Over half of Americans report finances as their top stressor, but Harvard professor Arthur Brooks offers a surprising insight: the culprit might be bad money habits, not income. Brooks joined TheStreet to discuss the biggest financial mistake people make and how to avoid it.
Related: You can’t buy happiness — science of balancing wealth with your emotional well-being
Full Video Transcript Below:
CONWAY GITTENS: So for a lot of Americans, financial issues are very, very stressful. Yes so in terms of your expertise, what advice do you have in terms of how to deal with that financial stress and have, you know, peace of mind?
ARTHUR BROOKS: Yeah the number one thing that I’ll talk about is the mistake that people make, because the biggest source of stress that people make is, is not that there’s not enough money, but they make mistakes with their money. Actually, you find, and the number one mistake that people make is that they borrow money for consumption, never borrow money to consume. Now, OK, you don’t have enough money. You actually need to put groceries on your credit card. I get it. But that’s not what we’re talking about. Think about the normal sources of avoidable stress that people have is that they want to consume, they want to buy something. They want some stuff in their life and they don’t have the means to pay for it yet. So they go into debt for it. They buy a car that’s twice as expensive as the car that they really could afford because it’s a nicer car.
Watch More Interviews:
Shark Tank’s Kevin O’Leary has a bold plan for TikTokKara Swisher issues stark warning to the mediaInflation is impossible to forecast — stop investing like you can, top economist warns
I’ll pay it off $600 a month for five years. Who cares? No, no, no, no, no, no, no. One year in that car has got dents and you’ve got four years left on the payments on that car. That’s the number one predictor of how your finances can drive down your happiness as borrowing for your own consumption. Credit card debt is horrible for your happiness. Do you find that car debt is a big problem for your happiness? Student debt can kind of go either way because it’s sort of like an investment. People have a tendency to go to institutions that are more expensive than they should because they can borrow the money. Wrong reason to go to a particular school. The only kind of debt that can actually raise your happiness is a mortgage, because that’s actually better than paying rent because you’re getting a little bit of that money into the bank and making progress in the future. Progress brings happiness. Borrowing for consumption is the opposite of progress.
CONWAY GITTENS: So I take it that you might think this new industry of buy now, pay later is actually going to cause us some pain later on?
ARTHUR BROOKS: It’s horrible. And what you found is during the Great recession, for example, that credit card debt went way down and now credit card debt is really high again. And this is one of the things that’s putting downward pressure on American happiness. The number one thing you can teach your kids is that it’s going to shackle you to be taking out, you know, be paying interest on your credit card. Don’t do that if you can’t afford it now. And it’s a discretionary expense. I’m not talking about food. It’s a discretionary expense. Don’t buy it now. You’ll be much happier as a result.
Related: Veteran fund manager picks favorite stocks for 2024
