A blog about spending wisely in your twenties, with advice on everything from cooking to saving money on gas; how to teach yourself to save money instead of spending it, traveling without breaking the bank, and much more.

Thursday, April 24, 2008

Financial Doublethink: A Rambling Rant

From the Irvine Housing Blog (not as boring as it sounds, I swear!):
Southern California's Cultural Pathology

I read this article about a year ago, and while I'm not in the housing market at the moment (and very few people my age are) - the basic premise that consumers are convinced that opposing ideas about money are true most definitely applies to young people.

While we're not overextending ourselves on mortgages, we are overextending ourselves in other ways. In Southern California, it's not uncommon to see a 22 year old driving a new BMW. Some of those kids are driving a gift from their parents, but most of them put that machine on credit. I don't presume to know the income of every 22 year old in a BMW, but I'd place a pretty hefty bet that quite a few of them are slaves to their car payment and wish they'd bought a Toyota. I believe that the idea of cultural pathology extends to debt denial too. There are people who are literally a thousand or more dollars in debt but are raising money for massive unnecessary purchases, as opposed to pulling themselves out of debt.

I was about $600+ into overdraft three years ago. I stopped using the bank I was with at the time and began doing everything in cash. I still had a decent amount of savings in an online bank, but with no brick & mortar bank to transfer it to, I couldn't get at it very easily (thank god). I did everything in cash, and I bought $300 purses and $180 shoes and $200 jackets. I could have easily brought my bank account back into the black, but instead I blew my hard-earned money on stuff that I'd decided I deserved, dammit. Three years later, I'm back 'on the grid' so to speak, but with a NASTY dent on my credit report. And I pretty much never carry that purse.

The financial doublethink of young people never ceases to amaze me. The fact that many of us do not grow out of it and end up tens of thousands of dollars in debt completely mindboggles me. People (including me at one point) who are totally broke will buy iPhones or Disneyland passes or new laptops or daily Starbucks. And then they complain of being "too broke!" Well, of course you're broke, you just spent all your money! But the "I'm broke!" and the "I want an iPhone!" wires never seem to cross.

Having a flashy car, a fancy iPhone, 18 Coach bags, annual passes to every theme park ever, drinking Starbucks every day and a pony will NOT make you financially stable. It'll make you look like you spent a lot of money. Looking like you spent a lot of money will NOT help you if you find yourself in a an emergency situation with no savings. Nothing is more degrading than having to go around begging your friends for money when your car breaks down. Plus they're going to wonder why you can't fix it yourself, since you've obviously got a lot of money to burn...

I'm not saying that people should never ever indulge a whim or a want. You've got to have little fun every now and then. If you're splurging on a tub of ice cream or (god forbid) a wide release new movie or even the occasional latte, you're probably not compromising your financial security too much. But if you're spending hundreds of dollars on items not necessary to your survival and ignoring your debt like it's not there, that's a purchase that could probably use some re-thinking.

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