[StBernard] housing and credit market

Westley Annis Westley at da-parish.com
Fri Mar 7 15:27:28 EST 2008


There has been so much news about the perfect storm brewing in the
economy-weak dollar, high oil prices, consumer credit card debt, multiple
second mortgages on the family home, and those going bankrupt (personal and
business). I look back on my parents' generation and mine, and see some
stark changes in American consumer behavior in the past 20 years that is now
coming to an ugly head.

My parents married young in the 1950s, and rented for many years, as did
many young couples of their time. About 10 years later they bought their
first wood frame, modest, starter home. Nearly another 10 years later they
move to a slightly larger brick home in Chalmette, but still within their
financial means. My dad worked two jobs in the high inflationary times of
the 1970s, as did most kids' fathers. Then in the 80's we saw moms going to
work and dads holding one job. One new car was not in most young families
reach and it took years to save up for one; most families had used cars.
Families might have a Sears or Maison Blanche credit card, but the limits
were modest and it was for an emergency or convenience for large purchases.
A family vacation was not elaborate, and usually by car.

Now compare that to many young people from the 1990's through today. They
expect to own a home within a year or two of starting out. They want at
least a three bedroom two bath home like their parents, no starter home.
They will take on a mortgage company that will finance this house that they
can't afford using no or little money as a down payment and because they
don't have a strong credit history yet, they'll get suckered into a bad loan
rate or balloon note. They will have several VISA, MasterCard, Discover
cards that are used for groceries, lavish trips, entertainment and have high
debt maybe before they even marry. They will take out loans for private
tuition for the kids that come along, something that many of them really
can't afford. They create more debt furnishing the big house quickly with
all the things it took their parents years to provide for themselves on a
cash basis. They will lease several expensive cars because that's a lower
month ly payment and therefore they never accumulate equity or actually own
their car debt free. They will live from paycheck to paycheck, and be on the
brick of being bankrupt. To cut corners, they may not purchase or have
enough coverage for when bad things happen so life insurance, health
insurance, flood insurance, car insurance, and homeowners insurance can't
help them when they most need it. In a bad recession, or an economic
depression, they don't have any or enough financial savings that can keep
them solvent for the months it will take to find a job, even a lesser paying
job.

This is being said by many national financial analysts and economic
professors speaking out in the media, as well as the older generation who
has watched this attitude that "we deserve the best, we deserve it now, and
there are no consequences to bad financial behavior" Some blame the older
generation for not properly teaching children the value of money, hard work,
saving money, and sacrifice the now for a better tomorrow. They say it's
because those who went through the Great Depression, those who lived through
the Gerald Ford high inflation years, those who remember the oil crisis of
the late 1970s, wanted to spare this younger generation and indulge (i.e.
spoil them).

On the Today Show yesterday, the guest economist urged people to not spend
their rebate money from the IRS on frivolous things as the govt is
encouraging. The economist cautioned them to save it for some tough times
ahead for those not in financially strong positions.

As parents, we need to be sure that besides school work, morals, ethics,
manners, etc. we also need to include money management as one of our duties
to shape a person's attitude and behavior into adulthood, otherwise they'll
believe the credit card companies, advertising commercials, and bad consumer
habits they see around them that will bring financial stress into their
young adult life and beyond. ddk






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