A Reason To Teach Your Kids About Personal Finance

[Snave]

I was just speaking to my parents and they were telling me of a horrendous situation with one of their friend's kids. She is in her late 20's and has a 2.5 year old and just had another child recently. My father got a call to do some work at their house b/c they are trying to sell it before it is foreclosed on (a one-year old 180K home). When my dad gets to the house, the girls father pulls up in a BMW SUV (my dad's friend). My father about dropped over and asked him when in the heck he got the car. He said it wasn't his, but rather his daughter's. Her husband drives a brand new Acura SUV by the way. My dad found out they make about 40K combined. To top it off, the husband is having an affair and they are getting a divorce. So, she is moving back home making her 22K of the 40K, owning a BMW she can't afford and getting ready to lose the house she also can't afford. I don't even know where to begin on this one. I agree the banks were stupid, but someone has to show some self-control. A 180K new home, a new BMW SUV, and a new Acura SUV all on about a 40K income. Do you really need a bank to tell you that you are foolish? Can't you figure that out yourself?

All I know is this is a perfect example of why you should teach your children financial responsibility. I don't want this headache when I am closing in on retirement.

[kilapapipa]

Wow, I have heard stories of loan officers telling folks to put down that they make $12/hr. vs. the $8 they really make because they will get a raise soon. Just like a 5yr. int. only loan in which your house will surely gain in value and you can refinance.

[disneysteve]

I'm a big supporter of personal responsibility, but in these cases, I've got to put a huge amount of blame on the banks. How do you let a couple earning 40K (or any amount for that matter) buy a home for nearly 5 times their income? And once they own that home that they never should have gotten in the first place, what idiot agreed to make the 2 car loans? Where did they think the money to pay the bills was going to come from?

Sure, the couple never should have taken the loans, but lots of people are financially illiterate. If a bank loan officer says you can afford this loan, they assume it is true. The lenders need to start saying NO!

[Joan.of.the.Arch]

I just don't see that any sophistication was required to see that all those purchases were beyond the couple. Seems to me that simple arithmetic will show that the income could not cover the payments, plus the other needs of living. By the end of grade 2, shouldn't people be able to add and subtract well enough to figure it?

[kork13]

Originally Posted by Joan.of.the.Arch

I just don't see that any sophistication was required to see that all those purchases were beyond the couple. Seems to me that simple arithmetic will show that the income could not cover the payments, plus the other needs of living. By the end of grade 2, shouldn't people be able to add and subtract well enough to figure it?

In a case like this, I see it sort of similar to the kid who is told "no" by mom, then goes to ask permission for the same thing from dad.

Sometimes when people really want their lives to be a certain way, they'll think about it, rationalize how they deserve it, and decide they really want it. They'll look around, trying to find someone who will help them finance their way into that way of life (credit cards, auto loans/leases, mortgages, etc.), and if they really can't afford it, they'll keep getting told "No." However, all it takes is for someone to finally say "Yea! Sure, you can afford it!" ...and suddenly their long-sought-after dream can become a reality. It doesn't matter how many ways from Sunday they're told "No, there's no way you can afford it"... they just want somebody to say that they can "make their dreams come true".

[Snave]

Originally Posted by Joan.of.the.Arch

I just don't see that any sophistication was required to see that all those purchases were beyond the couple. Seems to me that simple arithmetic will show that the income could not cover the payments, plus the other needs of living. By the end of grade 2, shouldn't people be able to add and subtract well enough to figure it?

I agree completely. I see DS's point about the banks being at fault also, but to really think you can afford a BMW and an Acura on top of the house with the limited income is just plain stupid on their part. At some point in time we have to stop blaming the banks and hold people responsible for what they brought on themselves. This is one of those occassions. This is not just someone getting conned into a mortgage they couldn't afford or losing a job or some other event. Then, to seek out two luxury cars on top of it. We can blame the banks, but a banker didn't drive them to the car lot in the first place, their sense of entitlement did. If you gave any reasonable person this scenario regardless of their financial IQ, I would bet they would say these two brought this on themselves.

[Seeker]

I agree Snave. People need to stop the nonsense.

The new age math (1 + 1 + time + luck = 5) just does not work. The future is not predictable.

Realist math works -- tried and true: income - expenses = x and "x" needs to be a positive number .... ALWAYS.

Do people really have to crash to learn?

[disneysteve]

Snave, I totally agree. Don't get me wrong. I always say the ultimate bottom line is personal responsibility because at the end of the day, it is the borrower who has to make the payments, not the banker or mortgage company. How someone earning 40K could even begin to think they could afford not only a 180K house (more than we paid for our house when we earned more than twice that amount) but also two high-end luxury vehicles is beyond me. Also beyond me, though, is how they could possibly get approved for all 3 of those loans. I think there is plenty of blame to go around here.

[Scanner]

I guess it was a good party while it lasted.

[mommyof4]

I wonder how much the girlfriend was costing the husband, too?

[pikey412]

Maybe I'm naive, but $180k sounds really cheap to me. A decent home around here starts at $250k. I would think a household income of $40k a year should easily be able to afford the mortgage payments on $180k.

The vehicles I don't understand though.

[disneysteve]

Originally Posted by pikey412

Maybe I'm naive, but $180k sounds really cheap to me. A decent home around here starts at $250k. I would think a household income of $40k a year should easily be able to afford the mortgage payments on $180k.

There are plenty of places where you could buy a house for 180K. The problem is that these people can't afford it. Rule of thumb is not to spend more than 2.5 to 3 times income on a home. This is well over 4 times income for them.

[Snave]

Originally Posted by pikey412

Maybe I'm naive, but $180k sounds really cheap to me. A decent home around here starts at $250k. I would think a household income of $40k a year should easily be able to afford the mortgage payments on $180k.

The vehicles I don't understand though.

1) We live in the midwest where 180K can still get you something pretty nice.

2) I don't think it would have mattered if they were in a 80K home. Clearly they felt entitled to a lifestyle that was beyond their means. I can't imagine what else they financed such as furniture, etc...