Our Money and the Brain series explores the psychology of money: how we talk about it, how we think about it, and how it shapes our relationships and our lives.
For this episode, PayPal’s Ian Cohen speaks with Alejandro Martinez-Marquina, a behavioral and experimental economist and assistant professor at the Marshall School of Business at the University of Southern California, to get some insights into how our relationship with debt is shaped by many ways, including our cultural upbringing.
Have you ever heard the terms “good debt” or “bad debt?” They show up everywhere, but Alejandro Martinez, an assistant professor at the Marshall School of Business in USC, wants you to think about it differently.
“Rather than thinking about ‘good debt’ or ‘bad debt’, we should think, ‘what am I using the debt for?’ And the use of the debt will tell you if it’s good or bad,” he said.
We can use debt for essentially two things:
Financing consumption like going on a nice vacation or shopping online, and long-term investments, like buying a house or paying for education.
So, Alejandro encourages people to be thoughtful about when they use debt. “’Is this something that’s going to give me a return, that’s going to be beneficial to me in the long-term?’ That’s good debt,” he said. “Once you start thinking about what you get out of it and what’s the cost of borrowing, that’s when you [understand] good and bad decisions. That’s the mindset people should have.”
Watch the full interview to get more tips about how to better manage debt, including an overview of three key terms that Alejandro says will help you understand debt better than most people.
The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.