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Friday, July 29, 2011

Money Seeds and Anti-Banking Fertilizer

Bella's first day of Kindergarten.
A full day of sleep yesterday afforded me the ability to stay wide awake for my entire night shift and into the mid-morning hours.  Usually I get home a little after 7am and drag myself out of my Jeep and limp towards the front door of my house.  Working the night shift gets old after a while...or maybe I'm getting old.  But today I felt fully charged when I drove up the driveway.

Instead of longing for the comforts of my bed, I was energetic enough to take my kids to school.  Only two have started: my 5th grader and kindergartner.  It's always heartwarming to take a child to their first day of school.  The thoughts of the new friends they'll make as they embark on their new lifelong journey of learning.  Wifey and I are blessed in that we have found an elementary school that does a terrific job.  As much as we like the idea of homeschooling, we have seen tremendous work done with our children at this school.  It's junior high and high school that we haven't found what we're looking for but that was already blogged about here.

Anyway, as I was driving my girls to school this morning my 10 year old asked "Dad, why didn't we buy the Erecksons' house?"  We had received a call from some good friends in our church who informed us they would be moving in about six months.  We had always admired their house and the work they had done with it.  It was a beautiful two story house probably close to 3500 square feet.  Mr Ereckson discovered he had quite the knack for woodworking and over the years added beautiful wooden accents throughout the house.  Large hand carved wooden beams bordered the entrance to the main living area.  A cozy wooden kitchen nook brandished a hand made wooden bench seat stained a dark cherry with what had to be so many layers of gloss that it looked wet every time I saw it.  He took months laying flagstone around the pool in just the right patterns.  Yes sir, this house had character and comfort.  A man could be proud of that home.

I began to explain to my pre-teen that unless you have lots of money in your pocket, which most people don't have, you have to borrow money from a bank to buy expensive things like houses and cars.  Right now, in our recession, banks just aren't lending much money to average people.  I shared with her that our house cost about $140,000 when we bought it ten years ago.  Since we didn't have $140,000 in cash, we had to borrow it from a bank and in turn, pay the money back over time.  Then I briefly explained interest and how the bank makes a profit from loaning money, careful not to get too deep into the boring stuff.

She's starting to understand that we need money to pay bills and that is why Dad goes to work.  This is where I started planting seeds.  I told her that if I had it to do all over again, I would have done things differently.  I impressed upon her that she should do business with banks as little as possible.  "They are a business", I told her. "Their sole purpose is to make money...off of you and you're hard work."  I explained how the Jeep we were riding in cost me around $24,000 when we bought in five years ago. Since I didn't have that much in savings, I had to borrow it from the bank. Now I have to pay $430 every month just to drive it.  Her eyes got big and she asked "How long do you have to pay them Daddy?"  I could see that she was understanding the debt obligation and it's longevity.

Out with the old (beige Yukon), in with the new (white, Suburban)
Goodbye $24,000 debt, hello 100% Ownership for $7.600.
I told her that if I could do it all over again, I would buy an older Jeep for much less money reducing the amount I would owe the bank considerably.  I reminded her of the 2001 GMC Yukon that we had last year.  "The one Mommy totalled?", she asked.  "Yup, good thing too", I replied.  In a strange twist of fate, Wifey was t-boned in an intersection when the driver of a PT Cruiser decided he wasn't going to turn after all.  He may have been in a turn only lane...with his blinker on...but he decided to change lanes and drive straight after Wifey had pulled out into the intersection. She got her first ever ticket and it was for failure to yield. 

Our Yukon was worth about $8000 at the time.  Since we didn't have much cash in savings, we financed that vehicle for $23,000 for our local blood sucker, I mean, banker.  The world of buying cars still amazes me to this day.  A car can be worth $8,000 "wholesale" but have a lending value or "retail value" of $23,000.  Of course, our bank had no problems whatsoever loaning us $23,000 on the vehicle worth only $8,000.  Here's the strange twist of fate.  I was smart enough to add GAP insurance to the vehicle when I bought it.  GAP insurance means that if the vehicle is totalled or wrecked beyond repair, if there is any loan amount NOT covered by the auto insurance company, the GAP insurance company covered the balance so you wouldn't be left owing money on a car you no longer possessed.  So, the $23,000 Yukon was paid off almost completely.  The insurance I had at the time (Geico) paid $12,000 to the bank as that was the estimated value of the vehicle.  Another $10,000 was paid by the GAP insurance leaving me with about $1000 which I settled with the bank for $500. (I pitched a HUGE fit about them lending so much money that auto insurance AND gap insurance wouldn't even cover the balance. Greedy turds.)

So I tied this all together for my daughter by explaining that after we got rid of the big bank loan for the Yukon which cost us about $450 a month, we had enough cash to go and buy our 2001 Suburban (almost the EXACT same vehicle but with less miles) for $7,600.  Now we OWNED the vehicle because we were able to pay cash instead of borrowing money from the bank.  We'd never have to make another payment on our Suburban, we owned it 100%.  She smiled and it made me smile.

"Avoid the banks as best you can", I told her.  Not many people will be able to buy a house without a bank loan though.  The trick there is to buy what you can afford.  You don't want to be "house poor" which was a term I hadn't heard until the last decade.  I told her my folks and Momma's folks didn't warn us about the banks.  We grew up thinking that when you needed a car or a house, it was normal to go borrow money.  Then that led to getting credit cards when we needed more money.  "Stay away from all that sweetie", I said.  Only pay cash for the things you need.  Make what you can for yourself.  Like the way you've learned to knit scarves and stocking hats. 

She stared off into the distance digesting what I said as we bumped along in the unforgiving suspension that Jeeps are built with.  I had planted a field of money seeds and anti-banking fertilizer in the garden of my daughter's mind.  When she grows into her twenties and thirties and experiences the natural yearning for nice homes and automobiles, I hope she remembers this talk and avoids the debt trap that ensnared my entire generation.  Of course, I'll continue planting with every chance that the good Lord gives me.

As my cousin Stephen would say: "Can I get an Amen?!"

~OJD

4 comments:

Bellen said...

Wonderful. I wish hubby and I had started 'bank talks' with our kids at the same time we were instilling frugal habits. They would be better off. They like new and shiny stuff - cars, boats, big houses - and the banks will help them.

About 2 years ago we bought a bank owned home for $90000 cash. Owned our truck, had furniture, stuff, etc. but no real emergency money - used it for the house with proceeds from sale of other real estate.
Medical emergencies, credit card debt from the medical emergencies literally forced us to get a mortgage. Bad, bad situation. The payment is low but if hubby dies I'll be just making it - we live on our SS and the mortgage takes up half of what I would have.
So - my warning to all those of you out there - get your finances in shape, stay away from banks, do what ever you need to do to get debt free and take care of your health.

The Orange Jeep Dad said...

@Bellen Thank you for sharing. That is exactly the point I was trying to make.

Anonymous said...

Amen! This is one of the smartest articles I have read in a long time. I, like you have learned a little late in life, (but I'm not dead yet!!!) I also have really tried to impress upon my daughters ages 22 & 28 all these things so they will not be in the same boat. You are an interesting writer. I'm glad I'm not the only one learning my lessons on money and turning it all around even if I have to do without. Better late than never.

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