How America Became Addicted to Debt — with Morgan Housel

From Washington to Wall Street to our credit cards, borrowing has become a way of life. In this Deep Dive, Scott examines America’s reliance on debt and who ultimately pays the price. Then, Morgan Housel joins him to discuss the difference between borrowing that builds wealth and borrowing that leaves you vulnerable, how housing costs are reshaping young people’s financial choices, and why lasting financial success depends less on predicting the future than being able to withstand it. Follow Morgan, @morganhousel. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 0:36Scott Galloway?

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• 1:36Scott Galloway?

  Is it even possible to make good financial decisions when the broader system rewards leverage, consumption, and short-term thinking?

• 1:42Morgan Housel?

  When you are a lower income, it's called debt. When you are a richer person, it's called financing.

• 1:51Scott Galloway?

  Today's Prof G Plus deep dive is about debt and how America turned borrowing from a tool into a lifestyle. To understand the scale, let's start with one piece of data. The national debt is now 124% of GDP. Outside of a brief window at the height of COVID, when the economy temporarily collapsed, the national debt hasn't exceeded the size of the US economy since the aftermath of World War II. Last month, it crossed that threshold again, and this time, it doesn't appear to be going back. In the late 1940s, US national debt hit roughly 106% of GDP. We had mobilized the entire economy to defeat fascism. There was a reason for the debt and a plan to grow out of it.

• 2:32Scott Galloway?

  The GI Bill, the interstate highway system, the greatest economic expansion in American history, we borrowed to build, and we built our way out. Specifically, we essentially have monopoly power over manufacturing globally because the two other big competitors, or the three really, Germany, the UK, and Japan, had all been leveled or totally exhausted by the war. Today, we're not at war, and we have no Marshall Plan. What we have is a federal government that spent the last 25 years cutting taxes, primarily for the wealthy, and expanding entitlement spending with no plan to grow its way out of either. The only thing that passes for bipartisanship now is, I know, let's spend more and cut taxes. But it's not just Washington.

• 3:17Scott Galloway?

  The same logic, borrow against the future that may not materialize and let someone else foot the bill, now runs through the entire economy, through corporate balance sheets, through consumer credit, all the way down to someone financing DoorDash with Klarna. But let's start at the top. In fiscal year 2025, the United States paid over $1 trillion in interest on the national debt. That's not paying any debt down, that's just the interest. $1 trillion. That's more than we spend on national defense. Maybe not this year, they're trying to get another $400 billion, but still, it's more than Medicare. It's the second largest line item in the entire federal budget. And the Congressional Budget Office, the CBO, projects it will keep climbing, hitting $1.5 trillion in interest payments by 2032.

• 4:00Scott Galloway?

  We are, in the most literal sense, paying for the past instead of investing in the future. And that cost falls hardest on people who had no vote in creating it. Other people are going to have to pay this back. BlackRock CEO Larry Fink put it best in his annual letter to investors. Millennials and Gen Z are economically anxious because, in their view, baby boomers built a system that worked for themselves and left everyone else to figure it out. Sort of, you broke it, and now we gotta fix it. And in the case of retirement, Fink wrote, they're right. We shouldn't think about the national debt as an abstract fiscal problem, but as a transfer from young to old, from the future to the present, from people who will pay to people who already spent. Let's look one level down.

• 4:45Scott Galloway?

  Corporate America has spent the last decade running the same playbook, just with better branding. They call it leverage. Private credit markets have ballooned from roughly $500 billion to over $2 trillion in just a decade. AI infrastructure build-outs are being financed at a scale the underlying revenue doesn't yet justify, or may never justify. Data centers, chips, compute capacity, all borrowed against a bet, a giant bet, that the returns will eventually come. If you invest, they will come. Maybe, but the structure's identical. Present investment, future reckoning, someone holding the bag if it doesn't pan out. And then there's the rest of us. Total credit card debt hit $1.3 trillion in early 2026.

• 5:27Scott Galloway?

  That's up 66% in just five years, the highest the New York Fed has ever recorded. The average interest rate on cards, currently accruing interest, is, get this, 21.5%. Buy now, pay later finances 6% of all US e-commerce, up from 2% in 2020. 22% of buy now, pay later users used it to pay for food delivery last year. And in a survey from NerdWallet, 49% of Americans said carrying credit card debt is simply normal. That last number is perhaps the most concerning, because it speaks to the normalization, the collective shrug, if you will, around debt. There's an uncomfortable truth underneath the consumer data. Most of this debt isn't reckless spending.

• 6:11Scott Galloway?

  A bank rate survey found that the majority of credit card balances exist to cover essentials, groceries, rent, utilities, and healthcare, which means we're not only talking about a mass discipline failure, we're just talking about math and people trying to meet their basic needs. Debt has become the bridge between wages and reality. At every level, federal, corporate, personal, we made the same choice. Borrow now, figure it out later. So what does a healthy relationship with debt even look like anymore? And is it even possible to make good financial decisions when the broader system rewards leverage, consumption, and short-term thinking? To explore that, I sat down with Morgan Housel, one of the clearest thinkers on money, behavior, and why we make the financial choices we do.

• 6:58Scott Galloway?

  This segment explores the psychology behind America's shifting relationship with debt, how borrowing went from a tool to a default, and what good financial behavior even looks like when the system is designed the way it is. With us is the, kind of our Yoda around financial management and approach to money, or the relationship you have with, or we have with money. Morgan, thanks for being with us today. I'll kick it off. How has the culture shifted in terms of people view borrowing?

• 7:26Morgan Housel?

  This has always been true, but it's really been true in the last 30 years, that debt is the tool that you use to close the gap between your expectations and your reality. And the more that society and culture has exposed that gap and widened that gap between where you are and where society tells you that you think that you should be, you're going to fill that hole with debt. That's always been the case. One of the things that I think we've done over the past two generations, really, and really in the last generation, and we did it with good intentions and inadvertently, but we effectively told an entire generation that a bachelor's degree from a flagship university, graduating into a six-figure, starting salary job in a nine-to-five office

• 8:10Morgan Housel?

  with good benefits and a salary, and they call them by 5:00 PM, that that's like your baseline expectation, a house in the suburbs, two SUVs, that's what you should expect. And what I just described there is like a top 5% outcome. But we told 100% of a generation that that's what they should expect. And so, filling that with debt has often been the case. Now, one thing I would say, Scott, that's very important here to point out, because it's, I think it's dramatically underreported, is that household debt as a share of income and as a share of GDP has declined every year since 2008. And household debt payments as a share of income are the lowest that they've ever been since we've been tracking it, going back several decades right now. 2008, the financial crisis, was a generational scarring event that scared the crap out of

• 8:55Morgan Housel?

  people in terms of how much debt they should have. And so, it's been relatively low ever since. Now, a big part of that is because young people in particular can't afford homes, and so they don't have mortgage debt that they otherwise would. And so, that means they have less debt than they otherwise would. But I think we got so-

• 9:13Scott Galloway?

  But they have more credit card debt at a much higher interest rate, which doesn't build wealth, right?

• 9:18Morgan Housel?

  Right. And so, maybe if, yes, like, they don't have mortgages at 3% fixed, but now they have credit card debt at a different level. But I think that is a very underreported story, that it's declined every year, every year, as a share of income. So not the total amount, but relative to what people are earning, it's lower and lower every year. And right now, it's been about flat for 20 years, like a full generation that it's basically been flat. It surged a lot in the early 2000s, and it's declined ever since. And so, yes, we do have debt issues in America, particularly if you were to break that out by different income groups, different demographics, then, of course, that's a very real thing. I'm not trying to say we shouldn't have sympathy or that this isn't an issue, but it's a big part of what's going on.

• 10:01Morgan Housel?

  And I think that's a healthy thing, that people have been scared out of their minds over what debt has done.

• 10:06Scott Galloway?

  I think there's some nuance there, and that is, so drunk-driving deaths and teen pregnancies are at all-time lows. On the whole, that's a good thing, but it also reflects that young people aren't getting out and socializing as much, which is a bad thing. And what I would argue, while an appreciation for the trouble you can get into with debt, because maybe you saw your parents live in their condo in 08, is a good thing, but at the same time, I bet a lot of that is explained by the fact that young people aren't taking on $400,000 or $500,000 in debt because they just can't afford the house that used to cost $290.

• 10:43Morgan Housel?

  Yeah, absolutely.

• 10:45Scott Galloway?

  That some of it, in a weird way, is the lack of debt is a reflection of the unaffordability of housing. Do you think that's fair?

• 10:53Morgan Housel?

  I think that's fair. And where people do have debt is, like you said, credit cards, car payments that used to be three to five years, and now they're seven to 10-year payments that they're taking out, and student loans. And so, the idea that like, if there is a quote-unquote "healthy" debt, it's the 30-year fixed-rate mortgage that's reasonable within your income. And that's kind of what's been missing in the puzzle, are people between the ages of like 25 and 35, who would, in any other generation, have purchased, you know, a two-bedroom starter home, that is not there anymore. And many people have written on this, Kylus Scanlon's written about this, the idea that the money that, in a different generation, would have been saved for a down payment. If young people feel like they can't afford the house in any situation, why save for a down payment?

• 11:36Scott Galloway?

  You go to Thailand.

• 11:37Morgan Housel?

  Or you go to Thailand, or you gamble with it on Call Sheet, you do sports betting, you buy zero-day options on Robinhood. Like, so like, how much of that reckless financial nihilism is taking the place of what would have otherwise gone towards a housing payment?

• 11:55Scott Galloway?

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• 12:39Scott Galloway?

  That is entertaining and informative. We hope you check it out.

• 12:46Scott Galloway?

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• 14:30Scott Galloway?

  So there's some religions that just outlaw debt. They see it as predatory, and that all debt is bad. And I think to a certain extent, the term debt, you know, you're in debt, or you can't get out, it has a very negative connotation. But at the same time, if leveraged well, it's a very powerful tool. What is the line between debt that builds something and the debt that just fills a gap or even destroys parts of your life?

• 14:56Morgan Housel?

  You're right. I mean, I almost feel like when you are a lower income, it's called debt. When you are a richer person, it's called financing. And it's viewed like, it's called leverage, and it's very positive. Now, you know, it's true, this has been well documented, that if you look at like, the decabillionaires, the centabillionaires, most of them are in a tremendous amount of debt. Mark Zuckerberg, Larry Ellison, all those people have multi-billion-dollar credit lines against the stock that they own. But that's against $100 billion in stock that they own. If Facebook's stock fell 80%, Mark Zuckerberg would be completely fine. And so, the range of outcomes that they can endure with all that debt is tremendous. And they have so much leverage and connections within the banks that are doing it, they're not going to get forced liquidated, it's probably okay.

• 15:39Morgan Housel?

  But I think if you're talking about a lower-income person who could lose their job and be out of a job for a year or more, the range of outcomes that they can endure, even within their 30-year fixed-rate mortgage, is a pretty narrow channel. You know, they're living in this narrow channel where, if things get just a little bit bad in their life, it's done. And their lender's going to have no sympathy for them. They're just an input on a spreadsheet somewhere that can be kicked out, evicted, et cetera, et cetera. And so, I've always just viewed it as like, I want to live my life so that I can endure the widest range of outcomes that happens. Because if, even if you're just a lay student of history, you know how fragile your personal life can be, and how fragile the broader world can be.

• 16:21Morgan Housel?

  And the biggest events that move the needle the most are the things that nobody ever sees coming. It's 9/11, it's COVID, it's Lehman Brothers, it's Pearl Harbor. No economic analyst or economist ever sees those things coming until the moment that they happen. And also, if you were to talk, you know, the huge layoffs at tech companies right now, tens of thousands of people at tech companies losing their jobs. These are the people that, two years ago, we thought had the best job security in the world. They were coders, they had a degree in computer science, and they're working at Google. These people are set, that's what we said 24 months ago. And a lot of those people are scared shitless right now. They've been laid off, no one else is hiring. Realistically, a lot of them were probably overpaid relative to what they were doing.

• 17:04Morgan Housel?

  There are so many examples of that happening in the world, of people who felt like they were very safe and secure, and then snap your fingers, they're in a different world. And so, taking that into consideration, that is my avoidance of debt. I'm probably more extreme about it than other people would be, but my avoidance of debt is, the world is more fragile than we want to think, and I want to survive the widest range of outcomes that I can.

• 17:28Scott Galloway?

  You've written that people's relationship with money is shaped more by when they were born than by what they were taught. Say more.

• 17:35Morgan Housel?

  If you and I grew up during the Great Depression, you and I would not think the same thing about the stock market that we do today. Both of us, I think, are pretty positive on long-term equity ownership and long-term compounding in a diversified portfolio. If you were 25 years old in 1932, you did not believe that for the rest of your life. Forget about in the 30s. You didn't believe that in the 1960s. After everything had recovered, you still thought it was a gambling machine that should be viewed with a lot of skepticism. It stuck with you forever. Now, if you came of age in the 80s and 90s, you had a completely different view. You saw everybody getting rich around you. They were getting legitimately rich. You heard about Peter Lynch on TV every night, and it was just a very different era from what you saw.

• 18:18Morgan Housel?

  And both of those generations can have the same intelligence, the same IQ, the same education, and come away thinking very different things. I'll give you a modern example of this. Before COVID, Australia had not had a recession in like, 27 years. I mean, like, a full generation that was nothing but up. A lot of that was just because they had so much economic activity from China buying their natural resources, it was just like a boom. And if you talk to a very smart, educated Australian in 2019, they viewed recessions as like, a theoretical possibility. Like, they knew it could happen, but it was like, yeah, but they don't, they don't happen. Whereas if you talk to me in 2019, it was like, my generation, I graduated college in 2008.

• 18:59Morgan Housel?

  Our entire generation is scarred for life by what we saw during that era. And so, again, same IQ, same intelligence, same textbooks in college, and you think of something completely different, just because of the dumb luck of where and when you were born.

• 19:14Scott Galloway?

  Do you think there's any...

• 19:17Scott Galloway?

  Psychology around money when you're living in what feels to be especially tumultuous, volatile times is how, I mean, this does feel, you always think you're in an exceptional time, but this feels exceptionally insecure right now. How does that relate to your approach to money?

• 19:36Morgan Housel?

  I push back on that a little bit. I think what you're saying is right. But you hinted at this. We always feel like it's exceptionally uncertain. I've been a financial writer for 20 years. You've been doing it longer than that. Every single moment that I've been following this has been exceptionally uncertainty. And I think it'll always be that case. Mark my words, in 10 years, people will look back and say, remember in 2026 when the world was so certain, relative to what it is in 2036? Of course, they'll be saying that. But I think if you actually go back to the mindset of somebody in 2002, dealing with the aftermath of 9/11, and 2003 of we're going to war in Iraq, of 2008, when everything was collapsing. Like, we always thought it was exceptionally uncertain

• 20:21Morgan Housel?

  when that period was. I was reading a book recently that was written in the 1990s. And what's interesting is I feel like we have a lot of nostalgia for the 90s today. There was like a lot of political stability, economic stability. And so we remember that now as like a glory era. The book that was written, I think it was written in 1997, was talking about how uncertain and crummy and miserable the 90s were, and how everyone had nostalgia for the 1980s. And so I think it's always like that. Now, that's not to discount like things in politics and the war in Iran. Of course, there's a lot going on right now. But the reason that it feels so uncertain is because we don't know how those stories are going to end. We don't know what Trump's going to do next. We don't know when or if the war in Iran is going to end.

• 21:05Morgan Housel?

  But we will know that in 10 years. And so it'll just feel like it's easy to misremember how uncertain it is. What I always want to do, regardless of the era that you're living in, I just want to be able to endure whatever comes my way without trying to forecast what's going to happen, how these are going to play out. Whatever is thrown my way, like the widest channel that I can survive, is what I want to do. Because so much of what matters in investing is not what can you forecast? Or what are the highest returns you can earn? It's what can you endure for the longest period of time? If you could just be merely average and merely decent for decades on end in investing, you'll end up with an extraordinary result.

• 21:46Scott Galloway?

  Yeah, I love what Josh Brown said with respect to money and the financial markets. You always have to ask yourself, what could go right? I just absolutely.

• 21:55Morgan Housel?

  That's the whole story. Someone told me this yesterday. They said, you know, we've been in a 25-year bear, a bull market. And it just seems like, you know, things have been so good for the last 25 years. And I had to interrupt him and be like, what? Do you know what's happened in the last 25 years? Like, two of the biggest bear markets, a pandemic that shut down the world. Like, we called it the great financial crisis. It easily could have been the second Great Depression. Like, that's been a 25-year bull market. Like, so much has gone wrong. But amid all of that, so much went right.

• 22:25Scott Galloway?

  Morgan Housel is a New York Times bestselling author of The Psychology of Money, The Art of Spending Money, and same as ever. Morgan, always, always learn and always love having you on the program. Thanks for your time today.

• 22:39Morgan Housel?

  Thanks, Scott.

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