A few days ago, I caught a recent segment of ABC's Good Morning America. Host Robin Roberts (one of my favorites) interviewed GMA's financial contributor, the president of Ariel Investments, Mellody Hobson. Mellody was sharing her "Borrowing 101" tips.
After confirming that credit is hard to come by these days, Mellody offered "solutions" to the dilemma, including that you should consider asking a friend to co-sign for a loan if you can't get a loan on your own. Huh?
Sober Up! The Money Binge is Over
If you've been living under a rock, here's some cold water on your face.
- According to the financial expert on an NPR show I listened to on July 18, the annual rate of home foreclosures is nearly quadruple what it normally is.
- Families are taking in complete strangers as boarders in last ditch efforts to keep their homes.
- As of January 2008, the number of past due auto loans reached a 10-year high, and 12.4% of consumers have at least one late auto payment on file.
- A June 2008 Realty Trac report shows that one in every 501 US households received at least one foreclosure filing during the month of June, a 53 percent increase from June 2007 numbers.
- JP Morgan Chase, a bank with one of the strongest financial and management portfolios, announced last week that its second-quarter income dropped 53 percent, as credit card and home loan losses spread to borrowers with strong credit histories.
So why is a seasoned financial expert recommending that people with poor credit continue to use other people's money (OPM), even a friend's, to buy stuff without first considering alternatives to borrowing?
Yes, and there are other alternatives.
To be fair to GMA and Mellody, the focus of the segment was on how to borrow money. So they had to cover that. Having said that, it is irresponsible for a financial expert to fail to mention that one should consider alternatives before borrowing money.
Here are a few novel suggestions. First, how about assessing whether, in the first place, you even need the item you are thinking of buying with OPM? Second, if you do need the item, how about saving up for it?
Imagine that? Discipline + delayed gratification = saving your rear end.
I know the Hobson segment was about how to borrow money. But you can't separate the question of how to borrow money from the question whether you should borrow it in the first place. And you can't separate that question from the question whether you really need, and need right now, what you're thinking of buying.
Need vs. Want
You need a car when you don't have a car, you don't have a car pool option and you don't have access to public transporation — yet you need to get to your job across town.
You want a car when you don't like the car you have, you don't like the people you could car pool with (or their cars) and you don't like the readily available public transportation system — yet you need to get to your job across town.
In the first situation, you need a car so a short term borrowing situation may make sense if you can't buy one outright. In the latter situation, you want a car and have no business using OPM to get one.
OK, so ask me how I know. Yes, I was a money idiot in a past life.
These days, I like sleeping peacefully through the night. I like having dinner without creditors calling. I like answering the phone and not having to pretend I'm not home. These simple pleasures are the result of a cash only lifestyle.
So the next time someone suggests that you borrow money, or that you ask a friend to co-sign for you, first stop and think about whether you really need the item you are considering buying, and whether you need it now. Oh, and consider whether or not you want to ruin the friendship. If not, skip the OPM and save up for the item yourself.
Let's Learn From Our Mistakes
The money binge is over. It's time for us to be more than just consumers. We need to be savvy consumers. Think before you buy. Think before you borrow. Otherwise, you'll always be in debt, and I don't want that for you!!
After all, if all you are is a consumer, you'll just get consumed. And I didn't make that concept up. It's happening in every community across this nation. Don't let it happen to you.
What do you think?
Dire circumstances sometimes require us to do things we might not otherwise do. However, with a platform like GMA, and with so many people in debt up to their eyeballs, I think a financial expert should try to help us get out of the debt we have, not encourage us to multiply it.
What say you, Indies??! Tell us in the comments section below.