Where There Are Long Term Loans There Are Problems

Consider something for a moment. The three expenses that are spiraling out of control for the average person are:

1. Housing
2. Health Care
3. Education

Can anyone deny that these three items are the most important and most expensive things that we pay for in our lifetimes? So it’s a shame that the cost of these things have far outpaced incomes over the last decade.

When I was a kid a person could buy a house in New York for about two times the average income. Now the average home costs 7 to 10 times the average person’s income. It’s ridiculous. Why is that? Over the last ten years mortgage lenders have loosened the requirements for loans and have created exotic methods of purchasing property via loans. Think about the adjustable rate, interest only, no money down mortgage. They’ve done this under the guise of helping people. Now we’re seeing the fall out.

It’s true that there were winners in this game. Some of our parents got out selling their houses for ten times or more what they paid for them. Now the kids turn. It’s ugly. Head over to The Housing Bubble Blog and see what I mean. As the prices rose the mortgage lenders got more creative and cared less about what people could really afford. As a result prices were driven even higher. And now that the bubble is bursting lots of people are getting hit with flying debris.

This post got a little longer than I expected so I’ll keep the rest brief.

Believe it or not health care insurance premiums amount to long term debt. Don’t think so? Add up the premiums that you’ll pay in your lifetime. A modest $200 a month from the forty years between twenty and sixty costs you well over $100,000 if you factor in interest you could have earned if the money had been in the bank. For many people the premiums are higher. And you still have co-payments and other out of pocket costs on top of that. So you’re basically in debt to health care providers the second you’re not covered by someone else’s coverage. You pay when you’re well and you pay more when you’re sick. Doesn’t sound like a good deal to me.

Finally we get educational loans spread out over the course of decades. I just heard that NYU will soon cost $50,000 per year for tuition, room, board and books. Do you really think they could get away with this if there weren’t companies willing to lend you money for ten years or longer. When you say you can’t pay they’ll just send you over to the ’student aid’ office to fill out some forms and sign away your future.

Here’s the bottom line. Everyone makes choices. Sometimes we make bad choices. You can’t always blame the companies that make the risky loans available. And you can’t always curse the system. But somewhere there needs to be the intersection of personal responsibility and corporate consciousness that makes sense. Given the financial situation that many people are in today I have to say that we’re not there yet.