I posted this on the blog and wanted to get your thoughts on it.

http://www.singleguymoney.com/2010/04/w ... sonal.html

I agree with your premise. I don't really have much to add, because I've already written tons of commentary on this topic on other blogs and frankly, I don't feel like copying-and-pasting it all here. But I do absolutely agree with you.

One minor nitpick: The credit cards are making just as much off you as they ever did. The credit cards make their money off the merchant fees and annual card fees. Interest and penalties are reaped by the bank backing the card (with the exception of American Express). So while the bank may be making substantially less off you, Visa itself doesn't care. They're still getting paid the same amount they always were (actually more, if you're using your card more frequently, regardless of whether or not you pay it off every month).

Interesting post, fully agreeing with you viewpoint, however, I have this to add. There is a subset of people, particularly in the US, that are just plain dumb when it comes to some things. They are followers, and they will blindly follow whoever it is that is preaching to them. Mortgage broker tells them, you can afford this, ok they say, sign me up. Credit card company tells them, you have this much to spend, they say, ok, lets do that... etc.
It's really a compound problem. First, it's lack of personal responsibility, but secondly it's a problem of predatory advertising. Sure, companies are out there to make a profit, and they wholeheartedly should, I'd be the fist to defend capitalism, but seriously, some practises are just outright illegal. I didn't grow up in this country, I came here when I was 18. One of the first things I learned was that if you ever want to buy something that costs more than you can reasonably save for completely (i.e. a house), you need to establish credit. Ok, that makes some sense, so I got a credit card. When I got it, I had not idea how interest rates for it worked, but I also always paid it in full. That's because I grew up in Germany, where there is next to no post-paid credit, they use cards, but primarily as either debit cards, or as credit cards that are linked to your back account and get automatically paid at the end of each month with your account funds. Your limit is whatever you have in your account. There is no credit score, but there is an agency that tracks where you work, what you earn, and what your debt service payments are. Your creditworthiness is determined by what comes in and what goes out. This prevents people with no income or very low income from racking up debt they can't pay. It also protects banks from third parties trying to sell them crappy loan packages.
The other thing that blew me away in the US is that there is no national, or even regional programs that encourage saving for home-ownership. In Germany we have what would literally be translated as "build-savings-contract". The "build" part is misleading, you can use it on existing structures as well. The way it works is, you go to a bank, set up a targeted savings contract that has $x contributions a month for 5 to 10 years and that earns a certain percentage. If you make all the contributions, and will use the final funds to purchase or build a home (you can use them for other things as well, but then won't receive and incentive), the government will subsidise your final balance by up to 50%, up to a certain maximum. Most people will manage to save 30-50% of their home costs that way and the resulting monthly payment afterwards is usually no bigger than the savings contribution they've been making all along.
Now, I don't think exactly this would ever work here, mainly because it's very expensive for the government to do that and taxes are much higher as a result of that. However, the idea behind it is that we'd be rewarding savings instead of subsidising credit. Think of it this way, the $8k home buyer credit could have been structured like this. If you manage to save for a 15% down payment, Uncle Sam will kick in another 5% so you can own a home you can afford with no PMI. Make that a 5 year or 10 year plan, and the initial cost for the taxpayer is low and stretched out over time.

In fact the US government is doing the opposite; instead of subsidizing savings (down payment), they are subsidizing the loan payments (in the form of the mortgage interest deduction.) So they are incentivizing people to have bad behavior.

I do agree that most people will go along. Making decisions is hard work and I honestly try to avoid it when I can. That doesn't mean I am a sheep, but it does mean I would prefer to go along with a reasonable choice if I can, or make a decision once and then follow that decision repeatedly (e.g. what brand of bread to buy at the grocery store.)

Shrug ... the part that you might be mistaken about is "happened" as if something changed. In other words, you might be dreaming of a past that never existed. If you read up on the history (both world and U.S.) of currency and debt and booms & busts, today is not that much different from the past.

Should there be more personal responsibility? Sure but we still are 90% the apes that came down from the trees to overrun this planet. Some can overcome the biological and societal urges, others can't. No sense crying about things you can't control (the behavior of others).

Most people are willfully ignorant. Finance issues require a 6th grade knowledge of mathematics at best, so it isn't intelligence holding people back. In general people are just extremely short-sighted.

Okay, my admin hat is off.

I'm going to tackle this seriously, because I quite honestly don't agree with single guy's premise, reason58's analysis, or that people are in some way "dumb". The latter two are cheap hit comments that have no actual factual basis.

On Credit Cards:

Here is the deal. When the terms of the agreement are not clearly stated, and are hidden in small type in multiple pages, or not fully revealed (see how CC's were given to college students pre-law change), you have an asymmetric information problem. That kind of problem wreaks havoc in a market based system. It doesn't matter if the information is there, it is how its presented. Markets are not going to function well given distortions that may be profitable for firms to undertake individually (but may lead to a long run collapse).

On the Housing Crisis

This is also pretty simply explained. Many folks bought homes they shouldn't have. We know this. We also know that plenty of folks DID buy homes they could afford, but, because everyone else around them bought homes they shouldn't have, when those latter homes foreclosure, the folks who bought within reason find themselves financially harmed.

I could get into ALOT more depth as to why there was such an effort put into the housing issue. Suffice it to say that for the average family, the house is the bulk of savings or a significant chunk. That is a fact. I'm not necessarily happy about that given proper diversification strategies, but homes are a large part of people's investment portfolios. Declining home prices reduce wealth, and ceteris paribus, that has primary and secondary feedback reductions in economies. Housing sector issues are very bad harbingers of economic malaise.

Sadly, most of the foreclosures were not due to the irresponsibly of the homeowner. It was a combination of the innocents above, those who trusted their experts (realtors had taken on an expert like role, falsely imho, but thats what I saw), and many many folks who were not properly explained what the terms were or the impact. When finance folks are selling loans that take up 50% of gross income to pay and are doing this to our military servicemen and women (and they did do this, but I cannot comment on specifics but I'm aware of this through my work as a DOJ economist), I can imagine they're telling other folks worse things. They tried to sell me a home for 10x my income when I was younger.

Reading the article, I don't feel that the author thought through the implications of "everyone" being dumb or irresponsible. As an economist, I find that the problem we experienced in the 08 recession primarily comes from an issue of asymmetric information exploitation, mal-incentives of corporate planning, a lack of education on the products, and misguided economists (Greenspan is one) who believed that you couldn't pop an asset bubble because bubbles don't exist. And that is just a start.

I agree that people should be more personally responsible, but as others have said people tend to be ignorant followers. What's the solution? I think including financial education in the public schools would be of great help, and perhaps stricter guidelines on advertising. Hell, even your blog site contains ads for credit repair companies, many of which are scams.

@azphx

A 2008 study of high school seniors in Virginia found that a large majority failed a basic personal finance test.

I tried to push the Office of Financial Education to be more proactive, but they think having a low budget link-fest website is effort enough. Sigh.

I absolutely disagree that the problem is one of information (or lack thereof).

Look at how much information is out there regarding the dangers of smoking and people still decide to do that by the millions every day. The issue is, as I previously said, one of people thinking only in the short-term.

You don't need to be a finance wizard to understand that if you spend money you do not have with a credit card you are going to be in trouble. That is as simple as a first grader realizing that if he only has two apples you cannot take 5 apples away.

Wait ... there's an "Office of Financial Education????"

Has anyone checked on them lately to see if anyone is actually there, or if someone just left the lights on?

I generally agree with the OP/blog post but not necessarily with all the details.

I had a similar reaction to an article in a national publication just this past week on a totally different topic - nutrition. That author of that article took the position that we cannot blame people who are overweight, out of shape, or live unhealthy lifestyles because the food and tobacco industry, and society in general push them to behave irresponsibly. He makes the statement that "personal responsibility" is code for blaming the victim.

I do not agree with him but more importantly, I think we are seeing a trend in society in general to excuse people for bad behavior just because their vice is readily available. It clearly is a complete abandonment of the concept that people should be held accountable for their own behavior. As soon as we start believing people are not responsible for their own behavior we can accept anything. Stole a car - it's not my fault, all my friends have nice cars. Got fat and now have diabetes and high blood pressure - it's Hostess's fault for making those Twinkies taste good. Killed someone - I was angry. Went bankrupt - that real estate agent and mortgage broker should have stopped me from buying that house.

I agree with Jericho to an extent as well. We need government to take a role of educating the public and forcing disclosure of information - nutrition information, potential harm from household chemicals, fees on credit cards and mutual funds, and so forth. But I think excusing people from personal responsibility for their own behavior in all aspects of life is wrong.

I for one get very tired of hearing people blame everyone but themselves for their problems. I've made mistakes in my life but I never blamed others for them. I simply accepted responsibility, dug myself out, and moved on having learned a valuable lesson. It seems like this describes many of the people on this forum

Your post is dead-on. I'm sick of hearing the whining from people who were "taken advantage of" because they agreed to purchase a $500,000 home on a $60,000/year income. READ YOUR CONTRACTS BEFORE YOU SIGN THEM!!!! Arggghhh!

A few years back people who didn't pay their mortgage were called "deadbeats", now we call them "victims." Pathetic.

As a high school math teacher, I cringe at the fact that we're so "proud" of getting more and more students 'college-bound' and 'college-elligible' and pushing them to take higher and higher math courses. Yet the practical education that's necessary to any persons survival as an adult in society is not a required part of high school. "Business Math", in our district, is something that's taught to the non-college bound students. And even then, there's so much more than they need that the really practical stuff gets flown through. It is SO backwards. It's so sad.

Illegally hop the border into the USA - It's not my fault, I need money, and feel that I don't need to wait in line like everyone else, or go through the proper channels to come to the USA legally. So what if I step on the backs of my brothers and sisters who are doing it the legal way and cut in line in front of them by hopping the fence...I'll just protest and demand MY RIGHTS, and DEMAND that the USA make me legal, even after I committed the crime of coming here illegally.

You're right, people don't take personal responsibility, do they?
Or why is this case different in your eyes?