Recently there has been allot of bad news in the mortgage industry. We're having ever increasing foreclosure rates, mortgage default as at record levels, and everyone is now pointing their finger at everyone or anything they perceive as responsible.
The problem is most American's do not point back at themselves! I'm currently involved in preparing a financial planning seminar with a couple insurance agents. I've been reading allot of old articles and reports on American's and their fascination with personal debt. What has really struck me is that most of us know what we shouldn't do, the problem is that we continue to wrack up the debt!
I came across a fantastic survey by LendingTree.com, SURVEY, In this survey they ask over 1500 on-line respondents about numerous questions regarding the way they spend, manage, or save their money. The results were not surprising to me, but they maybe to others. Here are a few examples of results that should both alarm you if work with customers that are seeking professional services for mortgages or real estate.
"85% of on-line consumers have outstanding debt, 63% credit cards, 52% mortgages and 37% are auto loans", this statistic isn't one to get to worried about, but out of the 85% that have debt, 39% owe over $3000 dollars in credit card debt. Now we come to the startling numbers, over 45% of those who owe more then $3000, actually owe more then $10,000!
So why do so many American's owe more then $10k on their personal credit cards. 41% of respondents stated the primary reason to use their credit cards was to cover personal expenses, while 17% of these 10k plus respondents were in the hock due to high medical costs. Evidently credit cards are not just used for emergency's.
Now for you mortgage professionals. Over 47% of the respondents had debt ratio's that exceeded 50% of their gross incomes! So now we know why there is such a problem with stated loan programs. It's because stated incomes are in no reality close to what people are actually making at their jobs. Many American's are speculating that they'll get a increase in their income, or they'll make a bunch of money through selling property, or they'll reduce their credit cards, thereby increasing the funds available to pay a larger mortgage. Wishful thinking and with ARM's resetting the pressure is quickly building to record levels with these consumers. The problem is that consumer debt isn't a new problem, it's been with us for years. Now when lenders add Stated loan programs to the mix, it just exacerbates the problem into a full blown wild fire, hence the current mortgage crisis.
Credit card debt and large mortgages are not the only problem. It seems that many know they have financial problems, and because of the lack of available cash flow they resort to tackling the problem on their own. Only 18% of the respondents used professional financial advisor's. Of those 18%, most were what are considered "mature" respondents. Those same respondents seemed to be the ones with the highest saving rates as well. This contrasted with those whom were considered, "young singles, young married and young families". These groups had the highest credit card debt, highest mortgage debt, and fewest dollars saved. They were also the ones with the lowest hope of getting out of debt anytime soon. They were also the group who used financial advisor's the least, and were often either doing absolutely nothing in terms of a financial plan, or they were trying to do it on their own.
It's fairly obvious that cash flow is the biggest problem for any age group. Cash-flow is directly affected by the amount being earned and that which is considered an expense. The big problem is many of us spend more then we make. So if the answer is to spend less and make more money, why are most of us so disconnected to this concept?
This is one of the questions I'm exploring with our seminar we're preparing, however, the answer is probably more complicated then what a survey can tell you. The answer is more of one that could be asked about many facet's of our life. Why are we not more successful with our relationships? Why aren't we happier with our lives ? Money is just one symptom of a problem that plagues us all. I heard a concept once that at first sounded silly, but has stuck with me ever since.
I was at a seminar, and the seminar leader asked us a question, "how many of you know how to ride a bike", so I raised my hand.
Then he asked, "how many of you can explain to me how to ride a bike", I raised my hand again.
He then called upon someone to answer the question, they then began giving a long explanation of how you have to balance yourself.
The leader then stopped the person and asked, "what is balance, and how do you teach balance", at this point we were stumped.
He then drew two circles on the board, and pointing to the first circle he stated, "this circle represents what you don't know.", then he pointed to the other circle, "This represents what you don't know you don't know". BANG!!! then it hit me, sometimes in our lives experience teaches a concept that most of us can never learn from a book or from what someone else tells us. So are their things in our world that we may think we understand but do not really know. The obvious answer is yes, and often it may take more then our own understanding to realize these answers.
That is why having a strong financial advisor's is not only a solid strategy but necessary when it comes to proper financial planning. Albert Einstein was sage in his famous quote, "Insanity: doing the same thing over and over again and expecting different results." The big question then is, If American's know what they are supposed to do, then why do they think they can do the same thing they've always done, but then are surprised when their lives are still the same.
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