International Baccalaureate (IB) Practice Exam

Does having debt prevent you from building wealth?

1. True

2. False

The correct answer is: True

Having debt can indeed hinder an individual’s ability to build wealth, but this is often contingent on the type of debt and how it is managed. When individuals accumulate high-interest debt, such as credit card debt or personal loans, a significant portion of their income goes toward servicing that debt, which limits their ability to save and invest. Moreover, debt that isn't leveraged wisely can create a cycle of financial strain, leading to further borrowing and additional expenses, thereby stalling wealth accumulation. In contrast, strategically used debt, such as mortgages for property or business loans for investments, can sometimes contribute to wealth building if the assets appreciate over time or generate income. However, the key factor is the management of debt and the overall financial strategy, as mismanaging debt can lead to financial instability. Hence, while it is possible to build wealth while having debt, especially if it is low-interest and used for investments, the statement generally holds true for the challenges that high debt levels pose to wealth accumulation over time.