Paycheck to paycheck

by Rod Williams, Feb. 3, 2019 - As soon as the government shut down occured, the media started running stories about how devastating the shutdown would be on government workers who are living "paycheck to paycheck."  My initial reaction was that this was so much hype to tilt public opinion against the president. After all, government workers get paid pretty darn well compared to the private sector or compared to state or local government employees doing comparable jobs.  Surely, I reasoned, they could miss a paycheck without it being a disaster.

Upon reflection however, I realized the shut down would be devastating for many who live paycheck to paycheck.  And, many do. However, living paycheck to paycheck is simply irresponsible and a reflective of stupidity. I do not think federal government employees are more irresponsible and stupid than the average person, however.  That is probably typical of many people.

I spend my career working with poor people and much of what I did was teach poor people how to become homeowners.  That most often involved teaching them how to change their habits and values. It involved teaching them to set priorities and learn delayed gratification and exercise personal discipline. I did not teach this class as one who did not know what they were talking about.  I have experienced poverty.  It was not fun but I know what it is like. I survived it without ever having my electricity cut off or without being evicted or filing bankruptcy. I managed my poverty until things improved. I could talk to poor people and knew what I was talking about

About 2006 we started seeing a new class of clientele at our agency; not poor people wanting to become homeowners but middle class people wanting to avoid losing their home.  We did some good. We helped many people get financial assistance to save their home and helped many clients get modifications or repayment plans that allowed them to keep their home.  As the housing crisis grew, my work shifted entirely to mortgage default counseling.  I am now mostly retired and don't need to work but still work part-time and see about two clients a week.  It keeps my mind sharp and it is rewarding to help someone through a crisis.

My experience working with middle class people who are about to lose their home and poor people who wanted to achieve the dream of home ownership taught me something.  The poor and the middle class are not much different; the middle class just have more money.  I know my sample may be skewered because of the middle class I saw, I only saw those who were facing a crisis.  However, giving the report of how missing one paycheck impacted federal workers, I think my observation is quite accurate.

It is sad that missing one paycheck could cause someone to be unable to pay their house payment or buy groceries.  It is sad that one lives paycheck to paycheck.  However, there is simply no excuse for living that way.  As a housing counselor I saw people lose their home because as soon as they got laid off and missed their first paycheck, they missed a house payment.  Many people who lost their home could have avoided losing their home had they had some saving.

I know people will object and say, "I don't make enough money to save."  That is simply not true. Savings is simply a matter of prioritizing. It is a question of management and exercising a little discipline and establishing some priorities. I tell clients that savings is "paying yourself first."  In examining a client's income and expense report, after I ask them in detail how much they spend on this or that, I then review their credit card statements and bank statement. Often people don't know how much money they make and they don't know how they spend it. Often they spend it foolishly.

I was working with one client who was facing foreclosure. After developing her budget sheet, I then reviewed her bank statement and saw a fee for something like $115 to a place with the name of something like "Dragon's Lair."  I asked her what that expenditure was for and she said it was for a tattoo. She went on to explain that with all she was going though she needed to do something for herself. "I felt I deserved it, " she said.  That is not an uncommon attitude. People spend money on something because they "deserve it."

I was working with one couple who had missed a house payment but had gone out and traded cars and had a large car payment of almost $500. When I asked the client why they had taken on this new debt the wife told me that she was pregnant and they already had one child and, "we had to have an SUV."  People feel entitled to things weather they can afford them or not.

I see many people who have no accumulated saving for retirement. In an article by David Moon that appeared in the Tennessean today, he says only 52% of Americans have any type of retirement savings.  In my position as a housing counselor, I have seen people who had an employer contribution retirement plan where the employer would match what the employee contributed and yet the employee did not participate.  There is a lot of free money that people are just turning down. If the employer matches the employee's contribution that is a 100% return! Putting it into such an account also makes the money not subject to taxes which makes the effective return 125% or something, and then if you assumes the money is invested and grows at 10% that makes the return 135%.  These employees by refusing to save $100 are saying, "no thank you, keep your $135."  They are leaving money lying on the table and refusing to pick it up.

I have seen people who spend enough daily on Starbucks coffee to have a week's paycheck in the bank in a few months. There are many people who could build a nice nest egg if they would exercise six months' discipline.

As a conservative, I have always believed in maximum freedom for the individual. When it comes to poor people this has caused me to advocate for food stamps as oppose to food commodities and housing vouchers as opposed to public housing and to entertain ideas such as a guaranteed minimum income to replace the bundle of current welfare programs.  I have thought that Social Security should be replaced with a retirement fund owned by the individual.  This rest on a foundation of believe in individual autonomy and personal freedom.  I hate to say I may have been wrong about a lot of things, but I am coming to the conclusion that most people are too stupid to be free.  If given choices they will make wrong choices. Unfortunately, many people need to be treated like children and need someone to take care of them.

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Celebrate! Tax Freedom Day

Today is Tax Freedom Day! Today, Americans stopped working for the federal government and started working for themselves. Well, maybe not really working for themselves yet because they still have to work a few days more for state and local government, but still today is a day to celebrate.

Today's Tax Freedom day comes three days later than last year, but still a couple weeks earlier than Tax Freedom Day in 2006 and 2007 when it was April 24. Of Course, if we were paying for all the government we were getting, Tax Freedom Day would not arrive until June 21st. When you borrow 40% of every dollar you spend you can get a lot of stuff you haven't paid for and some of it is not even stuff you need or really want.

Taxes this year will cost Americans more than what they'll spend on food, shelter, and clothing combined.

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Becca Wins 2nd Place in Cheapest or the Cheap awards

My sweet and lovely niece Rebecca Mooradian won second place in the Cheapest of the Cheap Awards 2011, awarded by The Tennessean's "Miss Cheap," Mary Hance.

I have been known as a frugal person myself because there was a time in my life when I had to be. I still love a bargain and admire frugality. Rebecca is a gal after my own heart!  Below are pictures and text from The Tennessean web page.

The article doesn't tell the full story. The dress has been professionally cleaned and Jonathan Moody's mom,  Rossie Moody, who is a talented seamstress altered the dress to fit. Rebecca will be as lovely as any bride in a $6000 dress.

Second Place, $499.99: Rebecca Mooradian, Nashville and Sewanee -- Rebecca, who is planning her June wedding to her childhood sweetheart, Jonathan Moody, will wear a dress that she bought at a yard sale when she was 10 years old -- for a quarter. "The man who sold it to me seemed a little embittered and I actually think he said something along the lines of 'Good riddance' as he handed the dress to me. Throughout school I wore it as a costume for Halloween parties and for stage performances,"’ says Rebecca, a senior at the University of the South at Sewanee who’s majoring in French and English.

Rebecca and her mother are also buying stemware and china for half off at Goodwill to use as they self-cater the wedding, which is being held in Abbo's Alley on the Sewanee campus. "We couldn't stand the idea of using disposable plates, and on average we are spending 40-60 cents per plate and even less for the stemware (which, she adds, is less than renting china, which starts at about $1 per plate). After the wedding, we plan on having an enormous yard sale to make back some of the money we spent."

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U.S. need not become a nation of economic bozos

By: James Bowers, OpEd Contributor, Washington Examiner, 04/13/09

April is Financial Literacy Month. This year its importance is more apparent than ever as America faces an economic crisis largely caused by our collective failure -- from bankers, to legislators, to homebuyers -- to make smart financial choices.
To highlight this lack of economic and personal finance knowledge, our organization released the startling results of a new survey which shows just how much we still don’t know. [Full Article]

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First-hand Report from the Mortgage Default Trenches

As a housing counselor for a HUD-approved Housing Counseling Agency, I see first-hand the problem of home foreclosures. Unfortunately, we can continue to expect high rates of mortgage defaults for sometime to come. It is estimated that one out of five subprime loans issued since 2002 will fail. In addition to the people with subprime loans who are at risk, many other borrowers are also at risk due to the declining economy. I personally counsel about eight people a week who are on the verge of losing their home and I supervise other housing counselors so I see a lot of people who are in default. While my experience is not a scientific sampling, I observe five categories of clients who are at risk of losing their home and the people I serve are about evenly split between the five categories. There is some overlap in these categories and often a client fits in more than one category.


(1). Good people to whom bad things happen: Illness, lost of job, divorce, and reduction of income or unplanned increases in expenses cause many people to become late on their payment.


(2) Homeowners who bought too much house. Many customers took out loans they could not afford. People in this category often could have qualified for a $100,000 house with a good loan, but instead got an adjustable rate mortgage or some other "creative financing" so they could buy an $180,000 house. Many times they were steered into a bad loan by a realtor or a loan officer, nevertheless the homeowner should have exercised due diligence and educated themselves before signing on the dotted line. Often the house payment on the $180,000 mortgage, during the period that the loan had the introductory teaser rate, is no higher than the house payment would have been for a $100,000 mortgage with a good loan. During the introductory teaser rate period the buyer is fine, but as soon as the loan resets the homeowner is in trouble. The customer did not think ahead about what would happen when the interest rate reset.

(3) Clients who should have kept renting. This is similar to the case above but instead of buying too much house, these are people who should not have bought any house. Since they were poor credit risk, the only loan they could get was a loan with a high interest rate. These clients are also often “house payment burdened.” They are spending too large of a portion of their income on housing. They often have poor money management skills and when the loan resets or they have any other financial difficulty they default.

(3) Clients who have poor money management skills and make poor decisions. Many people fail to build any saving, live payday to payday, and live beyond their means. A little bump in the road puts their home at risk. They feel entitled to a nice home and a new car. They may not be able to pay their house payment yet they spend $100 a month for cable and $250 for cell phones and eat out often.

Recently I had a couple come see me who was three months behind on their house payment. The wife had had a problem pregnancy and had missed several months work. The couple had exhausted what little saving they had. While working with them on their budget, I noticed that just a couple months before the wife had had to take unpaid sick leave from her job that they had purchased a new car and had taken on a $465 car payment. I asked them why they had taken on such a large care note. The new mother explained to me, “Well, I got pregnant, and we had to have an SUV.”


(5) Clients who are victims of predatory lending or poor lending practices. I have witnessed inflated appraisals, phony "gift letters", falsified income, and people having their loan product switched the day of closing and then being pressured into closing.

I recently had a client come to me, who had inherited a house in the Belmont area of Nashville about eight year ago from her aunt who passed away. The house was paid for but was in bad need of repair. The new owner borrowed a little over $40,000 to repair and upgrade the home. Despite having credit that would have made her eligible for a good loan, she was giving an adjustable rate mortgage and a loan with high closing fees. About a year later, the same loan officer called her and told her she had a bad mortgage that was going to adjust to a higher payment and he offered to refinance her to a new loan that would keep the payments from going up. She refinanced, and again the same thing happened about a year later. All together, in eight years, she got the original loan and was "flipped" (refinanced) four times, each time losing equity in her home. After the fifth loan she could not be refinanced anymore and her gross annual income was actually less than the total of her annual house payments. Unfortunately, this lady lost her home.


Part of the problems that caused the flood of foreclosures has already self-corrected. Investors are no longer buying subprime loans so few new borrowers will find the same easy credit available as did the homeowners who got the bad loans. Nevertheless, there may be a need for reform and greater regulation so this does not happen again. We may also need new laws against some predatory lending practices. More than new laws however, we need vigorous enforcement of existing lending laws and prosecution of offenders. A lot of people need to go to jail. Mortgage lending needs to become a profession with licensing and a code of ethics. We also need basic financial literacy taught in schools and we need policies that encourage savings.

More than anything, we need a change in societal attitudes so that people don’t feel ‘entitled’. No one owes you a new SUV just because you are pregnant and if you can only afford a $100,000 home, you are not entitled to an $180,000 home. You can't have it all.

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Why do people pay good money to look very poor?

Sunday my wife and I went to our favorite coffee shop in Hillsboro Village. I like HillsboroVillage. It is near the university area and is always lively and interesting with boutiques, book stores, several resturants, coffee shops and an art gallery. We sat in the Provence Café and Louella had her cream brulee and cappuccino and I had the house coffee and a scone as we read the Sunday paper. Although cold, it was a pretty day and after our visit to Provence we decided to walk a couple blocks before heading back to the car. Strolling through the village we window-shopped and went into a couple stores.

One of the stores we visited was a clothing store called Posh. In the store was a female manikin in a pair of tight fitting blue jeans. The jeans were frayed around the cuffs and from the knees upward the front of the pants were faded. They were not faded to a light blue or white but a kind of rusty dirty color. The pants looked like someone had also painted in them. On the front, in the upper thigh region they had what looked like a few small paint spatters. On a couple or more places it looked like someone had tried to wipe off the paint spatter and the paint was smeared. I looked at the tag. The brand was Diesel and the price of the pants was $250.

I don’t get it. They looked like Goodwill rejects. I cannot for the life of me understand why someone would want to wear pants that looked like they were pulled out the trash. They were just plain ugly. You know the people who buy them are probably little rich girls who attend Vanderbilt University. Why do people pay good money to look very poor? Can someone explain this?

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Banning Credit Card Solicitation on College Campuses

Last week the Tennessee State Senate Education Committee unanimously passed legislation out of their committee that would ban credit card solicitations on State college campuses. The bill grew out of concern about students graduating with large credit card debt.

As a housing counselor a lot of what I do actually has little to do with housing directly. A lot of my job is counseling people on credit repair, budgeting and money management skills. I know first-hand how inept many people are at managing their finances. I have often encountered college dropouts or recent college graduates with very large credit card debt in addition to their student loans. I know that credit cards are heavily marketed to students who do not even have incomes. Credit card companies offer inducement such as free backpacks or other give- aways to students to get them to accept a free credit card. Apparently most lenders make money off of making the credit cards available to students or they would no longer do it.

I share the concern of the State legislators. Many 18-year-olds, away from home for the first time may not have the maturity to turn down an offered credit card. However, the days of colleges being in loco parentis are long gone. The application of that principle has largely disappeared from higher education. In the modern college dorm no one is keeping the boys and girls separated. If your teen-age daughter gets pregnant you cannot sue the university. Universities are required to treat 18 year olds as adults.

Like it or not, at age 18 a person is an adult. An 18 year old may vote, may choose to get an abortion, may shake up with a member of the opposite sex, may get married, may purchase a car, may enter into contracts, may change religions, may drop out of college, may move across the country, and may join the military. About the only thing they cannot do that other adults can do is legally purchase alcohol. I am not so sure that the state should protect 18 year olds from credit card solicitors.

If parents have not trained their children to make wise decision before they turn 18 then I think by the age of 18 it is too late. With Tennessee second in the nation for personal bankruptcy, apparently a lot of children are not learning money management skills at home. If parents are not teaching their children well, then the state my have a roll to play, but that should be while the child is still in high school. Currently Tennessee offers an elective to high school students in personal finances. I would support making it mandatory.

In colleges however, I think we need to recognize that college students are adults. Along with the rights of being an adult, comes the responsibilities and paying the consequences for making poor decisions. We can only go so far in protecting adults from their own foolish behavior. An 18 year old should be free to make stupid decisions.

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