© Norine Peardon
Introduction To The Theory
In a recent article, Gary North disclosed his theory that young people purchase homes because they are looking for forced saving. I totally disagree with North. One of the primary necessities in life is providing housing for ourselves. We can do this in one of three ways financially. We can rent (no equity), we can buy or we can leech (also, no equity). Forced saving is not necessarily a part of these decisions, but providing housing is. The only reason, I can comprehend for forced savings, is if you had wealth and wanted to build on that wealth. Most young people are not this fortunate and must start somewhere. Once you have reached the age of 18 or thereabouts, your whole life will change. Welcome to the world of rent or own!
Provide Housing
Why do we have this need to provide housing? Some of the most basic reasons are to provide cover from the elements and privacy. Let me add there are other ways, tents and vehicles or a dorm room paid for by Mom and Dad could somewhat provide the basic need, but I might add, most of these are temporary situations.
Rent Example
Let’s say you rent for 10 years (age 18 to 28) and assume your rent is $600.00 per month. These numbers would work out to $72,000 in rent payments in 10 years. Assuming a 4% mortgage rate and $600 monthly payment, financing $72,000, you would have $53,000 equity after 10 years. The loan would be paid off ($72,000 equity) in 13 years, 10 months.
How Not Seeing The Bigger Picture Can Help
Formerly a young person, I know it is difficult for young people to see the far future (the bigger picture). Here is an experience which demonstrates a move I made without looking at the far future. In my late teens, I had managed to land a job in accounting (my niche). My responsible side said that I now needed some life insurance. Agents were more than willing to sell me life insurance. The first policy was a term policy but in the end cost me way too much for the salary I was making. I think I cried on my boss’s shoulder about the situation. He then introduced me to another insurance agent and eventually I purchased a whole life policy because it did not drain my finances. Today, I still have the whole life policy and the beauty of it, is that it has a death benefit. Certainly, at the time I contracted the policy, a death benefit was the farthest issue from my mind.
Still Renting
Being a female without college training and some gender discrimination in my field were some obstacles in my way. As life continued, more obstacles were laid on me, a failed marriage and a child. I never felt like anyone owed me anything and did not look for sympathy. I did listen to peers and the wise owls that could help, not always accepting the advice I was given, but carefully weighing advantages, consequences and circumstances. I have owned several businesses and, I have to admit, none were very successful. As I realized I was the sole supporter of a child, suddenly, higher education became important to me. Took college courses at night and on Saturdays until circumstances no longer permitted me to do it. Progress?…. just short of an associates degree. I still rented.
Fix Your Credit Rating
After my divorce, I knew I had an income tax refund in the works, so I went to a bank and contracted a 90-day note (loan) for the amount of the refund. Why did I do this? Because, I could establish a good credit rating in my name only. I just left the loan proceeds sit in a savings account until my refund was received and then paid off the loan in a timely manner. The convincing argument for me was I didn’t need that money because I had salary to cover my usual expenses. This worked better than I ever thought it would.
So, young people, I have just given you a way to establish a good credit rating or begin repairing a poor credit rating which will become very important if you are considering buying a house, getting rid of rent payments and building equity. Actually, this option could be better for you than a credit card. Credit cards and some debit cards can be extremely dangerous because of the temptation to overspend.
Making Mistakes Is Normal
I have certainly made as many mistakes as my young readers. Life is a learning institution. Some of us learn faster than others, but if we want to survive and be reasonable successful, we need to take stock in the lessons we are presented.
For over 40 years, I rented. What a shame! The house, I now own, could be paid for and then some. My life would be so much easier had I chose to struggle more as a young person. My thought was always that I lacked the money for a down payment. Of course, we can’t predict the many crisis we will encounter throughout life. My first opportunity to purchase my own home came at 59 years.The point here is that I did it!
Build Your Assets
Therefore, I suggest to all young people, you should buy when you are young to provide more choices for yourself as you age. Take advantage of employer benefits and any programs that can help you build assets, including home ownership. Forced savings should not be a part of your decisions.
Resource: Gary North
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