The last item on the Late Late Show about a fortnight ago was the story of two young couples who were both facing mortgage problems due to the current recession. One couple was further along the horrendous repossession road and had, at the time of being interviewed, decided that they would voluntarily hand back the keys of their home and vacate the property. What would happen was unknown other than the hard fact that they would be left with a crippling debt and nothing to show for it. The other two were still living in their home, but as the husband had lost his job, the debts were mounting and their immediate future seemed to hold little hope. These couples are not unusual. They are representative of thousands like them who have recently found themselves in a similar position. I felt enormously sorry for them all and empathised with the frustration when one of them pointed out that there was “no NAMA to rescue them”. He also put forward the interesting proposition of the Government buying up houses and renting them back to the residents. There wasn’t a happy ending to this item as no one can predict what will happen in the next few months. As it is we have to face another budget in the next two weeks. Batten down the hatches, it will be severe.
So the situation is what it is, a harsh recession that is putting us all to the test, but why does this seem so much worse than anything we have experienced before? Recessions are normal; they are cycles that come and go and while the experience of the 1980s was tough, this one feels infinitely worse. This time the group that seems to have been most affected is the 20 to 40 year olds who seem to be getting the really rough end of the stick. There are obvious societal reasons for this and while there may be little or no easy solution for those who find themselves in the thick of it, we can certainly wrestle some knowledge and some positives out of it for the generation coming up. Someone has to take the lead and teach children and young adults about money and also a decent perspective on expectation. A programme for schools is necessary and long overdue.
American way of living
I believe that while we were happy to embrace the culture of consumerism that was popularised in the States, we failed to teach basic and fundamental money advice on the other hand. We wanted the American way of living without the American way of saving, working and investing. Now I’m not talking about people with massive investment portfolios of shares, stocks and property and I’m also not talking about the other extreme of sub prime candidates. I’m talking about the ordinary Joe Soap. These were ordinary young people who were never advised that, at all times, they should have a minimum of 6 months mortgage and utility bill money in cash in the bank, along with a minimum of one thousand euro for minor emergencies and that’s outside of regular savings and investments! How many of those young couples who took out 100% mortgages and moved into expensive ‘dream’ homes had that kind of cushion saved and in place? I would guess that there weren’t that many and if they did have access to that kind of cash it went on weddings and furniture. Living week to week or month to month with a few quid in savings was doable in the 1980s when our materialism was still under control and the cost of property was actually relative to the average salary. Those were the days when the average person knew little about designer brands let alone considered them a ‘must have’. Our taste for the finer things in life and the exotic had not been developed.
We were never taught about automatically saving the first 10% of your income. Our culture didn’t, and still doesn’t, encourage us to pay more off our mortgages each month in order to shorten the term and save money in the long run. If anything it used to preach the opposite; “consolidate all your short term debt such as credit cards and loans and re-mortgage your house. In fact while your doing that you might as well take some extra and get enough for a new car, a little holiday and a small conservatory perhaps!” The thinking was that if you only had one smaller repayment to make you would be better off. If you sat back and thought about it though it was just borrowing from the future and putting things on the very long finger. What it actually meant was that those shoes that you put on the credit card because they were a ‘bargain’ were suddenly working out quite costly between the initial credit card interest and the 20 year re-mortgage term. If you added up the interest you could have had two pairs of Manolo’s or Laboutin’s for what you will have eventually paid.
Mortgage ‘death grip’
Nobody looked at a ‘Mortgage’ for what it really was. The word ‘mort’, being the French word for ‘dead’ and gage has its route in the word ‘grip’, you could roughly translate it as ‘death grip’ or ‘death like grip’. No wonder they use terms like “putting a noose around your neck” in association with mortgages. And yet there was a scramble to do it; an uncontrollable urge to ‘own’ a piece of property. We lost the run of ourselves completely and everyone wanted to be on that property ladder, whether we could afford it or not and at any cost. That ‘turkey voting for Christmas’ mentality created a swell of demand at the bottom, encouraged the developers to meet the crazy demand and the banks happily funded both, handsomely profiting from both also. If you stand back and look at it, it wouldn’t take Einstein to work out that they would eventually meet themselves coming back and implode.
Going back to our two couples on the Late Late Show, while I felt for them I also heard one of them make the statement that ‘Christmas was coming and they wanted to buy things for the children’. I know this is going to sound harsh and I don’t wish to be unfeeling, but their children need food on the table and a roof over their heads a great deal more than they need toys from Santa. That little revelation said a lot. Trust me, millions of people have managed without getting new stuff at Christmas and it was hardly a scarring experience.
And so we find ourselves in the deepest recession in history. Frustration and anger seem to be the order of the day, but demonstrations of such will achieve little. While we can’t avoid economic cycles, they are natural we can certainly perform damage limitation exercises and arm our people with a weapon of knowledge. It is vital that we teach school children about money and they might even teach their parents a thing or two at the same time. I wish I’d had this sort of training in my school years instead of having to learn it the hard way by experience. All the celebrity economists are writing books at the moment but they are all aimed at adults. We need something aimed at Children. Now there’s a worthy stocking filler and the information might just last a lifetime.