4 ms·

I know there's a myriad of causes, but friends - avoid debt, even if your peers, parents, media, whatever encourage you that it's "okay" for college, nice house

by gedy 11y ago

I know there's a myriad of causes, but friends - avoid debt, even if your peers, parents, media, whatever encourage you that it's "okay" for college, nice house, etc. It just boggles me that friends would borrow huge tuition and dorm costs for private college out of state, to get something like a Communications Degree with low income prospects. Even if they are passionate about the subject, they could've easily gotten it cheaper at a local state school and living at home. Or, taken their first few years at community college, etc. Willingness to borrow is at least one of the factors for rising costs. Debt is slavery and steals from your future.

superuser2 11y ago
>nice house Apartment leases are debt too - you are obligated to pay someone a fixed amount of money on a recurring basis for a fixed term. I suppose in a month-to-month lease you have the "option" of becoming homeless.
- techsupporter 11y ago
  OP said "nice house," not "any house." One of the trends I see in my millenial-GenX cohorts is the buying of expensive consumer goods the moment a sizable salary is conferred. Yes, it's a relief to finally have a job that pays enough to have money left at the end of the month. However, loading up the monthly expenses with a brand new (often oversized) vehicle and a house purchased for 5x annual salary is unwise. It happens quite often. Another thing to consider is that buying reduces mobility. If you buy in the "wrong" spot, you can be stuck there while opportunities in other areas go unfilled by you. If the economy is as truly broken as a lot of people my age think it is, why buy (or buy expensively) when there's a good chance that in two years better pay or a more balanced job will be found elsewhere?
  - superuser2 11y ago
    Consider that if those millennials are buying houses for 5x salary, then they must have been doing something right to save ~1x salary for a down payment. (Unless people are somehow getting mortgages without down payments these days?) I agree that buying reduces mobility - and I plan on renting for the foreseeable future. What I take issue with is the claim that it's possible or desirable for to avoid debt at all costs. Renting is not automatically a better financial decision than mortgaging, and for people who don't need the mobility it can be substantially worse. Consider that the worst case scenario for ownership (your home depreciates to $0) is still better than the best case scenario for renting (your rent stays flat) because a renter wouldn't have an asset to sell anyway, but the owner gets to continue living there without paying for it.
    - techsupporter 11y ago
      > they must have been doing something right to save ~1x salary for a down payment. (Unless people are somehow getting mortgages without down payments these days?) I thought it was common knowledge that virtually no mortgage requires 20% down and has not for many years. All of them do for mortgages without mortgage insurance, yes, but not to just get a loan. FHA wants 3.5%, most conventional loans will take 5%, and some large credit unions (NASA FCU, Navy Federal) will do 0% down and a lender credit for closing costs. As to the rest of your comment, I mostly agree. Debt is not a bad four-letter word if used properly. Lots of people, including millenials desperate to have "a real life," don't do that. Rent vs buy is really complicated and even though I own there are many times I'd rather rent (usually when something major fails)...
dnautics 11y ago
unfortunately, the primary cause of this phenomenon is debt... But not personal debt. Sovereign debt steals from the generational future. The only way to liberate yourself from sovereign debt is by decoupling your assets from the primary mechanism of amortization - inflation - so, investing in "things which are not dollars". This is why the poor are hurt so much harder by this than the rich.
fefifofu 11y ago
Debt is great if used appropriately. Most people don't use it correctly. Debt is supposed to match the life of the asset. If you have a house that lasts 25 years or longer, then a mortgage of 25 years is OK. If you have a car that has value for 5 years, then a matching loan is 5 years is OK. If you go on vacation, there is no lasting asset, therefore should be paid in cash (ie. saved up for). Same with that expensive meal.
- Someone1234 11y ago
  I don't even understand what you're trying to get at. Homes increase in value while vehicles decrease in value over time. But you're using the same metric to figure out if you should borrow against them both..? A lot of people view homes as an investment and vehicles as a sunk cost. I also don't get the whole concept of a vehicle going from "value" to "no value" after exactly 5 years. Vehicles don't depreciate like that, they constantly lose value at a somewhat static rate (aside from sudden damage).
  - fefifofu 11y ago
    The point is to match the debt to the asset. As the car depreciates at a static rate, it is OK to pay off car debt at a static rate too (ie. monthly loan payments). A house actually depreciates in value just like a car, at a static rate, but over a longer period (say 25 years). So it is OK to pay the mortgage off with a monthly payment for 25 years. I think labeling homes as an investment and vehicles as a sunk costs is a problem that the general public has. Houses need to be maintain and upgraded to keep (or improve) its value. House values definitely don't always go up - as seen in the subprime mortgage crisis. Sorry if I implied that the car goes from 100% to 0% value instantly. If it did, then I should pay off the loan in the same fashion. In fact, lets say a new car loses 25% of its value immediately once you drive off the dealership lot. Then you should have a car loan only for the 75% of value remaining and should have paid 25% upfront... match the debt to asset. Vehicles can be considered an investment if it generates income (eg. taxis, commercial airplanes).
- Mikeb85 11y ago
  At the household level, debt is simply income smoothing. You sacrifice a little future value for present value.

by gedy 11y ago

superuser2 11y ago

>nice house Apartment leases are debt too - you are obligated to pay someone a fixed amount of money on a recurring basis for a fixed term. I suppose in a month-to-month lease you have the "option" of becoming homeless.

techsupporter 11y ago
OP said "nice house," not "any house." One of the trends I see in my millenial-GenX cohorts is the buying of expensive consumer goods the moment a sizable salary is conferred. Yes, it's a relief to finally have a job that pays enough to have money left at the end of the month. However, loading up the monthly expenses with a brand new (often oversized) vehicle and a house purchased for 5x annual salary is unwise. It happens quite often. Another thing to consider is that buying reduces mobility. If you buy in the "wrong" spot, you can be stuck there while opportunities in other areas go unfilled by you. If the economy is as truly broken as a lot of people my age think it is, why buy (or buy expensively) when there's a good chance that in two years better pay or a more balanced job will be found elsewhere?
- superuser2 11y ago
  Consider that if those millennials are buying houses for 5x salary, then they must have been doing something right to save ~1x salary for a down payment. (Unless people are somehow getting mortgages without down payments these days?) I agree that buying reduces mobility - and I plan on renting for the foreseeable future. What I take issue with is the claim that it's possible or desirable for to avoid debt at all costs. Renting is not automatically a better financial decision than mortgaging, and for people who don't need the mobility it can be substantially worse. Consider that the worst case scenario for ownership (your home depreciates to $0) is still better than the best case scenario for renting (your rent stays flat) because a renter wouldn't have an asset to sell anyway, but the owner gets to continue living there without paying for it.
  - techsupporter 11y ago
    > they must have been doing something right to save ~1x salary for a down payment. (Unless people are somehow getting mortgages without down payments these days?) I thought it was common knowledge that virtually no mortgage requires 20% down and has not for many years. All of them do for mortgages without mortgage insurance, yes, but not to just get a loan. FHA wants 3.5%, most conventional loans will take 5%, and some large credit unions (NASA FCU, Navy Federal) will do 0% down and a lender credit for closing costs. As to the rest of your comment, I mostly agree. Debt is not a bad four-letter word if used properly. Lots of people, including millenials desperate to have "a real life," don't do that. Rent vs buy is really complicated and even though I own there are many times I'd rather rent (usually when something major fails)...

dnautics 11y ago

unfortunately, the primary cause of this phenomenon is debt... But not personal debt. Sovereign debt steals from the generational future. The only way to liberate yourself from sovereign debt is by decoupling your assets from the primary mechanism of amortization - inflation - so, investing in "things which are not dollars". This is why the poor are hurt so much harder by this than the rich.

fefifofu 11y ago

Debt is great if used appropriately. Most people don't use it correctly. Debt is supposed to match the life of the asset. If you have a house that lasts 25 years or longer, then a mortgage of 25 years is OK. If you have a car that has value for 5 years, then a matching loan is 5 years is OK. If you go on vacation, there is no lasting asset, therefore should be paid in cash (ie. saved up for). Same with that expensive meal.

Someone1234 11y ago
I don't even understand what you're trying to get at. Homes increase in value while vehicles decrease in value over time. But you're using the same metric to figure out if you should borrow against them both..? A lot of people view homes as an investment and vehicles as a sunk cost. I also don't get the whole concept of a vehicle going from "value" to "no value" after exactly 5 years. Vehicles don't depreciate like that, they constantly lose value at a somewhat static rate (aside from sudden damage).
- fefifofu 11y ago
  The point is to match the debt to the asset. As the car depreciates at a static rate, it is OK to pay off car debt at a static rate too (ie. monthly loan payments). A house actually depreciates in value just like a car, at a static rate, but over a longer period (say 25 years). So it is OK to pay the mortgage off with a monthly payment for 25 years. I think labeling homes as an investment and vehicles as a sunk costs is a problem that the general public has. Houses need to be maintain and upgraded to keep (or improve) its value. House values definitely don't always go up - as seen in the subprime mortgage crisis. Sorry if I implied that the car goes from 100% to 0% value instantly. If it did, then I should pay off the loan in the same fashion. In fact, lets say a new car loses 25% of its value immediately once you drive off the dealership lot. Then you should have a car loan only for the 75% of value remaining and should have paid 25% upfront... match the debt to asset. Vehicles can be considered an investment if it generates income (eg. taxis, commercial airplanes).
Mikeb85 11y ago
At the household level, debt is simply income smoothing. You sacrifice a little future value for present value.