Don't Shop Till You Drop - The Banks Are Slippery Customers
The Age
Saturday June 4, 2005
THE brother-in-law reports his wife looking at their internet banking site the other day and saying "look at all that money we've got". What she was in fact looking at was their mortgage account. In the right-hand column was a credit number equal to the value of all their mortgage repayments less interest. It basically told them how much they had paid off.
The banks, being what they are these days, highlighted this number in green instead of red. It was advertising itself. "Come and borrow me again. You are only a few keystrokes away from that holiday in Mexico, that Prado deluxe, the shopping trip to New York." My sister-in-law is sensible; about as sensible as any Spice Girl-shopaholic-fashion-hero in her gorgeous 20s. Of course she saw a credit. But as anyone who has spent painful years saddled with debt, forgoing luxuries, sacrificing for the kids and paying off the mortgage will tell you, she was looking at the wrong column.The real concern for the young and newly mortgaged is not that bit of trickery, the credit column, but the other column. The one with the big debit number in it. This is how much money they don't have, that they owe somebody, that they are paying interest on every day. This is the money that the poor brother-in-law will have to repay on his own, if she fulfils her family tradition of one day giving up work and having kids. By the way, the brother-in-law tried to have the temptation removed from his online banking set-up. It turned out they could borrow $50,000 online without a signature, but they couldn't have the temptation to do so removed without one. In the old days all we got was a mortgage statement with a big fat debt number on it. We were never sent a letter telling us we could borrow it all back again. It was a lot easier to live on the breadline. You knew you didn't have any money. You knew you had debt. The ability to borrow back what you thought you'd paid off with no more effort than hitting a keyboard is a big cultural development. Someone needs to tell them, it's not smart to be standing on a $50,000 boat in your driveway that you don't own. It's not equity you know, it's "debt, mate". Of course no one's complaining. The banks are making a fortune out of the interest rate spread, and the parents are making a fortune from selling their investment properties to the credit careless. Oh, and they're making a fortune out of the bank sector share prices as well. Some kids will never make it out of the hole. Some will be buried. The current generation of young homebuyers will be in hock for a lot longer than their parents. The difference is, their parents cared about paying off their mortgages, and of course, were lucky enough to make a fortune on their property at the same time. It's a case of "rich dad, poor kids". Marcus Padley is a stockbroker and author of the daily sharemarket newsletter marcustoday.com.au
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