http://www.washtimes.com/business/20060207-094458-8539r.htm Debt has proliferated at all levels of society in part because the stigma that once attached to borrowing in the United States has disappeared. Debt shapes the lifestyles of both rich and poor. Mortgage bankers say many consumers no longer have the goal of owning a house or car, but rather seek to "lease a lifestyle" that they covet or admire by leveraging their incomes as much as possible. Rather than paying off the debt, the only aim has become to pay the monthly debt service, bankers say. Consumers with modest incomes use credit to purchase basic necessities like food and clothing, while Wall Street brokerages advise their wealthy clients to take out as much mortgage debt as they can to free up cash for luxury purchases and investments. The loss of shame about living large on debt reflects generational differences between elderly citizens, who grew up during the Great Depression learning to carefully budget and save, and their baby boom children and baby bust grandchildren. Older people who saved and waited until middle age or even retirement to buy the house and car of their dreams, or to go on the vacation of a lifetime, see neighbors and relatives enjoying it all now using gigantic mortgages that consume most of their monthly paychecks. Ruth Williamson, a recent home buyer in Fairfax, said she was stunned by the huge mortgage lenders were willing to provide so she and her husband could buy a good-sized starter home -- one that would have required 80 percent of her husband's salary to pay. The Williamsons balked at incurring such a large debt load and chose to buy a smaller house instead. "It was ridiculous," she said. "I'm fairly conservative with money by nature. As a result of this, we live in a 1950s duplex." California has led the way in the debt binge. Mortgage brokers there joke about the millions of "refi junkies" who refinance their homes several times a year to take advantage of soaring home prices and extract rapidly accumulating equity so they can spend it on other items and even use it for income. Going deeply into debt to buy what once were considered luxuries has come at the cost of financial peace of mind for many people, however, according to Jonathan Rich, a financial adviser and author. He has found that Americans are no longer happy making average incomes. "We're under increased financial pressure, due to soaring real estate prices, increasing taxes, and other economic realities," he said. "But at the same time, our material expectations are increasing. People believe they need more, but they can afford less. So they're borrowing to the hilt and working to exhaustion." John Podesta, president of the Center for American Progress, a liberal think tank, said consumers took the plunge into mortgage debt to cope with subpar growth in wages and the rising cost of living in recent years. "Americans are being forced to borrow in historic amounts against their homes to deal with stagnating wages and skyrocketing costs in health care and education," he said. "Families used to borrow against their homes so they could make improvements to them. Now they are having to borrow against their homes just to pay their bills."
Leverage is a two edged sword. It works well, until it does'nt. Through advertising and media, Lemmings all run to the cliff, as if they are...one. Alas, they will die, one by one.
Good warning , except families are not being'' forced ''to borrow; my Dad was a banker, trust me the bank ads dont ''force''; people CHOOSE unwisely to load up with debt.
another problem is the young want the same lifestyle(big house new car) as soon as they get married as their parents worked 50 years to get.
Die Broke : A Radical Four-Part Financial Plan by Stephen Pollan and Mark Levine (Paperback - Oct 1, 1998) how to live well being technically broke should be the next book. sounds like alot of US corporations
Exactly. Young people do not know what deferred gratification means, and they are paying the price for it.
The trouble in America is that debt is subsidized and encouraged with tax deductions. A simple solution to decrease consumer and repay government debt would be to put an end to this subsidy. Who was the one who started this system of tax deductible mortgages? As far as I can see, it'll be a big part of America's downfall. Once it's in place, there'll never be enough people with the foresight to vote it out.
"Wages will need to grow and healthcare costs will need to reduce or the US will become a third world nation ...and that is just not going to happen ..." why not?
<i> another problem is the young want the same lifestyle(big house new car) as soon as they get married as their parents worked 50 years to get. </i> Worked for 50 years? Are you kidding? Are their parents all 85 years old and just buying a car and house? At 85 years old they get rid of their house and car. My parents purchased a 4/3 house in Brentwood in Los Angeles when my father was 32 years old, and a professor (obviously on conventional terms). Both parents had normal cars, and father could get a German-delivery Benz, though the low end model, three years later. Today, that house is probably 1.5-2 million+ now (surrounded by many more expensive ones) and only the wealthiest superstars could afford it. Back then job benefits were good, salaries for educated (especially in science and engineering like him and myself) were increasing rapidly. Believe it or not, standards of living were high for many, especially when you consider the cost of necessities like health and car insurance, and of course the much lower cost of education. Maybe people now want only just some approximation of what their parents had. It was true that my father's generation was much better off than his predecessor's. It's not really true any more.