The biggest financial mistake you could make, and how to avoid it
Harvard professor Arthur Brooks joined TheStreet to share his tips on how to avoid his #1 financial mistake.
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00:00 So, for a lot of Americans, financial issues are very, very stressful.
00:06 Yes.
00:07 So, in terms of your expertise, what advice do you have in terms of how to deal with that
00:15 financial stress and have, you know, peace of mind?
00:20 Yeah.
00:21 The number one thing that I'll talk about is the mistake that people make.
00:23 Because the biggest source of stress that people make is not that there's not enough
00:26 money, but they make mistakes with their money, actually, you find.
00:29 And the number one mistake that people make is that they borrow money for consumption.
00:33 Never borrow money to consume.
00:35 Now, okay, you don't have enough money, you actually need to put groceries on your credit
00:38 card, I get it.
00:39 But that's not what we're talking about.
00:41 The normal sources of avoidable stress that people have is that they want to consume,
00:45 they want to buy something, they want some stuff in their life, and they don't have the
00:48 means to pay for it yet, so they go into debt for it.
00:50 They buy a car that's twice as expensive as the car that they really could afford because
00:53 it's a nicer car.
00:54 I'll pay it off, $600 a month for five years, who cares?
00:57 No, no, no, no, no.
00:59 One year in, that car's got dents, and you've got four years left on the payments on that
01:03 car.
01:04 That's the number one predictor of how your finances can drive down your happiness, is
01:08 borrowing for your own consumption.
01:11 Credit card debt is horrible for your happiness.
01:14 You find that car debt is a big problem for your happiness.
01:17 Student debt, eh, can kind of go either way because it's sort of like an investment, but
01:21 people have a tendency to go to institutions that are more expensive than they should because
01:26 they can borrow the money.
01:27 That's the wrong reason to go to a particular school.
01:29 The only kind of debt that can actually raise your happiness is a mortgage because that's
01:34 actually better than paying rent because you're getting a little bit of that money into the
01:37 bank and making progress in the future.
01:40 Progress brings happiness.
01:42 Borrowing for consumption is the opposite of progress.
01:44 So I take it that you might think this new industry of buy now, pay later is actually
01:49 going to cause us some pain later on.
01:52 It's horrible.
01:53 It's horrible.
01:54 What you find is during the Great Recession, for example, that credit card debt went way
01:55 down and now credit card debt is really high again.
01:58 This is one of the things that's putting downward pressure on American happiness.
02:01 The number one thing you can teach your kids is that it's going to shackle you to be taking
02:06 out, you know, be paying interest on your credit card.
02:10 Don't do that.
02:11 If you can't afford it now and it's a discretionary expense, I'm not talking about food, it's
02:16 a discretionary expense, don't buy it now.
02:19 You'll be much happier as a result.
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