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Oprah, Suze Orman, and Debt!

I got home from work yesterday to find my wife watching Oprah on TV. As I entered the family room, my wife exclaimed, “you’ve gotta see this… it’s right up your alley.”

“Oh yea?” I replied intrigued with my wife’s tone of voice.

“It’s all about money!” she explained knowing the keyword that would peak my interest.

While I’m not Oprah’s biggest fan, I do enjoy some of Oprah’s shows when they involve the topic of money. This episode featured Suze Orman and some regular folk who had some serious money/debt issues.

This particular couple were dressed well, from California, had a large family of 8, nice house and a decent gross income of $100k/year (~$5500/month take home). Sounds great from the outside, but that’s the end of the optimism, here’s what lies beneath the exterior:

  • No medical insurance for the themselves OR the kids.
  • $135,000 in credit card debt.
  • Two mortgages totaling $658,000.
  • Large mortgage with payments of $1800/month, but payments will increase to $3300/month in a few months.
  • They have 3 cars, 2 of which are leased, the other one they own. The cost is $1700/month.
  • Wife spends $300-$400/month at Starbucks (It was the wifes morning routine).
  • $60/week on tanning and manicures
  • $4k on hair extensions in the past 2 years.
  • Constantly shopping.
  • The wife would regularly buy brand new clothes for the kids, then have a garage sale a month later to sell the “used” items at pennies to the dollar. (This one blew me away)

As they explained their situation in detail, I literally cringed. How can one family be so irresponsible with money? Don’t they realize that they have kids to take care of? From watching the show, it seemed that the couple had very poor communication between them. As a result, the wife was practicing financial infidelity on a regular basis. The couple also had a bad case of the “keeping up with the Joneses” disease which can be contracted when living in an middle/upper class area.

Looking at the income to expenses, their mortgage and car payments take up the majority of their income. This is not including groceries (6 kids anyone?), car maintenance/gasoline costs, power/utility bills, insurance, clothes for the kids or credit card debt servicing. It’s easy to see how they have racked up $135k in credit card debt with their irrational spending habits.

How will they get out of this mess? You can be sure of one thing, it won’t be easy. Suze Orman explains (or demands) that they need to sell their house NOW before the payments go up or the house will be taken from them (I agree). She also suggested that they move out of California due to higher lifestyle and taxation costs and that both parents get part time jobs as it would provide medical benefits. Even with these drastic measures, it will take this family a long time to dig themselves out of this one, but the bright side is that they will be moving in the right direction.

My world now is about building wealth. Seeing that family on TV got me wondering about how other people view money and how the lack of money knowledge can destroy lives. The world really needs more financial education.

What would you suggest to fix their financial mess?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 48 comments… add one }
  • The Financial Blogger July 15, 2008, 8:33 am

    #1 Declare bankruptcy, move into a 4 1/2 apartment with their 6 kids and learn from their mistake!

    #2 Sell their kids on Ebay

    #3 Having the wife works part time at Star Buck, Gap Kids and a hair salon so she can get good rebates ;-)

    #4 Insure the life of a spouse for 1M$ and thrown him/her down a cliff

    #5 Sell their body part (kidney are in high demands on the black market)

    #6 Open a bank and consolidate their debt with other people’s money

    Seriously, how can you possibly pay down 135K in credit card? Unless their house worth 1M$, they are pretty dead!

    This is one thing that is good about Canadian bank system. No banks or other financial institution would go that far in lending to people! I don’t know how they do their mortgage ratio calculation down south but it is clearly to take back the property and not to let people pay their mortgage off!

    Regardless all the other expenses, making 100K and having a 650K mortgage is ridiculous. That should put their TDRS (total debt servicing ratio) at 40% already!

  • FT FrugalTrader July 15, 2008, 9:14 am

    FB, you are hilarious. Is that the advice you would give them if they entered your office? ;)

    It’s true, they should not have even qualified for the extra debt. But then again, that’s the whole reason for this subprime mess to begin with.

  • Al July 15, 2008, 9:33 am

    I’d be fascinated to know how common are people like this, though I doubt anyone has the answer.

    My advice would be to search the internet using the words finance and frugal, read, and change behaviour accordingly. Oops, they’re ‘mericans, so they should change their behavior accordinly.

  • Max Power July 15, 2008, 11:18 am

    I think it would be interesting to see what their house is worth- if they’ve got any amount of equity, I would think that this may be their only saviour. Sell the McMansion, find something significantly less expensive and pay down that massive credit card debt ($135k?!? That’s almost impressive!).

    You’d be surprised at the number of people out there who lack even basic financial skills or an understanding of simple financial planning. Even more disparaging are people who have sunk themselves into a hole and find it easier to ignore it and hope for the best than to make the tough decisions to improve their lot.

  • Chuck July 15, 2008, 11:22 am

    My wife used to work in a collections capacity for one of the banks and you’d be surprised just how common situations like these are. A lot of people keep rolling their personal debt into their mortgage whenever it keeps coming up for renewal, leased car overuse and penalties are rolled into the next car lease.

    The banks are willing participants in all of this because the personal bankers are compensated on how much debt they write. I’ve been going through the process of renewing my mortgage and my banker was trying to talk me into buying a bigger pricier house when my existing home meets my needs fine.

    The crux of this problem is bling bling culture and everyone wanting to act like a celebrity. At least 2 Timmy’s a day isn’t going to kill my financial plan and costs much less than Starbucks, and me and my kids are quite happy wearing our clothes more than once.

    The solution for these people is behaviour modification. Simply saying cust costs and act sensibly may not work with people who are more concerned about how they are perceived.

  • FT FrugalTrader July 15, 2008, 11:32 am

    Max, according to the show, they had no equity in the house after the 2nd mortgage. They had to sell because the upcoming payments would result in a bank sale.

    Chuck, I agree with what you are saying. One of the biggest culprits is mainstream media and how we idolize celebrities. I wonder what the world economy would be like if we banned TV. :)

  • Canadian Dream July 15, 2008, 11:37 am

    Mmm, that is a HUGE mess. I’m not even sure where to start beyond sell the house, rent in a cheaper location in the US, sell the two leased cars and put the wife into therapy. She’s got to stop what she is doing!

    Gods $135,000 in credit card debt, assuming 18% interest that is over $2000 a month in just interest costs!!!! I agree with FB if they can’t clear off most of that debt with the sale of the house they should file for bankruptcy.

    I’m not even sure education would have helped in a situation like this. They must be like legally insane or something!

    Tim

  • AndyBuck July 15, 2008, 11:43 am

    FT, without TV we’d still have the Internet – that’s almost worse!

    I would have to agree that these people are effectively screwed. They really need to downsize fast. On the plus side, with 8 kids, they could work on a farm and start producing some agricultural commodities that have skyrocketing prices.

    In all likelyhood though, they will probably declare bankruptcy and move into a smaller home. Ultimately though it will be a lifestyle shock for all members of the family.

  • soultrance July 15, 2008, 12:20 pm

    Sounds like a good case for Gail Vaz-Oxlade and Til Debt Do Us Part. I not a big Orman fan but watching Gail and Til Debt Do Us Part gave me a ton of info and help me and my wife cap our terrible spending habits. She’s a big advocate of the cash only budget and tracking everything you spend and implementing those two changes along has made a huge different in ours lives financially. If you haven’t seen the show before you should definitely check it out, think it would be right up your alley. http://www.slice.ca/Shows/ShowsPage.aspx?title_id=93097

    People like this drive me nuts. Having scraped by on a single small income for a number of years, knowing that a family bringing in a healthy income of $100k and still putting themselves that far into debt floors me.

  • guinness416 July 15, 2008, 12:21 pm

    I guess the site ate my first comment but the solution has to be bankruptcy + lots of behavioural and marital therapy. And a job with health insurance, good lord. You can’t pay off $135k in credit card bills and still stay sane for your kids (can you even pay off that much credit card debt at all?), I don’t care about american style pull-yer-socks-up rhetoric. Putting my amateur shrink’s hat on, this woman does not sound happy with where life has brought her, the six kids, whatever.

    And as I said before, in this situation the stress would have driven me beyond reason long before oprah stepped in. I don’t know how people can keep putting one foot in front of the other with such colossal debt hanging over their heads.

  • Daniel July 15, 2008, 12:24 pm

    To make a show interesting they usually pick people who are in an extreme position for a common situation.

    We were in a financial position that would make all the usual suspects here cringe. High credit card interest payments every month while making the minimum payment. Thousands in a chequing account earning nothing. Thousands in a savings account earning 3%. And absolutely no real plan for the future.

    I read an article 2 years ago that changed our financial life. A simple clip on where the money goes (other people) and how to stop paying interest and enjoy the money we earn.

    It took us 2 full years to clear all the bad debt. No vacations, no major spending, Now we earn more than we consume and can now save the extra money, my wife works a bit less and we are completely free of financial stress.

    But if I mention to co-workers how we got to this point and what kind of sacrifice are needed. I get the same excuses as a person who would love to weigh less but is not willing to eat less or exercise.

  • Madfish July 15, 2008, 12:40 pm

    I was just gonna suggest “start using condoms!!” but thought, maybe that’s a little mean. Then I read FB’s comment. LMAO!

    Although not to that extreme, my parents are sort of like that. They spend to make them happy and show other people they can. But they’re not broke yet because they know how to cut other costs… like making me eat sliced bread at home for supper.

    As a consequence, I strongly despise such behaviour.

    I just feel sorry for their kids. I don’t think they are enjoying their “luxurious lives” all that much. And their quality of life is definitely going to sacrificed while their parents try to dig themselves out of this hole (if they ever do).

  • nobleea July 15, 2008, 12:55 pm

    Why does a family need 3 cars? There are two drivers, so the most you’d need is two cars. If there’s a teenager in the house, let them get their own set of wheels.

    If they’re leased cars, they’re likely upside down on them.

    Sounds like a bankruptcy and a divorce. If the numbers are right, they have a spending deficit of over $2K PER MONTH! Talk about living beyond your means!

  • mjw2005 July 15, 2008, 1:03 pm

    I remember reading somewhere that one should choose their spouse wisely….I agree with Guinness, this lady does not sound happy and has used spending as a form of therapy….

    The man is equally to blame for keeping his head in the sand….

    For them I would say throw in the towel…declare bankruptcy, sell everything….talk to each other (or separate)…move…and start fresh…

  • Jon July 15, 2008, 1:40 pm

    I seriously think many people are just as close as these couple in terms of debt. Good thing about the couple is they’re honest to tell the world their situation and looking for help, while others are still hiding it because of pride.

    Cut their spending in half
    Sell 2 cars
    Sell the house and buy a small one in a decent neighborhood
    Get 2 jobs in say 12 months just to catch up
    Get a PLC or any loan with lower interest rate to pay up some CC
    Pray hard. LOL

    What scares me more is, if say they paid out half of the debt and then return to their old bad habit of “hyperconsuming”

  • ThickenMyWallet July 15, 2008, 1:44 pm

    I didn’t watch the show but did the couple seem receptive to wanting to change? There’s a dozen things they can do (as the readers suggest) but their larger issue is they have the wrong mind-set for building wealth (heck, they don’t even have the right mind-set for breaking even much less building wealth).

    They can and should declare bankruptcy but they will be down this road again if they don’t change how they think.

    …and, why would you need a tanning salon if you lived in California? People never cease to amaze me.

  • Telly July 15, 2008, 1:48 pm

    Well, the biggest problem of course, is that they likely can’t sell their house as by now their mortgage is greater than what the house could be sold for. So their options would more or less be to “walk away” (although the $135k in credit card debt would still be an issue) or declare bankruptcy.

    Like others have said, the 1st step is to change their attitudes towards money and stop the sense of entitlement (“I work hard. I deserve it!”). Hopefully, airing their dirty laundry to millions of people will be a start.

    I think it’s a bit naive to think that this kind of thing isn’t happening to Canadians. As soultrance mentioned, if you’ve ever watched “Till Debt Do Us Part”, you’ll see that there are plenty of examples right here in our own country…and that’s before a (pending?) real estate collapse.

    Oh yeah, and $300-400 / mth on Starbucks is just plain nuts!

  • Carrie July 15, 2008, 2:16 pm

    This is what I did.

    Invest a few dollars in the house, sell it, pay off all the debt. (Downsize meant moving 2 blocks away and getting a house 2x the size for 1/2 the money.) Reward yourself with a cleansing trip. Pay cash for everything you purchase. Keep one low interest credit card and maintain monthly payments and keep the balance at 3/4 of the total available debt. These payments will build your credit score which will allow you to borrow at the lowest available interest rate when the need arises.

    Remember what mom always said, live within your means.

  • moneyguru July 15, 2008, 6:07 pm

    Absolutely mind-boggling. Simple answer: live within your means – then it never matters how MUCH money you need to make (for the lifestyle you choose to live). You can’t live a champagne lifestyle on a beer budget! Short answer – pray hard. Digging themselves outta this one seems unlikely especially since the hubby was not onside to sell the house and move (not that selling the house would solve any of their problems being that, as mentioned previously, they owe more than the property is worth!).

    Yikes $300-$400 on Starbucks. I cringe doing that more than once a week (at say $2 a shot)!

    It would be interesting to see a follow-up.

  • Amy July 15, 2008, 8:03 pm

    As a collection manager I see this all the time! It’s funny because people spend money for different reasons and most people buy “things” because that is how they determine their success!

    The “wife” has issues greater than money, her self esteem is low and/or she is stressed out. With 6 kids I could only imagine how she feels so she shops to make her “feel” better. Her husband probably works 50+ hours a week just to stay out of the house (6 kids can do that to you) which makes the wife even more stressed out!

    The market in Cal. is not very good so they won’t be able to sell their house, but the credit card debt can be paid off or down to a manageable level (as long as “wife” doesn’t keep spending).

    If “wife” buys some Folgers coffee they will have one of their credit cards paid off within 90 days!

    If there is a will there is a way!

  • Elisabeth Donati July 15, 2008, 11:17 pm

    This is exactly why I started teaching kids and teens about money in a program called The Money Camp and now called Camp Millionaire in 2002. It’s so easy to teach kids the right way to handle money as well as how to ‘think’ about money. Then, because so many parents didn’t have a clue how to teach their kids, I wrote my new book, The Ultimate Allowance http://www.ultimateallowancbook.com

    It takes a strong desire to parent and truly prepare your kids to be financially free when they become adults.

    The interesting thing about this situation is that everyone is focused on the debt. Is the debt a huge problem? Absolutely. Did the parents make some amazingly ignorant choices? Yes but I bet they did for two reasons: 1) they had no training and no idea, and 2) once people get into a little debt and then a little more and a little more, the larger the numbers get, the more unreal the situation becomes. It happens with our national debt numbers as well. It’s a matter of contrast.

    How about teaching the parents to make money (not by getting jobs) but why figuring out how to start a business on the internet or using other people’s money (leverage) to start a business that can make them money. Teaching kids and parents how to be entrepreneurs is the biggest gift you can give them.

  • Sarlock July 16, 2008, 12:09 am

    B-A-N-K-R-U-P-T-C-Y

    They are too far gone. $135k in credit card debt at even just 18% per annum translates to $2,000 per month just in accrued credit card interest. With a mortgage about to flip over to $3,300 per month, just those two debts themselves eat up every ounce of cash they bring home every month.

    Their house is in one of the worst hit real estate markets in the US, which means that their house value has dropped considerably and they will likely have to heavily discount their home to try and sell it within even 3 months. This means that they’d walk away with a heap of debt from a house sale and this isn’t an option given their other debt (and the requirement to still pay for rent for a place to house a family of 8).

    Declare bankruptcy. Lose the house. Lose the 2 cars. Keep the 3rd car, walk away with your new clothes, furniture and most of the toys inside the house that you bought with your credit cards. Wipe the slate clean, establish yourself in a rental home and become cash flow positive. In 5 years they’d be way way farther ahead than if they tried to struggle through paying down that MASSIVE credit card debt. It would likely take them 5-10 years just to return to $0 net worth if they tried to slug it out.

    There are a scary number of people who have a significant negative net worth. A co-worker of mine was lamenting about how his minimum credit card payments were getting costly and asked me how I managed with mine. “I pay my credit cards off every month, I don’t owe anything on them” “How do you do that?” “I don’t buy more than I can afford?”

    Simple answer, but it seems to allude many people.

  • Four Pillars July 16, 2008, 12:35 am

    Bankruptcy…or what FB said! :)

    I agree with Tim – this couple has nothing to do with lack of education.

    Mike

    p.s. – FT, if you are really desperate for post ideas (not likely), I’m currently up north in a rented cabin on a lake – I brought my laptop with me since I wanted to show my parents (cottage nearby) my recent vacation photos. When I fired up the laptop I noticed there was a wireless signal with no encryption which I suspect is from the personal internet of the resort owners. Am I wrong for using it??? I think technically I am but it doesn’t bother me!!

    Mike

  • FinanciallyEnhanced July 16, 2008, 12:52 am

    The couple should learn to communicate more if they want to ‘fix up’ their finances. The mortgage seems to be the biggest problem and they should sell both houses to remove that large mortgage bill. Depending on the value of the homes it would be in great interest to pay off as much of the credit card as possible with the left over money from selling the houses, but also saving enough to purchase a small house to get back on track.

    The wife’s spending habits seem to be rather steep so I would suggest that she makes her own coffee in the morning as this will surely save a lot of money in the long run. As for tanning and manicures, she should be confident in her appearance without all the extras, there is no reason to spend $60 a week on these extras when they are not necessary. The hair extensions seem to be a bit much when you can just let your hair grow! But is it is a ‘necessity’ to keep some of your appearance expenses then try to keep it to a minimum.

    Why buy new cloths for your kits all the time when there are heaps of cloths out there that stay in fashion for a decent amount of time.

    The money you save from reducing your clothing expenses and the money saved from making your own coffee in the morning instead of spending it at Starbucks should go towards getting medical insurance for the entire family.

    The cars seem like a bit much considering that they should be able to survive with one car if they would like to resolve their financial crisis.

    Most of all you need to create a budget. Know exactly where your money is going and where you can cut back on the spending to get yourself out of debt.

    Their mortgage repayments should be dramatically reduced now that the amount of money they now owe to the bank is more than halved giving the family $1000 or more extra each month. The $600 saved from cutting back on the wife’s spending habits will go towards the cost of the medical insurance. With the two lease cars gone this saves $1700 every month plus the added $1000 gives the family an extra $2700 every month of which they should pay most of it on the credit card to remove their worst debt.

    This will take a couple of months but they will benefit in the long run.

  • Jemistan July 16, 2008, 7:41 am

    Hi, this is about in fact is only partially true. Many credit card companies realized with the increase in the number of people with bad credit that needed to offer a way for them to also have a credit card.

  • Finance_Addict July 16, 2008, 10:14 am

    They will have to declare bankrupcy and when they do they will get off way to easy. They should have their kids taken from them because they have defrauded their future. They should go to prison because that type of uncontrollable spending is both negligent and should be considered a crime. There is no excuse for their behavior.

  • Miz Frugal July 16, 2008, 3:16 pm

    I saw this show, and let me tell you, Suze told them to sell their house and move to Seattle because the cost of living there is cheaper.

    She also hooked the wife up with a job at Starbucks!!! HA! The rationale being, after working there for 3 months, she would be eligible for health benefits.

    The husband seemed very apprehensive about the idea of moving. My guess is they’re still in their big ol’ fancy house swimming in debt.

    People have no respect for money.

  • Gates VP July 16, 2008, 5:05 pm

    nobleea and others, 3 cars sounds excessive to pretty much every Canadian on this board. But out here, it’s just part and parcel with suburban living (and California is just worse).

    Two of the cars are likely required just for getting to & from work. It’s typical of suburbanites to work in very different locations, sometimes opposite directions. With 6 kids, it’s likely that at least one of them is a driver who’s already become part of the “taxi service”. When your nearest grocery store is 3 miles away, it’s not like you’re going to walk.

    It’s easy to say “take the bus”, but when average commutes are 25 minutes each way (by car, on the freeway!) the bus not only becomes time prohibitive, it may not even be an option.

    If it sounds really dumb, it is. But out here (in the US), it’s the common delusion that everyone lives in suburbia and drives 25 minutes to work and Mom & Dad each have their own car, etc. Not having a car in Winnipeg or Edmonton, was met with surprise, but mostly because I was making good money. I knew lots of people without cars.

    Not having a car in Kansas City is simply met with incredulity.

    Again, it’s all kind of demented. People in China are making dollars / day and saving 25%+ of their salary. People in the US are making hundreds / day and saving -5% of their salary. The US is built on cheap gas and that reality is collapsing and true cost of have 30 mile commutes (not just 30 minute commutes) is really coming to light.

  • Dividend Growth Investor July 16, 2008, 5:17 pm

    The people who are shown on those mainstream TV shows are really extreme situations which make most people with debt to feel god about themselves.
    Sometimes I even wonder if these people who are profiled on these kind of shows are real or paid actors.
    If these are real people, then I would suggest that a trustee be appointed for them and give everyone an allowance while freezing any credit card opening for the foreseeable future. If the kids are over 14-15 send them to work part-time at least.

  • debt consolidation July 17, 2008, 3:15 am

    There are various financial services in the market that offer credit card debt management for people who are not able to manage their multiple credit card debts. Hopefully people can find the help they need to eliminate debt. Thanks for the info!

  • Patrick July 17, 2008, 6:37 pm

    Man, reading that was like personal finance porn. I can’t imagine the mentality that ignores money problems until they reach that magnitude.

  • Jimmee July 17, 2008, 8:34 pm

    Call me cycnical but I believe that the whole show was staged.
    I cannot believe people are really that naive.
    I am sure they were free falling intentionally or the whole show was scripted.
    If people are really that out of it, then experience is the best teacher of all.

  • Paragon Wealth Management July 17, 2008, 8:59 pm

    I cringed when I read their situation too! What a mess! It will take a while to get out of this mess.

    I agree with Jimmee. I think the show was staged too.

  • Sheila July 23, 2008, 9:58 am

    Actually, I think it would be easy to fall into that trap. $100,000 in Cali is not very much money for 8 people. . I don’t know why they have two mortgages, but in many places in California, you’d have to spend at least $500,000 for a shack if you wanted your kids to go to a decent school. And I’m not talking great here– California has one of the worst education systems in the country (I think it’s ranked 40th), so even “decent” by Cali standards is going to be far worse than your average school in say, the Northeast. I can’t excuse the latte factor and especially tanning–what, in California, you need to pay for a tan??? And you really want to pay money to look like you’re 70 when you’re 45??? But it’s not that easy to move out of a state and get a decent job somewhere else. If they moved, they could be in even worse trouble. Verdict: They are screwed

  • C Edwards August 9, 2008, 8:08 am

    Whether this was staged or not, I do not know. In my work, we assist clients in managing their money. It is still incredible to me that some clients can get in such a financial mess as these people have.

    135K in credit card debt, unbelievable? No, we have a client with over 416K in credit card debt. It makes you wonder how that is possible.

    Good article. Thanks.

  • Matt August 11, 2008, 9:07 pm

    Even here, people are blaming all of the wrong things: the media for making them want things, the bank for lending them the money, and the education system for not providing them with money sense.

    Give me a break. They likely have been lying through their teeth in credit applications (this is generally called fraud), and if they are unable to service all of their debt, they should have their kids taken away and be put into indentured servitude until they pay their debts.

    They’ve been committing fraud to the point that they’re going to have to resort to stealing (defaulting on their loans, bankruptcy) through obscene gluttonous living, and this is somehow the fault of everyone but themselves.

  • Scott September 6, 2008, 3:26 pm

    It will take more than just monetary education to eradicate situations such as this. The reasons?

    #1. We live in a capitalist society where the value and success of society itself is measured in…you guessed it, dollars! Good or bad, that’s just the way it works: end goal = money. So people intrinsically want more and more in order to feel more valuable to and in society, even if it’s at a subconscious level.

    #2. Yes, all the marketing people know this. They are out to make money for their companies so they construct ways to control individuals; emotionally, physically, intellectually, etc. Regardless if we want admit it or not, the greater swath of society does not truly think with an independent mind, or for themselves. Add in the 24/7 barrage of capitalist marketing and money is soon, and easily, swayed from Main Street to Wall Street. People set their priorities in such a way as to make them feel and appear as good as possible (acquiring new, bigger, better, products) as opposed to giving them security (reduction of debt, creation of wealth, etc.). It’s no fun to pay off a credit card when you could take take a trip to the mall.

    #3. Like any simple animal, humans learn from example. Especially in America, the financial example set forth by the government (and a few corporations too) is horrendous. How can the people in charge of all the citizens run up a massive debt with apparently no consequences? The citizen thinks to himself, “Hey, I can do that too!”. He is wrong and ends up being either a slave to banks and credit companies, or he winds up permanently poor…all the while his leaders keep on spending his great-great-great grandchildren’s paycheque.

    Bottom line is, yes, definitely financial education should be mandatory in every grade school, but if people don’t wake up and think for themselves then all the knowledge in the world won’t help them. But of course wide-spread independent thought is too dangerous for the greater good of a capitalist society, so the machine just keeps on chugging…

    Keep up the good work, FT!

  • Gates VP September 7, 2008, 3:21 am

    Hey guys, just saw this post… I can’t find a good link yet, but watch IOUSA, highly relevant.

  • Scott September 8, 2008, 11:36 am

    Might as well add another relevant point as to why (American) people get themselves into financial trouble such as this: BAILOUTS!

    Citizens look around and watch as their government throws huge sums of money at bankrupt corporations (Fanny & Freddie) that acted in highly irresponsible and unintelligence ways which got them in trouble in the first place!

    The average in-debt Joe thinks, “Hey, I can keep on doing what I do, SOMEONE will bail me out!”. Or perhaps someone will not.

    It’s a scary time to live in the IOUSA with the government taking steps to devalue it’s countries worth on so many levels, all paid for by generations of tax-payers yet to be born.

    Again, it’s more than education, there has to be a shift in mindset, principles, and values in order for such financial (personal, corporate, and governmental) disasters to stop.

  • Matt September 8, 2008, 4:39 pm

    I don’t know who you think is being bailed out, Scott, but it sure isn’t the shareholders. This is a take-over.

    The overly leveraged corporate finance structure we see today is entirely because artificially cheap Fed money has distorted risk premiums on lending.

    There is a natural check and balance to prevent this stuff from happening – free market pricing equilibrium. Unfortunately, this has been bypassed since Bill Clinton and Alan Greenspan through a chronic over-supply of USD.

    Executives would not have raised the cash if this hadn’t happened: the cost to raise cash would have been indicative of the real risk, and it would have been prohibitively expensive as a result.

  • Scott September 8, 2008, 10:37 pm

    Sure, WE all know it’s wrong on all levels, but my point of bringing up the Great American Bailout was to demonstrate how it applies to those people that find themselves in mind-boggling debt, such as the family on Oprah.

    The bail-out mindset put forth by the government says to the private citizen, “It’s okay to be financial negligent, someone will save you.” — which is not the truth. How many BANKS have failed in the last year in America? And they are supposed to be GOOD with money! Yikes.

    Do not rely on the government or corporate “America” to teach financial responsibility or even basic money sense. That task lays in the hands of the people, such as FrugalTrader et al.

    And, for the record, I hold Greenspan (ir)responsible as the single cause for this whole mess!

  • Gates VP September 10, 2008, 1:46 pm

    @Scott: And, for the record, I hold Greenspan (ir)responsible as the single cause for this whole mess!

    That’s a lot of blame on one person’s shoulders, especially for a person with very few tools. In fact, the only tool Greenspan had for his entire tenure was interest rate control. The only response the Fed has is to raise or lower interest rates.

    The Fed doesn’t control government spending (in fact it’s the other way around, the government tells them how much money to print). The current situation in the US is caused by things like the trade deficit, a lack of personal savings, government promises (Medicare, Social Security, bailouts), consistent government over-spending, etc. All of this is coupled with the pressure of globalization, large amounts of leveraged lending, lots of people lying and an under-educated US citizen (on a global scale). I have difficult time believing that lack of educational funding is an interest rate problem.

    As an illustrative example, ask yourself “What happens if interest rates changed drastically tomorrow?”

    If Bernanke dropped rates to 1% would that solve the problem of negative personal savings? Would it fix the trade deficit? Would it “save” the housing industry? Would it prevent the government from getting into greater debt?

    Now what if Bernanke raised rates to 20% tomorrow, would that solve any of these problems? Probably not.

    Let’s face it, interest rates can solve some problems, but they’re not a universal solution. The problems currently facing the US economy are well beyond the Fed’s control at this point.

  • debt consolidation information October 27, 2008, 3:44 am

    Being free from debt require one to make sacrifices. With self-discipline, determination and efficient budgeting, anyone should be able to make debt consolidation information work.

  • Scott October 27, 2008, 10:47 am

    dci — sounds great! Can I consolidate my debt with yours?

    Gates and Greenspan — I know it takes a ship fool to sink it, not just the captain. But really, Greenspan was a major player in getting this disaster underway. Instead of just letting the market sort things out after the .com bubble he tried to keep things at the same level (i.e. lowering interest rates to “stimulate the economy”).

    When something is fake and all of a sudden every realizes it and drops, it let if fall! Now, instead of a post-.com American recession, which they would have recovered from and gone on their merry way, we now have a global economic meltdown.

    I do agree, there are many who caused…and…no one fixing…

  • Gates VP October 28, 2008, 4:48 pm

    Scott: Instead of just letting the market sort things out after the .com bubble he tried to keep things at the same level (i.e. lowering interest rates to “stimulate the economy”).

    So what if Greenspan had jumped the Fed rates to something high (say 10%). Would this have anymore solved the issue? It likely would have dropped the hammer on many of the last .com holdouts.

    But it would also mean that the US government would have hordes of 10% notes floating around that they probably “weren’t any good for”. Especially given the spending record of the US gov over that last 6 years (.com = Apr 2002) I’m not particularly convinced that the US economy would be any further ahead.

    The real GDP from then to now: $10.0k to $11.7k. that’s like 18% growth in 6 years, which certainly doesn’t cover 10% promissory notes, especially in a country already running a deficit.

    OK, so maybe Greenspan sets the rates at 4% instead of 10% and people don’t flock to “mortgage-backed securities”. No mortgage-backed securities = no mortgage crisis (potentially), but it still doesn’t solve the bigger problems, it just rolls back the crisis to 2002 instead of now.

    (But that’s all just theorizing)

    When something is fake and all of a sudden every realizes it and drops, it let if fall!

    Point taken.
    Is there may be something here that Greenspan knows and we don’t? (like maybe the inevitable fall of a country that can’t export and runs a deficit?) Just sayin’ :)

  • Scott October 28, 2008, 9:13 pm

    Gates: I was writing a big reply but what’s the use now. What is done is done. There’s an Ark-load of $hit being sailed all over the globe. It was filled in U.S. of A by a lot of different people. All I know is that Greenspan was definitely somewhere near the front of the line. Is it too petty to call him a jerk?

    As for the Fall of the New Roman Empire, geez, that metaphor has been around for decades. I’m pretty sure every country in the world, besides America, knew they were going to collapse eventually. Every empire does and has. Just ask Darth.

  • J. March 28, 2009, 11:19 am

    TFB said: “#2 Sell their kids on Ebay”
    – I’d bid. (sigh)

    @ Gates: The 30-min. version of I.O.U.S.A. is available here.
    http://www.youtube.com/watch?v=O_TjBNjc9Bo
    The DVD isn’t released yet (I think it’s mid-April.)

  • Teaching Money to Kids Gurus July 29, 2010, 8:02 pm

    I believe that we need to start teaching our kids the value of money as early as we can in their lives. Our kids will ultimately immitate what we do as parents especially the way we spend and use our money. We are role-models to our children no matter what so what we want to do is provide them with the best example. It’s never too late to start this process. Even if you are in debt, start getting out of debt and show your children what you are doing and explain to them the consequence what would happen if they don’t start fixing this debt up.

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