What IS financial responsibility?
“Be Responsible. Take responsibility for your actions.” It sounds simple, right? But what responsibility means to me has changed over the course of my life.
In fact, there are so many definitions of responsibility that Wikipedia doesn't even have a definition listed on its main responsibility page! There are over fifteen types listed there with links to their respective pages (though to be fair, one is a song).
Since I have approximately $100,000 in student loan debt, I now find myself faced with the task of becoming financially responsible. But what does that mean? What type of responsibility do I face?
Responsibility as Legal Obligation
The law of obligation is the most straightforward. When I took out student loans, I entered into a legal contract wherein I got money up front and in returned assumed an obligation to pay it back at a later date. In some ways, student loans are a pretty onerous and inflexible responsibility because they can't be discharged in bankruptcy.
However, federal student loans student loans are actually one of the most flexible types of debt to have because there are so many types of repayment plans. As long as you're communicating with your lender in good faith, it should be possible to stay in good standing.
You can opt for the standard repayment (10 years) which results in less interest paid. You can opt for the extended repayment (25 years) which results in a smaller monthly payment. You can opt for graduated repayment, so that you're making smaller payments when you're just starting out in your career.
You can also opt for income based repayment if you have a partial financial hardship. This can help you live within the confines of the balanced money formula even with a high amount of debt. This is because under IBR, repayment is capped at 15% of discretionary income.
There are actually even more options, and you're legally entitled to any of them if you meet the criteria. This enables you to choose the best fit for your situation. Typically, you can switch between payment plans as your situation changes. Additionally, after 25 years the remaining balance is forgiven (though the forgiven portion of the balance may be taxed as income).
Responsibility as Moral Obligation
This definition assumes that responsibility is a matter of honor or duty. According to this definition, “When someone recognizes a duty, that person theoretically commits their self to its fulfillment without considering their own self-interest.”
Moral responsibility typically assumes that individuals are in possession of free will and have a high degree of agency. Someone subscribing to the idea of moral responsibility might conclude that the moral thing to do is to pay off all individually acquired debts (1) in full, and (2) as quickly as possible – even if doing so has a negative impact on one's quality of life.
Thus, even though someone might be legally entitled to income based repayment, such a choice would be considered unethical because society ends up shouldering some of the individual borrower's burden.
Social responsibility assumes that there is a trade off between economic and social benefit, and tries to find balance/equilibrium between the two. For example, higher levels of education are associated with longer life. Additionally, more educated people are typically healthier and less likely to participate in criminal activity, especially violent crime.
A society might consider shouldering some of the costs of individuals' higher education to be an acceptable tradeoff. A long, healthy life in a safe environment is a tremendous benefit to citizens. The health problems and crime associated with a less educated citizenry might cost more than education would. In that case, society might even be able to recoup some or all of the cost of providing that education.
Are the tradeoffs reached by any particular society on a given issue necessarily optimal? I am not sure that can ever be known for sure. Society is complicated, and it's impossible for any individual to see the entire picture.
For example, lots of people think the American way of debt is not healthy. However, if it's a social construct, is society responsible for changing it? Does social responsibility lead to a diffusion of responsibility where we all complain but no one works to change things?
Food for Thought
Responsibility is a powerful concept. How do you determine when and where to draw the line?
- How do you negotiate responsibility and family?
- Should we be investing responsibly?
- What if you're willing to accept the consequences of failing to meet your responsibilities, like walking away from a bad mortgage?
- How does death impact your responsibilities?
Human beings are a diverse lot, so there are many definitions of responsibility out there. What do you do when someone else's idea of responsibility is different than yours? Is one school of thought on responsibility more or less valid than another? If so, who gets to make that determination?