Many, if not most, people don’t know how to live within their means. Too many Americans are addicted to easy credit like a junkie is addicted to heroin. Rising home prices and home equity loans gave them the illusion they were rich. Now that illusion is gone and they are way over their heads in debt. Plentiful jobs means little in this circumstance. Once you have maxed out your credit cards, you are working for the bank.
Right on - you said what I was trying to say much better.
Bingo. The fact that a significant majority of folks are uneducated at personal finance is a big black mark against the public education system, which often is more interested in sowing sexual confusion and feelings of cultural and racial Balkanization amongst its students than actually teaching useful, practical things...that will enable American students to compete in the global economy.
(More generally, American students are fairly ignorant of business and accounting in general, which I guess explains why an alarmingly high number of folks are buying into the notion that the oil companies are conspiring and actively price gouging.)
Admittedly, though, managing one's finances in twenty-first century America is more complex (an understatement!) due to the rapid explosion of different credit instruments, including credit cards, HELOCs, student loans, ARMs, and such.
Too many Americans are addicted to easy credit like a junkie is addicted to heroin.
Credit, when used properly, is not a bad thing. The problem with the housing bubble (tulip mania) is that people did not use credit properly.
Rising home prices and home equity loans gave them the illusion they were rich.
Folks made forward bets, whether they realize it or not. They bet that stable, relatively low energy prices and interest rates, lax lending standards, and indefinitely rising personal incomes and housing prices.
Some lost, some won. And the cycle will continue.
Now that illusion is gone and they are way over their heads in debt.
It's all about the types of debts incurred. You generally incur debt to obtain assets that are productive or appreciate in value (such as a useful education, a reasonably priced car to get to work, a house to live in). Short-term debt (such as that incurred on credit cards) can be used to finance short-term obligations and improve cash flow while you are waiting for receivables (such as your paycheck).
Too many folks borrowed without planning and for non-productive or depreciating purposes.
Once you have maxed out your credit cards, you are working for the bank.
Only if your finance charges are above the inflation rate. Still, holding debt at less than inflation rate can destroy your cash flow if not managed properly, due to the ongoing payments and the reduced ability to absorb shocks (such as the present spike in energy and food prices).
As a side note: Dave Ramsey's methods are not a financial panacea, but for most folks, they are fairly effective and easy to understand.