A Deficit of Delayed Gratification (article)

The present level of civilization is the product of a long development in which people have internalized certain moral constraints, including delayed gratification. However, there is a tendency for those norms to fall away in a crisis, such as an economic mania or panic, both of which Americans have experienced recently.

Until the last 30 to 40 years or so, most were pretty adept at handling jobs and basic money matters. They showed up at their jobs on time, collected their pay, and gradually spent it on what they needed until their next payday, saving for a major purchase or an emergency along the way. Adults successfully adapted to the rigors of work discipline, working all day and following the directions of their supervisors, bending their inclinations to the demands of their highly regimented jobs. Labor discipline became general; it was considered natural. Prudent economic behavior became internalized and economic civilization became habitual.

In the last three to four decades, the U.S. economy

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has changed in a manic way that made it more difficult for ordinary citizens to manage their economic responsibilities soundly. Previously, credit cards were uncommon; now they are nearly universal. Before, someone buying a house had to put up a down payment and satisfy a banker that they were a good credit risk; until recently, mortgages were available to people who had no down payment, and when house prices went up, second mortgages were easy to obtain. In the past, retirees had defined and secure pensions; now, most people have private pension plans, which they not only have to contribute to but manage as well. A generation ago, no one not in business was likely to know what a credit score was, let alone have one; today, credit scores are essential to how much they can borrow and what interest rate they pay. Cars can be bought with five-year (or longer) payment schedules. Higher education has become more expensive and often requires taking out large loans by both parents and students. Payday loans give workers advances on their paychecks for which they pay up to the equivalent of 400 percent per year in interest. Even phone service and air travel, once regulated, now require complex decisions.

Risk has been shifted from banks, insurance companies, corporations, and the government to ordinary citizens. People are now expected to manage credit and risk. Why is this difficult? The answer is obvious, even banal: temptation and lack of financial sophistication. The modern consumer is bombarded by enticements to spend, coming from advertisements, shopping malls, family, and friends. Easy credit demands a higher level of self-control, which not everyone can develop quickly. Just as the sexual revolution increased sexual choice, making sexual life freer but also more complicated, benefiting some and visiting new miseries on others, so also does easy credit place new and greater psychological and knowledge demands on people.

Because instant financial gratification became so

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widespread, even the new mainstream, it was no longer seen as being on the margins, as behavior to be stigmatized. The social pressure of traditional economic civilization was not there to keep Americans in line.

Opportunities for a whole host of financial agents increase vastly when people have to make numerous, complicated decisions about credit and investing. The number of mortgage brokers, financial advisers, insurance salesmen, and other intermediaries increases, as does the opportunity for such promoters to take advantage of the ill-informed. These agents, many just good rationalizers and some dishonest, succumb to the temptation to sell dangerous and harmful financial products to the unsophisticated.

Operating successfully in an easy credit and high-risk economy requires not only strict impulse control but also financial acumen, which most people lack. At best, most people make suboptimal decisions about their finances; at worst, they are stripped of their savings and left deeply in debt. The new financial system demands a high level of economic civilization, or economic prudence, and many of us fall short.

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