Yen to Spend

I’ve mentioned it before, but part of why we are in this current economic fiasco is due to greed. An integral part of that greed is our appetite for things material, be it a fancy swimming pool with waterfall that puts "Fantasy Island" to shame, a sporty convertible with neck vents, or something with less tangible benefits such as a luxurious cruise to the Riviera. If one had property with any considerable equity just five years ago, it was very easy to tap into that with a simple call to the local mortgage broker. Many were living fat and happy, especially those in the bubble markets such as the Inland Empire or San Jose, and many have fallen hard as prices adjust back to reasonable and realistic levels.

Why did some of us make the mistakes that contributed to the economic factors of today? Better yet, what makes us want to spend? I’ve come across extensive lists breaking down why we break out the wallet, but I have concluded it comes down to three basic factors:

1. Validation- It is simply defined as the act of recognizing, establishing, or illustrating the worthiness or legitimacy of. Whether the material item is to fulfill happiness or fill some other emotional void this is a huge reason why we spend. Power and self-worth can also be factored into this. Another overlooked aspect of validation is not necessarily selfish in nature: ever have a family member ask for money and you couldn’t say no? For whatever reason you lent them the cash and most likely never gotten anything back, that is validation too.

2. Vanity- It doesn’t take a Brad Pitt flick with an alpha-numeric title to tell you why this deadly sin is on the list. We all want to feel young, attractive, and desired. The problem is that sometimes this obsession can have huge consequences on our bottom line. I’m sure you can think of some examples, but if not take a look at this loan shark.

3. Inexperience- Like a boy virgin struggling to undo a bra clasp, this is also something to consider. Many first-time home buyers got into loans they simply did not understand and is probably a reason why the house down the street is bank-owned. We have all seen the no money, no interest finance deals at the local electronics or furniture outlet, what many don’t realize is that after the payment-free period is over, the interest rolls back to the purchase date (that is why that $2000 big screen shows a balance of around $2400 or greater once that first payment is due). Some people also rely on bonuses or increases in income, but if you’ve watched Christmas Vacation we all know that companies can cut back which is so true today! With regards to investing, I read this book over a decade ago and it is still highly rated on Amazon. As for the legalese or small print on contracts, only about 25% of Americans can decipher such language and if you have that innate ability congratulations, if not, have a family member or trusted friend review any contract before signing or agreeing on anything with a significant financial stake. Don’t be non compos mentis!