Jun 24, 2024
Many Americans are expected to live their youth carefree. But if this nonchalance spills over into their financial lives, it can leave them with a hefty debt burden.
Avery, a 26-year-old car manufacturer from Austin, Texas, had managed to accumulate a sizable debt balance in just a few years. Digging through her financial statements on an episode of his YouTube show, “Financial Audit,” Caleb Hammer discovered a complex web of borrowed money used to pay off other borrowings of hers.
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“You're in an abusive relationship with [credit cards],” Hammer diagnosed.
Avery’s financial journey had left a series of overdrawn accounts and a mountain of debt in her wake.
Debt-fueled consumption
Avery enjoys splurging on cosmetics, Pokemon cards and live concerts while paying a hefty monthly sum for her car. Unfortunately, some of these items have become excessively expensive in recent years.
The average price of a concert ticket surged from $90 in 2018 to $120 in 2023, according to Apollo Global Management. However, many young fans end up paying much higher prices on the resale market, where tickets can go for thousands of dollars, depending on the popularity of the artist.
These eye-watering prices haven’t tamed Avery’s enthusiasm. Despite her various debts, she planned to attend more concerts in 2024.
“I'm going to go see 21 pilots and Melanie Martinez,” she told Hammer. “I'm so excited.”
But she can’t afford these concert tickets, so she’s signed up for various buy-now-pay-later (BNPL) programs.
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Research from the New York Federal Reserve Bank shows that “financially fragile” borrowers were more prone to use BNPL plans.
Coupled with her passion for Pokemon cards and cosmetics, Avery’s spending frequently exceeded her modest annual income of $44,000. That means several bank accounts were frequently overdrawn and she had outstanding balances as high as $5,000 on some credit cards.
The heaviest load on Avery’s finances was her Toyota Camry. The outstanding balance for this auto loan was $31,972, while her monthly payments amount to $652. However, Avery’s income could not sustain these payments.
“Twenty percent of your take-home pay goes to this car,” Hammer calculated. He believed the car was worth just $21,000, which meant it was underwater by at least $10,000.
He warned that Avery’s situation was spiraling out of control, while she admitted to not being financially literate.
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Financially naive
Avery's financial naivety and poor mental accounting were the core reasons behind her mounting debt burden.
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She claims to have a “method” to manage her various accounts and with her pay schedule to maximize her credit score, but Hammer discovered that she was borrowing money from some accounts to pay off others.
“You are not taking advantage of credit, they are taking advantage of you,” he said. “They own you.”
To make matters worse, Avery admitted she rarely monitors her accounts.
“I’ve never really checked my finances to be honest with you,” she said.
This isn’t unusual. As of 2024, only 50% of American adults had the skills needed to manage their personal finances, according to a financial literacy survey conducted by the World Economic Forum.
Fortunately, Hammer believes it’s not too late for Avery to salvage her situation. He recommended trading in her car for a cheaper model and sticking to a tight budget — meaning no unnecessary expenditures — to pay down her “bad debt.” If she started “grinding” immediately, he believed she could unburden herself in two years.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
