The debilitating power of debt seems to have its grasp on almost everything we are and do today. I had the opportunity to spend some time with a Gen Y 30 year old who thinks that a new Infiniti is in his near future…a $47,000 Infiniti. When questioned about the price, he flippantly said, “If I can qualify for the loan, I should be able to afford the payments.” I reminded him that the price (and payment) was only one aspect of owning a $47,000 car. You have to consider the insurance, the fuel costs, the maintenance costs, and the cost to replace the tires he plans on squealing at red lights. “I’m not worried about all that stuff, I’ll just pay for it as it comes up,” came the reply.
All this happened on a short overnight business trip (driving) where another co-worker (Baby Boomer) and I (Gen X) were listening to an audio version of Freakonomics [Revised and Expanded]: A Rogue Economist Explores the Hidden Side of Everything. The Gen Y’er listened with one ear to Freakonomics while using the other ear to listen to his iPhone. Judging from his comments on the book, I don’t think he heard much of either.
As we were on our way back home, the current economic situation came up. The Baby Boomer told us that he was furiously paying off all his debt, including the mortgage, and that he was trying to get himself into a position to be able to retire in about 10 years. I commented that he was making some smart moves and that I was attempting to do the same thing. The Gen Y guy said, “You are two old guys making plans to retire? I don’t know why you’re so worried about it. I’m certainly not.”
Then he popped back up and said, “Paying off debt is stupid. If you have $200,000 invested in the stock market and can get a mortgage at 6 percent while managing to get 8 percent in the stock market, you’re silly to pay off the mortgage, just borrow the money and invest the difference.” He thought he made a great point and sat back.
I responded that, yes, you can make a lot of money playing spreads like this, but 99.99999% of the people who say they’re going to do this….never do. They just spend the excess. Then I asked him if he managed his personal finances this way. “No, I don’t have that kind of money sitting around to invest.” I told him that when he did have it, then he could play the spread, but for right now, his best bet was to pay off his loans and save up enough so that he had the option of playing the spread. He just went back to listening to his music.
When I related this story to my wife later that evening, it struck me that what was important to the Gen Y’er was stuff. All he really wanted was stuff. He has the latest tech toys, he has the premium package on his iPhone, he wants a new expensive car, he isn’t concerned with his financial situation. The Baby Boomer and I are concerned about something else. We both want freedom, specifically time freedom. We aren’t wrapped up in how easily a new car can “smoke the tires.” True, we would like to have some of those new things, but they aren’t the foremost things in our lives. They won’t deter us from our goal of time freedom.