Graduation season is upon us. Many of us have children, grandchildren, or acquaintances sailing out of school … and hitting pretty rough seas in the job market.
I had planned to speak to my sons about investing once they graduate. But while investing is undeniably important, I think a better discussion would be around debt management.
Trying to understand the global financial crisis? Confused by derivatives and default swaps and the commercial paper market?
Here are three ideas to explain it all: cheap money, surging debt, and bad credit.
Recipe for financial chaos: Take one large economy. Add cheap money—the lowest yields in 40 years. Encourage households to rack up big debts without any attention to long-term ability to repay. End result: a surge in credit card and mortgage debt, driving a consumption and housing boom in the economy. A big-screen TV, a new car, a bigger house, maybe even a vacation home—all available for “no money down” and with “low monthly payments.”
