Interest Never Sleeps

December 9, 2011 | 18 comments
By

Hypothetical:[fn1] Alex and Pat both want a Kindle Fire.[fn2] Alex goes to the local brick-and-mortar[fn3] Amazon store, pays $200 cash, and takes a Kindle Fire home. Pat goes to the bank, gets a loan for $200, goes to the local brick-and-mortar Amazon store, pays the $200, and takes a Kindle Fire home. Who made the better decision?[fn4]

***

In the Church, we’re suspicious of debt. Sure, we get a pass on student loans, a modest house, a first car, but, as a general rule, our leaders discourage incurring consumer debt, and celebrate those who have escaped debt’s clutches. Having grown up a member of the Church, and having heard the various talks and lessons, I suspect most members would say that Alex made the better decision;Alex has the Fire and no debt. Pat, on the other hand, has both the Fire and the debt.

***

Assuming you agree with my intuition that, in general, Mormons would think that Alex made the better decision, I want to push that intuition a little:

(1) Let’s suppose, first, that Alex bought with cash because he has $200 just lying around. Pat, on the other hand, doesn’t, and the only way she can afford a Kindle is by borrowing. But assume Pat has a steady, if low-paying, job with amazing job security, while Alex, though making more money,has a 70% chance of losing his job in the next three months, with an uncertain outlook for getting another job in the foreseeable future. Does that change your (Mormon) intuition?

(2) Or what if Alex leaves all of his money in a checking account that doesn’t pay any interest, while Pat borrows at a low 3% rate, while she earns a 10% return on her money, which has all been wisely invested?[fn5]

(3) Or what if Pat isn’t just paying a low interest rate, but no (or a negative) interest rate?

***

What I’m trying to get at is the underlying why of our discomfort with debt. I understand for financial purposes why consumer debt is often a bad idea. Even in a (2) situation, most people don’t invest their unborrowed money; they just leave it in their checking accounts, so the fact that they could earn a higher return in theory doesn’t mean anything in practice.

And maybe our discomfort is purely a practical one, borne out of speculative investing in Kirtland and several generations of General Authorities who lived through the Depression.[fn6] But is there a religious explanation? Like we don’t like consumerism/worldliness? (But didn’t both Alex and Pat buy a Kindle Fire?) We’re theologically opposed to risk? Interest (at least its payment) is spiritually harmful?

***

Even if the avoidance of consumer debt is purely a practical consideration, we can see better today why it’s a good idea than we’ve seen in 80 years or so. But I’m interested in your take on whether it might be something more.

[fn1] Note that it’s exam season, so I’m kind of in exam  mode. Oh, and good luck to all of the T&S-reading students on your finals!

[fn2] Actually, they both want an iPad, but it’s priced way out of their league, and they figure a Kindle Fire is good enough.

[fn3] ;)

[fn4] Yes, I’m asking you to judge Alex and Pat, without knowing their hearts or their genders. If it makes you feel any better, they’re fictional, anyway: this is just a thought experiment.

[fn5] FWIW, Pres. Hinckley wouldn’t have changed his mind.

[fn6] It’s probably also worth noting that the Law prohibited charging interest. For those of you who know the Hebrew Bible better than I, was there any underlying reason that interest would be prohibited, or is it solely because God said?

18 Responses to Interest Never Sleeps

  1. Ray on December 9, 2011 at 8:48 am

    Consumer debt is a little like pride: there’s good pride and there’s bad pride. Without consumer debt, most of us would not have homes or cars or be able to send our kids to college. But consumer debt to purchase flat-screen TVs or the latest jet ski is just plain dumb. In our modern world, the righteous man (or woman) should pray to be worthy to know the difference.

  2. anita on December 9, 2011 at 9:07 am

    The aversion may be a religious connection with the Law of Moses’ restrictions on usury, although I’ve never heard it suggested that we release liens on the seventh sabbatical year…

  3. Julie M. Smith on December 9, 2011 at 9:31 am

    “was there any underlying reason that interest would be prohibited, or is it solely because God said?”

    Deut 15 suggests that the point of making a loan in the first place was to help the poor. Therefore, charging interest would be completely inappropriate.

  4. Last Lemming on December 9, 2011 at 10:05 am

    Can I assume that you insist on brick-and-mortar Amazon stores because you don’t want to get bogged down in discussions of whether Alex and Pat should pay their use tax?

    she earns a 10% return on her money, which has all been wisely invested

    Sign me up. Those promises of a 10% return have worked out so well for me in the past.

  5. Jax on December 9, 2011 at 10:06 am

    You said we should judge without knowing gender, but then you use pronouns HE and SHE to describe them…?

    I second Julie above on biblical reasoning. The poor have almost nothing anyway, it would just be cruel to add debt to them when you are ostensibly helping them out.

    In more recent times (and ancient I suppose) it is awful hard to consecrate something that you don’t own outright. I can hardly pass over the deed to my house/car/? if I don’t hold the deed, right? We ought to strive to have those things paid off (even at a financial loss?) so that we truly control its uses and future.

  6. Paul on December 9, 2011 at 10:25 am

    Great post, Sam.

    It seems the consumer debt question is about choices. If I borrow today, then I lose control over how to spend my earnings tomorrow. (Of course if I’ve saved my money to buy the Kindle Fire and then spend it, I lose my opportunity to spend it elsewhere, too. But in that case, I’ve already saved it so I’m not signing up my future earnings to cover the debt.)

    And the other issue is that many folks (probably not all) would not stop at buying the Kindle Fire on credit, or wait until it’s paid off to buy the next thing. The American consumer in the last couple of decades demonstrated a willingness to borrow to the max of credit lines, not to use those available lines for an item, then pay it off, then another item.

  7. dangermom on December 9, 2011 at 11:07 am

    That whole “interest never sleeps” thing is painfully true. When you’re carrying debt (esp. ‘bad consumer debt’ as Ray defines it), life contains fewer choices and is much more stressful. In a period of zero income, we had to take on quite a bit of debt. Digging ourselves out of it is a long and painful job. I would so much rather be free. Having personally experienced the weight of debt, I have a great appreciation for the GA’s advice to stay out of it if at all possible.

    Debt ties down your future and makes you less prepared for whatever may come. In an uncertain world, it makes you less prepared for disaster.

  8. Chadwick on December 9, 2011 at 11:40 am

    Sam, you say in the Church we’re suspicious of debt. Maybe our leaders are. But I certainly have friends, neighbors, and family members who are not suspicious of debt and use it, some wisely, many unwisely. And I have a feeling that’s why we talk about it. The leaders hear from the Areas who hear from Stake Presidents who hear from Bishops about the fiscal problems of the Saints, so they talk about it. I doubt there is much more to it than that. And, like the word of wisdom, sometimes abstinence is easier than teaching the Saints just how much (debt, wine, etc) is ok. Hence the tangible list of debt-approved things.

    As an accountant, I can certainly understand buying on credit if your investments are going to net you a higher rate of return. But. There is still a part of me that thinks, regardless of that return, it’s nice to be debt free. There is something that makes sleep come easier at night when you are debt free. Especially when, in a market like ours, a return promising 10% is probably fraught with risk. How risk-adverse we as Saints should be is another story altogether. THAT discussion might be explained by our history in Kirtland, etc.

  9. Kaimi on December 9, 2011 at 2:47 pm

    The Kindle Fire is well worth going into soul-crushing debt over. You can play Angry Birds and then read a book. And it’s $500 cheaper than some-other-company’s overpriced tablet. :)

  10. Zack on December 9, 2011 at 3:47 pm

    Or perhaps this whole theology of prosperity (or “provident living”) is a bunch of smoke and mirrors and God doesn’t care nearly as much about our finances as many people in the LDS Church would have us think.

  11. chris on December 9, 2011 at 4:04 pm

    Zack, I’m inclined to think that money is a pretty good proxy (not perfect) for a lot of things (time/value/desire/effort). Apparently the rest of the world intuitively thinks this, which is why we have and use money.

    Seeing as how there is a direct relationship for most of us between money and what we spend our time doing, it’s not surprising the Lord would be interested in it to the degree that it reflects something internal.

    I’ve noticed that a lot of people who live within their means and have their finances in order tend to be better situated to help others out when needed. (This doesn’t say that only the rich serve, not by a long shot, many times the rich are so focused on staying rich or accumulating wealth they don’t serve as much as they should)

    Or to look at another example, consider a mission. Could you go on a mission if you didn’t live providently before hand (and save far more than you consumed)? Could you remain on a mission for the duration if you consumed far more than you saved(earned)?

    To the example in the post, I think it’s definitely “something more”. But it’s relatively easy to persuade someone with an economic value example (do the math and it makes sense). Of course, the downside to this is that when the marketplace is in a bubble and tax incentives convince you that the value in debt is far greater than provident living, then we have people doing the math and it seems to make far more financial sense to not go into debt.

    This is one reason why I think it’s good to get at the true principle behind the teaching, and not just reach for the here-and-now application. Because those applications may change, leading us to disregard the principle.

    So, what are the principles behind not going into debt? I’m thinking part of it has to do with the path of discipleship, and what our true focus is (in part represented by what we sell or time for — whether it’s time in the past or time in the future to pay for past consumption,etc.). In which case, we’re pretty much all condemned?

  12. Zack on December 9, 2011 at 4:32 pm

    I hope that you can all forgive me for jamming my tongue into my cheek in response to the following:

    I’m inclined to think that money is a pretty good proxy (not perfect) for a lot of things (time/value/desire/effort). Apparently the rest of the world intuitively thinks this, which is why we have and use money.

    Oh, well if the rest of the world thinks that, it MUST be what God thinks too.

    But in all seriousness, if the only thing that the scriptures ever seem to say about money is that we should give it away, why is the main thing the Church says about it that we should save (one might argue “horde”) it?

    Getting a little more on topic: I don’t care how either of these hypothetical people purchased a Kindle Fire, at least in terms of deciding how God would view their purchase. Personally, I don’t think He cares that much one way or the other. And if He does care, I can never know His opinion. It’s sad that so many of Mormonisms teachings (whether essential doctrines or lifestyle guidelines) seem to be used primarily for the purpose of judging other people’s decisions. If I have an interpretation about the Church’s teachings on consumer debt, it should inform my purchasing decisions, not serve as the basis for rendering theological judgment on your purchasing decisions.

  13. Dan on December 9, 2011 at 4:38 pm

    Interest never sleeps….except for bankers who know how to game the system. What fools we are.

  14. Sam Brunson on December 9, 2011 at 9:52 pm

    Thanks, everyone, for the great discussion so far. Sorry I haven’t been a part of it—this went up, and then I spent the day away from my computer. A couple reactions, though:

    (1) Thanks, Julie, for the perspective on the Hebrew Bible’s disallowance of interest. It’s interesting to note that the Law doesn’t seem to have prohibited borrowing, but just the charging of interest. Because (a) today borrowing occurs pretty much irrespective of socioeconomic class, and (b) our current prohibition seems to be against incurring most consumer debt, I’m not sure that the Deuteronomic law is the direct basis of our current thought.

    (2) Zach, in my experience, the prosperity gospel that Mormons recognize is weak at best. There’s a strand of the-righteous-will-prosper that can be derived from the BoM, but there’s also a strong sense that the prosperity isn’t necessarily monetary. What’s more, it’s a significant stretch to get from “Don’t incur [most types of] consumer debt” to any idea of hoarding/saving. That is, the consequence Church leaders point to of not incurring debt is not that we’ll be richer as a result; rather, it’s that, when we hit hard times, we’ll have the flexibility to be hurt less.

  15. Sam Brunson on December 9, 2011 at 9:58 pm

    (3) Jax, interesting idea about consecration. I’m not convinced, though. I don’t see any theoretical reason why we couldn’t consecrate levered assets; moreover, if we didn’t borrow to purchase the asset, we presumably wouldn’t have anything (or, at least, would have fewer assets) to consecrate. Still, I like the direction.

    (4) Chadwick, certainly, we have fellow-saints who borrow money, and even use it to fund unnecessary consumer goods (I’d say like a Kindle Fire, but I haven’t yet decided if that’s a necessary consumer good or not—Kaimi?). And that may very well be why we hear about it; still, I’m curious about the theological underpinnings of our push to avoid debt. Because I agree that, as a practical matter, it’s good to be suspicious at best of debt.

    (5) Last Lemming, the brick-and-mortar Amazon was mostly because I wanted bank borrowing, not just credit card borrowing. And I can certainly guarantee you a 10% return; all you have to do is become a character in one of my hypotheticals. Of course, I guess you’re only guaranteed that return as long as you stay within the world of my hypothetical, but that’s something, right?

  16. chris on December 9, 2011 at 10:19 pm

    Zack,
    It’s a pretty clear observation, no tongue in cheek needed. If you don’t understand it, you don’t understand the nature of an economics which really can explain a lot about the world and our decisions. I’m not passing judgement on good or bad, just saying what is. Strangely, the D&C deals a lot with financial issues…

    What I was referring to with time/value/money, etc. is it is a good proxy to show us what we love.

    If you spend your money on unnecessary things, especially excess consumption (house/clothes/toys/etc), what you are demonstrating that your time on earth is being used for things that do not draw you nearer to God. The things you buy are literally paid for with your time + effort. (we can include a bit of opportunity, etc. in there as well)

    So yes, there shouldn’t be anything funny about observing that what we spend our money on, is a direct proxy for what we put our time and effort for. And if that time and effort is so we can get a faster car, that really shows what we love, not what we profess to love when we look in the mirror and then walk away and and immediately forgetting what we claim to love.

    So to tie that back to the beginning, if unnecessary items have a strong potential to condemn us by showing what we really love, how much more so is it negative when we willing place ourselves in bondage/servitude to get it.

    The question would come down to how much good we can do with any particular item, and purchase. And it to answer that question is not up to armchair internet commenters, but between you and the spirit of the Lord.

  17. Jason Hardy on December 10, 2011 at 8:36 am

    I think that many times the objection to debt doesn’t come from a theoretical realm–it’s anecdotal. One pattern that occurs in church leaders is that as they’re conducting their interviews and going about their church business, they see certain patterns from time to time. Often, they are moved to act on something that they see happening repeatedly (or something that has drawn them some form of criticism from the leaders they report to). If they have noticed in the course of these interviews that people are regularly saying they’ve let their daily scripture reading slip, you can bet that a series of sacrament meeting talks or 3rd-hour lessons on scripture reading will be coming down the pike.
    Time and time again, church leaders working with members who are having financial troubles have noticed that they are often burdened with large amounts of debt. They can’t reverse time and get the members not to go into debt, but they can try to warn other members. So they do. This happens in many places in the church, and general authorities are people who generally spent significant time as local leaders, so they’ve seen the problems of debt, and they feel it is their duty to warn people about the dangers of it to avoid the problems they saw so many people getting into. So we’re cautioned against debt.
    One problem with anecdotal evidence is that there are anecdotes you don’t see. Pat’s not going to have to get financial help from his/her bishop, so the bishop’s not going to get a detailed account of his/her wisdom and financial wizardry. So that anecdote doesn’t get factored in to the bishop’s perception of debt.
    I was going to add something about the perception of income being earned and loans being unearned, and the belief that the money that you earn is yours to do with as you please but unearned money is questionable by its very nature, but Chris covered a lot of that angle pretty well. I don’t believe that money is a good proxy for time/value/desire/effort, but I certainly agree that many people see it that way.

  18. Ben H on December 11, 2011 at 6:09 pm

    Sam, your post illustrates very well how the financial environment lately has made it hard to keep our bearings (thanks again, Julie!) on what makes economic sense.

    If I can get a loan for less than I can reliably make on an investment, something strange is going on. Either someone is betting that I will goof up and they will be able to raise the rate drastically on me, or there is a government program holding down the rate (student loans . . .), or the investment environment is in a bubble (not so reliable after all), or something else a bit weird. There may be a reasonable basis for government subsidy/backing of some things, like student loans or home loans, but at the moment, both of those either have recently been (Fannie/Freddie) or now appear to be seriously messed up.

    There are also some artifacts of our tax system that encourage borrowing rather than holding a cushion, which are morally problematic. How come I get a subsidy on my house if I borrow for it, but not if I actually have the money? Etc.

    So, while there may be situations that arise in today’s economy, riddled with materialism and manipulation, in which it seems to make more sense dollar-wise for an individual to take on debt rather than pay for something with cash on hand, I suggest that the weirdness that creates these situations is something we should regret and preferably avoid supporting by buying in.

    While I wouldn’t say that all consumer debt is a mistake, I would say that all debt is questionable, and wherever possible we should avoid it. These kinds of numbers games are what wrecked our economy in 2008, and more numbers games don’t seem to have helped all that much in the meantime.

WELCOME

Times and Seasons is a place to gather and discuss ideas of interest to faithful Latter-day Saints.