[Today’s Thursday re-run first appeared September 1, 2009.]
A few days ago there was an encouraging little post on The Wallet about how we’re spending more on life’s smaller luxuries in the face of the Great Recession. I call it encouraging because I think it is the direction most people should go in their spending, more on the small stuff, less on the big things, and I like reading positive articles about how consumers are doing this. Not that I really think this is going on.
My theory, admittedly not based on much science, is that we’re happier if we spend more on the smaller things we like than on the big things. A great big house may indeed add joy to our lives, but not as much as the equivalent in nights out on the town. (Or rounds of golf, or manicures or whatever floats your boat.)
Happiness is obviously completely subjective and unquantifiable. Which is why it is so hard for us to think analytically about how to spend our money to maximize it. The $750 car payment for that new set of wheels seems like a good idea. We think that we will enjoy driving it. And we are probably right about that. But the question to ask is not whether or not the car will be enjoyable but whether or not it will be as enjoyable as other possible uses for $750 a month. And that’s really a hard question to answer.
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Yesterday WalletPop posted 10 Dumb Reasons to Take Out a Loan. Oh, how I like list posts. Ideas homogenized into orderly little chunks. It’s like blog dim sum. Or sushi. Or maybe Chicken McNuggets.
I am too much of a fussbudget not to point out that three of the listed items are not dumb reasons to borrow but dumb ways to borrow. Still, I think I can come up with ten easy-to-digest responses. Here goes.
1. Buying a Timeshare. I have to agree that buying a new timeshare, that is, from the developer, is probably always a bad idea. (On the other hand, buying one used, from some other sap who bought new and now will take any reasonable offer, sounds like an interesting idea to me. I’ve never done it.)
But does borrowing the money to buy a timeshare make it worse? I don’t see how. Indeed, once you set aside the foolishness of buying the thing, a loan to do it seems quite reasonable. The developer may provide financing on special terms and I think that under some circumstances the interest is tax deductible.
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Just for fun, today let’s play journalist and headline writer.
Here are the morning’s facts that we have to work with: 1) For the month of July 2010, the Case-Shiller 20-City Home Price Index was up 0.6% and the 10-City was up 0.8%. 2) For the year to July, the indexes are up 3.2% and 4.1%, respectively. 3) House prices are now at the level they were in fall 2003, but are still about 50% higher than they were in January 2000.
Okay, so what’s the headline you would use for your story reporting this news? Here are some I think would be appropriate:
“July Brought More Modest House Price Increases”
“S&P Case-Shiller at Highest Level Since ‘08”
“House Prices Continue Recovery Despite Tax Credit Expiration”
Or, taking more of a big picture approach:
“With Dust Settling, House Prices Hold on to Half of Boom Gains”
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Bad Money Advice is about just how bad the money advice that consumers get is. From earnest but ill-informed newspaper reporters to pseudo-religious gurus who preach about how to become rich by acting rich, the personal finance advice we get is just not what is should, or could, be.
But much as I enjoy ridiculing the purveyors of this advice, particularly those that make a good living at it, I do not, in the grand scheme of things, really blame them. Most are doing the best with what they have. Even the more villainous merchants of financial hokum are merely supplying the populace with what they are willing to pay to hear.
Mine is a sort of Newtonian view of economics. I believe that nothing happens in a vacuum, that for every ample supply of a thing there exists an equal and opposite demand for it, no matter how bad we may think it is. McDonalds does not sell super sized meals of grease and high fructose corn syrup because they have a pro-obesity agenda, any more than Detroit makes towering SUVs because they hate the environment. No, those things exist to satisfy a demand. We like eating Big Macs and driving Expeditions.
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Last year I wrung several good posts from the Obama Administration’s doomed-from-go scheme to get banks to modify mortgages. It was good material for me. I got to mock both those few who were clueless enough to think it might work and the great many people who were too polite or too loyal to the White House to admit that they understood that the program’s outlook was grim.
After a while, I got bored of beating that particular dead horse. So many other things to mock.
But I realized recently I never really addressed the basic conceptual flaw in the Home Affordable Modification Program. This came to me as I was reading a recent guest post at Smart Spending, a blog that carries many thoughtful guest posts.
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