Thread by @Trinhnomics

An important read & a key public policy of our time. The solution isn't more free $ but education: we need to teach people about opportunity costs & redefining middle class. The macro story of this u know - Americans borrow to consume.

But why & on what?
wsj.com/articles/famil…

If u look at US household debt as a share of GDP, then the US has deleveraged (from ~100% peak GFC to ~80% of GDP). But that's not the whole story:
a) Most consumption done by the poor & middle class (rich people have everything & so invest);
b) They borrow to CONSUME not invest.

The growth of Americans borrowing to consume & not invest surpasses those that borrow to buy a house (theory is that they build equity over time & not go on a binge to fill up McMansions);

What are the non-housing debt? Student loans/autos/credit cards.

Student loans are supposed to be $ u borrow to then repay & the objective is that the income that u will earn is HIGHER than the growth of the debt. Now a lot of people don't understand this & they don't treat student loans as investment but as consumption & so can't repay debt.

Why? Don't borrow six figures to go to a university and: a) drop out; b) get bad grades so that u are unemployable; c) go to a university that is not value adding; d) study in a major that has limited economic value but high economic costs.

Americans need to be educated on this.

When u watch American movies, the kids in there are hot, nerdy, or whatever stereotype u may have and they RARELY STUDY. Ever. They are never taught from mainstream entertainment that sitting at a corner studying some useful skills to your employer in the future is key to life.

What they are taught is that the hot girl/guy is gonna like you if you have a makeover & buy a bunch of branded stuff & then u succeed in life! The easy things to achieve through CONSUMPTION (ads to sell goods). The reality is that u need to sit down & learn how the world works.

Let me tell u something about this story, the title & the anecdotal story to support the macro household picture jumped out: FAMILIES GO DEEP IN DEBT TO STAY IN THE MIDDLE CLASS.

What is middle class? Before we answer, let's talk about what is insinuated as middle class: THINGS.

Facts: 👇🏻family
Income: 130k (Median US income 61k), w/ a kid & dog.
Debt: 389k (Mortgage 270k, 51k student loans, 18k auto loans, 50k across 8 credit cards).

Let's talk about the pictures & everything in this house looks brand new. Tons of stuff (she has an Apple watch)😉

They got 50k of credit card debt across 8 credit cards!!! Here is an anecdote that u're supposed to feel sorry for below pictures of brand new stuff (we see why they got debt)!: She hasn't used her TJMAXX credit card in >1yr & has 7.5k in debt & will take her 23yrs to pay off 😢.

Why does any human have a retailer credit card? That should be a big big NO NO in high school economics class. Literally. Max 3 lines of credit (student loan is 1 already) by a proper credit card company like American Express. They went into debt going to WEDDINGS!! I mean, dude.

But why did they buy so much stuff? I mean their home looks like a Pottery Barn catalog & my guess is they prolly bought things not too far off from these American branded stuff.

They BOUGHT a lot of stuff to fill their house because they are TAUGHT to buy stuff by the media.

The pt isn't to criticize people's fiscal management but to say that somewhere along the line we have gotten lost as a society. Perhaps it's the lack of financial literacy or maybe it's the way we define success. This is a public policy dilemma of our time: low financial literacy