“I keep getting’ broke”
By Bob McNamara
This was the answer given to me when I asked my nine-year old daughter, Rachael, why she needed twenty dollars. Her older sister Erin piped up, saying it was because she spends her money on things that she doesn’t really need. This conversation got my wheels turning. I have discussed money and finance with them, as I encourage all parents to do, but I probably fall into advisor mode too quickly. I often get the, “Yeah Dad, blah, blah.”
The training of good financial practices should start at an early age because it will lessen credit problems and strains on finances in the future. The knowledge of money ? what it is for and how it works will pay huge dividends in the future (I’m sorry for that pun, but it was too good to pass up).
Recently, there has been a great deal of discussion in the press about Sub Prime lending and the foreclosures they are bringing. A quick examination easily identifies why. These loans are higher priced for people with tarnished credit or low incomes who are considered greater risks. How they can name them Sub Prime is beyond me. The connotation of the title is for a rate of less than Prime, which is typically given to folks in a better than average financial situation. This lending practice, coupled with adjustable rate loans and the fact that 40% of mortgages last year were with no money down is a recipe for disaster. Home ownership is not for everybody and you need to be financially prepared for it. The lessons to be learned by this situation and the discussion between my daughters are numerous.
In most purchases, whether large or small, certain questions must be asked.
• Is this a want or a need?
• Am I prepared for it?
• How am I going to pay for it?
Back to my girls. Like most kids, they really wanted a Wii game. One of them asked “Daddy, will you buy us one?” The other came to me with a detailed analysis as to how they were going to pay for it. This included the use of some gift cards, savings and some future earnings. I was so impressed with this exercise that I folded and just bought them one. By the way, can you guess which one did the latter?
Larger ticket items like cars, residences or vacation homes obviously require more thought and effort than a video game, but the fundamentals stay the same. Once you have identified a purchase you need to make plans as to how you are going to pay for it. How much of your savings are you willing to use and what do you want your payment to be? Many people prepare carefully for these types of situations while others don’t. Hence, some of the problems previously mentioned.
The Millionaire Next Door is a popular book written a few years ago with the overwhelming premise of living below your means. Yet, our society and advertising keeps pushing us to spend first and save second. While that keeps a robust economy it spells trouble for the future. The Government talks out of both sides of its mouth with out-of-control spending while encouraging us to save for retirement. I digress, I did mention there was a lot going on in mind. Maybe Dr. Melfi will be available after Tony leaves.
Robert J. McNamara – Financial Consultants (Financial Planning for Families) is located at 132. S. Swan Street, Albany. For more information call 434.4383.