Tag Archives: finance 101

Borrowing Doesn’t Come With Warnings Or Permission Slips

When we borrow money, get the student loans, two or three credit cards, or line of credit that won’t be paid off for an average of 16 years, we just need a decent credit score and a paycheck. Nobody talks us through it first, nobody (especially the lender) gives us any warnings, and we sure don’t need a permission slip to jump headlong into debt.

To explain that, I want to play a TV commercial for you. This is an ad for Cymbalta. I’m not picking on them – these commercials are all pretty typical by law. But I want you to really listen to it. I want you to count how many warnings there are embedded in this one minute ad. Are you ready? (You can click this youtube.com link for the ad:

What did you come up with? In total there are more than 25 pretty serious warnings in this ad. I used one for an anti-depressant because that seemed appropriate when our debt levels keep rising, almost half the population couldn’t find $400 for an emergency, and two-thirds couldn’t miss one week of pay without serious financial trouble.

The point is that this is an ad for a prescription. You cannot even get it filled without first seeing a doctor. A professional with at least six years of medical training has to examine you, explain it, and then – maybe – write the prescription.

Do you see the irony of this? You cannot just go get this medication. Yet, in the world of borrowing, there are way more than 25 warnings that you really should know. But nobody does – few people asks, because they don’t really know what to ask, what to avoid, how to negotiate, etc.

THAT is the reason the Money Tools and Fighting Back book is so critical. It’s the medical warning equivalent for every type of borrowing and then the part of paying it off. Lenders have no obligation and no interest in having you financially educated – none!

Whether you’re 18 or 80, the book is THE best present you will ever get for yourself, or gift to someone. The $20 for the book turns into tens of thousands of dollars. It’s a must-have and must-read until lenders have to provide the same warnings as drug companies do.

80% of teenagers never take a class on financial literacy, then we set them loose to sign for student loans, then their first credit card, then they sign for a bad cell phone contract, and not long after that, for a car loan with no financial knowledge. At some point, they may get a mortgage, and the 70% chance they’ll sign up for a line of credit, too. By the time they’re 40, they’re broke, have no idea how to dig themselves out, or what to do. Then, they have kids and pass zero financial knowledge onto them. It’s true: 80% of parents do not talk to their kids about money and finances.

The Financial Nightmare of Greece

Finance 101 is something I can teach every fifth grader: When you buy something, you have to pay for it. Either you pay for it right away, or you pay for it later at a lot higher price.

That, essentially, is the problem in Greece playing itself out with riots and deaths as protestors fight that basic logic of going in debt. When full pension retirement comes in the mid 50s, their utility company loses money, taxes are low, they have a huge underground economy, and massive social programs are so-called “free,” eventually the tab comes due. That’s now.

There was a protestor quoted yesterday as saying they’re being bled to death. No, that’s just stupid. You’re being forced to pay for what you and your countrymen have enjoyed for decades that your country never could afford – period.

Greece owes hundreds of billions of Euros to bond holders, lenders, and other governments. Now they’re asking for more and more bailouts. But others have money – the Greeks don’t. So, if I’m borrowing money I get to set the rules. Same as when we apply for a loan. YOU don’t set the terms – the lender does. You can say no, but you don’t get a vote in the rate, etc.

Right now, Greek bonds are at 30% for two years. Imagine that! That’s how risky the investment world thinks Greece is. And the $17 billion the European Union is asked to advance right now is just to cover the next few months! It isn’t solving a thing but treading water. But they won’t write the cheque if the Greek government doesn’t sell their money-losing public utility, increase tax rates, and do some other austerity measures.

When there’s financial trouble, whether it’s you, me, or governments, you can see it coming years in advance. Ignoring it means somewhere down the road, it’ll be hugely painful. Greece is there. The US has another two or three years, based on the estimates of a number of experts.

One thing you can bet on is that the Greek government will fall and there’ll be an election. And the next party elected will be one that’ll promise to ease up, reduce taxes, and the likes. People want to hear what they want to hear. Even today, Greeks are still in denial. I would suggest they haven’t learned. But then, I’d suggest we also don’t learn from others until we, as individuals, are in the same place. How sad. How stupid. How unnecessary.