6 ms·

Elizabeth Warren said that in their bankruptcy study, the vast majority of people who filed for bankruptcy didn't do it because they "bought things they didn't

by lutorm 16y ago

Elizabeth Warren said that in their bankruptcy study, the vast majority of people who filed for bankruptcy didn't do it because they "bought things they didn't need". They did it because they overextended themselves to get a house in a good school district and then one of them lost their job or they had a medical emergency. It's easy to paint those people as irresponsible, but according to her, it's very far from the truth in most cases.

joubert 16y ago
"overextending" oneself, especially if you have dependents, is irresponsible.
- mkr-hn 16y ago
  Putting yourself in heavy debt to make sure your kids have a good shot is not difficult to defend. It's not something I'd do, but I have a hard time blaming someone for making that sacrifice.
  - joubert 16y ago
    It's not something I'd do, but I have a hard time blaming someone for making that sacrifice. a) Why is it that you won't do it? b) The issue is that they're sacrificing the financial security of their kids by living on the edge and that is irresponsible if you're someone's guardian. Imagine a company/government says we'll go into heavy debt because we want to give our shareholders/citizens a good shot - is that not irresponsible?
    - jasongullickson 16y ago
      Debt can go away but bad education doesn't.
    - mkr-hn 16y ago
      Mainly because I don't have any plans to have kids, but I'm also not the sort to take that kind of risk. I'd rather supplement a bad school with good resources at home and plenty of guidance.
      - zizee 16y ago
        I would say that you haven't thought about the power of a bad peer group can have over a good kid. I didn't think about that stuff until I had kids myself, so it is not that surprising, given your position, that you haven't thought of that.
    - timwiseman 16y ago
      Imagine a company/government says we'll go into heavy debt because we want to give our shareholders/citizens a good shot - is that not irresponsible? Those are two different questions. When it comes to a company, the answer is very often Yes. The purpose of most companies (there are some exceptions) is to maximize profits using all ethical and legal means. If the expected payoff of the capital investment the loan would finance is greater than the interest of the loan, then taking it very often makes sense even if it would risk bankruptcy if something goes wrong. When asking about the government, it matters a lot about what you think the purpose of government is, and that is a philosophical question I will leave alone for now.
    - amalcon 16y ago
      They are risking having their kids grow up with less access to resources in order to give those same kids one of the primary benefits of access to resources. If they did the research, understood the consequences, and were sincere about their reasons, it is the very epitome of a calculated risk. It's not like the potential downside is living in the car. The potential downside is maybe being forced to rent in a worse area, and having trouble buying things on credit for a while.
  - hartror 16y ago
    I truely don't buy into the whole "good school" thing as being overwealmingly important for a child's future happiness and success. Though this is based on my own personal experience rather than solid data. Certainly in my childhood and young adult life there were a number of factors to my success or lack of it that had nothing to do with which school I attended. I think the main factors to my economic success was being taught to enjoy reading at a young age by my parents. I have always devoured information and through that have made a career without any qualifications. The emotional/social success and general happiness I experience is a little harder to point to a source but certainly didn't come from the shit hole high school I attended. I generally attribute it to my parents teaching me what to value and growing up in an emotionally secure environment. This security and parenting happened even though my parents fought each other constantly and divorced in my early teens. The were both dedicated parents who presented a consistent set of rules and values. Of course I could just be on the further end of the bell curve?
    - Helianthus16 16y ago
      You don't know how bad schools can be. >Certainly in my childhood and young adult life there were a number of factors to my success or lack of it that had nothing to do with which school I attended. But would those factors be the same at a different school? I'm going to commit a minor sin and say a statistic without a citation; the average ACT score among teachers in Chicago was 19 a few years back. You say you went to a shit hole high school, in which case you really _should_ have a sense of perspective on the whole thing. If your school was a shitty as you say, you must have been near the very, very top of your class (not in class rank but in overall success). That's a huge distribution of people who are _not you_, who went on to more desperate lives.
      - nostrademons 16y ago
        Is the debate here about poverty or is it about debt? Money is just the messenger in the economy - it transmits information to you about what roles might or might not be valuable, and from you as to what goods and services you would like to consume. It's not hard to stay out of debt - you simply have to heed the message that money is transmitting to you. Poverty is a wider question, and includes whether or not it is fair & just that some people have to make the sacrifices needed to stay out of debt. When I say that you can simply choose not to send your kids to college to avoid taking on crippling student loan debt, that is a 100% factually true statement. When you then say "But one shouldn't have to forgo an education to avoid going into debt", that's a normative statement. It's one that I'd probably even agree with you on, but it's a much broader conversation with no clear answers about how to fix it or even what the problem definition is.
- joe_the_user 16y ago
  And a "medical emergency" can have unlimited costs today...
  - joubert 16y ago
    The parent wrote: "They did it because they overextended themselves to get a house in a good school district and then one of them lost their job or they had a medical emergency." So, they overextended themselves and THEN lost a job or had a medical emergency. The problem is people choose to live on the edge financially, which I think is irresponsible, especially if you have others who depend on you for their life.
    - rick888 16y ago
      "So, they overextended themselves and THEN lost a job or had a medical emergency. The problem is people choose to live on the edge financially, which I think is irresponsible, especially if you have others who depend on you for their life." This is exactly true. Someone above mentioned that people buy houses, to get into a good school district. Why can't we allow people in bad school districts to go to another school? I will give you the answer: teacher's unions. I always try to have at least 6 months (IE: I could survive for six months without a job) salary in the bank. I got laid off a couple of weeks ago and now I'm fine. Many people I know, that decided to live beyond their means, are now worried that if they lose their job, they will be in trouble. Everyone wants to blame the medical system (which does need work) and ignore personal responsibility. Medical emergencies that result in bankruptcy probably happen to less than 5% of the population. It's almost as bad as the terrorist fear mongering.
      - lutorm 16y ago
        Teacher's unions??? Why don't we have state-wide, or at least city-wide financing of schools? That would take away the school district issue entirely.
      - jfrumar 16y ago
        Times your "probably less than 5%" by twelve and you're closer to the truth: http://articles.cnn.com/2009-06-05/health/bankruptcy.medical.bills_1_medical-bills-bankruptcies-health-insurance?_s=PM:HEALTH http://articles.cnn.com/2009-06-05/health/bankruptcy.medical...
nostrademons 16y ago
I remember a study on general aviation plane crashes. They found that very few plane crashes came about because the pilot made a single, obvious mistake. Instead, the common pattern was a series of missteps, each so small that you couldn't properly call it a "mistake" in and of itself, the pilot was just cutting corners on the recommended safety margin. And then something happened that was out of the pilot's control, like bad weather or distraction or mechanical failure. Because the safety precautions that make it normally possible to recover from these events weren't followed, this resulted in a crash instead of merely a nerve-wracking landing. I think the same thing happens with finance. If you look at the proximate cause of bankruptcy, it's almost always that somebody has a health emergency or a death in the family or loses their job. But many people have health emergencies, deaths in the family, and stints of unemployment without going into bankruptcy. And the reason why is the same thing Benjamin Graham and Warren Buffett have been espousing in investing for years: Margin of Safety. If you always live on the edge, then it's a given that sometime you're going to fall off. Hold back 6-12 months reserve of salary, and suddenly unemployment doesn't look so scary. Health insurance makes a sudden medical emergency not quite so scary. Have $10-20K in the bank, and you don't need to worry that totaling your car is going to send you into crippling debt. The irresponsible part is not that these people got sick or lost their job, it's that they didn't prepare for contingencies where they would get sick and lose their job. There's this culture in America where as soon as you start earning more money, you have to spend it on something, otherwise you're wasting it. But there's a tension between resiliency and efficiency, and if you're always being perfectly efficient, things tend to go very wrong when they go wrong. Make your bargains accordingly.
- updog 16y ago
  Man, you are clearly speaking from a position of privilege on that one. How the hell do you hold back 6-12 months salary when you can barely afford the rent, utility bills and the costs of raising some kids to begin with? Haha, just hold back 6 months salary! You make it sound so easy! It's not that they didn't prepare, it's that many of them have no means to prepare, and barely have the means to continue as is. Many also believe that it is worth risking living on the edge to support a better school for their kids (ideally breaking the cycle), than moving to project housing and dangerous gang-controlled areas in order to enjoy their "margin of safety". I can't fault them for that. And, if you're in such a position, and aren't fortunate enough to have your area of expertise and interest involving computers, good luck getting a job without a degree. So what do they do to pay for the outrageous tuition costs these days? Take a giant loan from Sallie Mae. Now you have two problems.
giardini 16y ago
tutorm states: "They did it because they overextended themselves to get a house in a good school district " That cannot be true. Furthermore you are taking her too literally and/or misunderstanding her intent. What she actually said was ( http://www.guernicamag.com/interviews/1485/generation_gap/ http://www.guernicamag.com/interviews/1485/generation_gap/ ): “Families with children are tightening the belt one more notch,” she says, “are working extra hours, are sending both people into the workforce, to try to get into the best possible school district for their children.” But she adds one key, and very humane, caveat: “Families are in financial trouble, not because they’re irresponsible but because they’re too responsible.” Warren is of course sympathetic, but she is obviously using the "search for a good school district" as only one example of how families are "too responsible". Not that I believe Warren's last sentence is correct: my simpler and less charitable framing of the facts is that people simply bought homes that they could not afford.
- lutorm 16y ago
  You're right that I condensed her "Two-income trap" book into a single sentence. But she really harps over and over at this fact.
yummyfajitas 16y ago
No, her study didn't show that. Her study does not address causality at all. # bankruptcies caused by a medical emergency = # of bankruptcies x [P(bankruptcy | medical event) - P(bankruptcy | no medical event)] x P(medical event) Warren's study only measures P(medical event | bankruptcy). A bunch of innumerate reporters drew the same conclusion you did (admittedly, with help from Warren's confusing language), but that just shows the media is stupid. Here is the study: http://www.scribd.com/doc/16155232/Bankruptcy-2009 http://www.scribd.com/doc/16155232/Bankruptcy-2009

by lutorm 16y ago

joubert 16y ago

"overextending" oneself, especially if you have dependents, is irresponsible.

mkr-hn 16y ago
Putting yourself in heavy debt to make sure your kids have a good shot is not difficult to defend. It's not something I'd do, but I have a hard time blaming someone for making that sacrifice.
- joubert 16y ago
  It's not something I'd do, but I have a hard time blaming someone for making that sacrifice. a) Why is it that you won't do it? b) The issue is that they're sacrificing the financial security of their kids by living on the edge and that is irresponsible if you're someone's guardian. Imagine a company/government says we'll go into heavy debt because we want to give our shareholders/citizens a good shot - is that not irresponsible?
  - jasongullickson 16y ago
    Debt can go away but bad education doesn't.
  - mkr-hn 16y ago
    Mainly because I don't have any plans to have kids, but I'm also not the sort to take that kind of risk. I'd rather supplement a bad school with good resources at home and plenty of guidance.
    - zizee 16y ago
      I would say that you haven't thought about the power of a bad peer group can have over a good kid. I didn't think about that stuff until I had kids myself, so it is not that surprising, given your position, that you haven't thought of that.
  - timwiseman 16y ago
    Imagine a company/government says we'll go into heavy debt because we want to give our shareholders/citizens a good shot - is that not irresponsible? Those are two different questions. When it comes to a company, the answer is very often Yes. The purpose of most companies (there are some exceptions) is to maximize profits using all ethical and legal means. If the expected payoff of the capital investment the loan would finance is greater than the interest of the loan, then taking it very often makes sense even if it would risk bankruptcy if something goes wrong. When asking about the government, it matters a lot about what you think the purpose of government is, and that is a philosophical question I will leave alone for now.
  - amalcon 16y ago
    They are risking having their kids grow up with less access to resources in order to give those same kids one of the primary benefits of access to resources. If they did the research, understood the consequences, and were sincere about their reasons, it is the very epitome of a calculated risk. It's not like the potential downside is living in the car. The potential downside is maybe being forced to rent in a worse area, and having trouble buying things on credit for a while.
- hartror 16y ago
  I truely don't buy into the whole "good school" thing as being overwealmingly important for a child's future happiness and success. Though this is based on my own personal experience rather than solid data. Certainly in my childhood and young adult life there were a number of factors to my success or lack of it that had nothing to do with which school I attended. I think the main factors to my economic success was being taught to enjoy reading at a young age by my parents. I have always devoured information and through that have made a career without any qualifications. The emotional/social success and general happiness I experience is a little harder to point to a source but certainly didn't come from the shit hole high school I attended. I generally attribute it to my parents teaching me what to value and growing up in an emotionally secure environment. This security and parenting happened even though my parents fought each other constantly and divorced in my early teens. The were both dedicated parents who presented a consistent set of rules and values. Of course I could just be on the further end of the bell curve?
  - Helianthus16 16y ago
    You don't know how bad schools can be. >Certainly in my childhood and young adult life there were a number of factors to my success or lack of it that had nothing to do with which school I attended. But would those factors be the same at a different school? I'm going to commit a minor sin and say a statistic without a citation; the average ACT score among teachers in Chicago was 19 a few years back. You say you went to a shit hole high school, in which case you really _should_ have a sense of perspective on the whole thing. If your school was a shitty as you say, you must have been near the very, very top of your class (not in class rank but in overall success). That's a huge distribution of people who are _not you_, who went on to more desperate lives.
    - nostrademons 16y ago
      Is the debate here about poverty or is it about debt? Money is just the messenger in the economy - it transmits information to you about what roles might or might not be valuable, and from you as to what goods and services you would like to consume. It's not hard to stay out of debt - you simply have to heed the message that money is transmitting to you. Poverty is a wider question, and includes whether or not it is fair & just that some people have to make the sacrifices needed to stay out of debt. When I say that you can simply choose not to send your kids to college to avoid taking on crippling student loan debt, that is a 100% factually true statement. When you then say "But one shouldn't have to forgo an education to avoid going into debt", that's a normative statement. It's one that I'd probably even agree with you on, but it's a much broader conversation with no clear answers about how to fix it or even what the problem definition is.
joe_the_user 16y ago
And a "medical emergency" can have unlimited costs today...
- joubert 16y ago
  The parent wrote: "They did it because they overextended themselves to get a house in a good school district and then one of them lost their job or they had a medical emergency." So, they overextended themselves and THEN lost a job or had a medical emergency. The problem is people choose to live on the edge financially, which I think is irresponsible, especially if you have others who depend on you for their life.
  - rick888 16y ago
    "So, they overextended themselves and THEN lost a job or had a medical emergency. The problem is people choose to live on the edge financially, which I think is irresponsible, especially if you have others who depend on you for their life." This is exactly true. Someone above mentioned that people buy houses, to get into a good school district. Why can't we allow people in bad school districts to go to another school? I will give you the answer: teacher's unions. I always try to have at least 6 months (IE: I could survive for six months without a job) salary in the bank. I got laid off a couple of weeks ago and now I'm fine. Many people I know, that decided to live beyond their means, are now worried that if they lose their job, they will be in trouble. Everyone wants to blame the medical system (which does need work) and ignore personal responsibility. Medical emergencies that result in bankruptcy probably happen to less than 5% of the population. It's almost as bad as the terrorist fear mongering.
    - lutorm 16y ago
      Teacher's unions??? Why don't we have state-wide, or at least city-wide financing of schools? That would take away the school district issue entirely.
    - jfrumar 16y ago
      Times your "probably less than 5%" by twelve and you're closer to the truth: http://articles.cnn.com/2009-06-05/health/bankruptcy.medical.bills_1_medical-bills-bankruptcies-health-insurance?_s=PM:HEALTH http://articles.cnn.com/2009-06-05/health/bankruptcy.medical...

nostrademons 16y ago

I remember a study on general aviation plane crashes. They found that very few plane crashes came about because the pilot made a single, obvious mistake. Instead, the common pattern was a series of missteps, each so small that you couldn't properly call it a "mistake" in and of itself, the pilot was just cutting corners on the recommended safety margin. And then something happened that was out of the pilot's control, like bad weather or distraction or mechanical failure. Because the safety precautions that make it normally possible to recover from these events weren't followed, this resulted in a crash instead of merely a nerve-wracking landing. I think the same thing happens with finance. If you look at the proximate cause of bankruptcy, it's almost always that somebody has a health emergency or a death in the family or loses their job. But many people have health emergencies, deaths in the family, and stints of unemployment without going into bankruptcy. And the reason why is the same thing Benjamin Graham and Warren Buffett have been espousing in investing for years: Margin of Safety. If you always live on the edge, then it's a given that sometime you're going to fall off. Hold back 6-12 months reserve of salary, and suddenly unemployment doesn't look so scary. Health insurance makes a sudden medical emergency not quite so scary. Have $10-20K in the bank, and you don't need to worry that totaling your car is going to send you into crippling debt. The irresponsible part is not that these people got sick or lost their job, it's that they didn't prepare for contingencies where they would get sick and lose their job. There's this culture in America where as soon as you start earning more money, you have to spend it on something, otherwise you're wasting it. But there's a tension between resiliency and efficiency, and if you're always being perfectly efficient, things tend to go very wrong when they go wrong. Make your bargains accordingly.

updog 16y ago
Man, you are clearly speaking from a position of privilege on that one. How the hell do you hold back 6-12 months salary when you can barely afford the rent, utility bills and the costs of raising some kids to begin with? Haha, just hold back 6 months salary! You make it sound so easy! It's not that they didn't prepare, it's that many of them have no means to prepare, and barely have the means to continue as is. Many also believe that it is worth risking living on the edge to support a better school for their kids (ideally breaking the cycle), than moving to project housing and dangerous gang-controlled areas in order to enjoy their "margin of safety". I can't fault them for that. And, if you're in such a position, and aren't fortunate enough to have your area of expertise and interest involving computers, good luck getting a job without a degree. So what do they do to pay for the outrageous tuition costs these days? Take a giant loan from Sallie Mae. Now you have two problems.

giardini 16y ago

tutorm states: "They did it because they overextended themselves to get a house in a good school district " That cannot be true. Furthermore you are taking her too literally and/or misunderstanding her intent. What she actually said was ( http://www.guernicamag.com/interviews/1485/generation_gap/ http://www.guernicamag.com/interviews/1485/generation_gap/ ): “Families with children are tightening the belt one more notch,” she says, “are working extra hours, are sending both people into the workforce, to try to get into the best possible school district for their children.” But she adds one key, and very humane, caveat: “Families are in financial trouble, not because they’re irresponsible but because they’re too responsible.” Warren is of course sympathetic, but she is obviously using the "search for a good school district" as only one example of how families are "too responsible". Not that I believe Warren's last sentence is correct: my simpler and less charitable framing of the facts is that people simply bought homes that they could not afford.

lutorm 16y ago
You're right that I condensed her "Two-income trap" book into a single sentence. But she really harps over and over at this fact.

yummyfajitas 16y ago

No, her study didn't show that. Her study does not address causality at all. # bankruptcies caused by a medical emergency = # of bankruptcies x [P(bankruptcy | medical event) - P(bankruptcy | no medical event)] x P(medical event) Warren's study only measures P(medical event | bankruptcy). A bunch of innumerate reporters drew the same conclusion you did (admittedly, with help from Warren's confusing language), but that just shows the media is stupid. Here is the study: http://www.scribd.com/doc/16155232/Bankruptcy-2009 http://www.scribd.com/doc/16155232/Bankruptcy-2009