Should young people borrow to get their 401(k) match?

I think the answer is yes.  Suppose you are a young person, early in your earnings years.    Your employer offers you a one to one 401(k) match on, say, 5 percent of your income.  The employer match gives you a guaranteed 100 percent immediate return on your investment (I know of no other deal like this).  But after paying rent, college (or other school) debt, utilities and food, you haven’t got five percent of your income left over.  Should you take on credit card debt to finance the 401(k) contribution?

If (and that is a big if) you are a prime borrower, the answer is likely yes.  Suppose your investments earn an eight percent return and, as a prime borrower, you pay 15 percent interest on your credit card.  You are creating a $200 asset for every $100 of debt you take on.  The asset grows by 8 percent, compounded, per year, and your debt grows by 15 percent, meaning that in year 11 the value of your debt will exceed the value of your assets.  (Clearly, if credit card interest is in the 20s, it is a completely different story.

But, one expects income to increase over the early part of the life-cycle, making it possible to amortize the credit card debt over time.  It is important to be disciplined, and not use any more credit card debt than necessary, and to pay it off as soon as possible, but it also makes sense not to leave money on the table.