Quote:
Originally Posted by sarahnyc
I follow your posts and find them interesting... Could you extrapolate on your viewpoint that the Middle class is surrendering their wealth to the wealthy?
|
Compare the present Middle Class to previous Middle Classes throughout US history.
The present Middle Class lacks any financial maturity or discipline, and it possesses an attitude that is fundamentally different that previous Middle Classes.
A home is not an investment. It's merely a method of fixing expenses so that your disposable income constantly rises. My parents paid $79/month for their 3-bedroom. I paid $150/month for my first 1-bedroom apartment. When I came back to the US a decade later, my parents still paid $79/month and I paid $350/month. A few years later, they paid nothing, while I was paying $450/month for a 1-bedroom. That's why you purchase a home, because every time you get a pay raise, it is more disposable income, versus a renter, whose pay raises get sucked up in rent.
The Lost Generation rented, saved money, and then put a hefty down-payment on a home, and they lived in that home until they died, then left it as an inheritance to their children, so you have ever increasing wealth for succeeding generations.
The GI Generation rented, saved money, and then put a hefty down-payment on a starter home, which they sold later for a profit and then purchased a bigger home, in part, because the square-footage was increasing. They either left the home to their children, or they sold it, and moved into a smaller home they could afford (probably in a "retirement community") and then left the cash from the Capital Gain on the larger home and the smaller home to their children. Again, you have ever increasing wealth.
Most of the earlier Boomer Generation did the same, but many of the later-comers sold out to satisfy their infantile urges. They bought a McMansion at age 55 that they didn't really need, and now they're upside down on the mortgage and they'll have to work until age 70 to pay it off so it doesn't eat up their pension/401(k) and Social Security. And that's unfortunate because BLS is counting on 67% of them to retire so that you all will have jobs.
And now you have Generations X, Y and Z graduating high school and university and taking what they falsely believe to be a short-cut to wealth. They don't rent and save their money, they don't buy starter-homes and sell them later, instead they jump straight into a McMansion with no money down.
$250,000 McMansion with 0% down at 6.5 % for 30 years is $318,000 in interest.
They basically paid for the McMansion twice, but they can't see that. And then they scream "
Where's my wealth?" Well, not only did they not do anything to get wealth, they literally transferred all of their wealth to the "rich."
And why? No good reason.
Now to get their money back and break even (on only principal and interest), they have to sell the $250,000 McMansion for $568,000 and they can't do it, so they have taken a financial loss and have no net wealth.
The financially mature put 35% to 45% down on their $250,000 McMansion and pay only $79,956 in interest. They can then sell the home later for only $450,000 and still make a "profit" of ...$120,044
And it doesn't end there. The difference in interest paid is $238,905.
If 10 Million American Middle Class households act stupidly, then $2,389,050,000,000 ($2.38 TRILLION) in wealth has been transferred to the "rich" over a period of 5-10 years.
And then someone will ask a stupid question like, "
Why is there wealth disparity?" or "
Why do the rich keep getting richer?" or "
Why does the Middle Class have no wealth?".
Generations X, Y and Z act stupidly, that's why. They have voluntarily given up their wealth and transferred it to the "rich."
And we haven't even hit on the savings. Take the $238,905 in interest not paid and put that money in something like a pass-book savings account and after 30 years, you have
...$762,505
That's three-quarters of a million dollars. And even if you didn't save it, $750,000 will buy a lot of NetFlix and lattes at Starssux.
The young couple next to me are in their early 30s, and they've had perpetual car payments since they were 18. How smart is that? It isn't smart all. Previous generations bought a car, put 10%-20% down, financed it for 2 years and drove it until it died. They might occasionally buy a new one after 6-7 years.
Generation X, Y and Z have no qualms about buying a car with no money down and financing it for 72 months.
"But I get 0% financing." No you don't. Nothing is free. Everything costs. If it doesn't cost you money, it costs you time or resources. You're paying financing, you just can't see. Is there a difference between paying $21,000 for a car and $3,000 in interest and $24,000 and no interest?
No. You're paying for the financing. It's built into the price of the car. "0%" is just a slick Madison Avenue gimmick to get you on the lot to make a sale.
So they buy a car no money down for 72 months, get upside down on the car note and then end up buying a new car every 2-3 years for the next 20-40 years. That's a lot of money thrown away, enough to pay your own "health insurance" premium every month.
The Middle Class will buy a $1,700 Plasma TV and then pay $1,973 in interest. Where did their wealth go? They voluntarily gave it to the "rich."
Previous generations didn't have access to credit cards like today. A credit card is a three-way relationship, you, the bank and the merchant. A charge card is a two-way relationship, you and the merchant. That stems back from the concepts of credit in the 1600s and 1700s. You go to the feed store, get a couple sacks of seed on credit, plant your seed, and hopefully you'll be able to sell enough crops at a high enough price to pay off your debt and leave you some money to provide for your family.
30 years ago, 18 year-olds didn't get credit cards. You begged on your hands and knees and maybe one of the oil companies would give you a gas card, like SOHIO or Union*76. And if you didn't mess it up, maybe JC Penny or Montgomery Ward or Elder Beerman (Federated) would give you a charge card. And if you didn't mess that up, maybe a few years later Sears would give you a charge card. And then maybe your bank would give you a VISA or MASTERCARD and then if you didn't mess that up, maybe CitiBank or Discover would give you one of their cards.
And the attitude was different. Previous generations used credit cards for security, convenience or peace of mind. Instead of carrying around a large sum of cash to make a big ticket purchase or risk misplacing your check-book, you used your credit card a
nd then paid it off at the end of the month. For travel it's a great convenience and peace of mind. If my car breaks down, I have the funds for towing and repair and a motel stay if necessary.
Generation X, Y and Z view credit cards as income. "
I have my $45,000 job and $30,000 in credit so I make $75,000 a year." And then they live like that and they fritter away $Thousands in interest to the "rich" (who own stocks in the banks who make money off the interest).
Which brings us back to houses. It's bad enough that they see a house as an investment (it isn't) but they also see it as once gigantic credit card.
Didn't have HELOCs 30 years ago.
I was watching CSPAN and one of the analysts from Fannie Mae was showing that 2/3 of all mortgage defaults were on HELOCs, 2nd Mortgages or 3rd Mortgages, or on 2nd homes.
And you want to bail them out? You're bailing out their credit card debt. They ran up their credit cards, then got a 2nd Mortgage for "credit card debt consolidation" and then got in trouble couldn't pay one mortgage or the other and then defaulted. When you have a 2nd or 3rd Mortgage, it makes no difference on which one you default. A default is a default.
I will bail out those homeowners who had one mortgage only, no HELOC and have the written opinion of a real estate attorney, provided the real estate attorney did not err through malfeasance (in which case I shouldn't bail them out, rather they should sue the attorney for legal malpractice).
So that would be what, 37 homeowners in the US?
Anyway, that is why there is an, um, "wealth disparity" and why it is increasing so quickly, and why it will continue unabated at least for a while longer (until they have no wealth left). I hate to disparage entire generations, but the simple fact remains that the vast majority of Generation X, Y and Z are voluntarily giving away their wealth as fast as they possibly can, and they have make the worse financial decisions 100% of the time all the time, and have never done anything right financially.
If that were not true, there wouldn't be such an increasing "disparity."
Anyway, I would really wouldn't fuss over it. The wealth of the rich is all theoretical anyway. It isn't real. For a lot of the "millionaires" if they had to liquidate their assets to convert it to cash, they wouldn't be "millionaires."
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
