Transcript of video:
Most of us view debt as universally negative, rather than as a tool that can either be used for financial gain or, misused to our financial detriment.
The invention of the 30-year mortgage made the so-called “American Dream” possible for the masses. It also created an explosion in home prices and the size of the mortgages needed to purchase them. It’s no wonder that paying off the mortgage tops the list of financial milestones for the average family.
But mortgages aside, we Americans carry lots of other debt. Is all this debt such a bad thing? After all, our economy depends on people buying stuff, and the more stuff we buy the more jobs there are for people. But individually, our ability to support debt depends on our income and net worth.
Whether debt is “good” or “bad” from a purely financial perspective depends on whether that debt produces an opportunity for financial gain – this is referred to as leverage, and has the potential to be rewarding. But when we borrow just to buy stuff to consume, it’s just plain debt. It may produce lifestyle rewards, but it never produces financial gain.