Sunday, August 8, 2010

Queen D is Your New Bestie: Or How to Stop Worrying and Learn to Love your Debt.

When you start asking your Starbucks barista for receipts (which according to the hyperbolic Toronto Star are pieces of paper laced with the evil Bisphenol A) you know you’re bordering on an obsessive compulsive disorder. However, asking for receipts becomes necessary when, at 27, you’ve given yourself your first budget and are trying to live within your means, or if that's not possible, at least control outflows. For many 2010 is both the year of Convocation but also the year of fiscal restraint. To quote one recently graduated and recently budget minded friend: I’ve been living like a rockstar for the last three years, its time to pay the piper.

For something we use everyday money is one of those things that most people know scant about. Like where exactly does money come from, beyond an ATM? Such fiscal immaturity is probably tied to the fact that we deal with two very different types of money (and I’m not talking of fiat money versus commodity money). In office environments we bandy around million dollar valuations, and at dinner parties we’re likely to discuss the trillion dollar cost of health care. These amounts of money are so large that the $4 we donate to Starbucks every morning for a latte exists on an entirely different playing field. My boss and I were in deep negotiations for a week over the final $10k of my salary; yet she runs a company that bills in hundreds of millions of dollars.

But the buck (pun!) doesn't just stop with money, it extends to other financial matters as well. I was driving in my car the other day, which is my parents’ old car, with a friend who like the me of two years ago is contemplating going to grad school. Eventually things got more exciting [grad school = boring, lets be honest] as we started to talk about interest rates and debt.

“So a variable interest versus a fixed rate is?” She asked. I had to think back to my macroeconomics class and remember that bank rates come from the fact that commercial banks borrow money from the central bank. Finally my friend admitted, “I can’t believe I’m 25 years old and I barely know common financial terms.” This wasn’t a moment for me to feel intellectually superior. If anyone had asked me the same question six months earlier I would have laughed in your face. I’m pretty sure the last time I talked about interest rates was during Grade 10 math when I learned about compounding interest and used this fun little formula: FV=PV(1+t)^n.

Such financial stupidity may be shocking but it shouldn’t be a surprise. I’m pretty sure that most people my age have become, quite frankly, financially illiterate.

Financial illiteracy amongst my peer group, the Y Generation, or whatever some schtickster social theorist has coined to describe the entitled children of baby boomers, is a product of both micro and macro trends. The micro trend is our own upper-middle class upbringing which allowed for a laissez-faire treatment of consumables.   We went to university in the heady days where money just sort of existed. As long as you were only buying small things, leather purses, ray-bans, iPods, everything was all good. We were truly children of the Alfred E. Neumen, What me worry? school of thought.

As my generation matured, left undergrad and started working we all expected this continued easy access to cash. For a long time dollars flowed. You tell a bank that you’re getting your MBA, JD, or going to medical school and suddenly you can walk out of said bank with a new credit card, line of credit and student loan; its like you’re worth $150k right there. This addiction to credit, however, wasn’t just a product of our profligate baby boomer parents. Everyone was addicted to the same thing. As Doug Saunders of the Globe and Mail recently wrote: “What the Western world did in the 1990s was essentially try an experiment: We expanded loose money and easy credit more widely than ever before, allowing even poor people to borrow against future earnings, in hopes that this would create a sustainable improvement in living standards.”

However, as the cliche goes, all good things must come to an end and when world economic order almost collapsed two years ago everything my generation knew about finances, which admittedly was very little, became irrelevant. Shit got real, yo.

Suddenly boomer parents started worrying about their own retirement, world credit markets realized 90% of North Americans were all binge-spenders and coupled with all of this economic madness my friends and I realized that we weren’t only interested in buying latte’s and cashmere sweaters on sale at Club Monaco. We wanted houses, diamond engagement rings, memberships to the Toronto Lawn, oh and cars that weren’t hand me downs from our parents and which came with horribly misogynistic nick-names, like the Clit (Taurus) or the Gash (what’s Red and beaten up all over...). Suddenly debt wasn't just spoken about when people talked about Greece, Ireland and Portugal, they became seminal topics to our existence. Since when did I spent an entire car ride back from Muskoka talking about housing prices?

What we’re seeing now, in terms of the tightening credit market is a direct hit and also a direct affront to our own financial literacy. Suddenly we are living in the age of debt and figuring out how to climb ourselves up on the good debt bandwagon and climb down from the bad debt death train. Which is to say that this that debt at 27 or 28 isn’t necessarily a bad thing. In fact the only reason I actually now save those Starbucks receipts is because I owe the Bank of Nova Scotia money. It is only because I am now cognizant of the fact that I owe money do I now save money. Paradox that..

My advice, is don’t hate the debt hangover, embrace it.

How best to look at debt? Remember the episode of Gossip Girl where Serena was like, I just want a summer with nothing to do and Blair was like, uhm you’ve done nothing all year so basically you’re entire life is like summer. Debt is your Blair Waldorf. And just like Blair, debt can sometimes be annoying, conniving and sometimes you want to tell debt to shut the fuck up, but debt is also the friend who puts you in place and tell you to not buy yet another J. Crew button up shirt.

So whether you like it or not, debt is your new best friend and like OMG to that.

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