GN Commentary: December 1, 2008 - Financial Slavery

When people buy on credit they are actually spending money they don't have, hoping they will be able to pay the bill with future earnings. Is that wise, especially in times of economic uncertainty?

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Video Transcript

Oh, Hello!  I was just trying a variation of an old game where you try to build a house out of cards.  For some reason, when I use these cards (credit cards), it doesn't seem to work very well.

The preliminary figures for "Black Friday" indicate that consumer spending was up nearly 3% over last year, contrary to the 3% drop predicted by many experts.  This appears to be encouraging news for those retailers who derive 30-40% of their annual income from sales during the last five weeks of the year.  But is it really good news for you?

This surge in consumer spending comes after several months of unsettling economic indicators.  The International Council of Shopping Centers—Goldman-Sachs Index reported that October was the worst month for consumer spending in 39 years, and indications are that November may be even worse.  For companies already battered by economic forces beyond their control, the next few weeks may determine whether they will survive or be forced to close their doors.

While increased sales on Black Friday sound encouraging, market-watchers are cautioning that much of that increase occurred because of unprecedented price reductions.  In other words, merchants may have sold more but earned less.

For the average consumer—that means you and me—there is a serious downside to this news—most of that spending involved the use of credit.  When people buy on credit they are actually spending money they don't have, hoping they will be able to pay the bill with future earnings.  Is that wise, especially in times of economic uncertainty?

The Federal Reserve reported that as of September 30, 2008, the total amount of consumer debt in the United States stood at nearly $2.6 trillion.  That amounts to nearly $8,500 for every man, woman and child in this country, or about $34,000 for a family of four.  That is strictly consumer debt—mortgage debt is not included.

Rather than slowly building wealth, many want to live as if they're wealthy already.  The tantalizing variety of consumer goods, coupled with easy credit, has made it possible to immediately acquire our "wants" instead of saving for our needs.

That alluring house of cards—credit cards—is beginning to collapse.  Most of us used to find three or four offers for credit cards in our mail every week, but those offers have all but disappeared.  In spite of the government's efforts to infuse billions of dollars into the economy, credit is becoming more restricted. 

When even the trained experts don't know what will happen next, what hope is there for you and me?  How can we know what steps to take to protect ourselves and our families?

The best economic advice we can find is contained in a surprising source—the Bible!  Scripture gives solid advice about not letting our desires lead us into unwise decisions.  It doesn't promise us wealth, but it does teach us how to find stability in turbulent times.  The book of Proverbs alone contains scores of passages that can help us navigate through economic storms, and it warns that debt is a form of slavery.  If you're looking for sound financial advice, there is none better!

For GN Magazine, I'm David Johnson.