Debt: Do you really need it?

I was doing some reading yesterday. It turns out the average Canadian has over $72,000 of consumer debt. The average American has $90,000 in consumer debt. These come in the form of car loans, lines of credit, and credit card debt. Oh, and let’s not forget the don’t pay for your furniture until 2025 (i don’t know what they are called) and then pay the full amount or 30% interest on it. Seriously, this is capitalism run amok. That means $800 per month of the average Canadian income is going towards servicing debt. The average American nearly $1000 per month goes to pay the debt (this doesn’t include student loans or mortgages). These debt-ridden individuals and families will pay over $25,000 in interest over the life-span of this debt (assuming they don’t borrow anymore).  I don’t know how this is reflected in the Muslim community. I would hope that we are more responsible then this. However, based on conversations I have had with many clients it is a trap that Muslims fall into as well. Here are some things we need to think about and normalize.

1) Buy less S**T!

This large amount of consumer debt (going into debt to consume) is a result of people spending money they don’t have on things they don’t need to impress people they don’t like. “keeping up with the Joneses” per se. Well, the stats would suggest the Joneses are broke. The planet, your bank account, your mental health, and your physical health will thank you! How often have you bought a new car, a new toy, or a new set of furniture only to be discontent with it a few weeks after buying it? I am not saying to spend money! What I am saying is buy what you can afford! And spend money on things that you actually enjoy and bring meaning to your life!

I’ll give you an example. When I started working at Investors Group, I was making some really good money. I went and I leased a Lexus. I pay approximately $750 per month for this car. I was happy. A young guy with a nice car at a payment I could afford. In reality, I don’t really care about cars. I bought this car because I wanted others to think I was doing well. I was. But I would have been just as happy driving a Toyota Camry, A Volkswagon Jetta, or a Honda Accord. I only need heated seats and a heated steering wheel (Winnipeg is Cold). I would have been happier setting aside that extra $300 per month or so for travel, martial arts classes, and giving to charity. Those are things that interest me. If you care about cars and you can afford them by all means do it! But don’t buy something you can’t afford and go into debt! Especially if you are not enthusiastic about the thing you are buying!

2) No amount of stuff can make you happy!

The prophet Muhammad (PBUH) said, “Wealth is not having a vast amount of riches, it is in contentment.”(1). We see this all the time. Celebrities with millions of dollars, fancy cars, and a huge fanbase committing suicide. Your stuff won’t make you happy. But not having mountains of debt to repay will be better for you financially but improve your standing on the day of judgment (interest is a very big sin in Islam).

Further, stuff can’t make you happy. Debt, on the other hand, can impact our mental health, our physical health, and our relationships. “Fighting with your spouse about money is a warning sign” that you have too much debt (2).

3) Financial Freedom

This is the most important one. Debt turns you into a servant. You must stay at the job you hate because you have payments. You can’t risk your steady paycheck to try and start the business you always dreamed of. You have to work longer hours and sacrifice more just to be rid of this debt.

Also, if you took the difference in those payments and invested it at a 6% rate of return for 20 years. . Let’s assume 50%. You spend the rest on what you want. You’d have between $115,000 -$250,000. It could be considerably more if you added more and got a higher return.

Conclusion

We need to get away from this consumer mentality. Too often we are trying to impress people that don’t matter with our stuff. I am not saying not to buy luxuries. I am not saying not to spend money on things you enjoy. I am saying let’s stop getting loans for things that are unnecessary and let’s be financially free of debt. It is crippling us and we don’t even realize it.

References

1. Bukhar, Muslim

2. https://www.cpacanada.ca/en/news/canada/2019-10-25-debt-health-impact