Like other folks, I really like today's David Brooks column on the culture of debt. I'm particularly taken with the terms "investor class" and "lottery class." He takes the terms from a new report on thrift released by the Institute for American Values. The investor class, says Brooks, "has tax-deferred savings plans, as well as an army of financial advisers. On the other hand, there is the lottery class, people with little access to 401(k)’s or financial planning but plenty of access to payday lenders, credit cards and lottery agents." Or you can think of it more simply: For some Americans, wise investment decisions and smart money management are likely to make them rich. For others, wealth is so unlikely that winning the lottery is about the best chance they have. But if they can't be rich, they can, at times, be comfortable. That's the promise of payday loans, of credit offers, of a world in which short-term desires can generally be fulfilled with quickly acquired cash. Irresponsible? Maybe. Understandable? Yep. As Charles Karelis argues in the Persistence of Poverty, rational economic decisions look different to the poor than the rich. If you've got one overdue bill, paying it rids you of your anxiety. If you have 12, paying one does very little, and adding one more isn't the end of the world, or even really a change in your world. In the long run, righting your financial house may be the smarter bet, but few of us think in the long-run, particularly when the short-run is going poorly. Add in the cultural trends towards more and more debt, which changes what we think of as an acceptable load, as this graph shows:
When more of your neighbors have $10,000+ in debt, it doesn't seem as strange when you have $10,000+ in debt. Meanwhile, credit companies have realized it's profitable to lend to those who can't afford to repay, and thus have become ever better at targeting and marketing their product to those customers. Our debt heavy society is not exactly a shock. We need, as Brooks says, cultural changes that push towards thrift. But we also need regulatory changes that tamp down on aggressive and opaque lending practices. Sadly, the last big piece of credit legislation we passed didn't target the credit companies for harsher treatment. Quite the opposite, in fact.
When more of your neighbors have $10,000+ in debt, it doesn't seem as strange when you have $10,000+ in debt. Meanwhile, credit companies have realized it's profitable to lend to those who can't afford to repay, and thus have become ever better at targeting and marketing their product to those customers. Our debt heavy society is not exactly a shock. We need, as Brooks says, cultural changes that push towards thrift. But we also need regulatory changes that tamp down on aggressive and opaque lending practices. Sadly, the last big piece of credit legislation we passed didn't target the credit companies for harsher treatment. Quite the opposite, in fact. 
