Creating Consumers: How We All Got Into Debt & Its Real Cost

First, I would like to make sure everyone gets a good understanding and can have realistic expectations about this post. This is not (!) a “consumption is evil” article. On the contrary. I am a consumer. You are. We all consume money and goods. And I will continue doing that. As you will too. BUT, we lost our way of consuming in a healthy way. At the highest cost.

In this post, I will show you why we just can‘t stop consuming money in an unhealthy way. I will do that by taking on a historical perspective on the creation of consumers. And, I‘ll show you the result: Earth Overshoot Day.

Living on Credit: Earth Overshoot Day

We are living on credit. And I don‘t mean money-wise in the form of consumer debt like credit card debt. Even if we are doing that too. I mean we live on more than what this planet has to offer. No, this is certainly not another „starry-eyed idealist“ article. As promised. But, do you have kids? I do. I love them more than anything else in this world. That‘s why I want to hand down a great place to live for my kids. Don‘t you? So, why are we doing the opposite by over-consuming our planet earth? Here‘s the story.

Since 1961, the Global Footprint Network has published the so-called Earth Overshoot Day. This day marks the moment of the year when we have already consumed as many resources from this planet as the earth has to offer. We then should stop our consumption and let the earth recover until it restores its resources. We‘re not doing this. You are not. I am not. I guess. When we consume more of earth’s natural capacity – that it can reproduce in a given period of time like 1 year – we „overshoot“.

The baseline of this measurement comes down to 2 elements. Now it gets a bit complicated. But we will get there. So, one element to measure this „overshoot“ is the biological capacity of the earth. This capacity shows how many ecological resources the earth can produce. Now, the question is how many natural resources we consume. That is the other element. But how can we measure our consumption? We use our ecological footprint. You may have heard of it. It shows how much CO2 emissions human beings cause on earth due to our resource consumption. Examples are the consumption of wood, water and soil through oversized land use. Also, we need a timeline to confront both elements – production and consumption of natural resources. We take 1 year.

The calculation of the Earth Overshoot Day is simple:

The calculation of the Earth Overshoot Day is simple: Biological capacity of the earth (aka production of natural resources) / Humanities ecological footprint (aka consumption of natural resources) x 365 days. Let‘s take a look at the evolution of Earth Overshoot Day over the last couple of decades.

As we can see, we need more earth surface to cover our demands than this planet has to offer. We exceed nature’s budget for the year before it has the chance to restore its resources. But how did we get there?

The Creation Of Consumers

There was a time when people felt they had enough. Enough food, enough water to drink (or sometimes beer or wine and coffee or tea), enough clothing and even real quality time to relax outside. Then, something remarkable happened. People were trained to not only want to satisfy their needs but also newly-born wants they didn‘t even know about. The desire for constantly raising the so called „standard of living“ was born. And with this new word creation a new world began. A world where Earth Overshoot Day was born too.

To be clear: I have truly nothing against raising my standard of living. There were so many great inventions that simplified my life. And there will be even more to make the lives of my daughters easier too. I‘m grateful for that. But, the question is: what has become out of it? I give you an example.

Where we could simply drive a car to get from A to B we drive the latest fancy SUV. Better a „Pimp my ride“ car (maybe you‘re old enough to remember that TV show). I‘m guilty of that too. There was a time when Marc and I drove only big and fancy cars on the weekends. Those were sponsored by his employer back then. One day we drove the car that the chancellor of Germany (where we live) had driven. Same question: what has become out of it? Or of us. How did we get there in our early 30s? Our consumer spending was out of control. We even considered taking on car loans at one point in time. We decided against it despite our higher incomes and already knew that this decision was beneficial for maintaining good credit scores. Even if personal finance or having financial goals was still a foreign world to us. Looking back, I can say that the evolution from having a lower income to earning a lot of money happened too fast for us personally. So fast, that we didn’t learn to adapt in time, so to say, to healthy financial habits.

How It Began

It all started in the 1920s. The 2nd Industrial Revolution was at its peak. Mass production and assembly-line work were driven by the invention of electricity. It was less expensive and easier to proceed in industry compared to the steam engine (marker for the 1st Industrial Revolution). That skyrocketed mass production. But at such a pace that the demands of people for new goods like cars, radios or vacuums couldn‘t keep up with the production. A new world of potential markets – like the automobile industry as the most important one back then – opened the door to the creation of consumers.

In 1919 the General Motors Acceptance Corporation was the first to allow financing a car to middle-class incomers from the United States using auto loans. Until then you could only buy a car if you paid the entire price at once. That was true for everything and mostly impossible if you had a median household income. But now, for the first time in history, America’s middle-class could buy a product – a car – with a down payment and an income big enough to cover the monthly payment. Often buyers chose only making the minimum payments. The result: in 1900 the number of private cars was around 8.000 and in 1920 it was over 8 Million!

From that moment in history, there was no turning back. People were trained to buy a thing – a car – they actually couldn‘t afford at the moment by using credit. The average household started to go into debt to afford things – like cars – based on what they hoped to earn in the future. Some tried to get personal loans to escape the higher interest rates. But it was not yet the form of consumer credit as today. Back then, only the people selling a product were the same ones giving out credit to buy that product. It should still take decades until the creation of modern credit cards and consumerism.

2 big hurdles had to be overcome. People had neither enough money to buy all the new goods nor enough time to enjoy all of them. They didn‘t even feel the need to want those goods because there was no time to feel a need. There was simply not enough time and money to actually consume what people produced.

The History Of Work Time Vs Leisure Time

The solution was right there. The invention of the concepts of work time and leisure time. Here‘s a simplified overview of the evolution of an average work week in Europe, Germany as an example:

While the pace of the revolutions gained speed, the hours and days of a regular workweek dropped. The 2nd Industrial Revolution showed the biggest drop in terms of work time. This was very important. People got one full day off and their work time was cut almost by half! The concept of relaxation to do enjoyable things was born.

Let‘s put these numbers in relation. A week has 168 hours. We need around 80 hours a week to maintain our bodies – sleeping (8 hours per night), eating (1 hour per day), personal and household care (2-2,5 hours per day). So, a week leaves us with 88 free hours. How did the split of work time vs leisure time evolve?

As we can see the 2nd Industrial Revolution (1870s-1965s) more than doubled our leisure time and gave us 1 entire day off! During the 3rd Industrial Revolution (1965s-2000s) people got 2 days off and their leisure time settled at almost 50 hours a week! That is still true until today. Having more leisure time was an important step to modern consumerism. But it was still not enough for the creation of consumers.

The Birth Of The Credit Card

Now, that I have more leisure time, I could finally simply relax, right? So wrong. Why should someone relax when this person could consume instead? Instead of leisure time being „time to relax“ it was edited to „time to consume“. How? With „Money, Money, Money“ (maybe you‘re old enough to remember the famous ABBA song).

In the 1950s the first credit card was released on the market. Its birth land: America. The „Diners Club Credit Card“ could be used in a couple of New Yorks‘ restaurants to pay with. The perfect incarnation of leisure time being turned into „time to consume“ instead of simply „time to relax“. But it should take decades until credit cards became a thing and were used by a lot of people.

In the 1970s only a bit over 15% of Americans had a credit card. In 2000 over 70% of Americans not only had but regularly used a credit card. Until today, that trend continues with around 85 % of Americans owning a credit card in 2022 no matter unemployment rate, the rate hikes or higher prices in general in recent years. With that more and more credit card companies settle. Most credit card balances are rarely looked at and the total debt just piles up. How about you? Do you know your current credit report accurately or your total mortgage debt or the amount of interest you paid in the past year?

The rise of the credit card correlated with another important event in history: the birth and rise of the shop window. Even if window shopping was invented in 1909 it should take until the 1965s and 70s until it gathered speed. If you want to know more about the history of window shopping definitely stay tuned for the next post to come on Impulse Buying: Its Roots & How To Overcome 3 Main Triggers. However, all of these events directly correlate with the alarming results of Earth Overshoot Day. We consume more than we have, money-wise and when it comes to our planets‘ resources.

Today, there are even financial institutions helping to guide U.S. consumers through the consumption jungle of federal student loan payments, credit cards or mortgages. One example is the Consumer Financial Protection Bureau from the United States helping to achieve better transparency and fairness for the different consumer financial services. And even if its effort is appreciated, isn’t it remarkable that consumer culture has evolved to such a level that this bureau is necessary in the first place?

What I find historically so interesting is that the average income became higher than the average cost of living already around the 1900s. People had more money than needed. For the first time in human history. At least that‘s how it was in Germany. We could live well within and beyond our means for decades! Somehow we‘ve lost our way to consuming in a healthy way. Healthy for our wallet, our planet earth and our beloved little ones who only have this one place to live. Do you know how you will or want to hand it down? I know what I want.

When you walk away today with at least one new idea to improve your personal financial journey towards F.I.R.E., I’d love to show you some more in the next post. If you haven’t already, you can apply to become a part of the community to not miss any new release. For that you can subscribe to our Newsletter below in the green footer.

Now, I’d love to hear from you: Which number or historical fact shocked you the most from this article and why? Do you want me to go deeper into a specific topic? Let me know in the comments below.