Debt-Free or Skinny? Survey Answers Which We'd Rather Be

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Americans are notoriously body-conscious. We're also money-conscious. But does our obsession with weight and looks trump our concern about our personal finances? A new survey by Credit Karma, a financial tracking and educational site, and Harris Interactive found that yes, Americans are more concerned about their waistlines than our bottom lines.

The most startling fact to come out of the June 2013 survey is that 72 percent of the 2,021 respondents said they would rather live with their current debt than gain 25 pounds and be completely debt-free. Only 28 percent said they would be willing to gain that much weight to get out of debt.

In a similar vein, 43 percent of those surveyed agreed with the statement: "How much I weigh is more important than how much debt I have."
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And if you think that it's women care more than men about their weight, you'll be surprised to learn that men were more likely to agree with that statement (49 percent) than women (38 percent).

Among those surveyed, 74 percent said they have some debt and 46 percent said they have credit card debt. The mean amount of credit card debt for the group was $5,900.

Some of the other findings of the survey include:
  • 64 percent of those surveyed think about their physical appearance more than their debt.
  • 35 percent worry more about how they look than the debt they're in.
  • 70 percent said they care more about their physical health than their financial health.
But interestingly, when the cases got more extreme, the positions flipped. Given the choice between being obese and debt-free or their ideal weight but facing bankruptcy, 62 percent chose the option of being obese, while 38 percent would rather face bankruptcy.

The financial experts at Credit Karma think the focus on weight isn't necessarily about vanity, but more of a reaction to education surrounding the importance of being physically fit. Their goal is to get Americans equally educated about the benefits of financial fitness.

If you had to choose, which would you rather be: thin and debt-ridden, or fat and debt-free?

Michele Lerner is a contributing writer to The Motley Fool.

Debt-Free or Skinny? Survey Answers Which We'd Rather Be

A. More than $102

B. Exactly $102

C. Less than $102

A. More than $102

You’ll have more than $102 at the end of five years because your interest will compound over time. In other words, you earn interest on the money you save and on the interest your savings earned in prior years. Here’s how the math works. A savings account with $100 and a 2 percent annual interest rate would earn $2 in interest for an ending balance of $102 by the end of the first year. Applying the same 2 percent interest rate, the $102 would earn $2.04 in the second year for an ending balance of $104.04 at the end of that year. Continuing in this same pattern, the savings account would grow to $110.41 by the end of the fifth year.

Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today?


 

A. More

B. Less

C. Same

B. Less

The reason you have less is inflation. Inflation is the rate at which the price of goods and services rises. If the annual inflation rate is 2 percent but the savings account only earns 1 percent, the cost of goods and services has outpaced the buying power of the money in the savings account that year. Put another way, your buying power has not kept up with inflation.

True or false: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less.


 

True

False

True

Assuming the same interest rate for both loans, you will pay less in interest over the life of a 15-year loan than you would with a 30-year loan because you repay the principal at a faster rate. This also explains why the monthly payment for a 15-year loan is higher. Let’s say you get a 30-year mortgage at 6 percent on a $150,000 home. You will pay $899 a month in principal and interest charges. Over 30 years, you will pay $173,757 in interest alone. But a 15-year mortgage at the same rate will cost you less. You will pay $1,266 each month but only $77,841 in total interest—nearly $100,000 less.

A. Rise

B. Fall

C. Stay the same

D. There's no relationship to bond price and interest rates.

B. Fall

When interest rates rise, bond prices fall. And when interest rates fall, bond prices rise. This is because as interest rates go up, newer bonds come to market paying higher interest yields than older bonds already in the hands of investors, making the older bonds worth less.

True

False

False

In general, investing in a stock mutual fund is less risky than investing in a single stock because mutual funds offer a way to diversify. Diversification means spreading your risk by spreading your investments. With a single stock, all your eggs are in one basket. If the price falls when you sell, you lose money. With a mutual fund that invests in the stocks of dozens (or even hundreds) of companies, you lower the chances that a price decline for any single stock will impact your return. Diversification generally may result in a more consistent performance in different market conditions.

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