On December 30th 2008, what was considered the most stable market in America crashed. This date is forever known as, The Housing Market Crash. This market crashed because banks gave faulty property loans, known as mortgages based upon inflated home values and questionable credit checks on the people seeking the loans. People were enthusiastic about the idea that they could buy homes beyond their means and even multiple houses and pay them off over time. The banks saw this as an opportunity. They could sell more mortgages to people for more than they were worth and profit off of their ignorance. Over time, people realized that they were not able to pay off their mortgages because their monthly cost was too high due to being charged a high interest rate and the size of the loans. Also, many homes weren't worth the estimated value when they were purchased. Banks loved when this happened, the more interest charged, the more money they received. This came to a point where people were walking away from their homes. Most Americans did not have the ability to pay the increased mortgage and interest charged. Then the market crashed and in the end the banks suffered as people defaulted. Warren Buffet said "The stock market is a device for transferring money from the impatient to the patient." As the American people stopped paying their mortgages, the banks stopped making money. The whole market blew up in the government's face, and everyone was exploited (all tax payers that were left to pay the bills).
You would think that after this large devastation, our nation would learn from its mistakes and be more careful. This is not the case. The housing market crisis I believe was not the first or last time our nation will see a devastation this large. Americans are having the same reaction towards credit cards as they had towards buying houses. They believe that they can buy everything that they want now and pay for it later. In many cases, you can do this without suffering from late payments, but in too many scenarios, credit cards are the major reason people are going into debt. For instance, when a parent wants to buy their child a nice gift for Christmas because they see all of their friends doing it, and they feel their child really deserves it, but they do not have the money. The parent buys this nice gift on credit, knowing that they do not have the money at that moment, but will get their pay check at the end of the week. In the meantime, that family still needs food, water, clothes and other necessities. The credit card bill charges keep racking up, and at the end of the week that pay check is not enough to pay the credit card bill. The bank charges heavy interest and sends this family into debt. The whole family is on the streets because they wanted to buy a nice gift. The bank does not care since they profit when families overspend because they get benefit from charging high interest. This cycle mimics the housing market crisis. People do not take into consideration how much money they have to spend, they just buy.
There are ways that we can prevent another crash. One way is to purchase with cash or a debit card instead of credit. When using cash or debit cards, you have a good representation of how much money you are able to spend at that one point. Another option is to keep a ledger of all of your purchases, and/or keep all of your receipts. We often use this method to keep track of written checks. This method may potentially help you keep track of how much you are spending with credit. Last, but certainly not least, save! Save your money, and focus on needs before wants. When you have your necessities paid for, you may then purchase items that you want, or save up your money and wait to purchase an item you truly desire. Warren Buffet suggests, "Do not save what is left after spending, but spend what is left after saving."
You would think that after this large devastation, our nation would learn from its mistakes and be more careful. This is not the case. The housing market crisis I believe was not the first or last time our nation will see a devastation this large. Americans are having the same reaction towards credit cards as they had towards buying houses. They believe that they can buy everything that they want now and pay for it later. In many cases, you can do this without suffering from late payments, but in too many scenarios, credit cards are the major reason people are going into debt. For instance, when a parent wants to buy their child a nice gift for Christmas because they see all of their friends doing it, and they feel their child really deserves it, but they do not have the money. The parent buys this nice gift on credit, knowing that they do not have the money at that moment, but will get their pay check at the end of the week. In the meantime, that family still needs food, water, clothes and other necessities. The credit card bill charges keep racking up, and at the end of the week that pay check is not enough to pay the credit card bill. The bank charges heavy interest and sends this family into debt. The whole family is on the streets because they wanted to buy a nice gift. The bank does not care since they profit when families overspend because they get benefit from charging high interest. This cycle mimics the housing market crisis. People do not take into consideration how much money they have to spend, they just buy.
There are ways that we can prevent another crash. One way is to purchase with cash or a debit card instead of credit. When using cash or debit cards, you have a good representation of how much money you are able to spend at that one point. Another option is to keep a ledger of all of your purchases, and/or keep all of your receipts. We often use this method to keep track of written checks. This method may potentially help you keep track of how much you are spending with credit. Last, but certainly not least, save! Save your money, and focus on needs before wants. When you have your necessities paid for, you may then purchase items that you want, or save up your money and wait to purchase an item you truly desire. Warren Buffet suggests, "Do not save what is left after spending, but spend what is left after saving."