Americans, the Formula Is Easy: More Debt = Less Savings

Healthy vs. Unhealthy Debt
"American culture is founded on consuming. Some purchases are necessary – for medical bills, education, rent or a mortgage – while others are purely for pleasure. None of us needs an iPod or a daily designer-coffee fix."

Still, it is founded on consuming. If Americans don't change that culture, they are going to eventually sink.

Please Register or Log in to view the hidden image!

"U.S. consumer debt has reached epidemic proportions. The average household has 6.0 bank credit cards, 8.3 retail credit cards and 2.4 debit cards for a total of 16.7 credit cards. The average interest rate on these cards is 14.71 percent, but there are no usury laws for credit card debt: If you miss a credit card payment, your interest rate can skyrocket over 30 percent. About 20 percent of all credit cards are “maxed out” by their owners."

Unbelievable...

Yaba Daba! :m:

 

Log in or Sign up to hide all adverts.

I just realized the title of the thread is kinda dumb...

Please Register or Log in to view the hidden image!

Oh well... who cares...

Please Register or Log in to view the hidden image!

 

Log in or Sign up to hide all adverts.

"2. Mortgages -- Home ownership is an asset that can build equity and net worth."

YOUR HOUSE IS NOT AN ASSET!!!!!!!!!!!!!!!!

Please Register or Log in to view the hidden image!

 

Log in or Sign up to hide all adverts.

Any owned object is an asset, but the value of an "asset" may be negative when I make this assertion. Often the house is a positive asset. Typically not much when you buy it as part of your down payment will be lost if you turn arround and sell it shortly after buying as transfer fees etc eat up your down payment.
(You might get lucky and find some other person willing to pay more for your house than you did, or conversly none who will.)

Unfortunately, the historic increase in the house value (due to the small fraction of each first years mortgage payment that is applied to the principle and any general inflation increase that is greater than the depreciation as the house ages) has recently often been converted to cash for current consumption. This because while interest rates were falling, many found it possible to refinance, get the same or even lower monthly payments and cash in their pockets. This obviously has come to an end. Interest rates are rising. Some Adjustible Rate Mortgages,ARMs, are being stepped up to higher rates. Some unlucky people find that their neighborhood is deteriorating and their house is now worth less than their mortgage debt. They can walk away frm this negative asset and ruin their credit or continue to pay the mortgage or sell and take their loss now.

If the decline in housing prices becomes general, many who took the value out of their hosue to finance current consumption will find them selves with a "negative asset" house. This, if it happens, will feed on itself as many try to sell their house while they can still get out with small profit or at least stop the decline of the house asset before it becomes too negative.

The loss of a job is often the trigger for an individual of the loss of their house. The increasing interest rates, and ARMs also are adding downward pressure on home prices. Fact that the average US worker's wage has been declining for four straight years in terms of purchasing power and the rapid increase in fuel cost for driving to Wal-Mart and heating the house is also pushing the asset value of the typicl house towards the "negative asset" region. If I had a house in US I would sell it now, rent and get the profit out of dollars by buying foreign ADRs. etc.

 

Doesn't having an existing property that you currently pay on get you some credit options? You can take these options and make additional investments. The cycle of debt can occur when the outgoing payments exceed returns on new investments. Do most people know how to capitalize on the cycle, investing wisely and see positive growth with returns? Additionally, an increase in the population without a like increase in job availability results in devalued individual worker. This means people out of work more frequently and also companies do not have to pay as much anymore when there are an enormous number of applicants for a position. Making less or being out of work due to an influx of people does not help one's personal finances unless you have invested in business ownership and can exploit this giant pool of resources.

 

Well, yeah. Sort of. But what I meant is that if you are using for yourself it is a liability. You put the mortgage in the "Long-term liabilities" section of your balance sheet. Unless you get rent from it, your house is not an asset...

 

Very well said...

 

Thread needs Title Correction:

Because US saving rate is already negative, Title should end with:

More Debt = negative savings rate accelerating

But that may not fit.

 

Complete rubbish. Of course it is. For the average Joe, property is the best (long term) investment you can make. There are pros and cons to renting out an investment property (as opposed to living in it) but it's still an asset either way.

 

Nobody ever said a *mortgage* was an asset. It's the *house* that's an asset.

 

There's no "sort of" about it. Of course it is an asset! Every house and/or piece of property I've ever owned (about 12 in all) always sold at a profit when I decided to move.

If you make a decent effort toward upkeep on the house and your neighbors do the same, it's one of the easiest form of investments the average person can make. You've GOT to live somewhere and buying a house is a FAR better investment than renting - which is NO investment at all.

Not sure where you took economics but it appears you cut too many classes.

Please Register or Log in to view the hidden image!

 

More than that, renting is investment in somebody else!

 

How so?

 

Big letters do not convert error into truth.

A house is always and asset, but it can be a "negative one" when the mortgage on it is considered. That has almost never been the case in the last 40 years, but perhaps is true for some today and may be true for many more next year.

For more details see my post (987755) about 10 before this one, made on 23 Feb.

 

Yeah, I saw your post but I wanted Truthseeker to elaborate on his statement.

My mother bought a house for $85,000 about 8 years ago. The house is now worth $204,000, with no improvements made to it. If she sells it this year, which is what she plans on doing, she will make a hefty profit considering she hasn't put much into it except for basic upkeeping.

 

Please Register or Log in to view the hidden image!

It's not an asset if YOU live in it. Duh!

 

Who said a mortgage is an asset?

 

If you are using the house, it is not an asset. A house is actually a part of you equity. An asset is by definition something that produces money. Of course, if you sell your house and you get a gain, then your house, at the time of the sale, is a capital asset.

Not sure you know what the hell you are talking about...

 

Big letters sure draw attention.

A house is not an asset unless you are renting it out to someone or you are selling it, in which case it is a capital asset.

 

Sure, I know exactly what I'm talking about. It's you that doesn't have a clue. An asset is also something that HAS value - it does not have to be actively producing income. I don't suppose you'd consider money in the bank as an asset, eh? :bugeye: Or a gold brick in your safe-deposit box? Or the title to a chunk of land? Or...or...or... the list goes on, silly!