In a Debt Culture, Looking for the Big Payoff

I had lunch with a close friend today. He announced that he was thinking about purchasing a condo, a second home in Hilton Head.

"It's a great deal!" he said. "I am going to fix it up and use it for vacations, long weekends," he proclaimed.

"Are you planning to pay cash?" I inquired. "Or are you planning to borrow the money?"

A study released in May by the New American Foundation, entitled "For New Thrift: Confronting the Debt Culture," examines the real money (or lack of) behind the modern American dream. The report notes nothing new about how Americans are financially surviving these days. They report there is just more of it as:

* "Foreclosures, which soared to more than 1 million in 2007, are predicted to affect about 2.5 million households this year," according to the report.

* Consumer bankruptcy filings are also up significantly.

* Mortgage loan crisis.

* Auto loan and credit card delinquencies are also rising.

* Federal Reserve recently reported that consumer credit increased by $15.3 billion in March [2008], to $2.56 trillion.

Who is at fault for America's indebtedness? Is it the consumers alone?

"Clearly, human frailty is part of the story," the report says. "Some people get over their heads in debt because of their own profligacy and irresponsible choices."

I can attest to that. Ten years ago, I had a good job. I had a nice home that I wanted to fix up a little bit. Bottom line-I got intoxicated over the potential market value and borrowed against its equity. Instead of investing it, I spent it on things that no longer matter.

Five years later, I lost the good job to the early retirement. The unexpected forced me into a delinquency pattern with my mortgage. Eventually, I would sell the house but for three-fourths of what I owed on the property. The mortgage company graciously wrote off the difference as I declared bankruptcy and reported the "revenue" on that year's taxes.

At the age of near fifty, I could not find the job that paid me the income I had earned previously. I even finished my college degree using student loans to make up the difference in my lost household revenues. Presently I have not cashed in on the undergrad degree but the student loans remain. Oh, well, there is always my life insurance to settle that balance.

Finally I used the last of my 401K to finance a small business venture to "bounce back." The business failed miserably. I have not had full-time employment since 2002 as most companies consider your credit score as hiring criteria.

In the state of Ohio, legislators and citizens are recently invested in the "pay-day lender" battle. Legislators have leveled the percent caps of usury. I include that statement to confirm that I have never walked into a pay-day lending institute and still managed to dig a hole deep enough without their help.

I further acknowledge that I failed to save for the unexpected.

And that was my advice to my lunch date. I explained to him as a single parent having raised three children on my own, I failed to properly save. As an educated man with a supportive, working spouse, I explained that I never had access to the financial potential he could realize in his lifetime. I suggested that he contact a financial planner in his community to assist him with the development of a sound investment program.

Any history book would tell you that the American dream began with thrift and not, "How much is the monthly payment?" So "cash this" advice the next time you think about signing any one's bottom line.