“…IF I WERE A WEALTHY MAN…”

9/7/11

This morning’s (i.e., Wednesday, 9/7/11’s) Wall Street Journal featured, on page A1, one of those seminal articles that every sentient individual should read. This one was entitled “Debt Hobbles Older Americans,” and was written by E.S. Browning. The article continues the closest thing to a continual theme this blog has had since its inception, i.e., that Americans (and, apparently, plenty of southern Europeans) have spent themselves into such a hole out of a sense of entitlement to a lifestyle they could not even imagine affording that we have no hope of continuing as a going economic and societal concern. Our society is doomed and there is no hope, at least in this world. And it’s (almost) all our own fault. Like spoiled children, we have eaten through all the seed corn left us by the sacrifices and hard work of prior generations and then, still not having satisfied our “just gotta have it because I deserve it and I need to rub my neighbors’ faces in it” attitude, we borrowed even more and then decided we didn’t want to repay the debt we had accumulated because, after all, we are the most wonderful generation in history and we deserve to have other people finance the lifestyles we pursue to fill the spiritual, emotional, and psychological holes in our lives created by the very pursuit of those lifestyles. It’s an ever accelerating downward spiral that will never be arrested; America is doomed. Well, perhaps E.S. Browning would not put it in those words, but any sensible person would come up with the above interpretation of the data, but I digress.

The article contains a parade of statistics that confirm the dire description of the last paragraph, including:

--39% of households with heads aged 60 through 64 had primary mortgages in 2010, up from 22% in 1994.

--20% of households with heads aged 60 through 64 had secondary mortgages in 2010, up from 12% in 1994 (and note that we were not exactly a frugal bunch in 1994, either)

--Americans of all ages owed $11.4 trillion on 6/30/11. While we congratulate ourselves on that number’s being down 15% from 2007, largely due to defaults (i.e., stiffing our creditors), that $11.4 trillion is more than twice what Americans owed in 1999, adjusted for inflation and population.

--The median amount of mortgage debt for households with heads aged 62 through 69 was $71,000 in 2007, FIVE TIMES the 1987 inflation adjusted median.

…and on and on.

Lest we wonder why we got ourselves into such an unfixable fix, the story contained the tale of a couple in their 50s who insist that, despite their financial problems, they simply MUST continue to live in Glencoe (For those of you not in the Chicago area, Glencoe is about as expensive a town as there is in these parts.) in order to provide stability for her son (his stepson). Apparently, such stability can ONLY be provided in Glencoe. Who knew that my wife and I were subjecting our kids to such brutal instability by living in vertiginous Naperville? And those of you who live in, say, Wheaton, Winnetka, Beverly, Palos, Oak Forest, Downers Grove, Archer Heights, Oak Lawn, Evergreen Park, Glenview, etc.…you ought to be ashamed to call yourself parents. But I digress.

Besides the main theme of the article, something else caught my eye. (I am writing this section more for my Investments classes than for general consumption, but even those of you who are not taking one of my classes should find this portion of the post enlightening and entertaining.) A financial planner named Greg Heller of the eponymous Heller Capital Resources in Los Angeles is quoted in the article as saying

“We have gotten into this ‘debt’s okay’ mentality and it is going to be very hard to get out of it.”

Mr. Heller is to be commended for such an astute diagnosis of the problem. However…

The article goes on to report that Mr. Heller says he has wealthy clients in their 50s with financial problems.

Hmm…

I don’t know if Mr. Heller used the word “wealthy” of if the author used that word. I certainly hope it wasn’t Mr. Heller, who advertises that he is a financial planner. If one is “wealthy,” then, by definition, or at least by correct definition, he or she cannot have financial problems. One’s wealth is defined, financially, as one’s assets minus one’s liabilities. It is a balance sheet concept. If one is “wealthy,” then one has great wealth; i.e., s/he owns more than he owes, by a large amount, and thus cannot have financial difficulties, other than, perhaps, a temporary liquidity problem, and temporary liquidity problems were not the subject of the Journal article.

If the article, or Mr. Heller, is defining “wealthy” as “having a high income,” as most of our politicians, whose financial knowledge would be laughable if it weren’t for their complete lack of appreciation for their own ignorance, then, yes, financial problems are surely possible for high income earners; indeed, such problems seem to be likely for high income earners in today’s world. But then the definition of “wealthy” would be wrong; income is an income statement concept while wealth is a balance sheet concept.

If the article, or Mr. Heller, is defining wealthy as “having lots of useless, silly, worthless, pointless geegaws and gimcracks,” another popular definition of wealth, then the article, or Mr. Heller, is simply wrong on all counts. Having accumulated a lot of vestigial garbage on credit does not make one wealthy; it makes one poor and defines one as silly, if not outright stupid. The inherently futile attempt to convince others, and ourselves, that we are wealthy by displaying the supposed trappings of wealth has contributed mightily to the economic dystopia into which we have descended.

Hopefully, Mr. Heller did not use the term “wealthy” in describing some of his clients with financial problems; we have enough charlatans who pose as “financial planners,” (Note my post of long ago in which I commented on Patti Blagojevich’s aspirations to become a financial planner after having helped drive herself and Rod into the poor house.) and their presence is giving the (admittedly not many) good financial planners a bad name. Given Mr. Heller’s above observations on debt, I am betting he is not so mistaken…or at least I HOPE he is not so mistaken.