Playing teeter totter, as a kid, was fun, until the fat kid jumped off his end, while you were still up in the air.
Teeter Totter. It is what a lot of people played in the 2000's. Many Americans - middle class Americans - had nice houses, nice cars, some savings in their 401(k) and a huge mountain of mortgage debt.
In many cases, people had as much in their 401(k) - or more - than their mortgage debt. And many folks started to wonder, "Gee, it is such a swell idea to have all this money on paper and at the same time have all this debt?"
And many folks started to wonder, "Gee, can I cash in my 401(k) and just pay off my mortgage?" and the answer is, of course, no - not without some huge tax penalties.
And in 2009, just like in the schoolyard, the fat kid got off the teeter totter when we were way up in the air - leveraged in debt and invested heavily in stocks. And the teeter-totter slammed down, breaking our coccyx and sending us to the Nurse's Office. The fat kid got an hour's detention.
Once home value and stock values declined at the same time, the whole thing went wrong, in a hurry. Suddenly, the home was worth less than the mortgage balance, and the value of the 401(k) dropped as well. We went from a balanced position, as shown above, where debt and equity neatly match (but still produced a net worth of ZERO) to a situation were debt far outweighed equity. Ouch.
Today, the economy is recovering, despite what Fox News is saying. But many folks are going right back out and doing the same old thing - loading back up with debt and leveraging themselves.
But many others are not - gun-shy and worried about getting caught in the same problem again. And many economists argue that this is a "problem" with our economy, as banks want to loan money, but qualified borrowers with legitimate borrowing needs are hard to come by (deadbeats who want to buy a Camaro, however, are dime-a-dozen).
Of course, you have to make your personal financial decisions to benefit you. Yes, there are people out there dumb enough to think that buying a brand-new car and going heavily into debt is "helping the economy" and therefor a good thing to do.
All I can say is, let the other fool do that stuff. Do what is in your best interests. And playing teeter totter is never a very safe game.
2 comments:
I always have said that this economy will produce many 'depression people'. Like with those influenced by the Great Depression these people will have the same debt-shunning under-consuming values. These values empower people. These people are independent. And 'The System' hates people like this.
I maxed 401K since 1987. I never invested it in anything risky thus taking very few backwards steps. I save money beyond 401K also.
I live well below my means and I love it. Can I buy a high end car to impress my neighbors and strangers? Yes. But I love driving a very reliable older Civic because I spend almost nothing on it and never have to worry about it. I can make dozens of similar statements like that.
I will bet that the blossoming mental health / rehabilitation industry is really fueled not by a blossoming population of unbalanced people but is fueled by a growing number of people with financial stresses. Financial stress is the root of the problem, not an unbalanced mind.
To sum it up, life is extremely happy if you live well below your means. 'The System' truly hates people who do this. But no matter what propaganda they throw at me I will not change.
"Deadbeats who want to buy a Camaro, however, are dime-a-dozen."
Ugh, this made me laugh and cringe at the same time. My fiance's father foreclosed on his childhood home in November 2011 and bought a brand-spankin' new Camaro last week.
Makes me cringe.
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