Thursday, March 22, 2012

Financing The American Nightmare

As American citizens we enjoy the highest standard of living in the world. The consumer choices that are available at our fingertips are too numerous to number and constantly expanding. However, there is a downside to the consumerism and materialism that is dominating our society. We can easily mismanage our choices leaving ourselves with life and career choices that we may live to regret for the rest of our lives.

Some believe that college is the gateway to the American dream. Earn a degree, get a job at a large corporation, and retire after 40 years or so of working for that company. To their dismay, many who believed this are now unemployed and are poorer now than ever before. 40 years of blood sweat and tears enriched the corporation but left them broke.

The real estate bubble burst back in 2008 but the government and big business has created another one in college education. The Huffington Post wrote, “The average college graduate leaves school with $24,000 in debt and one in 10 are unable to find work of any kind. By year's end, student loan debt is predicted to surpass the trillion dollar mark”.  For profit colleges such as Phoenix “has nearly 400,000 students and revenues of $4.9 billion” . How is this possible? “Recruiters target poor and minority students precisely because such students can tap the deep well of federal aid money. In 2000, $4.6 billion in federal college loans and grants flowed to for-profit colleges; last year they received more than $26 billion” (Yahoo).  

The larger question is simple. Is the purpose of college to earn myself a higher wage or is to feed a hunger for knowledge and intellectual stimulation? I personally choose to attend college because I enjoy learning and I am fully aware of the fact that my degree doesn’t guarantee a higher paying wage. I am content with the fact that learning inspires me and challenges my thinking. For me, knowledge leads to action, expands my abilities, and is a lifelong process in and out of the classroom.

Credit card companies love to cast their nets early by issuing platinum credit cards to college students. “College students are among the most prized of the new customers. The average graduate student has six credit cards, and one in seven of them owes more than $15,000. Despite their high future earnings and lifetime credit potential.” “The average American households with at least one credit card has nearly $10,700 in credit-card debt", according to, and "the average interest rate runs in the mid- to high teens at any given time". Many choose to own credit cards to purchase their college text books and to cover basic living expenses but the effects of these decisions lasts long after graduating college. 

Transportation is vital today and many also choose to finance their automobile purchase. Home, work, and class may be 15 to 20 miles apart from each other making the automobile a necessity to survive today. “The average four-year new auto loan of $25,000 has an average 5.94 interest rate”. If you combine the combination of credit card, college, and transportation debt the average young American is faced with $35K in debt before they’ve even graduated college!

In addition to that, the cost of housing has increased substantially over time. “The median value of single-family homes in the United States rose from $30,600 in 1940 to $119,600 in 2000”. Many Americans have either a 15 or 30 year mortgage with a single digit interest rate. Exotic mortgages along with a double digit unemployment rate have caused many Americans to choose their home over medical coverage or vice versa. Thus, the need for a sound investment vehicle becomes paramount. However, many cannot retire due to significant losses in their retirement vehicles (401K) and do not have enough working years to make it up. Many people believed that if they worked hard and trusted their brokers everything would be fine. 

The reality however is that many people today will never retire because they believed a lie; they will work until they are dead. So who benefits from a 401K? The broker as well as the corporation benefits the most from 401K investments. Real investing is actively participating in the investment process not handing your money over to someone that gets paid a commission on the amount of money they make for you. The broker takes no personal lost if they gamble all your money away. In my opinion, the risks of handing money over for someone else to invest are too huge so I would rather educate myself and invest my own money actively.

I strongly believe that investing in real estate, traditional CDC’s, and money markets; along with a very strong savings account, is the best option. Stocks are an option but also a gamble.  “The biggest advantage I see for real estate investors is that we have much more control over our outcomes than stock investors.  While I realize that no one can control market directions, we real estate investors have much more control over our offer and sales prices, can often times take action to increase property values, and we have control over the level of our profits — assuming we purchased correctly to begin with. 

“The more obvious advantages are the gains to be made through positive cash-flow, capital gains deferrals, depreciation, leverage, re-amortization and the wonderful world of tax free refinance events.  And if done correctly, an investor’s overall return on investment can exceed 50% to 100% — or more.” (Bigger Pockets) Even in this economy many investors are purchasing real estate cash because they understand the power of the investment vehicle.

If financing is such a bad thing then why are so many doing it? Is it corporate propaganda or is it the right thing to do? After all, it’s the societal norm.  The larger question is who benefits from young Americans being loaded down with an average $10,400 in credit card debt, $119,000 in mortgage debt, $25,000 in transportation debt; which is a total of $154,000? Not to mention, the rising cost of health care and life insurance. The corporation benefits because they have a steady stream of willing workers that will do anything to pay their monthly bills and maintain their lifestyles due to the level of debt that they are in. William H. Whyte stated in his book the Organization Man, “There are only a few times in organization life when he can wrench his destiny into his own hands—and if he does not fight then, he will make a surrender that will later mock him. 

But when is that time? Will he know the time when he sees it? By what standards is he to judge? He does feel an obligation to the group; he does sense moral constraints on his will. If he goes against the group, is he being courageous—or just stubborn?  Helpful—or selfish? Is he, as he so often wonders, right after all? It is in the resolution of a multitude of such dilemmas, I submit, that the real issue of individualism lies today.” Many never question the status quo. What will I get in return for focusing my life around this organization? Do they care about me or only what I produce in dollars for them? Deep down inside we know the answers to these questions. Ultimately the larger question is, what are we are going to do about it? 

Written by Nathaniel Bradley 2011

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