Headline stories about the now infamous subprime mortgage mess and its associated credit crisis have been on the media front pages since late last summer; its tremors are still shaking the confidence of investors and financial institutions world wide. Suddenly unaffordable mortgage payments, a dramatic rise in foreclosures and fall in home equities, an abrupt drop in lender revenues, a painful crunch in the mortgage and bond insurance industry, the collapse of confidence in “derivatives,” global doubt about American assets, and a fit of paranoia about how much one bank dares lend to another – all of this has precipitated great wailing and gnashing of teeth, panicky increases in liquidity by the Fed, and an ill-conceived government “stimulus package” to save the world at U.S. taxpayer expense.
While the causes of these financial agonies are vigorously debated from economic and political perspectives, the psychological factors behind them have been largely ignored. That’s not a good idea. A close look at the way people operate financially shows that our current national housing problem and our current global credit crunch are really problems of how individuals at various levels think and feel about money and investing and about buying and having things. More specifically, these crises reflect a childlike mindset that believes you should have whatever your little heart desires even if it’s immoral, fattening, unrealistic and unaffordable. In psychiatry, we say that people who seek such short term pleasure at the expense of long term security are living by the pleasure principle. Sometimes called hedonists, these folks seek things that are too expensive, including houses. (They indulge themselves in other ways, too, but that’s another article}. They borrow more than they can afford to, and they think too much about the benefits of what they seek and too little, if at all, about the risks. The motto they live by is “If it feels good, do it.” People who live this way are sometimes called “cool” or “free spirits – until they’re broke. Then they’re called victims of predatory lenders.
Mature adults, by contrast, live by the reality principle. They too seek short term satisfactions but protect their prospects for long term happiness and security by setting reasonable investment and financial goals and living within their means. Mature adults are not “cool” in today’s culture. Hedonists call them “uptight,” “old fashioned,” or “anal retentive.”