Wednesday, June 9, 2010

21st Century Financial Astuteness

Time marches on, and things change.  What passes for financial astuteness has certainly changed.  This change was impressed upon me recently while I was watching a talk show on one of the news channels.  The guest was a lawyer who advises people who are in financial difficulty.  He had the following advice for some of his clients whose home values have fallen to near or below what they owe.  I'm paraphrasing -

Stop paying your house payment and await foreclosure.  In most cases, it takes from one to two years for the bank to get around to foreclosing.  This means you will be able to live in your house at no cost to you for at least several months.   Manage wisely the money that you would have been using to pay your house payment by applying it instead to paying off automobiles, credit card debt, and whatever other debts you have.  When the bank finally forecloses, you can walk away in better shape than you were in before.  So many people are doing this, you'll recover from your bad credit rating in two or three years because lenders are going to have to give up on the idea of loaning only to people with good credit.

I was speechless when I heard this on TV, and I'm still not sure what to say about it.  It's not that I think it's necessarily bad advice.  Let's say your house really is worth less than you owe on it.  Maybe you've been laid off from a good job and are having to try to make ends meet on a lesser-paying job.  Under these circumstances,  this really may be good advice.  It may be the best you can do. 

I think what stunned me was the spirit in which this advice was given.  It was not presented as a list of desperate measures to take when you're backed into a corner and can't do anything else.  It was presented as the financially astute thing to do - the slick, clever thing to do.

What happened to the advice that parents and grandparents of baby boomers used to give?  It was based on traditional ideas of thrift and went something like this -

Be modest in your spending.  When you buy a house or a car, buy less than you can afford.  After all, someday you may fall on hard times and have to live on less than you're getting right now.  Even if you have to go in debt to own a home or a car, avoid debt for lesser items.  Save some money so you can pay cash for smaller things.  At least have the discipline to pay for one thing before you go in debt for something else.  Get the refrigerator paid off before you buy new livingroom furniture.  Always put a little money every month into a rainy day fund to take care of emergencies when they crop up. 

I can't say that my husband and I always followed the advice the elders gave, but we're a lot better off for aiming at what they advised than we would have been aiming at 21st century financial astuteness.

I know.  I know.  You can say that times are different, the economy is different - you have to go with the flow.  But I think the day will come when the elders' advice will be vindicated.  They were probably the last generation who learned penmanship by copying the wise sayings about morals and money management that appeared in their penmanship books - called "copybooks."  Sooner or later we will find Rudyard Kipling's poem, "The Gods of the Copybook Headings," to be prophetic - 

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew,
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four -
And the Gods of the Copybook Headings limped up to explain it once more.

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