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National Debt and How It Affects Personal Debt

By: Michael Millington

Debt happens through the accumulation of personal financial obligation. This is a simplified way to explain debt, but there are multiple factors that can influence how you accrue debt. One of the main influences is also one that many people don’t have much knowledge of: the national debt level. National debt is the amount of financial obligation we have as a country, and it is very important to know how it affects your finances.

What is the National Debt?

The nation's debt is the collection of our government’s budget deficits on an annual basis. When the government spends more money than it accumulates, a deficit is created. These are then collectively known as the national debt level. The nation's debt level rises and falls with the times, and our daily lives are altered as the debt level of our nation changes. As with personal debt, national debt can be beneficial when utilized properly. However, there are also massive (yet necessary) detriments that can occur from an increase in our nation’s debt.

How the National Debt Affects the Nation

As government spending increases (or stays the same) and government earning stays the same (or decreases), the nation’s debt grows. As the nation’s debt increases, the chances of the nation defaulting on its debts increases as well. This can make it riskier to ensure treasury securities (bonds issued by the United States government) and it can also make American companies riskier investments as well. This, in turn, causes products and services offered by these companies to increase in price because of the yield uptick to alleviate fears of defaulting. This affects you as you have to pay more for things, leading to inflation and more money spent on the same things. Let’s list these steps in a simpler manner.

  1. Government spending increases while government earning decreases
  2. This causes the nation’s debt to grow
  3. National debt growth increases the nation’s chances of defaulting
  4. National and corporate financial products increase their yield to investors
  5. To cover the national yield increase, other government projects lose funding
  6. To cover the corporate yield increase, that company’s products increase in price
  7. These financial shifts result in poorer standard of living (environmentally and consumer-wise), which means…
  8. You’re chances of accumulating debt go up should your income and budget stay the same

While there are ways to survive a serious rise in the national debt level, it pays to know the ways in which your personal finances are affected by the national debt.