A Tale Of Three Families: Do Bad Decisions Lead To Financial Trouble?

A comment left on this entry by About.com’s LaToya Irby got me to thinking about people in financial trouble and how they got there, leaving aside for the moment the catastrophic economy that we’re in today.

In the best of all worlds, no one would ever spend more than they can afford and everyone would be debt free. However, we know that the world is far from perfect and people often make financial decisions based on emotion and necessity.

Consider a young couple with a child living on minimum wage. The husband works two jobs and the wife works one, and together they earn enough money to live with a little extra to spare. They decide to use that little extra bit they’re able to pull in to save towards buying their child an Xbox 360 as a Christmas present. December rolls around and they have the money saved up when disaster strikes. The wife breaks her leg and is out of work for six to eight weeks. Their Xbox 360 fund suddenly becomes a lifeline, but Christmas is still coming and they still want to see their child’s face light up when he opens up his gifts to see that he has a new Xbox 360. The family buys the Xbox on a store credit card.

Then there’s the solidly middle class two earner family. Both parents work in good paying jobs and on that income, they’re able to afford a decent house in a nice neighborhood. They run small balances on their credit cards and are paying part of the tuition for one of their children who is in college and braces for their middle child. Everything is fine until the husband gets laid off. Suddenly, the family’s income is cut in half and they dig into their savings to continue to pay the bills that don’t stop coming simply because of a lost job. Time drags on and the husband can’t find work. His industry has gone under, but the bills keep coming. Now this family is relying on their credit cards to make ends meet.

Finally, there’s the family earning six figures. This family is among the affluent and well-to-do. They live in a large house in a gated community and drive expensive cars. Curiously, just like the middle class family and even like the poor family, when one of the breadwinners no longer has a job, what was a rosy financial picture starts looking dingy and grim.  Because this family had been affluent, there is room for cutting back and for making lifestyle changes to adjust for lower income. They sell their expensive cars and buy cheaper ones. They don’t spend as much money as they are used to. However, some of the bills of the affluent lifestyle remain and can’t be gotten rid of. Among these is the house with the now unaffordable mortgage payment. This once affluent family now faces foreclosure.

These stories are purely hypothetical, but hundreds of them play out daily in real life. In the first case, human emotion and the desire to make a child happy result in what to cold hard facts is an irrational financial choice. In the other cases, it is about continuing to pay the bills that continue to come in the mail even when the income to pay them is no longer there.

To suggest that people in financial trouble got there because of poor decision making is too simplistic. It is never that black or white. Emotions and circumstance play a role and one can’t predict what lies beyond the next turn down the road of life.

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7 Responses to “A Tale Of Three Families: Do Bad Decisions Lead To Financial Trouble?”

  1. […] A Tale Of Three Families: Do Bad Decisions Lead To Financial … […]

  2. Wilson says:

    That is really insightful. It gave me several ideas and I’ll be writing them on my blog soon. I’m bookmarking your website and I’ll be back again. Thanks again!

  3. Maryln Hong says:

    Thanks for a great post and interesting comments. I found this post while surfing for some music events. Thanks for sharing this post.

  4. Kathy McGraw says:

    Wilson and Maryln:

    Thank you for reading my blog and for taking the time to comment!

  5. Kathy McGraw says:

    I saw this by a Google Alert. I have read a few others in your Credit series and think you do a good job writing them. I really like this one as it is so true, the bills don’t stop because the income does, and many people that were doing well now have financial problems.

    BTW my name really is Kathy McGraw 🙂

  6. Kathy McGraw says:

    Hi, Kathy:

    Thank you for reading and for your comments. I am glad you enjoy my writing. 🙂

    Wow, another Kathy McGraw out there, lol! Is your husband’s name Brad? If it is, that would just be too weird!

  7. Kathy McGraw says:

    Hi Kathy…no Brad in my life 🙂 We have several Kathy McGraw’s I have found online, a Judge, movie star etc. But you are the only one that I have commented on 🙂

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