Thursday, June 08, 2006

Living the American Dream

This one comes to us from the 'Ask the Biz Brain' column in today's Star Ledger. I thought it might be appropriate since the discussion (derision) of high-debt living has become a hot topic lately.


Ask the Biz Brain

My husband and I have incurred about $30,000 in credit-card debt with varying interest rates. We have no savings, two young children and own a home with a mortgage and home-equity line of credit (which is tapped). We recently received a windfall of about $15,000. What is our best course of action?


I'm speechless every time I read one of these stories. We don't know their story, so we really shouldn't judge, but somehow I have a feeling it wasn't medical expenses that caused this family to max their HELOC and rack up $30k in high interest debt. So just how common is this scenario?

All too common is my guess. While we're on the subject of debt, Consumer Credit increased at the fastest pace in almost a year in April.

Credit Spending, Auto Loans Up in April
By MARTIN CRUTSINGER

Americans increased their borrowing in April at the fastest pace in 10 months as credit card spending and auto loans both picked up.

The Federal Reserve reported Wednesday that consumer borrowing rose at an annual rate of 5.9 percent in April, a significant increase from a tiny 0.8 percent gain in March.

The increase in dollar terms was $10.6 billion, which pushed total consumer credit to a record $2.17 trillion. The Fed's measurement of consumer credit does not include mortgages and other loans secured by real estate.

For April, consumer borrowing on credit cards and other types of revolving loans rose at an annual rate of 4.5 percent after having fallen by 2.3 percent in March.


Caveat Emptor!
Grim

38 Comments:

Blogger Richie said...

Just another example of financial IRresponsibility.

I'm sure a lot was left out of their letter; what's their style of living like? Why did they need to borrow against their home? Are they living beyond their means?

I can't beleive the fact that they have 2 kids and NO savings. I wouldn't be surprised if they didn't have a 401k plan.

-Richie

6/08/2006 05:59:00 AM  
Anonymous Anonymous said...

white trash

6/08/2006 06:02:00 AM  
Anonymous Anonymous said...

Even with medical expenses, some families with otherwise identical circumstances come out ok while others go bankrupt.

How can this be?

6/08/2006 06:15:00 AM  
Blogger grim said...

I certainly don't think they are living like "white trash".

Not with a maxed out HELOC and $30k in CC debt. Sounds like they are living like kings..

grim

6/08/2006 06:16:00 AM  
Blogger minutesfromNYC said...

I hope their leased BMW boosts their self esteem

6/08/2006 07:08:00 AM  
Anonymous Anonymous said...

Don't be a broke bagholding underwater "actor".

You know the types the "hotshots" who have all the goodies, but are sweating it out every month to maintain it.

Don't do it.

The house of cards is cooooollapsing.

Babababababa

Bob

6/08/2006 07:10:00 AM  
Anonymous Anonymous said...

I doubt they thought about what having kids would do to them financially.

6/08/2006 07:52:00 AM  
Blogger minutesfromNYC said...

I doubt they thought about what having kids would do to them financially

unfortunately, you don't have to be smart to have kids.

6/08/2006 07:59:00 AM  
Blogger delford said...

The latest surburban thing is no tto have your kids work, eith after schoo, for a few hours or pa summer jobe etc.

People think that if their teen age kids ahve jobs, then other people will think they are poor, so the kids do not have to work.

The irony is, the few kids who do work, are in mny cases form the faamilies who actually do have money and not debt.

6/08/2006 08:35:00 AM  
Anonymous Anonymous said...

Notice how all these college kids & recent grads who work in retail act like they have everything in the world. Like they are on some type of power trip.

Then they have $40,000 in CC debt since their retail job just pays $15/hr.

Stupidity, materialism & mediocrity is what is in these days

6/08/2006 08:51:00 AM  
Anonymous Anonymous said...

College & grad school students don't work either. I went to Hofstra on Long Island for grad school. Commuted from Manhattan three nights a week after working all day.

Everyone wore Abercrombie & drove BMW's & SUVS.

I was the only poor person at the age of 28 making $75,000 a year.

6/08/2006 08:55:00 AM  
Anonymous Anonymous said...

Yeah, the kids not working thing ... ah how things have changed. My parents even though they have money, and no debt, they own their 3 homes out right and have no cc debt. Made me work in the summer and I used to get the strangest jobs too, they didn't care I was down in cape may and I would work in the sea food restraunts cutting fish and shucking shellfish(which if you haven't done it you don't know what a dirty smelly job it is). My parents were of the attitude that hard work builds character. I think the spending is a result of not having to earn it. God I can't fathom that kind of debt, it is crazy to think that their debt is my savings and I am only in my mid 20's.

6/08/2006 09:36:00 AM  
Anonymous Anonymous said...

anon10:36-

LOL! You sound like me. Everytime I start to tell my wife about someplace I worked, she asks "Is there a job you haven't had?"

My parents dropped me off at a golf course when I was 13 and I started caddying that morning. I also detassled corn that summer (in Indiana, like most big farming states, the child labor laws are different). I then worked pretty much every summer, then started working through the school year as a Junior in high school.

Here are some of the other jobs I've had: construction, painter, factory cleaner, warehouse distribution, catering, deliveryman, security at football and basketball games, camping equipment rental manager, student newspaper ad sales, retail inventory counter, dog food plant shipping (the smell was unbelievable and you don't want to know what the ingredients looked like), bottling plant shipping, landscaping for a utility company, telemarketing, moving company, gym reception desk, hockey referee, drugstore custodian, cook at a restaurant, fastfood counter help, etc., etc.

I will do everything possible to get my kids to work when they are young. If for no other reason, you appreciate your nice, quiet, clean office desk job even more.

JM

6/08/2006 09:51:00 AM  
Blogger delford said...

There is a whole generation now that is going to see what financial pain is.

For the last 10 yeras or so, it has been one party after another. many younger people have not known any thing dofferent.


I have paid for cars, no debt, and lots of savings, but many feel sorry for me becasue I am renting.

Although I have to say, the housing topic is changing now, and I now get the sense that many do not want to talk about it, which I find funny.

You know I try to be a nice, decent guy, but I have heard and listened to so much nosnense (crap), boasting, bragging,misinformation, not to mention attacked while most of the time saying nothing.(Who wants to be a big know it all, plus general manners). that I will just not be able to say I told you so.

6/08/2006 10:03:00 AM  
Blogger minutesfromNYC said...

I started working at age 12 mowing lawns. My parents told me that if I wanted a car when I got my license, I would have to start saving for one. I have been working ever since...

First mistake college grads make when they get their first full time job is waste it on a new car. Most of them lease. I only buy used..and with cash. Same as I did when I was 17.

6/08/2006 10:29:00 AM  
Anonymous Anonymous said...

And everyone in NYC & Long Island needs to drive an expensive European Sedan or a $50,000 SUV. The Porche Cheyenne is very popular.

How do these kids even afford insurance???

6/08/2006 10:35:00 AM  
Blogger minutesfromNYC said...

I still can't get over how many people pay for satilite radio...

It isnt how much $$$ you make...it is how you spend it

all these things like cable tv and ringtones are designed to send us to the poorhouse.

6/08/2006 10:38:00 AM  
Blogger minutesfromNYC said...

And everyone in NYC & Long Island needs to drive an expensive European Sedan or a $50,000 SUV. The Porche Cheyenne is very popular.


It is all designed to boost their self esteem. They want people to look at them and think: "wow, that person must be smarter than me and quite a success"

and seriously, if you are going to spend money on a Porsche, get a Carrara GT

6/08/2006 10:40:00 AM  
Blogger chicagofinance said...

I've never bought a new car.

6/08/2006 10:40:00 AM  
Anonymous gary said...

As Robert De Niro said in Casino: "It's all designed to get your money" How true.

6/08/2006 11:52:00 AM  
Anonymous gary said...

As Robert De Niro said in Casino: "It's all designed to get your money" How true.

6/08/2006 11:52:00 AM  
Anonymous Anonymous said...

You can't even live or work in the suburbs of NYC if you don't subscribe to this consumerist mentality.

When I worked in Westchester (Harrison), everyone made fun at me because I drove a Nissan Sentra from 1994 & then an Altima from 2000 (this was in 2002 - 2004).

No one wore anything other than Ralph Lauren, Brooks Brothers or Banana Republic. Then everyone was always complaining about pay & bonuses.

I only made about $45,000 at the time. The average salary was probably between $40,000 - $70,000 because most people who worked in the firm were under 35 without much experience.

6/08/2006 12:26:00 PM  
Anonymous Anonymous said...

minutesfromnyc,

Hey I like my Sirius subscription.

Just like some people pay for digital cable. I'm happy with $10/month basic TV.

smk

6/08/2006 01:51:00 PM  
Blogger Richard said...

chicago, i'm completely in your camp. i haven't and never will buy a new car. the loss when you drive it out the door far outweighs the temporary euphoria of that new clean smell. to balance the benefits of a new cars protection with better value i recently bought a 2 year old low mileage (12K) certified pre-owned Honda civic. it's reliable as hell, fully paid off and i'm getting 38MPG highway. just precious.

6/08/2006 02:05:00 PM  
Blogger chicagofinance said...

perfect urban/suburban car

the only drawback is that thieves tend to salivate on them

6/08/2006 02:24:00 PM  
Anonymous Anonymous said...

Interesting sidebar: when we lived in Indiana, we spent much more on cars, even bought a new red Volkswagon. Housing costs were ridiculously low, cars were kings. Now, here in JC, we take our old car off the road Sept.-Apr., use the Path or rent when we need to, put it back on for summertime fun. Got rid of the mortgage and dependence on the car at the same time. Traffic, more than the consumerist pressures of the BMW-driving Jones, keeps us out of the suburbs. What's wrong with Hoboken, that's another story.

6/08/2006 03:55:00 PM  
Blogger Grim Ghost said...

I've bought old and new cars (always with cash).

I'm not sure that its such a bad idea to buy a new car if you intend to drive for several years. With one of the old cars, I had enough repair costs that it was not worth it.

All of us want the perfect one owner car 1-2 years old still under warranty, with low mileage. Those aren't easy to get, and there are cost premiums for that. I suppose the certified car could be good, but a lot of the late models seem to be one year rental cars. Also problematic to get the exact make you want.

6/08/2006 09:30:00 PM  
Blogger REINVESTOR101 said...

I'm not sure that its such a bad idea to buy a new car if you intend to drive for several years. With one of the old cars, I had enough repair costs that it was not worth it.

All of us want the perfect one owner car 1-2 years old still under warranty, with low mileage. Those aren't easy to get, and there are cost premiums for that.


I generally always buy a used car unless the price differential between a used car and a new one is not significant. It's almost always a mistake to get a car "too used" however as the repairs and reliability issues make it not worth it.

I keep them at least 8 to 10 years. I currently drive a Nissan Maxima I bought used with 25K miles on it. It now has 167K miles and drives like the day I bought it. Price, reliability and plentiful repair parts are my main issues when looking at any vehicle purchase.

Cars don't make you money, so it makes sense to minimize what you pay.

6/08/2006 10:17:00 PM  
Anonymous Anonymous said...

I bought a new car, 1996 Corolla, on financing because I had no money. It now has 190K on it and just passed inspection. I prefer buying a new car and will again (Prius) because I know the exact history. Point is that some choices are better depending on one's circumstances.

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