently don’t return borrowed items”. This one surprised me but it makes sense. Borrowing items or small amounts of money and not returning the items or paying back the money does show a lack of responsibility. The other warning sign, “You love buying things on credit vs. cash” is not surprising. Research has shown that people who buy with plastic tend to spend 20% or more in general than people who use cash for their purchases.
Ms. Plummer notes that “They live from paycheck to paycheck, and they overwork, yet don’t make enough to cover expenses”. This resonated with me. I had a good friend who fit this profile. He worked long hours (60 hour weeks), had no money, and was constantly juggling debt to buy things like real estate and motorcycles. He was always stressed-out and died at age 49 of a heart attack. I think that a less debt-ridden, less consumptive lifestyle may have extended his life by decades.
Like most disorders one doesn’t wake up one day instantly addicted to spending and debt. As the article states, “…the hallmarks of addiction include a steady or sharp increase in the behavior over time, loss of control, increasing negative consequences and loss of jobs and relationships”. If you find that this describes you or someone you know, please seek help via DA or another group that will help you overcome this disorder.
As I noted last week, those folks who have lived below their means and saved sufficiently for retirement are much more serene in their 50s and 60s than those who have not.