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The Lifecycle of Debt

Once Upon a Time in a Magical Land of Thriftiness Called the 1950s…

The “lifecycle of debt” is something of a nefarious alterity to the life cycle theory of economics that garnered Franco Modigliani the Nobel in ’85. Simply put, life cycle theory identifies a cultural economy where professional, post-industrial workers (i.e “the middle class”) begin their careers with low salaries and virtually no savings. Through career advancement and habitual investment in personal savings, these workers accumulate enough savings to retire comfortably. Because an initially investment in buying a home and raising children happens early in life, these workers accrue the most substantial amount of their personal savings during the final ten years of employment. In these cultures, the old have all the money while the young save all their money.

Revolving Door Credit… or Fiscal Bulimia

Life cycle theory culminated as the traditional cultural economy of the American middle class shortly after WWII. Beginning in the 1980s, developments including the Lifecycle of Debt demonstrate a shifting economic paradigm in American economics that radically challenges traditional consumer behavior. A useful metaphor for “lifecycle debt” would be a person caught in a revolving door for the rest of his or her natural life. On one side of the door is debt; on the other side is financial freedom.

Middle class Americans have traditionally emerged from the initial debt that is incumbent upon starting a family to save habitually for retirement. Conversely, many contemporary Americans have embraced a perpetual “binge/purge” mentality of maxing out their credit cards, refinancing their homes, applying for increasing lines of credit and then working feverishly to pay off their debts… only to repeat the process.

Lifecycle Debt is the Changing Consumer Awareness of “Needs” v. “Wants”

Some of this can be traced to bank deregulation of the 1980s as part of American Cold War strategy. Many banks were experiencing severe economic strain and looking for new ways to raise profit margins. Lenders radically expanded their consumer credit initiatives, peddling expanded credit lines and refinancing options to the middle class. Lucky for them, these Cold Warriors launched their campaign at a time when “Material Girl” was the unofficial national anthem. While prior generations viewed credit as a privilege to supplement basic family subsistence needs, Americans began to reconceptualize credit as a social entitlement. As opposed to seeing credit as legitimate temporary assistance in order to buy a house or car, the working middle class began to think of credit as permanently viable support for an entire lifestyle. Essentially, lifecycle debt is the cultural economy of a middle class that thinks of credit, not savings, as sustainable lifestyle management.

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