Lessons of crisis

I’ve never been much of a magazine reader, but I’ve found one that is worth my time. I subscribed to Portfolio magazine after being impressed with their online features, and is hasn’t disappointed.

October’s issue came yesterday, and two articles got me thinking about how I can learn from the latest financial crisis.  One article was an interview with Chuck Schwab and the other was the cover article about Toll Brothers (the McMansion builders).  So what can I learn?

First, I think Toll was being nice when he said that the blame for the housing crisis is to be equally distributed among various groups, consumers being among them.  I think irresponsible consumers should be CHIEF among them.  I do not believe consumers can take all the blame, but my newly discovered inner locus of control attitudes force me to say that many consumers were just plain greedy and stupid.

I mean come on, does a homebuyer really need to be told what he or she can comfortably afford?  So you’ve been renting an apartment for $800 or $900 a month, you’ve been barely getting by, and now just because the bank told you you qualify for that $400,000 home you are going to buy it?  Did these people truly not know what they were getting into???  No, they knew.  They just got greedy.  They walked into the bank and initiated the conversation that ended in the zero down, no interest loan on that McMansion that they couldn’t afford.  Unscrupulous lenders they were, but they weren’t forcing people to buy the super-sized boxes.  There was greed first.

So Schwab pointed out how pathetic it is that American’s save next to nothing these days.  We’re maxed out, or worse yet, upside down in debt.  We know we will have to retire some day, but those granite counter-tops and home theater systems are just too appealing today.  He stressed the importance of saving and investing in a market like this, not spending.  We may be at or very close to the bottom of the market, so we should start looking for investments that will pay off as the market corrects.  He predicts that many people will become responsible savers by force, not by choice in the next five or ten years.  The market will correct as it has done in the past, and hopefully our saving habits will too.

I know that’s not really what I learned, rather an assessment of what I read.  I’m learning that the gratification now is just not worth it.  Prudent living would be a better goal, alongside smart money management.  That’s no matter how much money I’m making.  I can always save for something – children’s college, missions, retirement, family vacations, etc.  The general crisis doesn’t have to be a personal crisis, so long as smart living has been the rule and not the exception.

Tags: Charles Schwab, personal finance, money, Portfolio Magazine, Toll Brothers