Saturday, May 5, 2007

How much are we messing up our kids? - Part II

To recap, we're 20s, 30s, and 40-somethings living like our parents did 30 years of hard work later. And to do it we plunged right into a pool of consumer debt to cover our excessive spending. Negative net worth became the norm. Every time the ship begins to sink, a new loan package emerges to keep us afloat. The real estate boom gave us the cushion we needed as we refinanced to pull cash out of the equity we built in our homes. The loan officers made it sound so great. Free cash. A loan touted as a return in an investment.

Not only did we live like our parents, we surpassed them. Our generation thinks it quite normal to spend $100 a month on cable, $2,000 on a plasma screen, $150 on a DVD/VCR combo, and let's not forget the TiVo subscription and Netflix deliveries. And that's just to watch TV! Add on the high speed Internet, commercial-quality kitchen appliances, luxury bathrooms, GPS in the leather-clad SUV; and $130 a month for telephone? A cellphone is a basic necessity for all living organisms, right?

And college? 50 years ago if you couldn't afford it, you didn't go, or your worked your way in and paid with cash. Now the average student loan is around $25,000, and it's going nowhere but up. Into this upside-down financial world enters our children.

You couldn't imagine growing up without a microwave or air conditioning. Picture not being able to live without 200 channels of entertainment, contact with anyone right at your fingertips, and all the best luxuries credit can buy all the time. Our 2005 national savings rate was negative. Negative. We have it all. Financed. Our children see us not in debt and struggling to make interest payments, but as a model of how personal finance works. Debt isn't bad, it's a way of life. I can have anything I want, instantly. I deserve everything I desire. After all, we were taught how special we were, it makes only sense to pass that along to our offspring.

But what is going to happen when our children grow up and they hit the wall of the real world? How will a kid with $100,000 in student loans, $10,000 in credit card debt, $15,000 in car loans, and no savings make it on a $30,000 a year job? Unlike our generation, they won't have the option of coming to mom and dad for rescue; we'll be just as broke as they are.

TiVo doesn't look so great now. (continued...)

No comments: