Category Archives: Personal Finance

Crisis isn’t that complicated

Some people want to believe that our country’s economic crisis is so complicated that mere mortals cannot understand it. Only economists and politicians (hah!) have the brain power and education to decipher the complexity of how subprime mortgages and tightening credit markets have caused this unprecedented crisis. Don’t believe them.

You see, in actuality, most things can be boiled down to simple concepts. Economics, I believe, is one of these. Sure, there are nuances and the pursuit of turning theories into mathematical concepts, but let’s not forget that Adam Smith’s master work, The Wealth Of Nations, was based on extensive observations of actual people doing actual things.

So that leads me back to the current economic situation of the United States. While President Obama stated in the Q&A tonight that he didn’t “think it’s accurate to say that consumer spending got us into this mess” in fact, it did. Consumers bought things they couldn’t afford – houses they assumed would keep appreciating, stocks they thought would get more valuable, or just plain stuff they didn’t really need. Of course, more spending means less saving. So when the economy started heading south and people started losing their jobs, too many people didn’t have an emergency fund to tide them over and help them meet their payments. This isn’t to say that there wouldn’t be an economic downturn or that nobody would be affected by a recession, but if more people in this country were savers rather than spenders, we wouldn’t have the crisis we do.

President Obama was heading in the right direction when he said, “putting zero down and buying a house that is probably not affordable for you in case something goes wrong, that’s something that has to be reconsidered. So we’re going to have to change our — our bad habits.” But our bad habits exceed beyond just stupid mortgage terms, they come from an entire economy that’s survival the government is betting comes from increasing credit and getting people spending.

It doesn’t take a genius (or an economist) to see you can’t spend your way out of debt.

Things I’m not buying

With Stampede Friday and Shop-At-Work Monday now behind us, I thought it opportune to reflect on some of the frequently frenzied purchases consumers “need” that I don’t.

  • Nintendo Wii – Perfectly happy pulling out my old school PS2 once a month to play Guitar Hero and Rock Band. Offline. We just don’t game enough to justify buying another console.
  • iPhone/gPhone – My Treo 650 that I’ve had for about 5 years does everything I need it to. Yes, a better mobile web browser and a faster network would be nice, but I don’t need the bills of additional hardware, monthly costs, and seemingly required application purchases to make the current generation devices usable.
  • iPod/mp3 player – My Treo functions as an mp3 player, and gets used rarely. If I’m listening to music it’s usually in the car.
  • mp3s & CDs – I’m odd – the musician that doesn’t listen to a lot of music. But when I do, it’s usually courtesy of the XM receiver in the car. Technically, it’s Amanda’s, but since she’s not commuting, I usually have it. The XM subscription is discretionary spending, but we find it to be a better value than purchasing music.
  • DVDs – Even though I don’t have one at the moment, I found a Netflix membership to be a far better value than buying movies. Why should I pay to store movies when I can have someone else house my library for me and send me one when I want it? And we all know that we’re quickly moving towards that entire collection being available on-demand, so even the extremely-impatient-I-can’t-wait-2-days-to-see-this-movie crowd will be placated soon enough.

You won’t find me lined up outside a store at 4am the day after Thanksgiving. No deal is worth risking your life over. It’s bad enough a store employee would get knocked down as people try to get in for a bargain, but to have 2000 people walk on or over them for a good buy says to me that consumerism has gone awry – well beyond simply buying unneeded products to putting price before life. I’ll take a raincheck.

Not all young celebrities are spendaholics!

Carrie Underwood made this comment in Allure magazine:

On money:
The Steinway piano she craves? “I have the space. It’s just waiting for the piano, but, you know, they’re expensive!” The SUV she desires? “They’re expensive, too!” She is still driving around in the Mustang she won on American Idol.
“But what if I don’t earn any more next year? What if something awful happens? I’m not at the point where I say, ‘OK, I’ve made enough.’ I don’t know what the limit is.”

Good for you Carrie!

Wait, their main financial concern is the cost of gas?

USA Today has an article that basically illustrates why young “adults” need better education in personal finance and economics. Read this paragraph:

Adults aged 19 to 35 do not believe they earn enough to keep pace with the cost of living, according to the report by Qvisory, a nonprofit online advocacy and service organization. Forty-three percent cite the cost of gas as their top financial concern.

Now this one:

Fifty-seven percent of young adults said they only pay the minimum monthly amount on their credit cards, while 36% said they have paid a late fee on a card in the past year.

Among credit card holders, 41% are more likely to have accumulated debt in the last year, while 33% of young adults who owe money on their credit cards are over $10,000 in debt.

Listen, kids. Your problem is not the cost of gas – it’s that you have too damn much credit card debt! You’re not trying to keep pace with the cost of living, you’re trying to keep pace with the marketing industry. Not one of these kids has accumulated $10,000 in debt by paying at the pump, but I’m willing to bet they have a laptop, iPhone, iPod, Xbox, and a fine selection in designer clothing.

Fix your priorities. Your top financial concern should be your debt, not the cost of gas.