2StgTurbine

Correct. It just shows how difficult it is to make it in the middle class. Somehow when someone finally gets a good job offer at 25 that requires them to move across the country, they are supposed to also be an expert in the local zoning laws. I have had to move a lot in my life for my career and I rarely had enough time to thoroughly research the market. I lived in NYC and SFO and while the housing prices were insane, they were important career moves for me and my wife. Sure, we could have stayed in CVG where our rent was cheaper, but good jobs and cheap houses rarely line up.

In 2007, the average American was saving 3.7% of their income. The great recession showed the importance of savings and as a result, Americans started saving more of their money. That was one of the reasons the recovery felt longer than it was - people weren't spending as much. By 2019, the average savings was 8.2%. Even 8.2% isn't that much, but the Fed and many economists were worried that if Americans continued to save, we'd enter a deflationary market. Economists started floating around the idea of negative interest rates to penalize Americans who were saving "too much."

Our economy is built on reckless spending. Our economy requires the bottom 70% to spend nearly all of their paychecks. And while those of us above that line can easily criticize them for living too lavishly (you know, like a family of 4 in CVG living in a 750 sq ft one bedroom apartment without a roommate ), if the working poor adopted Dave Ramsey's method, our economy would come to a screeching halt and the same people that criticize the working poor would be panicking because their 401ks would take a massive hit.

NE_Pilot

Sure, but I would argue that most of the people who complain about housing costs vote in and advocate for the very policies that cause high housing costs.




(I'm not sure how you are defining saving and spending, although it may sound obvious it is not. Generally, in economics, saving is defined as whatever is not spent directly in consumption. So savings includes both cash balances (like a savings account) and investment. Spending is what is directly consumed. Is this what you are referring to or only in regards to cash balances? When I talk of savings below, this is the definition I will be referring to.)


The idea that an increase in savings would be bad for the economy is a fallacy made by Thomas Malthus and then promoted and made mainstream by John Maynard Keynes and is continued by his followers.


Nothing can be consumed that isn't first produced (outside of bare subsistence), and production isn't possible without savings. Savings is set by individual time preference, which aggregates into a price that we call interest. Distortions occur when a central authority (the Fed) intervenes to lower or raise the interest rate (or when banks are allowed to create money through fractional reserve banking), simulating a change in time preference that has not taken place. This leads to a mis-allocation of resources and capital consumption, it creates an illusion of savings that doesn't exist and results in a recession/depression. You cannot spend your way out of a recession/depression.


Now, the Fed and others may believe this is possible and may encourage spending (which they do through low interest rates), but increasing savings will not cause the economy to come to a screeching halt.

NatGeo

Hmmmmm, lets elaborate a little more on South Carolina. They imported most of the slaves in the United States. South Carolina's economy was completely dependent on maintaining slavery. South Carolina did not plan on a peaceful resolution when they seceded from the Union. They understood that seceding would lead to a bloody war. I don't think their Confederate history is anything to be proud of.

METO Guido

Production isn't possible without investment. Compensation for borrowing capital is interest or dividend. Taxation is another means. Notifying you the aircraft carrier requested won't be coming because those resources will instead build bridges is yet another. Failure to keep good faith accounting or grossly overestimate product output is essentially Greece or Argentina.

PurpleToolBox

If you have to take out a loan because you don't have the money, by definition, you can't afford it. Period.

Not paying cash for something, taking low interest or zero interest loans and "investing" the money to make interest or investments is stupid because you are ignoring the risk(s) involved.

If you truly believe in what you wrote, why aren't you continuously taking out loans to invest the money so you can beat the interest required and make a profit? You know that old phrase, you have to spend money to make money. Unhappy

NE_Pilot

Agreed, but the act of taking out a loan, in and of itself, does not mean you can’t afford it. I think we agree but are getting caught up with semantics.

I don’t do that precisely because I do weigh the risks involved. I also am not continually buying big ticket items, however if I were already in the market for a TV I would consider a 12-month 0% interest loan as I could just leave the money in a savings account or CD for those 12-months earning more than the 0% interest. The key is having the discipline to not spend more than you would had the loan not been available.

I also use cash back credit cards instead of cash for a fair amount of everyday purchases (like groceries). I pay those off every month, it is essentially a one month 0% interest loan.

There is risk involved, but there is risk involved with everything you do. You have to manage the risks and decide whether the risk level is acceptable. That varies by person. I am not advocating for going into debt, just saying that debt is a tool that has its uses.

Edit: A mortgage is an example where one may reasonably choose to buy something they can’t afford outright, but can comfortably afford the monthly payments. There is a price to it, and that’s interest, and it’s up to the individual to decide if it’s worth it. It’s also up to the lender in whether or not the risk is worth the potential reward as well in loaning the money.

SonicFlyer

Cite your source.

You do know that secession was 100% legal, right?

SonicFlyer

Cite your source.

You do know that secession was 100% legal, right?

Duffman

I'm gonna dumb this down a lot, not for you, but for the broke-ass 20-something pilots reading this.


Debt isn't always bad. Take buying a home vs renting. The money you spend on rent goes away forever. If you buy a house, some of that money goes away forever, like the interest, property taxes, etc, but the amount that goes to the principal (how much money you owe on the loan) might as well be going into your savings account.


At the end of a 30 year loan you own your house and all you have to pay are the property taxes (varies by state, but usually less than $500/mo for a decent house). Theoretically, that means right before you retire, you have a paid off house.


But, let's say you have to move after 10 years and sell your $300k house for the same price you bought it. You likely only paid off about $70k of the loan because it's a rigged game where loans are front-loaded with interest (the money the bank keeps), which is why you're better off paying off loans as early as possible, but I digress. If you sell the house for the same price you bought it, after paying $70k off the loan, you get to keep that 70k, and you'll probably use it to help pay off the new house you move into. It's kinda like moving from Delta to AA, but keeping your seniority, except with money.


Look up 'amortization table' online. It's pretty eye-opening to see how big a difference 1% in interest makes. A $300k 30 yr home loan will end up costing you $515k at 5% interest but only $455k at 3% interest.


Now houses obviously change value over time, so if you sell your $300k home for $600k, you just made a ton of money, but likely all homes are worth more, so you likely won't move into a nicer house.


Regardless, if you pay rent your whole life you likely will never be able to afford to drop $300k in cash for a house, and when you die, you don't leave your family with a house that they can sell, live in, rent out, whatever, which is why home ownership is the best way to build 'generational wealth' for your family.

College, on the other hand, used to be viewed as an investment because it guaranteed a job that was so much better it'd pay for itself many times over. But nowadays, that's not necessarily the case, and it hurts you even further in the long run if it significantly delays or prevents you from owning a home. Also, when you die you can't pass your degree off to your family, so you need to recoup that money early for it to really be worth it, otherwise you just lose too much in 'opportunity cost.'

My advice, enlist for 4 years and get the GI Bill. The military is a great stepping stone early in life, but long-term it's a tough lifestyle. Get in, get a few stories, join the fraternity, get out. Be aware though that a lot of military jobs don't transfer to the outside and the longer you stay in the more pigeon-holed you become. If the military isn't your style, become a tradesman first and use your income to pay for college/flight school/etc as you go. College is more fun when you're over 21 anyway.

Just remember that with debt in general, you're gonna have to pay back about twice what your borrowed.

METO Guido

It's not. Visit the docks. Consider a place where unthinkably hard, agrarian settlers traded for captured souls because they looked and acted differently enough to regard them as humanoids. That kind of evil doesn't go away without a fight. A really long one.