interested
Senior Member
Slightly off topic but relevant I believe. Intriguing to me that someone could actually look at a line of credit as an asset. That said, it is exactly the concern that Mark Carney keeps bringing up:
From the Toronto Star:
http://www.moneyville.ca/article/931311--wealthy-barber-we-ve-become-such-great-spenders?bn=1
Wealthy Barber: We've become such great spenders
David Chilton's new book The Wealthy Barber Returns will not be available until summer, 2011.
David Chilton, the author of The Wealthy Barber will have a new book out this summer and a large part will be devoted to what great spenders we have become. In the 21 years since The Wealthy Barber appeared, Chilton says we’re much better savers, but we’re killing ourselves with the misuse of easy credit.
In an interview in Toronto last summer to talk about his new book — The Wealthy Barber Returns: Significantly Older and Marginally Wiser, Dave Chilton Offers His Unique Perspectives on the World of Money. He reiterated old themes that we don’t save enough and we’re lousy investors. But the new one is that we’re treating our lines of credit like a second income, rather than money we owe.
“The access people have to debt is killing them,” he said.
Here is an edited version of that portion of our conversation:
What worrisome trends do you see?
People are starting to save way too late. That’s a theme I see over and over. It’s very difficult (to have a reasonable retirement income) if you don’t start setting aside money until your mid-40s or later. The math isn’t there. You need those years of compounding.
But the biggest problem I’ve seen in the last 10 years has been debt. The access people have to debt is killing them. Lines of credit are a huge problem. Huge.
You open them up for $80,000, or $100,000 or $150,000. You think: ‘I’m not going to use it, I’ll draw it down infrequently’ and all of a sudden, you have a big debt that’s sabotaging your savings while you try to pay it down. Or worse, you don’t pay it down.
People cannot stop spending and easy credit has made it easier for people to give in to the temptation. That lack of discipline is shining through.
My biggest frustration has been people who are disciplined enough to save by paying themselves first, but are still in trouble because they use their line of credit.
When The Wealthy Barber came out, if somebody paid themselves first I didn’t worry about how they spent the rest of the money, because they were saving. What kind of trouble could they get into? Now they can get in trouble by paying themselves first but then running up lines of credit for $10,000, $50,000 or $150,000. So now pay yourself first isn’t enough.
Is it true some people believe that a line of credit is an asset?
Yes. It’s absolutely bizarre. I was dealing with a very intelligent guy who had his $35,000 line of credit on the asset side of his balance sheet. I said: Why is this an asset? Who owes you the money? Who did you give a line of credit to?
He said: I gave it to myself. I said: Why would that be an asset? He said it’s my line of credit. That is one of the dumbest things I have ever heard.
He owes $35,000 to the bank and he has it on his asset side because it’s ‘his line of credit.’ That’s how messed up people get. They think of it as a second income.
Two of the new book’s chapters are parables about lines of credit
I wrote the first chapter and gave it out to a test group. I couldn’t believe how many people said: ‘Oh my God, that’s us.’ The stories coming back were far worse than the ones I used, so I think I understated the problem.
I blame HGTV. People watch those shows and say I have to have it. I’m not against home renovations, but they have to be done in the context of affordability which is where people are losing their way.
Or, they’ll do the first reno within the context of affordability, but don’t realize that it will lead them down this path to continuous home improvements and their line of credit lets them. In the old days they ran out of money and said: ‘Okay we have to save up again. Now they say lets use our line of credit.’
What worries you?
The two things that people have to focus on is saving more and investing more efficiently. That’s what it’s all about. The new book looks at spending from every angle. I say early on that our problem is not that we’re bad savers, it’s that we are fantastic spenders. We are amazing at spending money in developed countries. I think you’ll like that part of the book.
From the Toronto Star:
http://www.moneyville.ca/article/931311--wealthy-barber-we-ve-become-such-great-spenders?bn=1
Wealthy Barber: We've become such great spenders
David Chilton's new book The Wealthy Barber Returns will not be available until summer, 2011.
David Chilton, the author of The Wealthy Barber will have a new book out this summer and a large part will be devoted to what great spenders we have become. In the 21 years since The Wealthy Barber appeared, Chilton says we’re much better savers, but we’re killing ourselves with the misuse of easy credit.
In an interview in Toronto last summer to talk about his new book — The Wealthy Barber Returns: Significantly Older and Marginally Wiser, Dave Chilton Offers His Unique Perspectives on the World of Money. He reiterated old themes that we don’t save enough and we’re lousy investors. But the new one is that we’re treating our lines of credit like a second income, rather than money we owe.
“The access people have to debt is killing them,” he said.
Here is an edited version of that portion of our conversation:
What worrisome trends do you see?
People are starting to save way too late. That’s a theme I see over and over. It’s very difficult (to have a reasonable retirement income) if you don’t start setting aside money until your mid-40s or later. The math isn’t there. You need those years of compounding.
But the biggest problem I’ve seen in the last 10 years has been debt. The access people have to debt is killing them. Lines of credit are a huge problem. Huge.
You open them up for $80,000, or $100,000 or $150,000. You think: ‘I’m not going to use it, I’ll draw it down infrequently’ and all of a sudden, you have a big debt that’s sabotaging your savings while you try to pay it down. Or worse, you don’t pay it down.
People cannot stop spending and easy credit has made it easier for people to give in to the temptation. That lack of discipline is shining through.
My biggest frustration has been people who are disciplined enough to save by paying themselves first, but are still in trouble because they use their line of credit.
When The Wealthy Barber came out, if somebody paid themselves first I didn’t worry about how they spent the rest of the money, because they were saving. What kind of trouble could they get into? Now they can get in trouble by paying themselves first but then running up lines of credit for $10,000, $50,000 or $150,000. So now pay yourself first isn’t enough.
Is it true some people believe that a line of credit is an asset?
Yes. It’s absolutely bizarre. I was dealing with a very intelligent guy who had his $35,000 line of credit on the asset side of his balance sheet. I said: Why is this an asset? Who owes you the money? Who did you give a line of credit to?
He said: I gave it to myself. I said: Why would that be an asset? He said it’s my line of credit. That is one of the dumbest things I have ever heard.
He owes $35,000 to the bank and he has it on his asset side because it’s ‘his line of credit.’ That’s how messed up people get. They think of it as a second income.
Two of the new book’s chapters are parables about lines of credit
I wrote the first chapter and gave it out to a test group. I couldn’t believe how many people said: ‘Oh my God, that’s us.’ The stories coming back were far worse than the ones I used, so I think I understated the problem.
I blame HGTV. People watch those shows and say I have to have it. I’m not against home renovations, but they have to be done in the context of affordability which is where people are losing their way.
Or, they’ll do the first reno within the context of affordability, but don’t realize that it will lead them down this path to continuous home improvements and their line of credit lets them. In the old days they ran out of money and said: ‘Okay we have to save up again. Now they say lets use our line of credit.’
What worries you?
The two things that people have to focus on is saving more and investing more efficiently. That’s what it’s all about. The new book looks at spending from every angle. I say early on that our problem is not that we’re bad savers, it’s that we are fantastic spenders. We are amazing at spending money in developed countries. I think you’ll like that part of the book.
WTF