Supply and Demand

What exactly did we learn from the “housing crisis”? Well, we really didn’t learn anything new; we were just reminded of principles that have been around for hundreds of years. We were reminded of the importance of the principal of supply and demand. Large supply-low price…low supply-large price. You can say whatever you want to about the mortgage companies giving (because with all the foreclosures and short sales giving is what it turned out to be) the wrong people money, but really all they were doing was increasing the demand. Throw in the fact that many of these borrowers had no skin in the game and you had a recipe for disaster.

So how have we applied this lesson to other facets of our life? What about how these principals apply to secondary education? I recently read an article that expressed (I’m smart enough to know that the article was a writer’s opinion) both presidential candidate’s views on how to approach paying for a college education. Both sides were in favor of extending low interest loans to qualified borrowers, but where the split occurred was on the interpretation of acceptable risk. One side said risk whatever you had to to get the education you are “entitled to” and the other side said “get as much education as you can afford”.  Naturally the opposing side took the word afford to mean that only the rich will get a college education, but unfortunately interpretation rules the airwaves!

But I think of it this way, and before I go any further let me say that I thank God every day that “BS in Cowboy Science” wasn’t a degree choice when I was in college because I would probably still be paying back the student loans for it. These are monumental decisions for a teenager with room for great margins of error.

Buying what you can afford simply means seeking advice from those with no financial interest in your life. If you ask your father if borrowing $100K for a degree is a good idea I feel sure his answer will differ from the one given by the person with the pen hovering over the documents. I’m not saying either is automatically right, I’m just saying that the insight offered by someone who has made financial decisions greater than which song to download may be the advice that prevents you from making a decision that will alter the course of your life for many years. I admit I was mad when, at eighteen years old, my father drove me to the bank to borrow the $1000 I wanted for rims and a paint job for my perfectly good car. But making those payments EVERY month to the bank instead of “when I could” to my father taught me a valuable lesson about decision making and value.

I will be the first to declare that we need educated citizens. If we intend to continue being a world leader we must keep up with other countries. But even the “unsuccessful” will need tires for their cars and cabinets installed in their homes. Everyone’s hair will need cutting and our meat must be sliced into marketable shapes and wrapped in desirable packaging before anyone will purchase it. Fires will always need to be extinguished and living without air conditioning…let’s just say I choose not to at any cost. The ones who provide these and many other honorable services can expect to live a life that holds as much joy as the doctor that delivers their first grandchild. If you choose to place a price tag on happiness, some of these “regular people” will make even more money than the professionals they rely on for legal, medical and financial advice. It takes all kinds.

As the availability of money (and bad decision making) ruined the lives of many citizens who were “entitled to the American dream of home ownership”, so can the ease and availability of money for those entitled to an education. The demand is great and the prices are high. The fact that the loan money is available does not, in itself, make the borrowing of it a good decision. The career path you finance may not be profitable by the time you graduate or, worse yet, you may absolutely hate it; this is the risk you must assume as you make the decision about what you can “afford”.