“We borrowed too much.” Those words could be written on the tombstone of Western civilization, whose current live-for-today mentality has utterly displaced the mindset through which its wealth and power were built.
A century ago, the U.S. was the largest creditor nation; today it is the largest debtor nation. That addiction to debt is fully reflected at the household level. Annual surveys conducted by Bankrate.com, for example, show that a substantial majority of Americans lack the necessary savings to pay for an unexpected $1,000 expense, such as an emergency room visit or major car repair. Survey respondents say they would charge the expense to their credit card and pay it off over time, thereby incurring biting interest-rate charges, or they would borrow the money elsewhere.
The problem with this reliance on debt is that, like maror at the Passover seder, it is sweet at first but becomes rather bitter as one’s consumption continues. Imagine accumulating a level of debt equal to one year’s income, but then, instead of getting that bonus you were expecting, you lose your job, while your day-to-day needs of course continue. In such a situation, the debtor may have to make harsh lifestyle changes or request a financial rescue from friends, family or community, thus becoming a burden on others. In short, excessive debt corrodes our self-control and diminishes our capacity to cope with financial pressure.
When Rabbi Akiva searched for a metaphor for the ephemerality of worldly goods, he found nothing more appropriate than the world of credit and debt: “Everything is given in mortgage, and a net hangs over all that lives.”[i] Apart from the allegorical meaning of his statement, the truth of its literal meaning has a firm basis in law. Someone who takes out debt he can’t repay exposes himself to losing all his property (or in the modern world, everything not sheltered via bankruptcy laws).
Materialism is embedded in human nature, but it has never had greater force than in our own times. We ought to understand that there are powerful commercial interests actively encouraging the belief that our wants are really needs. By the time you come home and see a $5,000 check pre-made out in your name courtesy of your credit card company, you have already seen a dozen ads egging you on to use that check for present wants, with worries about repayment kicked down the road.
One solution to this problem is to live in Israel where the consumer credit system does not permit this kind of heedless risk: credit charges in Israel are automatically deducted from bank accounts monthly, so consumers are kept on a short leash tethered to how much they have in their bank accounts currently. High-ticket items in the U.S. like education and healthcare, which are leading causes of debt accumulation, are also eminently affordable in Israel. (Of course, a Jew should live in Israel for more than just financial reasons.)
Regardless of location, we ought to conduct our financial lives wisely, apportioning income to both current and future consumption – rather than have consumption rely on current and future income, as is all too common today. In short, we must save for tomorrow rather than live for today.
That said, the Torah highly encourages lending and borrowing for kosher purposes. For example, the Torah requires providing loans to those in need. The loan is considered the greatest form of charity, because it preemptively obviates a future need for charity. The Sages compare a person struggling financially to a donkey whose burden is starting to slip. As long as the burden hasn’t fallen totally, it can be easily moved back into place. But once it falls off, even five people can’t replace it.[ii]
The Rambam[iii] expands this to providing any form of gift, loan, partnership or job. Any kind of support to a person who is in danger of financial ruin can help him avoid reliance on charity in the future. We can infer from this that it is a good idea for someone in danger of financially falling to seek or accept a loan, job offer or vocational training so that he not burden others as his problems deepen.
The Torah balances its encouragement of borrowing and lending to prevent poverty with discouragement or outright prohibition of certain kinds of borrowing, lending or transfer of monies that cross the line of propriety.
For example, the Torah forbids accepting a loan given at interest, and it prohibits any role in facilitating such a loan such as witnessing it, guaranteeing it or drawing up the promissory note.
The Torah places even more limitations on lenders, among them not lending at interest, forbidding pressing a borrower for repayment, forbidding the forcible taking of collateral, requiring the lender to return the collateral when the borrower needs it, not delaying returning that collateral when the borrower needs it, not taking collateral from a widow, and not taking cooking utensils from any borrower (as these are needed for his physical survival).
Conversely, the Torah expects of borrowers to repay their loan as soon as they have enough to do so. “Do not tell your friend ‘Go and come back and tomorrow I will give’ while you have with you.”[iv] The Talmud[v] teaches that repayment of the creditor is a mitzvah, one the courts are authorized to enforce should a debtor refuse to repay.
To summarize our discussion so far, the Torah’s framework for borrowing and lending is social and moral responsibility. Borrowing as is typical in contemporary society for the sake of consumption is a primrose path toward moral and financial bankruptcy. Rather, one should borrow funds when acquiring an asset that improves one’s balance sheet, even when accounting for the debt incurred. Merchandise acquired wholesale that can be sold at a profit on a retail basis, or secured debt such as a mortgage, would fit this criterion. If you can do that, then it is fair to say that you own something. If you can’t, then it owns you.
Unsecured debt, like a student loan for college on the other hand, would leave you extremely exposed. You can’t guarantee the sale of the intellectual capital you were supposed to acquire when in college to get back the value of the loan and then some, nor can you rely on governmental loan forgiveness, which in any event would not apply to private loans. It is more prudent to find cheaper ways to acquire a college education or pay as you go through a job.
[i] Avot 3:16.
[ii] Rashi, Vayyikra 25:35 from Torat Kohanim.
[iii] Hilchot Mattenot Aniyyim 10:7.
[iv] Mishlei 3:28.
[v] Ketubbot 86a-b.