Tuesday, March 09, 2010

Renting Versus Buying - Bad Debt or Good Debt

An article by Eugene N. White, a professor of economics at Rutgers University, says that the government is making a major effort to keep those home owners facing foreclosures in homes they can't afford, when the government should let them go back to renting until they can really afford to buy. He says, "Renewed efforts to keep people in their homes by jiggling the terms of the mortgages simply keeps them locked in with little chance of saving for other purposes. Home ownership has been branded as the ultimate fulfillment of the American dream. This ignores the true American dream: upward mobility for them and their children."

Dave Ramsey, a nationally known personal finance expert, who sometimes has a column in the JS, wrote, "Who plays the lottery? Poor math-illiterates who spend their money buying lottery tickets, excess tobacco, liquor and drugs, new vehicles and entertainment and who are easily led into buying homes they can't afford. Never concerned about having enough "fall back" money saved. Like money for life insurance, car insurance, health insurance and educational savings for their children. Not accepting responsibility, not delaying certain pleasures until they were mature enough and responsible enough to almost assure a better quality of life they can actually afford."

Renting can be a pain. A worse pain is mortgage foreclosure or years of fighting mortgage foreclosures finding out along the way that the home they "felt they must have" leaves them with nothing but a ton of debt will still trying to pay for all the other things they actually did need like food and insurance plus the many things they really could have delayed.

As if those who are having financial difficulties on the home front is not bad enough, our governments that helped lead the homeowner into financial stress, are moving toward bankruptcy themselves. California's "me" attitude leads the way with Illinois a close 3rd or 4th in the nation. You can find in my archives a blog "Keeping up with the Joneses" dated 6/02/05 and DeWayne Bartel's column in the Times-Observor dated 6/01/2005 quoting City Councilman Gary Sandberg's prediction that the city would eventually run into financial problems because of it's elected officials inability to distinguish between good debt and bad debt.

Those who did not have Gary's astuteness in distinguishing between good and bad debt in government commitments and spending are adding to the tax-payer burdens. Burdens that will increase in the upcoming years as all those who have some understanding of finance have predicted.

Peoria County, of which I am a board member, appears to some of us to be heading in the same direction as the City of Peoria and Peoria Public School District #150. I regret to say, despite my warnings and efforts to curb long term debt and risk, the past 15 months have been the most discouraging of my years on the board.

Some accuse me of being negative. Realistic would be a better description.

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