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Wealth Planning

Do you see debt as a wealth-building tool?

It’s normal to be cautious about taking on debt. But avoiding it entirely may derail long-term financial plans and delay reaching important goals.

For centuries, debt has been used as a positive, powerful engine for growth—fueling everything from public works to personal balance sheets. Yet, a recent J.P. Morgan survey found that many clients would rather avoid debt, even if strategically borrowing money would serve their best interests and be a financially sound decision.

This finding was not as surprising as some might think: “Debt aversion” is a common bias at all wealth levels. And one that leads to missed opportunities for many people, including J.P. Morgan clients, who have access to some of the most sophisticated and responsibly structured debt products available.

Indeed, looking at debt as an opportunity—not a problem—is often central to how we realize important goals, such as buying a home or growing a business.


What might you be thinking?

To be clear: There’s nothing wrong with being reluctant to use leverage, i.e., to having debt aversion. It’s normal. The reasons why we might avoid taking on debt, even when it’s in our best interests, can be personal, cultural or behavioral.

Watching friends or loved ones struggle with credit card debt, business failure or other financial difficulties may create personal concerns about borrowing. Some of us may rule out borrowing in a desire to emulate parents or someone we admire. Others of us worry about our own impulse control, and avoid debt as a way to limit a temptation to overspend.

Debt also carries a cultural stigma. As anyone following the news is aware, very real financial crises have been brought on by too much bad debt—student loans and subprime mortgages, among recent examples.

Demographics, too, plays an influencing role: Everything from who we are (age, gender) to where we live and work (city, region) shapes how we feel about debt—and where we choose to draw a line on borrowing “too much.”

And then there’s the science. The behavioral science. The often unconscious emotions and psychology that drive our financial decision making. Some of the foundational research in the field is focused on our feelings about debt.1 In short, we avoid taking on debt because we want to avoid the pain of future payments on that debt. Even when it’s the better choice—financially, mathematically, rationally—the thought of making payments on debt, and our very reasonable displeasure with parting with our money, nudges us away from using it. 


What could you be thinking instead?

Yes, there are very normal and very human reasons why we avoid debt. Lots of people feel this way.

But you’re not “lots of people.” As a J.P. Morgan client, you have the opportunity to work with specialists who can help you implement sophisticated and well-designed debt strategies to advance your unique goals. 

This is responsible debt—not the debt that informs cultural and personal stories or triggers our unconscious biases. You’re not authorizing a blank check or an unlimited credit card for a trip to the temptations of Las Vegas. You’re not taking on a mortgage you can’t afford. You’re not risking the family home.

In other words, you’re not inviting pain, you’re pursuing gain. You’re taking advantage of opportunities to create your better financial future—like the client who recently set up a $4.5 million line of credit so the family could shop for a new primary home in California, without having to first sell their current home in Illinois. Or, the client who used funds from a credit line to pay off a higher-rate mortgage. Or a third client who found that having access to credit line funds allowed her to smooth an uneven revenue stream—allowing her to accelerate plans for her business and more readily meet expenditures.

Interestingly, none of these clients sought to establish a credit line before their J.P. Morgan team suggested it—even though there were no setup fees, and no obligation for them to ever draw on the funds. Rather, it was when they learned of a way to achieve a desired goal that taking on debt made sense.


The value of planning

As a J.P. Morgan client, you have access to planning tools and lending specialists who can help you consider a range of choices to thoughtfully manage your assets and liabilities, so you have the financial flexibility you need, when you need it—which includes having access to liquidity without having to sell assets, perhaps at an inopportune time.

Moreover, if you do choose to borrow, planning affords you the benefit of time. The time to:

  • Optimize your capital structure
  • Put a tax-efficient strategy in place
  • Select the lowest cost of capital
  • Meet the goals you’ve set for yourself

When your decision-making process serves the primary aims you have for your wealth, you have a guide pointing to what actions to take, even during periods of market turbulence.

This is where goals-based planning comes in. It can help you become more intentional with your financial life, while re-evaluating old habits to be sure they’re consistent with your values and goals.

It can be difficult to envision achieving goals that are far off in the future, or to see how small investments can compound into large amounts over time. As a result, we often invest too late, too little or not at all. Or, we rely on longstanding beliefs without periodically testing whether or not they align with our plans.

If your biases are holding you back from acting in your own best interests, here are five strategies to consider implementing.


We can help

Financial goal setting is difficult to do alone—and far easier with a trusted collaborator. Your J.P. Morgan lending specialist can work closely with you and the rest of your team to evaluate a range of borrowing strategies modeled to your specific circumstances and personal capital structure. Contact your J.P. Morgan team for ideas on how to make the most of your wealth on your own terms.


1.George Loewenstein and Drazen Prelec, "The Red and The Black: The Mental Accounting of Savings and Debt" (Marketing Science, Volume 1, 1998).



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