Would making people live within their means end the eceonomic crisis?

SteveDaWonder

SteveDaWonder

CAGiversary!
I just realized I spelled economic wrong in the title. If I could fix it I would.

I have been thinking about this whole economic crisis for a couple of days now. I've looked at several different options and opinions of others, and have read the news reports. I have come to one conclusion: Americans need to live within their means.

What if people were given a credit card that a particular months balance had to be paid off in full six months later. Either that, or give people like a 500 dollar credit limit, and that's that.

That does not mean you could not receive a loan for a vehicle, or a house...but anything beyond that couldn't go above 500 dollars in credit.

Because this economic crisis is also the fault of many businesses, they would have similar restrictions, albeit perhaps a little larger in number.

If people had to live within their means, then the American dollar would be stronger, and there would be no credit to have a crisis with.

What happened to the old adage that if you're capable of working and you don't work, then you don't eat?
 
This is a rhetorical question right? (subject line of the OP)

I think it's the fault of both parties involved. The people that take on the credit to run a debt and the ones that happily give them more and more... to spend up.

Someone needed to say NO, and thus haven't on either side.

I think it's awful for all those that has an affordable option but didn't realize that it went way overboard... thus the housing collapse which lead to the credit crunch and the fall of Wall ST.
 
[quote name='SteveDaWonder']What happened to the old adage that if you're capable of working and you don't work, then you don't eat?[/quote]

I don't believe that's related.

And I'm still confused by the people who say "living within your means" includes house and car debt. If you have debt you're not "living within your means" and so hardly anybody ever is. Not even the ones who tell other people to do it.
 
Well, I'd say more onus goes on the banks for giving out loans to people who couldn't afford them.

It's hard to force people to live with their means through any kind of regulation. It's much easier to regulate standards for giving out loans (% down payment required, limits on what % the monthly payment can be of a person's monthly salary etc.) as well as regulating how firms buy other companines debts etc. etc.

[quote name='SpazX']
And I'm still confused by the people who say "living within your means" includes house and car debt. If you have debt you're not "living within your means" and so hardly anybody ever is. Not even the ones who tell other people to do it.[/QUOTE]

True. It's hard to literally live with in your means unless you just rent and don't buy a house until you're near retirement age and have a few hundred thousand dollars to buy a home in the bank.

But it can simply mean not taking on more debt than you can easily meet your montlly payments--and ideally pay more than the minimum.
 
Thats all good and well, but that doesnt get us out of where we are now, thats more of a preventative measure.

You're also assuming the availability of basic credit if things go south from here. This is not entirely clear.
 
[quote name='SteveDaWonder']Fine. Change the scenario. No house, no car, unless you can pay for it.[/QUOTE]

Then few people would ever buy houses or cars. And the economy takes a huge hit as the car and real estate markets collapse.

Debt is a necessary facet of life really, people just need to be reasonable in how much debt they take on and not buy bigger houses and nicer cars than they can afford to easily pay off the debt on.
 
[quote name='SteveDaWonder']Fine. Change the scenario. No house, no car, unless you can pay for it.[/quote]

Well you could rent. Essentially the same as having a loan only you have no debt and don't own anything. I think that's about as far as you could go. Then maybe you could save as much as you could and then after 2 or 3 years you could buy a car if you wanted and then after 15 or 20 years you could get a house. If you saved about $10,000 a year.

I'm not saying having loans is bad or anything, I just hate it when people tell other people to "live within their means" when they're not living within their own means either, they've just managed their debt better either by making more money or spending less of it on other things (at least to the point where one can spend less and still have the necessities).

I think banks took unnecessary risks with the assumption that it was really a win-win for them because if the people couldn't pay back the loans then they could just take their shit and it would all be good. And the people took the loans assuming they would be able to pay the payments and have the shit they want (like everybody does with any loan they get). It just didn't quite work out that way.
 
Last edited by a moderator:
[quote name='dmaul1114']

True. It's hard to literally live with in your means unless you just rent and don't buy a house until you're near retirement age and have a few hundred thousand dollars to buy a home in the bank.

But it can simply mean not taking on more debt than you can easily meet your montlly payments--and ideally pay more than the minimum.[/quote]

I like that idea.
 
People havent bought houses or land for cash...probably in recorded human history.

Long term contracts are always involved. Once upon a time it was indentured servitude to pay off debts. As soon as there was a concept of a bank, there were long term loans.

If the mortgage isnt that dissimilar than rent as far as payments, its disadvantageous to be renting. Credit works fine if you're not stupid with it.
 
Actually, people used to buy homes outright up until WWII. If they did take on a mortgage, it was a small percentage. There were no suburbs at the time so you either had a farm that was passed down through the generations or you rented an apartment in the city. That was it. GIs returning from the war wanted a piece of the American Dream and that meant houses in the new suburbs. That meant banks provided mortgages for not only GIs but everyone else.

I think a better way of thinking is that people should stop buying homes that are too big and expensive for their way of life. You have to take on debt now and that's cool but make it manageable. Buy a home that's $200k instead of 250k or 300k and you put yourself in a better situation in case you get laid off or hurt. Buy a used car for 12k instead of buying that brand new sports car at 30k and, again, you put yourself in a better financial position. Go to Half Price Books instead of Barnes & Noble. There are many things that people could do to "live within their means" but they choose not to because they can't be seen buying second hand or going to a *gasp* garage sale.
 
Yep, that is it in a nutshell. People need to quit being obsessed with materialism and live with in their means. It's sick how people are defined by the houses they live in, the car they drive and the clothes they wear. That mentality drives the huge consumer debt problems as so many people are trying to keep up in this materialistic race regardless of whether or not they can afford to do so.
 
[quote name='depascal22']Actually, people used to buy homes outright up until WWII. If they did take on a mortgage, it was a small percentage. There were no suburbs at the time so you either had a farm that was passed down through the generations or you rented an apartment in the city. That was it. GIs returning from the war wanted a piece of the American Dream and that meant houses in the new suburbs. That meant banks provided mortgages for not only GIs but everyone else.

I think a better way of thinking is that people should stop buying homes that are too big and expensive for their way of life. You have to take on debt now and that's cool but make it manageable. Buy a home that's $200k instead of 250k or 300k and you put yourself in a better situation in case you get laid off or hurt. Buy a used car for 12k instead of buying that brand new sports car at 30k and, again, you put yourself in a better financial position. Go to Half Price Books instead of Barnes & Noble. There are many things that people could do to "live within their means" but they choose not to because they can't be seen buying second hand or going to a *gasp* garage sale.[/QUOTE]
Exactly. I buy older cars for 1500-2000. They work fine for me, and probably every few years I get into another one. I'll be moving up in the 00's sometime the next decade I hope. :lol:
 
the majority of people do live within their means. The trouble starts when people are approved for mortgages or granted higher lines of credit without being properly vetted. If you go to the bank for a mortgage of $x, it is on the bank to make sure you can pay back that mortgage. When banks become lax in this approval process, or when other financial vehicles enter the picture to weaken the approval process, trouble happens.

There is nothing wrong with debt, in fact debt helps the economy, and the idea of purchasing on credit is hundreds of years old. If everyone bought used or second hand, who is buying new? Businesses would then produce less, and consequently lay more people off.

The very big problem with debt is too much debt. This is on the consumer to not spend more than they can afford to pay back, but it is also on financial institutions to deny credit and mortgages to those consumers who are not likely to pay back loans.
 
That's only partially true.

It's also on you to be smart and make sure you will have the ability to make the monthly payments on any loan you get, regardless of whether the bank approves them for it.

Banks should be much stricter with giving out loans, as the fact is most people have poor financial sense. After all, there's next to nothing in high school or college about managing money. But it's stll on people to learn on their own, or to higher a financial adviser to help with such decisions if they don't have the time to learn.
 
[quote name='Msut77']I think that if all Americans started living within their means the economy would grind to a halt.[/QUOTE]

If living with in means=no debt. Then you're right.

If it means taking debt you can afford, then no. People going bankrupt is bad for the economy (look at the current mess), so the key is to have a lot of debt, but be more careful about givng debt people can't pay back.
 
I agree with dmaul. No one is putting a gun to your head and making you take out a loan at the top of the chart. The bank or lending company gives you a pre-approval letter with the MAX that you're qualified for. It's up to you to pick the house and negotiate the price down. Again, the good financial advisors will tell you to go 25% below what you qualify for. So instead of 200k, go for the smaller house with a smaller yard for 150k. No one is saying go live in the ghetto but just be smart.

It all goes back to personal responsibility. When we were looking at houses last year, we told our agent that we qualified for x amount but if she showed us any houses over a smaller number, we would find someone else. After three house close to our max, we walked. Agents, banks, and brokers, and anyone else that makes commission are just looking to get you into the biggest house/car/etc. they possibly can. They could really give two shits whether you foreclose or repo'd in the next couple years.
 
OP - Click on edit of your OP and then click the advance button.

All I know is many other countries don't really have credit cards, and if they do, they are severely limited. I think that's key.

And house loans should only be given with somewhere around 20-50% down.
 
Yeah, we need higher % of downpayment required, and limits on what % of your monthly income the minimum payments can be.

Credit cards are a problem but that's soley on the individual. I use one for everything, but pay it off in full each month. More protection from fraud vs. my visa check card (money's not out of my account and have to wait for it to be replaced) and I earn rewards and build credit. So there's nothing wrong with credit cards, people just have to be smart enough to treat them like cash and not run up more than they can pay off each month.
 
I think that kids need to be taught in school about not living beyond your means, it needs to start early. Mainly because it seems as if the younger generations want it all at once, and want to emulate all of the rock stars and celebrities on tv.

I remember having to take a life management course a few years ago in middle school. They taught us how to write checks, balance a budget, and some other useful stuff. Most kids could probably use this sort of education.
 
[quote name='depascal22']Actually, people used to buy homes outright up until WWII.[/quote]
This has to be incorrect, on the grounds that there was a massive housing collapse and bank failures in the 20's preceding/during the Great Depression. WW2 was 1936-1945, which along the New Deal, helped bring us out of that mess.

I'm actually going to write an article about it soon and how it parallels whats happening now. The short of it is, we havent learned from history, and our troubles have only begun.
 
[quote name='XxFuRy2Xx']I think that kids need to be taught in school about not living beyond your means, it needs to start early. Mainly because it seems as if the younger generations want it all at once, and want to emulate all of the rock stars and celebrities on tv.

I remember having to take a life management course a few years ago in middle school. They taught us how to write checks, balance a budget, and some other useful stuff. Most kids could probably use this sort of education.[/QUOTE]

More teaching on how to manage money is needed in high school and college for sure. It's a crucial life skill, and really not taught at all.
 
^Welcome aboard, .

[quote name='fatherofcaitlyn']Grinding personal finance into a person's head would help this country a lot more than English Lit or Womens' Studies.[/quote]
 
[quote name='Dr Mario Kart']This has to be incorrect, on the grounds that there was a massive housing collapse and bank failures in the 20's preceding/during the Great Depression. WW2 was 1936-1945, which along the New Deal, helped bring us out of that mess.

I'm actually going to write an article about it soon and how it parallels whats happening now. The short of it is, we havent learned from history, and our troubles have only begun.[/quote]

People weren't borrowing money to invest in real estate, they were borrowing money to invest on Wall St. Then the market crashed and banks wanted their money back. Alot of banks went belly up because they loaned the money with zero collateral. The mortgage was set up as a financial instrument to have a home as collateral after that horrible screw up.

EDIT -- http://ezinearticles.com/?A-Short-History-of-the-Mortgage&id=243834 Not a very good article but at the bottom it clearly states that mortages (as we know them) didn't exist until 1934. That being said, the emergence of suburbs didn't happen until GIs came back from the war. The GI bill not only got them into school but into homes. The demand for housing went up and also the demand for the new financial instrument called the mortgage. Before then, only the very rich could afford to buy home on credit.

EDIT 2 -- If mortgages only came in after 1934, who had time or money to buy homes? Rationing and the draft started in 1941. Money was super tight and I don't think many people were transcending their means in the Great Depression or during the war. After the war was a whole other issue. GIs came back with a newfound sense of deserved entitlement and that included a nice house in the suburbs.
 
[quote name='depascal22']People weren't borrowing money to invest in real estate, they were borrowing money to invest on Wall St. Then the market crashed and banks wanted their money back. Alot of banks went belly up because they loaned the money with zero collateral. The mortgage was set up as a financial instrument to have a home as collateral after that horrible screw up.[/quote]

Let's get some links to support this.

...

I think Dave Ramsey made an offhand comment about mortgages having a term of up to only 7 years before the Great Depression, but my memory isn't perfect.
 
[quote name='fatherofcaitlyn']Let's get some links to support this.

...

I think Dave Ramsey made an offhand comment about mortgages having a term of up to only 7 years before the Great Depression, but my memory isn't perfect.[/quote]

First link is above. I edited the post.

http://www.nytimes.com/2008/09/21/business/21view.html

So there were mortgages before the 30s but they were so risky for the "homeowner" that they would be called a scam these days. 1933/34 seems to be the date set for the modern mortgage. Even then, how many people were out buying homes immediately after the Great Depression? A few short years after the Depression ended, we were at war and most of our men were drafted. That's why I said, the end of the war bought a housing boom. I should've worded it differently than saying that all houses were bought outright. I'll admit I wasn't exactly right.
 
[quote name='fatherofcaitlyn']^Welcome aboard, .[/QUOTE]

I've never been against it. I don't devalue the liberal arts classes like you, but no doubt about it that personal finances should be taught and required in high school and college.
 
[quote name='dmaul1114']I've never been against it. I don't devalue the liberal arts classes like you, but no doubt about it that personal finances should be taught and required in high school and college.[/quote]

That's quite true.

If my halfsister (the nurse who makes around $70K in Southeast Missouri) knew how to handle money better than my daughter, she may not have lost her house and had to dump her teenage daughters off on my mom this year.

It doesn't help that college get paid to let credit card vultures onto their campuses to entrap their students.

Then again, what another $5K in unsecured debts compared to student loans?
 
[quote name='fatherofcaitlyn']That's quite true.

If my halfsister (the nurse who makes around $70K in Southeast Missouri) knew how to handle money better than my daughter, she may not have lost her house and had to dump her teenage daughters off on my mom this year.

It doesn't help that college get paid to let credit card vultures onto their campuses to entrap their students.

Then again, what another $5K in unsecured debts compared to student loans?[/quote]

I hate the CC on college campuses. I see so many people get killed by that stuff.

I am so glad that I will finish college without any student loans.
 
Yeah, colleges absolutely should not let these credit card people solicit on campus, much less profit off of doing so.

Credit card debt is far worse than student loan debt. No deferment ,much higher interest rates (especially for these college students). Plus a lot of undergrads don't have many student loans as a lot go to state schools that their parents can afford, get scholarships, grants, work study etc. It's pretty easy to go to college for cheap if you stay in state, and even moreso if you do well in school.

I had no loans undergrad, and my parents weren't that well off. My dad worked for the phone company and my mom did part time bookkeeping, yet they paid for my college out of pocket every semester. Grad school I've had to take some loans, mainly just my first year when I had no funding, but still nothing drastic as all but that year my tuition has been paid for by the department or research grant funds.

So I have little problem with student loans in general, but I have huge issues with these credit card vultures and with the lack of required financial planning classes in high school or college.
 
[quote name='dmaul1114']So I have little problem with student loans in general, but I have huge issues with these credit card vultures and with the lack of required financial planning classes in high school or college.[/quote]

I hate when we agree. At any moment, Bizarro is going to bust down my door and start screaming, "Leave me Htrae!"

I have to stop leaving dimensional portals on my dresser.
 
Colleges might as well let Marlboro and Winston set up stands right next to the credit card companies. They're both toxic to the long term health of college kids.
 
From the very beginning of your article on the history of mortgages, before the modern mortage of today, we had:
In the beginning, a mortgage was just a conveyance of land for a fee. The buyer paid the seller a set rate, with no interest, and the seller would sign over the land to the buyer. There were usually conditions that had to be met before the land would be the property of the buyer, just like today, but usually it was based upon the assumption that the land would produce the money to pay back the seller.
Click to expand...
So back then there was no interest and the seller could be a dick he wanted. Its still a rate over time. Thus its not cash up front.
 
Credit cards and loans are such a foreign subject to me :whistle2:/

Guess I won't have to deal with it till I want to buy a house since I don't see myself saving up enough money working somewhere without a place to stay.
 
[quote name='Dr Mario Kart']From the very beginning of your article on the history of mortgages, before the modern mortage of today, we had:

So back then there was no interest and the seller could be a dick he wanted. Its still a rate over time. Thus its not cash up front.[/quote]

That mortgage has nothing to do with the modern one and it even says that.

That article about Florida says that a poor woman had bought land. It didn't say if she took out a mortgage on it. It did say that a rich New York lawyer was coming in to buy the property. In fact, there's not a single mention of mortgage in that article. There's no doubt that real estate was bought and sold before WWII but how it was bought was completely different. I'm not going to say that there wasn't a mortgage but the idea behind it was completely different.

EDIT 1 -- That article was about real estate speculation which is a completely different beast than mortgages. I can buy a house in the ghetto, fix it up, and hope that the neighborhood will follow suit and my investment will grow in value. That's real estate speculation. It has absolutely nothing to do with whether I owe money on the house or not.

EDIT 2 -- Because you're not going to let me go on this. I'll retract my earlier statement that land was bought outright before WWII. I will stick to my assertion that the way that real estate was bought and sold changed completely in 1934. Seeing as how we were in a Depression and followed that up with a World War, the modern mortgage wasn't popular until 1946 and beyond.
 
Last edited by a moderator:
You can still buy property today with a Land Contract. Look it up. Mortgages aren't necessary. And car loans from your local dealership don't necessarily need to underwritten by a bank. Any exchange in property can be negotiated without issuing bank credit.

Now, the fact that car dealerships inventories are purchased with bank credit is a whole other story, but principally, we don't really need banks to exchange property and issue our currency. Even if the credit markets collapse, Fight Club style, we would still survive and find methods of exchange that don't have to involve banks skimming percentages and fees.
 
You must log in or register to reply here.
bread's done
Back
Top