Hard Truth Finance Week in Review – Fading Summer Edition

August 30, 2009 by  
Filed under Blog

A weekend at the lake is a great way to recharge the batteries. Summer is beginning to fade, which brings short-lived melancholy. The lake was actually warmer than the air, where the temperature here in Kentucky didn’t crack 80.  The sunset was spectacular. Overall, another reminder that being careful with your money early in life – and having a great spouse on your financial planning team – can pay off later.

Speaking of lake homes, we borrowed the “Dan in Real Life” DVD from the library this week. Loved it and recommend it if you like romantic comedies. The tie in? The story takes place when an extended family gathers at the parent’s summer home on the water. One of those “save your drama for your mama” kind of stories. We’ve had six of those gatherings here, although not with the twists and turns experienced in the movie.

Time to reflect briefly on some personal finance happenings of the past week.

Not surprisingly, stories are emerging of investors trying to recoup huge losses using high risk strategies. Here you can read about one woman who has become an options day trader. Remember when Joe Investors were lining up to day trade at computer terminals set up in malls and store fronts? What happened to them? Oh – that’s right – they went broke. If you want the facts, check out this critique of the day trading mentality at Bargaineering.

All Financial Matters hit a nerve with his post about a young attorney crying foul over his student loans. I’ve been complaining for years about young adults borrowing their way through law school for lack of anything better to do. Let’s be clear about current and future conditions in the legal profession. We could close every law school in the country for five years and no one – clients in particular – would notice or care. Yet they keep applying, enrolling and borrowing. Then they graduate and wonder where the high-paying jobs went. The cash-hungry universities don’t have the integrity to put a stop to it. That’s one reason I won’t contribute to my law school’s annual fund drive. If they called to tell me that they were sending all of their professors on a three-year sabbatical, I might change my mind.

Patrick at Cash Money Life loudly encouraged college students to get their credit cards before its too late. I hesitate to link to it because I disagree. Patrick and I swapped some comments on his post, with his baseline position being that only responsible college students should get credit cards. There are two problems with that theory. First, who’s to know if a 19 or 20 year old will be responsible with credit cards? By the time you find out, the damage is done. Second, so many of our young adults become deeply immersed in our debt culture with student loans. With that mindset in place and thousands in debts accumulating yearly, what’s the big deal with a few thousand more on a credit card? Yes, I know all about the credit score issue. My response: Don’t let FICO and its co-conspirators dictate how you run your financial life.

But Mr. ToughMoneyLove, how will I be able to borrow money for a car when I graduate? I don’t care because it’s a mistake to borrow money for a car – when you graduate or ever. So there.

And now I think I will write a few things about retirement. Have a great week.

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7 Responses to “Hard Truth Finance Week in Review – Fading Summer Edition”
  1. Melissa says:

    As a rule of thumb, it’s never a good idea to borrow money for depreciating assets.

  2. Patrick says:

    Mr. ToughMoneyLove, I’m glad you had a great weekend getaway. The weather in OH was beautiful as well, and didn’t crack 80 either, which is rare for this time of year. It’s been a mild and pleasant summer. :)

    Thanks for mentioning my article. I know this is a topic we have differing opinions about, but we both agree that not everyone should have a credit card. Credit is a tool, and one that should be used with caution. A good analogy is Credit Cards and Guns – both are useful tools that provide a service, and both can be abused with devastating results.

    Is credit necessary to buy a car? No. Buying with cash is usually a much better option. But is credit a necessity in today’s American society? Pretty much. It would be incredibly difficult to purchase a house without a strong credit history, and many vendors, landlords, and utility companies run a credit check before renting out a home, allowing someone to enter a cell phone contract, or get utilities without paying a hefty deposit.

    I agree you shouldn’t let FICO and its co-conspirators dictate how you run your financial life… but you also have to know when it pays to play along. And having a strong credit history can make some parts of life easier. And as long as you use credit cards responsibly, then there is nothing to worry about.

  3. SJ says:

    I would argue that those students who are reading financial based blogs are slightly more likely to care and be responsible.

    I got my cc early in life (after sophie year) and haven’t hit credit card debt yet.

    I would argue that a responsible person would be responsible with CC’s, provided they are educated.

  4. Ashley says:

    Interesting debate on students getting credit cards. Getting my first credit card in college could have totally done me in, as I on more than 1 occasion let the balance get out of hand. However I was lucky enough to have a job waiting tables where I could make good money in a short amount of time so I was always able to pay it off in a month or two.

    I could advocate someone not worrying about building good credit if they are lucky enough to have a parent or close family member that would co-sign for larger purchases they make in the future. Unfortunately, not everyone is that lucky. I know an argument to that is that you shouldn’t purchase anything that you can’t afford to pay for in cash, but sometimes things (like medical emergencies) come up and you might be stuck like chuck if you have bad credit and not enough savings to cover it.

  5. MasterPo says:

    I agree with Patrick in so much as that credit scores are used (rightly or not) as far more than just a gauge of worthiness to loan money to. More and more employers are using credit scores to judge a job candidate for example. I don’t like it myself but that’s the reality we have to deal with.

    But I also 1,000% agree that in my experience 99.99999999% of young people (under the age of 30) can’t handle credit cards. Not that too many over 30 can handle them either. :-(

    I don’t have an answer other than to say the *prudent* use of credit can be a good thing even if it is for a depreciating item and/or costs you more over the long haul (with interest) than paying cash now. To me it’s also an issue of “cash flow”.

    *IF* you can discipline yourself to pay off your debt out of current income rather than cash reserves it *might* be better, depending on many variables.

  6. Dee says:

    I asked my little sister if she has a credit card (she’s 20) and she said no. She just got her first car and is away at college. If she was needed to do a major car repair, etc. she doesn’t have the cash to pay for it and neither do my parents.

    I don’t want her to get in trouble with a CC, but the potential for emergencies is great.

  7. Right, Dee, but then once she charges these repair, then what? Credit card debt that she can’t pay off? How is this a plan? This is why your sister needs an emergency fund and a job in the worst way.

    Overall, pretty weak arguments for getting a credit card in college. Get it before they make you prove your income? Oh, no! Not that! College kid (KID), with no job, no money, and living in the land of temptation…. yeah, get him a credit card.

    BUT so long as you are responsible. So long as you are educated. If this, if that. Yeah, yeah, yeah….

    You don’t need a credit score. You don’t need a credit card. You do need to pay your bills on time. You do need an income. You do need to build up cash savings. You can absolutely rent apartments with no credit score (you’ll rate as a C, unlike trashed credit which will get you a D or F), you can buy a car (cash, used – the right way), you can get a mortgage (manual underwriting, not the monkey powered auto underwriting, Fannie). Don’t believe the myths, conform not.

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