Wednesday, April 30, 2008

Save Your Teeth

There’s a cable TV show in which cosmetic dentistry is the major method the host uses to turn discouraged, old-before-their-time people into hotties. The show promises to make them look at least ten years younger. True, these people get a small wardrobe makeover, a bunch of new makeup techniques, maybe a skin peel or Botox, and a really good haircut. It makes for fun television to watch these parts of the show. But the big boost in their confidence actually comes because a skilled dentist fixes their teeth. And they end up looking younger because they are smiling and happy. Like Adrian Grenier, pictured above.

Without a toothy smile, most Americans are ashamed of their appearance. This country has the best teeth in the world, so if you don’t have good teeth, you are visibly labeling yourself as poor and possibly self-abusing. Or foreign. I knew a girl who was very pretty until she smiled and revealed her terrible buck teeth. Even as an adult with plenty of discretionary income, she did not get the braces she needed. Although she had lived in the US all her life, her family was from the UK, and she still maintained an English culture aversion to the US standard of straight, attractive teeth. This aspect of her appearance simply was not important to her. She stigmatized herself by refusing to adhere to the standards of the middle-class society in which she lived. Last I heard of her she had moved to the backwoods. So I guess she fits in now, because having bad teeth is downwardly mobile in this country.

Most people understand this. I’ve known a couple writers who spent their entire advance and more from their first books on having their teeth straightened. They wore braces for years as adults in their thirties. They knew that if they achieved any kind of writing success, they’d need to make public appearances at bookstores and even on television. And they wanted to look at least as good as any other middle-class American. Smart move.

You may wonder why I am talking about teeth. This blog is about personal finance, isn’t it? Yes. But teeth are often neglected when people are too short of cash to cover more than the necessities of life. You can skip going to doctors and it probably won’t hurt you unless you happen to be sick. But if you skip going to dentists, it shows. And worse, it shows the first time you open your mouth. Dental hygiene simply is not a good idea to put at the bottom of your list if you are short of cash.

There are alternatives that many people do not know about. There are schools of dentistry that perform supervised, very low cost work. That’s how we found our family dentist, when he was still in school and hit it off with a relative who had very low income and made the smart choice of finding inexpensive dental care. There also are dentists in some free clinics. There are free dental screenings in major urban areas. State medicaid programs include free dental care, depending on your state. And so on. And if dental care is not available free or cheaply near you, you can find dentists who are willing to deal with patients who don’t have insurance or a lot of cash. Dentists who will allow patients to pay over a long period of time. These dentists are not rare. Another relative needed significant dental work—a case of putting dental work last because of having no cash—and found a dentist who happily did the work and accepted monthly payments for up to a year with no interest. After a year, the dentist charged interest on whatever balance was left. This is very decent and not at all unusual these days. Anyone who has gotten braces for their child knows that no sane dentist expects you to fork over $4,000 or more in one day. They have you sign a contract, and you make regular payments during the period when your child is making regular visits, and soon it’s all paid for. Not financially painful at all. The pay-over-time style of dentistry is available for complex dental work, not just routine care. But don’t let it get to that. Having just one tooth worked on that has been seriously neglected could easily cost you $600 or more.

No matter how poor you think you are, you can find care for your teeth. I urge you to do so, because your teeth go to your job interviews, your loan interviews, your everyday encounters with people of all sorts. And here in the US, a nice toothy smile is a standard. Fortunately, baseline dental care is as simple as using a toothbrush regularly. Toothpaste helps, of course. If you use them consistently, you will stave off most severe dental issues. But not all. So visit a dentist regularly. Save your teeth.

An update: Not only are free dental clinics to be found, but they actively try to find customers. We just received a notice for one that was in a Valpak envelope full of coupons, the type that all households get mailed. So even if you're not the type to find the flyer at the public library (which I saw just after the initial discussion that sparked this topic), the flyer will find you. No excuses, folks.

Sunday, April 13, 2008

Mortgages, Part 2: Gimme Shelter

I was thinking about how easy it is for me to hand out financial advice—or at least it seems that way. In reality, I’m prone to the same kinds of mistakes that we all make. And the same stupid impulses, too. Which is why I have a seemingly inexhaustible list of financial wrong turns to talk about. I’ve made most of them myself.

Take mortgages, for instance. Remember the conventional wisdom that you should buy as much house as you can afford? The theory is that it’ll be a stretch for the first couple of years, but then your income will improve, and the mortgage payment will begin to seem like peanuts. The popular but unconventional version of this until the subprime crash was to buy a house in a rising market with the intention of refinancing the mortgage as its market value increased and created free equity. All well and good, in both scenarios, as long as employment is steady and you’re getting raises. And as long as the housing market is going up. Sadly, incomes for the American middle class are not increasing; in fact, they have slightly decreased in recent years, yet the cost of living has gone up. And we all know that the housing bubble finally burst, and real estate is losing value and hasn’t bottomed out yet.

So much for both conventional wisdom and unconventional plotting and scheming. The action taken was the same: we bought houses we could not afford and we knew it at the time. Well, we sort of did. Until I bought a house, I knew nothing about the real cost of owning one. Only now, many years later, does it occur to me that I could have researched the topic. Libraries and bookstores have plenty of books that explain all aspects of home ownership. And today the Internet offers easy access to a wide range of real estate advice. But I went into it blindly, as so many people do, taking a risk and hoping it would turn out all right. It almost didn’t.

Home ownership isn’t just the mortgage payment, after all. There are many other costs on top of it, such as real estate taxes, fire and ambulance fees, hazard and flood insurance, homeowners’ association fees, and more. And there are lawnmowers to buy, and cars needed for transportation, and furniture and appliances to purchase, maintain, or replace. I never thought of those things before buying more house than I could afford. Sadly, it was much later that I heard Suze Orman talk about the necessity of doing a trial run and living as if you already have a mortgage before you actually take the plunge. It’s a great idea. You put away the monthly mortgage payment that you believe you can afford each month for three to six months, plus an additional 30% for other ordinary house-related expenses, and never touch it to live. Then you take stock and see if you are hurting financially on a day-to-day basis. Can you pay your bills? Is there leftover money for fun? Can you still cover life’s inevitable unexpected expenses? Or is paying the proposed mortgage and its attendant other costs a miserable stretch? Suze has come up with a great way to test. Too bad I never heard of it when I was looking to buy my first house.

You live and you learn. Or do you? I can’t say that my current house makes any more sense than my previous one. Why? Oh, this time the math was done in advance. On a month-to-month basis, there’s enough cash coming in to support the household. But there’s something else to take into account that nobody ever talks about. Taking out a 30-year fixed mortgage is a huge risk when continued employment for 30 years is no longer the typical American paradigm.

Yeah, I know. It’s really a huge joke. All the people who got ARMs (adjustable rate mortgages) are being told they were acting in a risky manner. But if fact, unless you have the money in an FDIC insured bank to pay off your mortgage entirely, then taking out a mortgage of any duration or on any terms is a huge risk. Yes, the subprime mortgage market dupes and scammers are the first ones to be hurting. But even at this moment, someone is being laid off from a good job that paid the mortgage, and will never be able to find a job that paid as well. And eventually, in a year or two or three, that person is going to lose that house. Without ever doing anything more risky than getting a job and then getting a house with a conventional fixed-rate mortgage.

So, what can we do to guard against the catastrophe of facing foreclosure? Not a lot. Always have a new career in the offing? That takes a lot of energy. Keep enough savings in FDIC insured bank accounts to pay the mortgage for a couple of years while you find a new good job or launch a new career? Maybe that will work, since the value of such money in relation to the mortgage payment does not change, unlike the value of stocks. But that means buying a house well under what you could afford in the first place, so you have extra income to put aside in savings each month. Are most of us doing this? No. The US savings rate is hovering around 1% these days, and was even in negative numbers in 2006.

So expect to sell the house if you lose your job. Expect to sell it if anything significant changes in your personal or financial situation. Don't get so attached to a house that you let it drag you into a crisis. A house may be the American dream, but it's just shelter. It should shield you from harsh weather, not keep you sleepless at night wondering how you will pay the mortgage.

Tuesday, April 8, 2008

Unconventional Wisdom About Home Mortgage Contracts

We think we know a lot more about mortgages today than we used to. The subprime mortgage collapse has been covered in the media exhaustively, and we’re all watching the ripples fan out across the global economy. But we don’t know the full extent of the damage yet. We wonder if our government will bail out individual homeowners and stop cascading foreclosures. Or will the situation get worse and lead to record numbers of bankruptcies and new additions to the ranks of the homeless? Unfortunately, we don’t know.

Meanwhile, here are some things I do know and you should know, too: You don’t sign a contract that you don’t understand. You don’t sign a contract that isn’t the deal you agreed to. And you absolutely do not sign a contract based on lies about your financial situation.

You don’t sign a contract that you don’t understand. I’m sorry, truly, for the elderly people who have been defrauded by confidence men whose intention all along was to steal their homes. But please. By the time you are 70 years old, you have a pretty good idea of what your smarts are. Your house is usually your main asset. Take care of it by exercising some reasonable shrewdness. Take care of yourself by putting your affairs into the hands of genuinely trustworthy relatives or a conservator if you sense that your grasp of your finances isn’t what it used to be. As you get old, you know things are going to become more difficult for you. So prepare. Then the confidence men can’t get at you.

That goes for all you people who don’t speak English, too. This country was built on immigrants and my father was one and I have nothing against people leaving a lousy situation in their original country and coming here to better themselves. But would you please learn the language? For your own sake? You should never sign a contract that you do not understand. Never. Get a neutral party—not the friend of the guy who’s selling you the mortgage deal—to translate for you at least. Don’t just sign documents blindly.

And by the way, this includes native-born Americans who can’t be bothered to learn their own language. Being ignorant is not a permanent condition or a constitutional right. You can educate yourself to understand every word in a contract, and you should. You can also bring trusted friends with you to advocate for you when there is a document to sign. It’s not you against the world. It’s you against you if you choose to remain ignorant.

You don’t sign a contract that isn’t the deal you agreed to. We’ve all heard about surprises at the table when you’re closing on a house, and we’ve all had moments when we’ve had to accede to a deal that isn’t what we expected, negotiate for something different, or walk away. Guess what? The most desperate person always gets the worst of the bargain. Don’t be the most desperate person. If the contract doesn’t spell out the exact deal you thought you were getting, don’t sign it. Fight for your original deal or a better one, or walk away. So you don’t get the house. So what? At least you won’t have sold yourself into financial slavery on credit terms you have no hope of meeting.

You absolutely do not sign a contract based on lies about your financial situation. Yes, I know you are desperate to get this house or this money. Yes, I know you come from a crooked country where everything is done by bribes and corruption. Yes, I know your life experience has made you believe that much about our financial system is dishonest. And yes, I know you really intend to make good on this loan you haven’t the income or assets to pay off. But you are being dishonest if you sign a contract based on lies about your finances. You are committing fraud. Forget about the other guys at the table and think about you. When you knowingly engage in a financial transaction based on lies, you are the con man. You are the criminal. We’re hearing a lot of sob stories right now from people who knew better but turned a blind eye to honor. Don’t be one of those people. And if you were once, don’t be again.

You may wonder if this advice is closing the barn door after the horse has escaped, or whatever the metaphor is. But the truth is that we usually get many opportunities to be foolish, to be ignorant, and to be crooked in our lives. Sometimes, as in this recent crazy real estate bubble, we get what amount to engraved invitations. But we always have choices. We can refuse to act foolishly, we can refuse to get rooked, and we can refuse to be cheaters ourselves.