So Now What re this fiscal mess

[ScoutMomSD]

I am spinning this of from the thread begun on the bank run thread.

 

So no deal on finances, congress gone til Thursday, no one can agree. What next?

 

What are the solutions? I agree with how we got here: too much debt, living past their means, getting low payments and relying on the future home price increases, overvalued markets, yadda yadda.

 

But you cant keep punishing folks for what was done a year ago. I know, a lot of them deserve scorn BUT we cant just be ostriches and put our heads in the sand.

 

There is a slow domino effect here and I truly believe that not all have fallen yet.

 

Look are our parents (probably for some of you grandparents). They were depression kids. And that is the way we are heading.

 

BUT here are the differences:

housing as a percent of wages was much lower then.

credit was not as prevalent and easily available.

People didn't lease cars and later if they did it was for tax reasons, not because they couldnt really afford the car they drove.

Monthly expenses did not include cable tv, cell phones, internet service, etc.

Utility bills were not approaching $500/month.

Property taxes/home fees did not include Mello Roos fees, HOA fees, etc.

School sports were a part of SCHOOL, not extra. If you have your kids in 2 sports per year, you are probably spending another $300/year minimum that used to be included in school costs.

 

some other sobering stats:

50 years ago:

avg salary was $5000, avg house cost around $2500, avg car around $2000

Today:

avg salary is around $49,000 But for many families it takes 2 incomes to do that.Avg home costs are around $225,000 and an average car is around $28,000

 

And in our little corner of the world, even with home prices down, the average is around $430,000 down from the high of $574,000 in 2006.

 

And the stop gap for families when finances have gotten tight is, you guessed it, credit.

 

Point is what can we do about it and for those who say that in the "good old days" folks didnt have debt, etc, they didnt have the expenses either.

 

We need a plan for the reality of living in 2008. And we need it fast.

[Rythos]

The plan should be do what your grandparents/parents did. Pay cash for things. We need to work towards spending less than what we make, and stop worrying about what your neighabors are driving, wearing, living in. Dave Ramsey (A christian fiscal responsibility counciler) says it pretty well when he tells people to stop trying to keep up with the Jones's because while no one realizes it the Jones's are up the their eyeballs in debt

 

Cars are a great example. If you have a car payment from the time your 25 through out the rest of your life you will spend over 5 million on car payments. Many people have over a 400.00 car payment per month and talk about how they don't have any money. If you got rid of your car and bought a 1000.00 car and drove it for a year while putting 400.00 in the bank each month by the end of the year you would have 4800.00. Sell the 1000.00 junker for whatever you could get and buy yourself a 5000.00-5500.00 cash car.

 

Keep saving your 400.00 per month for another year or two years and repeat. Over the course of 6 years you'll have gone from paying 400.00 every month for the rest of your life to driving paid off 15,000.00 quality used cars that you can trade in every 2-3 years if you want. This doesn't even factor in the cost savings due to the new 18,000.00 car people run out and finance ends up costing you more like 25,000.00 or more in the end.

 

The point at which we can get people to go back to asking How much does it cost, instead of how much per month, for how many months, at what interest rate, we will be on the right track again. This will help us to put ourselves on credible footing when we try and teach our kids how to handle money as well.

 

All easier said then done of course

 

Ry

 

 

[ScoutMomSD]

have 2 paid for cars. My present to myself is to have my 1995 volvo painted this fall.

 

Havent purchased a new car in close to 20 years.

 

you are right - most folks buy/lease at $400 to $600/mo

 

the decrease in my net worth still scares me though

[Tokala]

For 8 years the President has repeatedly told the American people to shop their way out of economic hiccups. It's a horrible way to manage the economy. Advertising and government urges people to spend instead of living within their means. If people used common sense instead of feeding the urge to have the latest gadget or "hottest" car, there wouldn't be such an issue. Of course, if the banks, investment banks, and governments (whether local, state, or federal) used the same method, we wouldn't be having this discussion.

[packsaddle]

I agree with Rythos. Live within our means and in time the problem will solve itself. Really, there is no other way, even if this bill gets passed and we postpone the inevitable. Either we choose to take responsibility for our lives or sooner or later the system will force this upon us.

 

Look, this is actually an opportunity. The fiscal crisis has presented us with a peek at a harsh reality and we have the opportunity to get it right. But we can't wait. We can't put this off with more 'voodoo economics'. Or...sadly, I guess we can.

[Gold Winger]

If we still made anything in this country, we could shop ourselves out of the mess. Okay, we do still make some stuff: cars, lumber, tanks, airplanes. However, more and more is being made by China, Inc. Everytime we spend a buck, 50 cents is going to China.

 

Twenty years ago, we could cry "buy American" and be able to find American made products with the possible exception of electronics. Shoes, shirts, pants, power tools, underwear, backpacks, tents, knives, forks, plates, cups, glasses, etc..

 

Now just try to find anything that is a regular consumer good that is made here. I bought some Libby glassware recently that was made in the USA but that's about it. My MP3 player? Shoes? Clothing? My Alp mountainteering pack was made in China. My Coleman trekking poles were made in China.

 

Sure, some big things are still made here like cars and washers and refrigerators but we buy a fridge about once a decade but buy cell phones and mp3 players every couple years. We buy clothing every few months.

 

If every dollar we spent helped another American by giving him a job, we'd be booming. But what we with nearly every dollar that we spend is to help an American fat cat become fatter and help a Chinese fat cat become fatter.

[Gold Winger]

Live within our means? Can't do that and keep up appearances.

 

Heck, everyone that I know says "I gotta pay for my kids' education" Why?

 

I was graduated from college in 1982 from a university that is always on US News & World Report's list of top universities. I spent (not my parents) about $15,000 for my degree, including tuition, books, room & board, and beer. At that time, a new college graduate could easily expect to make $15,000 in one year, especially in a technical field. I paid back my student loans in about three years.

 

Four years at that same school now cost over $150,000. I don't know many entry level jobs that pay $150,000. If you have $150,000 in student loans, how long will it take to pay those back and still be able to afford to do things like buy a house, get married, go on vacation, enjoy a hobby?

 

I know a fellow who has a decent job as does his wife, she worked and let strangers raise her kids so she could work so they could save more. They don't have an extravagant lifestyle. They saved. Their two daughters are in college to the tune of nearly $100,000 a year. Both parents have second jobs. This fellow told me that they'll be nearly flat broke when the girls graduate, not to mention being in debt up to their ears.

 

Ten or fifteen years to rebuild savings as well as pay off the massive debt?

 

What sense does it make?

[Lisabob]

Yes, let's live within our means, except that the price of gas is up, what, 40% in the last 4 months? Food prices are up something like 15% over the same time frame? Not to even mention health care costs and college costs. Sorry but my wages are not keeping up. I don't know too many folks who can claim otherwise either, no matter the industry.

 

So what should people give up first? Eating? Or Medical care?

 

Rampant consumerism and undisciplined savings habits are certainly a big problem but let's not assume that the structure of the economy is such that many people could simply go cold turkey on credit tomorrow, even if they desired to do so. Not everybody is out spending wildly and irresponsibly on the latest fashion accessory. An awful lot of folks are merely attempting to survive and hang onto their positions on the fringe of the middle class, on the barest minimums.

[packsaddle]

In the news I see we lost almost 160,000 jobs in September alone. A taste of things to come perhaps.

Lisabob, If the price is too much, don't buy it. If you can't afford the commute to work, find closer work or don't work. It isn't a matter, necessarily, of a 'choice' to go cold turkey on anything. There may simply be no choice at all. The credit won't be available.

I just heard a statistic that the average nest-egg for Americans is $50K. That a huge number of us have no savings whatsoever. Excuse me? We have the ability to choose all of the lifestyle things. If we don't have the money to support a family, we shouldn't have a family. Same for the big house, car, etc. The fact that we borrowed to 'have' those things simply means that either they must be paid for eventually, or else have them removed. Life style is going to change dramatically for Americans. There is no way to avoid it...and irresponsible to try to avoid it by borrowing more.

[scoutingagain]

Like it or not the solution is to live within our means, as individuals and as a country. Those that continue to live beyond their means will suffer more and make it tougher on the rest of us as they line up for more and more government bailouts and entitlements. Unfortunately there is no other answer. The pain can be delayed through more borrowing, but somewhere, someplace at sometime we will need to pay up. And real people will suffer lost jobs and a lower standard of living.

 

Yes things are different but, the fundamentals of the free market have not changed.

 

BUT here are the differences:

housing as a percent of wages was much lower then.

 

True, but housing prices are dropping dramatically. Bad if you bought a home a few years ago. But as I noted earlier, a relative just bought a house she never could have afforded 2 years ago. Falling home prices will make homes more affordable.

 

 

credit was not as prevalent and easily available.

 

And it shouldn't be. Tightening credit will help prevent a relapse of the current mess. Credit should not be as available as it was or is(Heck I still get probably a dozen credit card offers a month.) Savy lenders should only lend to those that have reasonable propects of paying off the loan. When I bought my house you had to have 20% to put in as a down payment. No, interest only, ARM, balloon payment nonsense.

 

People didn't lease cars and later if they did it was for tax reasons, not because they couldnt really afford the car they drove.

 

90% of the people I know drive more car than they need. T

 

Monthly expenses did not include cable tv, cell phones, internet service, etc.

 

cable-v is certainly not a necessity, same with cell phones. Intenet, possibly. In today's world to not be connected makes it nearly impossible to even search for a job.

 

Utility bills were not approaching $500/month.

 

True. But this is a fact of life. As John McCain said, " Life isn't fair." Energy costs will be higher, period.

 

Property taxes/home fees did not include Mello Roos fees, HOA fees, etc.

 

True, but government provided far fewer services and doesn't need to do as much as it does at all levels. No matter who is elected, for President, Governor or Mayor, they will have to figure out how to manage government with less $$$. Massachusetts had a $200 million shortfall in August alone. Governor has cut agency budgets by 7% across the board. The last time they did this, I didn't notice anything was missing. The line at the DMV was a bit longer.

 

School sports were a part of SCHOOL, not extra. If you have your kids in 2 sports per year, you are probably spending another $300/year minimum that used to be included in school costs.

 

True and this is unfortunate. But teams didn't have pro-athlete like facilities either like I've seen at some public high schools.

 

Unfortunately there is no other answer other than to live within our means. The pain can be delayed through more borrowing, but somewhere, someplace at sometime we will need to pay up. And real people will suffer lost jobs and a lower standard of living. This is not punishing folks, this is just the way it is. We lived a higher standard of living than we can afford for the last 20-30 years.

 

SA

 

 

 

[skeptic]

"Scoutingagain"; great post. Next time you go to a market, watch how many people are checking through with numbers of six packs or cases of beer, and often bottled liquor. Often they will add on two or three packs of cigarettes. Same people complain they cannot afford their bills. Lets see, for a hundred dollars or so I can buy enough food to cook at home for two for a couple of weeks; may not be glamorous, but it is enough and fairly balanced. And, reality is that even that is probably more than we actually need many times.

How many unworn items of clothing, or pairs of shoes do we need in our closet; I know that I likely rarely wear over half of what is still there, and I have not bought much in the past year.

 

Let's be real for a moment. Even if we as a society are forced to "give up" much of what we seem to think we need, we will still be far better off than most of the rest of the world, even if some of the things we still have are a bit dated.

 

 

 

[skeptic]

Peripherally related to this is an article I saw in PARADE (I think)last week It talks about a man in the SW who has developed portable housing from large shipping containers and is beginning to sell them in Mexico to families living in shanties of old wood, cardboard, and so on. Cost to them less than $10,000, which even there, most can afford. The size is generally about 350-400 sq ft, and includes a small full bath and kitchen, as well as two small sleeping areas. They can be stacked or joined in various configurations to make small clusters for community, or simply set alone. I could not help but wonder if this might not be a plan for dealing with our own homeless in many cases. A bit of donated land (tax write-off), or public space; money paid in welfare or other inadequate income for many on the street could support the cost and get a large percentage into something safer and more sanitary.

 

The point again is that there is a big difference between want and need. Too many of us have either forgotten that, or never knew the difference in the first place for some reason.

 

Just the ranting of another "old guy" born during WWII and raised in a family that lived through the depression. My brother and I were "latch-key" kids in the 50's.

 

 

 

[Gold Winger]

If you're a boomer it is interesting to look at the expenses that we have for "necessities" today that our parents didn't have.

 

We had one phone line with one extension in my parent's bedroom. No private lines for kids, no fax lines and no cell phones.

 

One radio until my older brother got a transistor for Christmas.

 

One TV for the whole family and we watched whatever Dad wanted to watch.

 

One car for most of my young life. When we got a second car, my mother, brother and I vied for its use. I didn't have a car I could call my own until I was in college and making good money during the summers.

 

Air conditioning? Open the windows.

 

Dishwasher? That was me and my brother.

 

Our refrigerator kept things cold or frozen. Now everyone "needs" water and ice on the door, special zones, internet control and message board with their fridges.

 

If memory serves, our prom was in the high school gym. Now they make the royal wedding look like a small time affair. Pre-prom, post-prom, limos.

 

High schoolers go on spring break trips that we would have thought extravagant back in college.

 

Sports? Don't get me started. Sports have gone so far over the top that they're in danger of hitting another galaxy.

 

Okay, I'd better stop ranting now.

[Melgamatic]

> Cars are a great example. If you have a car payment from the time

> your 25 through out the rest of your life you will spend over

> 5 million on car payments.

 

Interesting concept, but not correct even with an order of magnitude.

 

If you have car payments from age 25 to 75, that's 50 years. That is 600 months. If you bought nice cars, and paid $500 a month, that would be $300,000 over the 50 years.

 

If we increased the cost of the car by 3% every year (which is much faster than the actual growth in the price of cars), we'd be paying $2128 a month 50 years from now, but the total for 50 years would still only be around $676,000. (Even going further, the present value of those cash flows is around $299,000 today.)

 

Talking about how people spend too much money is interesting, but let's be careful about our math.

 

-Melgamatic

 

 

[ScoutMomSD]

fuzzy math huh? funny, good point.

 

So I guess I should move to North Dakota, take up hunting, use an outhouse, and start talking like Beavah? right?

 

I hear remnants of the old "when I was a kid I had to walk 20 miles in the snow in bare feet to school" it is just hilarious.

 

Time waits for no man - dont remember who said it, but its true.

 

Bottom line is as I always say, it is what it is. We are where we are and to say that would have, should have, could have will fix it is wrong. There are folks who made bad choices. Oh well. Lets look FORWARD and think about the realities of folks with a several hundred thousand dollar reduction of house value, a drop in the "retirement" funds of the 401k's and tightening of the credit market.

 

At my age, it really wont affect me other than paying for my kids college. My husband has a pension and we will have social security. But there are lots of folks younger than me in their 30's who may or may not be able to recover. What happens as they have kids go to college and think about retirement?