this is usefulAug.9, 2006 - For the first time ever recorded, Americans owe more money than they make. Household debt levels have now surpassed household income by more than eight percent, reaching 108.4 percent in 2005, according to a May 2006 study by the Center for American Progress. Consumer debt is now at a record $2.17 trillion, reports the Federal Reserve Board and consumers cashed out a whopping $431 billion in home equity last year.Jessica Bennett, newsweekThe following is not, it may very well be harmful"The data shows that people are borrowing more money not because of over-consumption, but because they're caught in a bind, . . .I would argue that people are borrowing more money now than in the past [not because of more access to credit] but because prices have risen in the face of a very weak labor market . . .A lot of the new debt people are taking on is because they have to [and] I think if people were better informed they would [continue to] take out the same amount of credit, [though] they may be paying a little less on it.(quoates from Christian Wellerhttp://www.msnbc.msn.com/id/14251360/This guy is painting a picture where it isn't the fault of the household for large debt but its big business at the feeding trough. I really don't care if you want to bash big business and executive compensation, they earn their lumps. But to say that the middle class consumer is in a bind beyond thier control is crap, pure crap. The only way it is a bind is if they insist on living at their current life style. If they are willing to accept a different life style then debt becomes less of a neccessity. Here is part of his arguement that almost makes senseThe labor market has been rather weak, employment growth has barely kept pace with population growth, wages have been flat, income has fallen for five years in a row, and at the same time, prices for critical big ticket items-items such as health care, housing, college education—have gone through the roof. In that bind, the only escape valve for middle class families is to borrow more moneyI'm not in complete agreement with the pundents that say the employment market is weak but I don't want to hash that out right now so I'll agree that wages have been flat. Price for critical big ticket items have gone through the roof? I'm not going to argue that prices haven't gone up but really the only one of those three that is critical for middle class americans is health care. Middle class americans don't have to upgrade their house, they don't have to put on an addition, they don't need to add a pool. The dramatic real estate price increases of the last 5 years was not driven by first time buyers. There are two primary reasons for a home owner to buy a different house: relocation for employment or to own a "better" home. The employment numbers tell us that people are not relocating at an unusual pace. I wont argue that college is not important for the long term success of our children. I will argue that you can save a pile of money by taking classes at a J.C. for the first two years. Or here's an old fashioned idea, let the kid work their way through college. A hate to burst some academic ego bubbles but with the exception of a few schools and few specific programs on some campuses the same job can be had no matter where the degree came from. Staying in state and picking the cheapest of the available options is probably not going to effect junior's long term earning power. At the Bachelors and Masters level the degree issuing school isn't a make or brake issue.This leaves health care. I have no anecdotal evidance of many employed people who have had to take out a HELOC in order to pay for thier medical expenses. It really bugs me when people take useful data and stink it up with a dressed up theory presented as truth. jack
Jack,I think you are overreacting to the "have to borrow" comment. I'd try to put it more objectively as, "because median incomes for families are not increasing as fast as expenses, families are having to borrow to maintain their same lifestyle."I think we'd agree that many middle class families could adjust expenditures, instead of borrowing. The issue is which expenditure cuts are for frills rather than necessities.I'll make a couple comments on the college education issue. If you view college as a degree to job factory, community college courses for a couple of years won't matter. But if you see college as a formative periodic for intellectual development (not to mention the sex, drugs, and rock and roll, or nowadays sex, beer, and football, with a side of drugs and whatever passes for rock and roll), there is no substitute for a full undergraduate experience. I believe we are decidedly weaker as a country for producing (not just because of community college) less well rounded educated people, who lack the broad knowledge base and thinking skills to adapt to changing circumstances. As to working one's way through college: we are now approaching a bi-modal distribution of the wealthy college students who don't work and those putting themselves through college working 30 or more hours a week. For the most part, I find the latter still put more effort into their classes, but the fact is, we cannot demand anywhere near as much homework as 20 years ago, let alone when I was in college, and the general quality of materials we teach from (e.g., no William James in intro to philosophy, just a textbook that might have a short excerpt or description) is weaker, though I won't claim this is mostly due to the amount of work for pay students do.The student debt burden is also not to be dismissed lightly. Look at medical school, in particular. More and more medical students are choosing lucrative sub-specialties, because of debt, which has ramifications for the whole of medical practice and costs (e.g., an ounce of prevention doesn't pay as well as a pound of cure).
Loki,I think you are overreacting to the "have to borrow" comment. I'd try to put it more objectively as, "because median incomes for families are not increasing as fast as expenses, families are having to borrow to maintain their same lifestyle."I reacted that way because the rhetoric of "have to borrow" is misleading. I agree that your restatement better reflects the reality and that is why I find the phrase "have to borrow" and the supporting argument of this "expert" annoying. The rhetoric of this article enables people to continue their ways because its not their fault. No change in borrowing behavior is encouraged because its not their fault. (whoever they are). I do agree that there is alot to be said for the full undergraduate experiance. There is also alot to be said for 2-4 years of service experiance or a year abroad. Ages 16-24 (give or take a few) are the years where individuals start to shape themselves based on enviromental inputs rather then being primarily shaped by the adults in their lives. I'm not poo-pooing education debt but way back when and now a chunk of that debt isn't used well or directly for education support. I would argue that education debt is used much the same way as broader U.S. society applies debt. I know of dozens of people that feel deserving of non-essentials and have increased their "student" loans to accomodate what they percieve that they deserve. One young lady recently borrowed 3k to take a cruise that she decided she earned. Way back when college friends of mine, as a couple, took out a student loan to buy a second car. Both barely worked part time. The part time jobs were on campus and their apartment was within easy biking, walking distance of the campus. To top it off, in order to spend quality couple time they intentionly arranged their schedules to be on campus and at work at the same times. More then once when I visited them the police had chalked the tires of the older car. (all anecdotal)I also agree that we have made some societal shifts around education and formation that I don't think are in our long term best interests but that is a huge tangental rant. jack
One young lady recently borrowed 3k to take a cruise that she decided she earned.We took out a $3000 student loan, just before moving to Michigan, to take a vacation before starting paying (more or less) jobs. Worked great!Seriously, there ought to be a way to insure that student loans are used for the intended purposes.Anyway, the middle class in this country is, broadly speaking, losing ground, and knows it. That's why the polls keep showing grumblings, whatever the statistics about "growth." Most people don't understand the difference between median and mean, but they can feel it.
I agree that the middle class is under increasing pressures. More families are dual income and are not significantly better off for it. Part of the issue lies in individual financial behavior and part of it is due to the economic conditions of the last 7 years. My baggage of many who are grumbling is that thier less then 3 year old car is full of fast food bags and while they gripe they have a 4 buck cup of coffee in their hand. I have little compassion for this condition. These are the first middle class folks to feel the pinch because they are living on the ragged edge of thier means so they are the first to grumble and the loudest. They insist their predicament is because the boss isn't giving out proper raises without taking a systematic look at their budget looking for easy cuts. Its not their fault, they are victims of circumstance.I do feel for the families that pinch pennies and make too much money for their kids to get decent financial aid for college. This family is going to be impacted by increasing higher ed costs.jack
Jack,This guy is painting a picture where it isn't the fault of the household for large debt but its big business at the feeding trough. I really don't care if you want to bash big business and executive compensation, they earn their lumps. But to say that the middle class consumer is in a bind beyond thier control is crap, pure crap. The only way it is a bind is if they insist on living at their current life style. If they are willing to accept a different life style then debt becomes less of a neccessity.While I agree with you in principle, in practice and reality, you are way off. The mob is the most powerful manipulator of people and right now the mob mentality is a "have to borrow" mentality. This all started when Greenspan lowered the funds rate to virtually nothing and then escalated when the housing boom took off. Instead of tightening, we just lent and lent and lent to keep the economy growing. I'm 30 and I can tell you that this is all my generation knows is borrowing money. You borrow for everything, a car, a house, an education. The sad thing is that this author's point of view is the point of view of the average joe six pack. Credit is king and it is all the fault of big business and government. It has infected our society and it is ALL WE KNOW. No matter how much you preach savings and LBYM, you will never stop the mentality until you stop lending out so much money. Its ridiculous and it starts with our wonderful "the rich get richer and the poor get poorer" government.
09,No matter how much you preach savings and LBYM, you will never stop the mentality until you stop lending out so much moneyIt won't change until there is enough blood in the streets. Lenders won't change until they get gashed by their loan portfolio. Borrowers won't stop until the repo guys take their stuff and the courts garnish their wages. I don't fault the lenders, their means of making money is to loan money. The one's that make poor loan portfolio decisions will pay the price of free market capitalism. I really don't care what the prevailing attitude is or if its all the young borrower knows. The borrower doesn't have to borrow, they don't have to spend, there are no guns held to heads. They are responsible for their actions. My fear is that someone will bail them out as they always have. let the blood runjack
"Have to borrow"This is entirely accurate - anyone who wants to spend more than they earn "has to borrow".We took out a $3000 student loan, just before moving to Michigan, to take a vacation before starting paying (more or less) jobs. Worked great!Seriously, there ought to be a way to insure that student loans are used for the intended purposes.Since money is fungible, there is no way to do this.
We took out a $3000 student loan, just before moving to Michigan, to take a vacation before starting paying (more or less) jobs. Worked great!Seriously, there ought to be a way to insure that student loans are used for the intended purposes.Since money is fungible, there is no way to do this.I wish there was. Heck, I assumed there was, while I was in grad school, as the federal application for free student aid (FAFSA) explicitly states that student loan money is not to be used for any purpose not directly related to education expenses. I'm surprised they'd make such a threat without having some sort of auditing mechanism in place with which to build a case against a potential violator.Once I read that clause, I didn't bother reading any closer as I had no interest in trying to "game" the feds. Garnishing of wages, banning of social security benefits, there's all sorts of things they could pull.
I wont argue that college is not important for the long term success of our children. I will argue that you can save a pile of money by taking classes at a J.C. for the first two years. CNN had a special show last week on the increasing cost of college. One of their conclusions is that 'easy' money has been the major contributor to the increased cost. IOW, the easy availability of loan money (from both students and parents) has allowed the colleges to raise their tuition rates and other fees to 'whatever the market will bear'. And since so many parents and students are willing to go into hock up to their eyeballs, what the market will bear is VERY high college costs.They also pointed out that 2 year 'community' colleges are by far the best deal available today and recommended that they be utilized for the first 2 years of college, and then switch. The reason they aren't being utilized is the 'snob' factor, and that's one of the reasons they are such a great deal.CNN also pointed out that the increased total cost is partially due to the fact that many, many students take far longer than 4 years to complete their bachelor degrees. Just 30 years ago there was a percentage that completed in 3 years--that same percentage now take 5 to 6 years. Perhaps these kids are partying just a bit too much. I know that the student 'war cry' is that toward the end, the classes they need are not available each semester (or even each year), and that's why it takes longer. But hey, I had to deal with that too, and I simply planned it all out in advance--I knew exactly how many credits and which classes I had to take each semester to make it through on time. It took me 5 years, but I was working full-time (50+ hours/week). And certainly with the money the private universities are charging, they should be able to afford to offer classes more frequently.The 'sample' case that CNN used was a family of 4 (mother, father & 2 teen daughters). One of the daughters is entering college this year, and the younger one will be entering in 2 years. The father bemoaned the fact that they're unable to get financial assistance because his income is too high. He felt that his income of $135K/year shouldn't be considered too high, as he felt that he was simply 'middle income'. I guess everyone's idea of middle income is different, but I wondered how it was that they had saved absolutely nothing toward putting their kids through college, considering their income. When you consider the income tax breaks families receive in general, the level of his income, the fact that they own a home (what happened to their equity value increase?), it seems to me that this family should have been far better prepared than they were.2old
Way back when I knew of two degree specific programs dependent on one class taught during the spring semester every other year. Miss or flub it and you add a year. There is also the need of many college educators to bring students up to a collegiate level even tho they are suppose to already be college material. Adds a year easy. There is also a greater understanding for inter-discipline communication. Someone finally figured out that the bean counters and the bridge designer need to be able to communicate.jack
Way back when I knew of two degree specific programs dependent on one class taught during the spring semester every other year. Miss or flub it and you add a year. I also experienced this type of course offering, which is exactly why it's so important to neither 'miss' it, nor 'flub' it.There is also the need of many college educators to bring students up to a collegiate level even tho they are suppose to already be college material. Adds a year easy.The NYC University system recently changed their rules. If the student is not up to university level standards they will not be admitted to a 4 year university--they must start at a junior college which will bring them up to university level standards during the first year. When they complete the 2 years at the junior college, they can switch to the 4 year. I believe the main reason they made this rule change was to eliminate the duplicated expense of offering these 'catch-up' courses at both their junior colleges and universities. Frankly, I agree with the decision--if a student is not currently operating at university level, they shouldn't be admitted to a university.There is also a greater understanding for inter-discipline communication. Someone finally figured out that the bean counters and the bridge designer need to be able to communicate.I couldn't agree with you more on this. I thought the main reason for a liberal arts program was to accomplish this--it was heavily stressed at my school.2old
The NYC University system recently changed their rules. If the student is not up to university level standards they will not be admitted to a 4 year university--they must start at a junior college which will bring them up to university level standards during the first year.This is way OT but there was a recent article in the NYTimes about this very subject.http://www.nytimes.com/2006/09/02/education/02college.html
This is way OT but there was a recent article in the NYTimes about this very subject.Thanks for the article JRR. (Although it's disheartening to realize how unprepared so many HS grads are)The sheer numbers of enrollees like Mr. Walton who have to take make-up math is overwhelming, with 8,000 last year among the nearly 30,000 degree-seeking students systemwide. (Those numbers are apparently for Baltimore County)2old
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