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from The Worldview Literacy Book copyright 2009 back to worldview theme(s) #45 |
| Discussion
for #45A & #45B: Pat
and Chris—both in their 30s, they work as interior design consultant
and teacher, respectively—are considering getting married and starting
a family. Their previous
discussions to assess compatibility have suggested the following
differences in worldview. Whereas
Pat is comfortable with "Focused Vision" (theme #3),
"Passionately Impulsive" (theme #18A), "Consumerism"
(theme #26A), and "The Borrowing Mentality," Chris likes quite
different ones: "Global Vision" (theme #4), "The
Self-Restrained Person" (theme #29A), "Self Reliant
Nonconformity" (theme #35A), and "Pay As You Go
Approach." Imagine
their discussion. Chris: I've been thinking about ways that we can get into
our own house, but I don't especially like the idea of getting a
mortgage—you know "mortgaging your future!"
Anyway, I've brainstormed on some alternatives. Pat: I'd like our own house. I don't have a problem with mortgages, everybody else has
one: why not us too? Chris: For starters, I don't want to commit to thirty
years of house payments—seems like debt bondage! If house prices rise it's not so bad I suppose, but those
prices fell last year. If
we buy a house for $220,000, put $20,000 down and finance the rest for
thirty years at 6 % interest, our monthly payments would be around
$1200/month. Pat: That doesn't sound too bad—but I suppose we'd
have property taxes, insurance, etc. on top of that, right? Chris: Yes. What
bothers me is that over the life of that loan we'd pay around $232,000
in interest—ouch! Pat: I think your problem with mortgages can be traced
to your childhood: all that instant gratification type impulse buying
your mother did, the chronically high credit card balances, and
struggling to get out of debt! Chris: Perhaps! I
don't mind working but at my salary paying all that interest will alone
require many extra years of work! Here's an idea: I'll take a year off
from my teaching job, we'll "make do" living on your salary in
some apartment while I help build us a house!
I figure that my "sweat equity" can cut our loan in
half. And instead of
spreading payments out over thirty years, if we could pay it off in five
years, we'd save a bundle! Pat: Whoa! That's
lots of hard work you're talking about, lots of "making do!"
A five year mortgage! Chris: I figure over the loan's life we'd pay out only
$16,000 in interest. Payments
would be $1933/month. Pat: Hmmn...We could own our house free and clear by
age forty, rather than age sixty-five!
But it would be tough! Chris: Of course it would be tough: there is no such
thing as a free lunch! Oh, I forgot to tell you: I just got my credit
score... *************************************************
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Discussion—continued
Borrowing allows people to have things like houses,
cars, etc. they otherwise would have to wait for.
Driven by information (including advertising) that flows nearly
instantly through electronic media, and tied together by high-speed
transportation and globalization, much of the world moves at a much
faster pace than in days past. Not
surprisingly, the thrift and frugality of societies once held captive by
Confucianism, religious prohibitions against usury (Islam still forbids
lending money with interest charged), or the Protestant Work Ethic, has
been replaced by a modern, credit-driven way of doing business.
Debt permeates business sector thinking. Considerations of it form the basis for investment
decisions: typically they hinge on whether the expected rate of return
on the investment exceeds the interest rate charged for the money
borrowed to make the investment. Once
associated with poverty, taking on more debt or borrowing more
money—and the capability of being able to continue to do so as in
possessing leverage—is now associated with being wealthy. Few
households are willing to patiently save money and wait for things they
want now. It seems that
"have it or do it now, and pay later" is triumphing over
financial restraint. Desiring
to have their "lunch" now, many heavily discount the future
and overlook lots of real but hidden costs.
For many, it begins long before the traditional mortgage—
two-thirds of college under-graduates are in debt: the average
graduating senior by $20,000. It often ends with bankruptcy
(Figure #45b). Clearly too much debt can lead to personal crisis, but can
it trigger a national one? Based on recent American experience
(foreclosures, bailouts, see Figure #45a) the answer seems to be
“Yes!”
While extending credit to already debt-strapped Americans has
many critics, the concept and implementation of what has come to be
called microcredit does not. Pioneered
by the Grameen Bank in Bangladesh, founded by Muhammad Yunus, this has been a developing world success
story (Figure #45c). Figure #45a American Debt Crisis Drama Setting the Stage:
Summing mid 2007 USA debt figures of
$11 trillion in public debt, $13 trillion in household debt , and
$25 trillion of business & financial sector debt brought the total
to $48.4 trillion—over $160,000 per person and up (in constant,
inflation adjusted dollars) by 5.6 times in the last fifty years!
The Drama Unfolds: as
reported by Bill Powell in “Life Without Credit” Time magazine,
November 3, 2008 “The
debts Americans have piled up are due…$13.8 trillion—the total
amount of household debt in the U.S., up 20% since 2005, may finally
have peaked…Our debt binge was fueled by easy money and the belief
that the prices of assets—those of houses in particular —never went
down…That era is over. It
will be replaced by one of the more painful and consequential economic
chapters in our history: the great deleveraging of America. ” The
following months brought record government spending to ease the pain.
The USA budget deficit of $500 billon/yr quadrupled to a
projected $2 trillion/yr for 2009-10.
At least nationally, the Borrowing Mentality was not a casualty
of economic crisis! |
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Figure #45b
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Figure #45c Micro-Credit
Summit Feb
2 1997, Washington, DC "[Micro-credit]
is not just about giving individuals economic opportunity.
It is about responsibility.
It is about seeing how we are all interconnected and
interdependent in today's world...It is understanding how lifting people
out of poverty in India or Bangladesh rebounds to the benefit of the
entire community and creates fertile ground for democracy..."
Hillary Clinton "This
summit is to celebrate the success of millions...who have transformed
their lives from extreme poverty to dignified self sufficiency
through...micro-credit"
Muhammad Yunus |