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Conscious Spending. Conscious Life.: An uncommon guide to navigating the consumer culture

Conscious Spending. Conscious Life.: An uncommon guide to navigating the consumer culture

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Conscious Spending. Conscious Life.: An uncommon guide to navigating the consumer culture

475 pages
7 hours
May 9, 2013


Conscious Spending, Conscious Life is a manual for anyone who wants to move from unconscious consumption to conscious spending. Why would you? Because in a consumer world, it's incredibly easy to make poor choices that haunt us for years. Usually, we are deep in difficulty by the time anyone stops us. The best approach is conscious spending.

Presenting a timeless philosophy in the context of modern life, this book enriches the way we look at money and at life. It's packed with practical information and thought-provoking ideas, which help you think for yourself and make satisfying decisions.

Based on Laurana Rayne's long-time experience as a college instructor, Conscious Spending, Conscious Life is sprinkled with personal anecdotes, relevant stories, clearly-written examples, and useful diagrams. This is not a textbook. It is intended to inspire everyone to broaden their perspectives, ask questions, think independently, and cultivate common sense.

May 9, 2013

Despre autor

Laurana Rayne taught consumer issues to college students for twenty-seven years and observes consumer behaviour globally through her travels. This experience has made her keenly aware of the challenges facing the young and inexperienced as they set out on their own in a consumer culture, and she is passionate about sharing her insights to level the playing field. When not teaching, writing, speaking, or travelling, she hangs her many hats in Calgary, Alberta, Canada.

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Conscious Spending. Conscious Life. - Laurana Rayne


Notes from Laurana

It’s tricky living in a consumer world. Subjected to so many pressures and ulterior motives, it’s up to each of us to think for ourselves. There’s a lot to know, and it‘s not necessarily just how to budget and invest. The purpose of this book is to enable you to make choices from an insightful position rather than reacting in knee-jerk fashion to cultural expectations. Conscious Spending, Conscious Life provides perspectives that can help you avoid being swept along with the tide, living a life you don’t really want.

Why and how…

For many years, I taught a college course about issues in consumer economics. I became frustrated by the lack of a good resource book for the content I was teaching, so I decided to write one. Before long, it became apparent that this book is destined for a much larger audience—and here you are reading it.

The consumer world has become highly complex, and it’s easy to be overwhelmed and get lost in details. My intention is to provide context, so you can see how things fit together. Context is like the background in a painting: it’s the aspect that gives meaning to the individual objects featured in that painting. Without background, they are floating and aimless. The consumer culture is the painting we live in. If we do not have any context for what has gone before, we are also floating and aimless. That makes it much more difficult to make constructive choices.

I have also intentionally handled this subject in ways that provide perspective. Perspective is the capacity to view things in their true relationships or relative importance. Perspective allows you to get to the essentials. This is crucial in the consumer world, which is confusingly complex.

Because I’m a generalist at heart, I’ve covered a wide variety of topics and introduced you to the work of many others. I want you to be able to follow up on topics that interest you so I’ve included endnotes, each of which is hyperlinked to the corresponding reference number in the body of this book. Where endnotes have web addresses, these have been hyperlinked for your convenience in accessing them on the Internet.

An uncommon guide…

This book is about questions more than answers. It is based on the premise that when we ask the right questions, we will be able to figure out what to do. This is one of the ways that it’s an uncommon guide: it doesn’t tell you what you should do. Instead, it provides insights and raises questions, which allow you to decide what you will choose to do for the life you want. This gives it a different tone from the many prescriptive self-help books.

Conscious Spending, Conscious Life is about financial sustainability rather than financial information or cleverness. Personal finance books usually speak in terms of managing your money. This book talks about managing yourself. Managing ourselves involves many things—monitoring our viewpoints and mindsets, cultivating resourcefulness, maintaining perspective, retaining our balance in changing circumstances, being aware of our ethics and holding ourselves to high standards, paying attention when we engage with the marketplace, and developing healthy skepticism and common sense. How we do these things has enormous impact on how we deal with money. That’s why this book addresses much more than money.

In the extras at the end, I’ve included a section about learning the language of financial sustainability. It goes beyond the usual glossary: I’ve structured it for enrichment rather than simply repeating dictionary meanings. That’s why it’s subdivided into topic areas and has some additional comments with the definitions. It has been given its own mini-contents so you can easily navigate around it.

Make this book a useful tool…

Content in a book like this does not always have to be read from beginning to end. You might want to start by reading the first section (Welcome to the Voyage) and the last (Living Consciously), then scanning the Table of Contents for a chapter that seems relevant at the moment. Or you might pick one of the four main sections and read it entirely. Or you can go with your intuition, right brain, and serendipity by selecting a chapter at random. It might be exactly what you need that day. Chapter headings and the Table of Contents are linked both ways to streamline this exploration.

If you find the illustrations are too small on your e-reading device, you can view them here.

Conscious Spending, Conscious Life can be a catalyst for conversations. On my blogsite, I have posted a variety of conversation starters, including group discussion questions that I’ve used with my students. You may find them a thought-provoking supplement to your reading. And if you’d like to respond to anything I’ve said, you can reach me via the contact page.

Return to table of contents

Welcome to the Voyage

It is one of the illusions of these times that we can control our world and the people in it—an understandable desire, certainly, because it’s comforting to think we can make everything go our way. For many people, being in control gives them a feeling of security. And truthfully, it is possible to live that way for a while. But eventually we encounter something beyond our control—an extreme weather event, a dramatic economic downturn, or a serious illness.

Control is not possible…

Sailors, who deal with the uncertainty of weather and the continual possibility of unseen hazards beneath the surface of the water, understand the principles of navigation—awareness of their surroundings, skill in utilizing the tools at hand, and mastery of themselves and their impulses. You will need to apply the same principles when navigating the consumer culture.

As in the natural world, human-made social structures such as our economic system are unpredictable and have numerous unseen pitfalls. When we live unconsciously, it is easy to stumble into these pitfalls. By becoming aware of them, we are able to choose different courses of action. We are able to respond consciously rather than react mindlessly.

Frequently, people run into difficulty because they don’t have the tools to make good decisions. The tools for navigating the consumer culture are techniques, strategies, and information. There is more than enough information out there. In fact, the danger is information overload. This book focuses on those things that are fundamentally important, and equips you to look for further information when you need it. Until then, a lot of information simply becomes clutter in your life.

Sometimes, people run aground because they have no mastery over their impulses, reacting impetuously in ways that are temporarily satisfying but ultimately counterproductive to their overall well-being. The consumer culture fosters short-term thinking and impulsive behaviour, making it difficult to think and act mindfully. Yet it is possible, if we pause to see the big picture and apply common sense.

Common sense is the ability to exercise sound practical judgment. It is distinctly different from intelligence and high scores on IQ tests. You probably know intelligent people who do stupid things; they seem to lack common sense.

Psychologist Karl Albrecht, among others, uses the term practical intelligence, which he defines as the mental ability to cope with the challenges and opportunities of life. Practical intelligence is about making good judgments in real life situations and is called for in consumer decisions we make daily: what to eat, where to invest, how much of our income to spend. Applying practical intelligence or common sense in everyday life helps us avoid making irrational mistakes and poor decisions. Some people call it street smarts.

Practical intelligence depends on having an awareness of what’s going on around you. This is crucial, because so much in the consumer culture conspires to keep you unconscious—reacting in knee-jerk fashion, rather than making deliberate choices. Undoubtedly, it’s easier to default to the ready-made solutions, but that means we allow ourselves to be puppets of a system that disregards our well-being. The antidote is to be conscious, aware of ourselves and the forces impinging on us. When we are conscious in what we think and do, we focus our attention and intention, making better decisions as a result.

So, although control is not possible, mastery is. And that’s what this book is about—mastering the art of living your life skillfully as you navigate the tricky waters of the consumer culture. Some people aspire to being financially clever. This book takes you beyond that to financial sustainability.

The way we see the world…

Much of this book was written in proximity to the Atlantic and Pacific Oceans. As I stood on various shores and looked across expanses of water that seem impossibly huge, I found myself thinking about the people who did the same thing, long ago. I wondered what would make a person willing to venture into such treacherous waters, particularly in the early days when no one knew what was on the other side.

Some of these adventurers might simply have been fearless or reckless, depending on dumb luck to see them through. Others would have prepared themselves by learning what was needed and marshaling their resources in an orderly way before setting out. They did this knowing they would encounter the unexpected, but reassured that they had prepared as best they could. All would have encountered adversity on their voyages, and the outcome would have been affected by their knowledge, their strength of character, and how they saw the world. The voyage through the consumer culture is not much different.

We don’t all see the world the same way. Some see it as a safe and generally happy place, while others find it dark and dangerous. Most of us are somewhere in between.

We create our worldview from what we have experienced and what we’ve been taught by our families and culture. Our worldview becomes our definition of how the world works, and it shapes our interpretation of facts. In other words, facts are filtered through our worldview, which provides fixed grooves for our behaviour—automatic reflexes and unconscious responses. This gives us the comfort of not having to think through every new situation as it confronts us. However, acting on autopilot is not usually a constructive response. Reconsidering our perspectives and shifting them as necessary becomes part of the process of growing and maturing.

Immersion in the consumer culture gives us a ready-made worldview that suits those who profit from it. This book is designed to offer other worldviews for your consideration. This does not mean you have to immediately adopt those different viewpoints. But I would challenge you to consider the possibilities. As Laurence Boldt says in Zen and the Art of Making a Living, If we are to change our experience, we must deliberately cultivate new beliefs…¹ To do that, we must understand the issues and their implications. I hope this book will help you do that.

Deepak Chopra, a pioneer in the field of mind-body medicine, reminds us that we can’t change the system, but we can change our point of view. And when we take a new viewpoint, our experience of life is different.

Seeing from a new viewpoint requires an open mind. When you have an open mind, you are able to stand apart from your beliefs and observe without judgment. This requires conscious effort. Here are some of Chopra’s suggestions for cultivating an open mind: Know that you are going to identify with your worldview at every stage of personal growth; accept that these identifications are temporary; take a flexible attitude and be willing to change your worldview; allow your ability to quietly observe without judgment to replace the ingrained ideas you reach for automatically; and use every opportunity to tell yourself that all viewpoints are valid.²

It is important for us to recognize that it’s not easy to let go of old ideas…and equally important to be kind to ourselves when we cling to them because there is comfort in familiarity. Nevertheless, our lives are more satisfying when we open our minds to consider a wide range of possibilities. Here’s something to try when you encounter a seemingly outrageous idea: instead of reacting by thinking, No way! ask yourself, What if…? You might be surprised where this approach takes you.

Conscious spending is your best ally…

There are two viewpoints about how to achieve a satisfying life. The predominant view in Western culture is that life is about the end result. That is, we have a satisfying life when we achieve our goals. The other viewpoint is that life is a process, and satisfaction comes from learning and growing as we meet the challenges that life presents. When we live in a consumer culture, we certainly have an opportunity to confront challenges and learn about ourselves. Everything about the culture propels us toward unconscious consumption.

The consumer culture comes under intense criticism on many fronts. Consumers are taken advantage of. Cheap goods are available because workers in very poor countries are paid less than a living wage. Corporate concern is usually for profits rather than the well-being of people. We are pressured to buy things we don’t need in order to keep the wheels of commerce turning. People are pushed toward irresponsible use of credit by financial institutions profiting from the interest paid when we borrow their money. All of these things are true. Together they make it seem as if it’s impossible to make our way through life unscathed.

That is one perspective. However, the consumer culture can also be seen as a great proving ground, an environment that continually challenges us. To live a satisfying life in such an environment, we need to keep our wits about us, think for ourselves rather than react in knee-jerk fashion to what marketers would like us to think, consider what is really important to us, and maintain a sense of the long term and the big picture.

In short, we must engage in conscious spending rather than unconscious consumption. Conscious spending is not just about what we do with our money. It’s about how we use all of our resources—time, energy, health, intellect, and money—to create a life that is meaningful and worthwhile. There is great satisfaction in learning to skillfully meet the challenges of the consumer culture by living a conscious life.

The process view underpins my thinking. That’s how I’ve experienced my own life, and it makes the most sense to me. This approach has led me to where I am today and made it possible for me to write this book. I will feel well satisfied if your life’s process benefits from some of the information and perspectives offered here.

Return to table of contents

The Consumer Culture

Culture is a product of the arts, beliefs, customs, and institutions created by a society at a particular time. A culture is an expression of the values held by that society. Values are deeply held beliefs. They may be defined as principles, standards, or qualities considered inherently worthwhile or desirable.

To consume means to use up, destroy, expend, or squander; and a consumer is someone who consumes or buys things. A consumer culture instills a way of living that promotes buying and using things up. If a culture is an expression of the values held by the society, then a consumer culture might be said to be based on materialistic values.

Evidence of the consumer culture…

We can become aware of the values of the North American consumer culture by comparing it with others. Anyone who has lived in another country will be able to relate to this. Although it is true that more and more countries are adopting North American ways, there are still notable differences. In fact, some travellers experience culture shock upon returning home after being away for an extended time.

I had an aha moment when I returned from living in England for a year. While I was away, the coffee culture had swept into Canada. Arriving at the Calgary airport, I saw a coffee kiosk with samples of the three sizes of cups available. As I looked at them, I saw big, huge, and gross. Having just come from a culture where the only available choice for coffee was a standard eight-ounce cup, it struck me how these three variations of big reflected the North American mindset that bigger is better.

If materialism is a hallmark of the consumer culture, then we only need to look around us to confirm that we live in a consumer culture. The number of shopping malls, the continual encroachment of advertising on our public spaces, and the growing market for counterfeit goods are evidence that we indeed live in a culture based on materialism.

Because we are immersed in it, we are largely unaware of the extent to which this culture influences and shapes us. Yet the first principle of navigation remains being aware of our surroundings. Understanding any system is crucial for successfully operating in it. Consider work environments, for example. When starting a job in a new workplace, most people find themselves in a state of heightened awareness as they observe and try to understand the dynamics of how it operates. They pay attention to the culture of the workplace (when to take breaks, the amount of leeway time allowed) and the power structure (who is in charge according to the organizational chart, and who has the real power). Understanding the dynamics—both overt and covert—gives us an advantage in successfully moving around in the workplace. The same is true of the consumer culture. The more you know about how it works, what the overt and covert motivations are, and who holds the power, the better equipped you’ll be to navigate through it without making disastrous mistakes.

The Overspent (North) American…

Observations about how a system operates provide one means of gaining insight into the workings of the consumer culture. Research results also provide a useful perspective. Juliet Schor has studied the consumer culture for many years, originally investigating a trend that had been predicted for the 1970s—fewer work hours and more leisure time. Surprisingly, she found people were actually working more rather than less, and this became the subject of her book, The Overworked American. The obvious question was why Americans were not working less. This was addressed in her next book, The Overspent American. Essentially, she concluded that people were working longer hours to earn more money to acquire more goods; this she termed the work-spend cycle.

The work-spend cycle is like a treadmill that people can’t seem to get off. You might logically ask why they don’t just stop? According to Schor’s research, at least two major factors fuel the work-spend cycle: upscale emulation and the aspirational gap.

Upscale emulation is the desire to imitate people who have more money than we do. The aspirational gap is the difference between the cost of what we want and the amount we can actually afford. In the past, this wasn’t an issue. When people couldn’t afford something, they simply didn’t buy it, even if they really wanted to. The purchase was only possible when they had saved enough money. That attitude changed, and now it is quite possible to buy things when you don’t actually have the money in hand.

The buy now, pay later mentality started with the American and British introduction of the all-purpose credit card in the 1960s. By the early 1970s, Canadian banks were issuing credit cards such as Chargex (the early form of Visa) and Master Charge (now MasterCard), and retailers accepted them as payment in increasing numbers. The impact of this is described in the historical section of the Royal Bank’s website: The introduction of charge cards to Canada marked a radical shift in the consumer habits of a country of savers. No other financial product changed Canadians’ spending habits more than Chargex, by putting $300 of instant credit into millions of consumers’ hands.¹

Intensive advertising made the credit card a fixture of the culture in very short order. Because there was no existing market for charge cards, Royal Bank used the powerful mediums of radio and television for the first time to intensively advertise Chargex... By 1980, 1.7 million Royal Bank customers had and were using charge cards.²

Appealing to our desire for security, the advertisements cautioned us, Don’t leave home without it (American Express) and soothed our fears by reminding us that we could Relax. You’ve got Master Charge. The latter was a 1973 television advertisement showing a young woman experiencing a car breakdown on a stormy night. She was frantic about not having the $45 for a tow, but the tow-truck driver reassured her that there was no problem because she had Master Charge.

The credit card companies also appealed to our desire for status and the good life. A 1985 advertisement shows two beautiful people enjoying a luxurious beach vacation. The tag line says, Visa. It’s everywhere you want to be.

Despite the advertising, people used credit cards cautiously at first and mainly just as a convenience—paying the balance in full on the due date. However, rough economic times in the 1980s, coupled with the reassuring you’re worth it advertising slogan, led people to spend more each month than what they could pay for. Over time, they lost sight of the principle of living within their means. As a result, today we see many people trapped in a work-spend cycle because of the debt load they carry.

Looking back…

Sometimes it’s helpful to look back to see how we got to where we are today. It helps us gain perspective and reminds us that life has not always been the same as it is now. This exercise opens us up to the possibility of things changing again.

You’ve probably had enough exposure to museums and old movies to know that conditions a century ago were indeed very different from what they are to-day—not only in the objects people used in their daily lives, but also the systems and practices of society. In pioneer Canada, for example, people generally lived modestly, grew and preserved much of their food, and made many of the family’s clothes. Garments were repaired, patched, and often remade into children’s clothes. Then the scraps were made into quilts and rag rugs. People often constructed their own homes—usually modest structures built with the intention of adding more rooms as needed.

Back then, expectations and attitudes were considerably different. If you didn’t have the money, you didn’t buy it. If you wanted something, you saved until you could afford it. When more children were born, you moved extra cribs and cots into the existing bedrooms or put more children into each bed. It was a humiliating experience to ask a merchant for credit, although sometimes no alternative existed if the crop had been poor and the family had no food.

Shopping was much more a matter of necessity than a leisure activity. In rural Alberta, people purchased most of what they needed at the local general store or from mail-order catalogues. The Eaton’s website describes the significance of the catalogue this way:

In 1884, Timothy Eaton introduced his mail-order catalogue to Canada. This type of retailing was eminently suitable for the vast expanse that was Canada, which remained a largely rural country until later in the 20th century. The catalogue offered everything from clothing and furniture to farming equipment and even pre-fabricated houses. In the rural settlements, isolated communities and small towns that dotted the Canadian landscape, the arrival of the Eaton’s catalogue was a major event and allowed people to avail themselves of the opportunity to purchase an array of products that were otherwise unattainable.³

Department stores, the forerunners of modern-day malls, were eventually built in all major settlements. The original Eaton’s store, which opened in Toronto in 1869, was a very small establishment that prospered and later moved to a three-storey building featuring 35 departments and the first electric lights in any Canadian store. Eaton’s expanded to Winnipeg in 1907. The Hudson’s Bay Company had a presence in Western Canada much earlier, first with trading posts and then opening saleshops as early as 1857. Between 1911 and 1914, the Hudson’s Bay Company opened downtown department stores in four major cities.

The concept of consumer goods is a construct of the 20th century. Prior to that, the things people made, and occasionally bought, were basic items necessary to support their lives. By the early 1900s, Mr. Ford, Mr. Kellogg, Mr. Kraft, and Mr. Schneider all saw potential in manufacturing their products and selling them to a wider market. Since they sold beyond their local areas, they needed to let the public know what was available. This was the beginning of what we now call the marketing and advertising of consumer goods.

Early advertisements were fairly straightforward. Their intention was to introduce products to the public by describing the benefits and creating confidence in the trustworthiness of the manufacturer. After World War II, marketing efforts greatly intensified, as advertisers shifted their emphasis toward convincing us that our lives wouldn’t be complete, or we wouldn’t be worthwhile people, if we didn’t use their products. As a result of this new approach, things shifted from their role of supporting our lives to being the focal point.

By the late 1970s, we were experiencing enormous pressure from manufacturers who put concerted effort into fueling our desire to buy. And we had a new means of buying (i.e., the credit card) even when we didn’t actually have the money. Thus, the stage was set for one of the major challenges of navigating the consumer culture—avoiding unconstructive debt.

The Era of New Consumerism…

The late 1970s saw the beginning of what Juliet Schor calls the Era of New Consumerism. In The Overspent American, she describes in detail the characteristics and consequences of living in such a time. According to Dr. Schor’s research findings, people in this era of new consumerism exhibit several common characteristics. Generally, from funding their aspirational gap, they incur high debt loads. They choose to ignore, or remain in denial about, where their money goes and their current level of debt. They live in a state of time poverty, and feel that their lives are out of balance. If you imagine living under such conditions, or perhaps already do, you can appreciate the degree of stress, alienation, and disillusionment that many people experience.

The consumer issues of our present time in history are challenging. However, the systems of thought and the rules that created these challenges are not written in stone. If we don’t like how things are today, then we can individually and collectively make choices that will change them. In the end, this ability for making conscious choices is one of the advantages of being human.

Return to table of contents

The Issues of Consumerism

Understanding the issues built into the system is crucial to successfully navigating through any culture. On that basis, let’s look at some of the pitfalls and challenges of living in a consumer culture. These are largely avoidable, but you can only avoid them if you are aware of their existence. Otherwise, they will trip you up.

The issue of over-indebtedness…

Over-indebtedness has emerged as the primary issue of the consumer culture. Juliet Schor’s research was conducted in the United States. However, issues of personal over-indebtedness are not limited to the U.S. An article in the International Journal of Consumer Studies tells us about the situation in Australia:

Five years into the 21st century and consumer debt levels in Australia are still escalating. Simultaneously, there is concern that an increasing number of consumers may be unable to meet their future financial commitments, and also mounting alarm at the relative ease with which the majority of consumers can access additional credit facilities. At the same time, credit providers are avidly seeking greater profits by enticing consumers to borrow more and more.¹

Ireland was hard-hit in the 2008 downturn, and the Combat Poverty Agency in Dublin is concerned that there is no policy framework for dealing with over-indebtedness. This is a major deficiency, given the consequences of the current economic downturn and the associated increase in people experiencing debt problems.²

Awash in a Sea of Debt, published in early 2010 by Canadian newsmagazine Macleans, tells us that Canadian mortgage and credit card debt is quite similar to the situation in the U.S.. According to author Jason Kirby, Canadian families, already saddled with record levels of debt, have continued to pile on mortgage and consumer loans at a blistering pace. In the last 10 years the amount of consumer and mortgage debt hanging over our heads more than doubled to $1.4 trillion…³

To put the extent of debt into perspective, he quotes debt-to-income ratios published by the Bank of Canada. The rate of indebtedness in the second quarter of 2009 was 142%. This is sometimes presented as the actual debt-to-income ratio, which in this case would be 142/100 (i.e., Canadians owed $142 for every $100 earned). Shocking? Yes. And the bigger question is: How do we think we can sustain this?

The concern is not just the magnitude of the ratio, but the rapid increase in the past 10 years. In 2000, the debt-to-income ratio was 98/100; in 2005 it was 116/100; and in its most recent report on the state of Canadian family finances, the Vanier Institute reported that the debt-to-income ratio of Canadian families had reached 153/100 by the third quarter of 2011.

The practical problem is that such high levels of personal debt leave people unable to cope with emergencies or with an increase in interest rates because they have no money available for handling unexpected expenses. All their money is committed to basic expenses and paying interest on their debt.

One unexpected expense could be an increase in mortgage interest rates. While mortgage rates are currently at historical lows, this cannot continue in the long term. What happens when interest rates go up? The Bank of Canada, among others, is concerned about this. In assessing risk and vulnerability in its June 2010 report, it analyzed the rapid expansion of consumer and mortgage credit, and judged that the overall level of risk to Canadian financial stability has increased.⁵ News reports and government action since then confirm that this is a continuing concern.

Understanding debt…

One of the reasons for over-indebtedness is a lack of understanding about types of debt and how to use debt constructively. Consumer debt refers to borrowed money used to buy consumable goods. Nondurable goods are those that have a short lifespan. This category includes clothes, vacations, concert tickets, food, and gas for your car. Durable consumer goods are those with a life span of more than three years and include cars, furniture, and appliances.

Consumer goods are either quickly used up or their value depreciates as soon as you take ownership of them. When you use credit to buy consumer goods, you pay more than the listed price because interest is added to the cost. And, because consumer goods have short lifespans, you may not have fully paid off the first one by the time you buy its replacement.

Debt may also be incurred for a purpose other than buying consumer goods. There is an increasingly-common strategy that uses borrowed money to invest, referred to as leveraging. When you leverage an investment, you buy it with borrowed money, hoping that the investment will increase in value. The goal is to make enough money on the investment to pay back the loan plus interest and still make a profit. Leveraging can be useful in increasing your net worth but only when used skillfully.

There is risk in leveraging, and the degree of risk depends on where you invest the money. Putting borrowed money into stocks is a dicey proposition. By the very nature of the stock market, it is not a sure thing. If your stocks go down in value—as they could—you are still required to pay back the loan with interest. And if the amount you get from selling the investment doesn’t cover the loan, you are responsible for the balance. That, in fact, was a major reason why investors hurled themselves out of windows when the Great Depression hit in 1929. They had borrowed up to 95% of the value of their stock purchases and had no way of paying back the borrowed money when the stock market crashed. They were financially ruined.

I did say, though, that leverage can be constructive when used skillfully. A common example is borrowing money to buy a house. Although people usually think of their house as a place to live, it is also the major asset in most people’s net worth. They leverage their home purchase by taking out a mortgage, which is a long-term loan specifically for buying real estate. The property is the security for the loan and can be seized by the lender if the borrower defaults on the monthly payments—a process known as foreclosure.

A house has generally been considered a safe

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