So much has been written about the LA fires. From potential sources to the government response, virtually every facet of the catastrophe has been under a microscope. As you probably know by now I’m a regular WSJ reader. Their examination of homeowners who were victims of the fire was fascinating (shout out to my friend Eryn at Her Personal Finance for first sharing this article).
A few notable quotes:
Sweeney, a 69-year old retired clergywoman, estimates that her home made up roughly 80% of the family’s overall wealth. “It was our beautiful dream home,” she said. “It was our primary wealth.”
And:
Josie… wants to rebuild but she’s starting to tally up the costs. She said she was initially told insurance would cover $800,000 to rebuild, and $12,000 a month in rent, with access to the rental payments for two or three years. She said she can afford her $2,285 monthly mortgage payment.
Are alarm bells ringing in your head? Mine sure are!
80% of your net worth tied to your home, let alone one asset, is eye wateringly imbalanced. While it is true that home ownership is a significant tool for wealth creation here in the United States, there’s a catch. You should never think you are wealthy just because your home value has increased. In the case of Sweeney, she purchased her home for $780,000 in 2009. At the beginning of the year it’s value was estimated to be $1.6 million. As this article makes painfully clear, the unrealized gains are just that. The value of this home today is 0. Mortgages are a valuable tool when you (1) realize gains (aka sell) and / or (2) borrow against the asset (like a HELOC). Which brings me to my second point.
The individual with a $2,285 monthly mortgage had purchased the property in 1988 for $455,000. Assuming this person opted for a conventional 30- year mortgage, this property would have been paid off in 2018. Almost 7 years ago. I would like to understand how they are still paying more than $2,000 on this property?
In sum, this was a sobering reminder of the fact that most folks are just not great at saving. Never assume that just because someone has a nicer house, car, [insert other coveted object here], that they have it all figured out.
Money Memories
New Money Memories episode is out! It features the incredible Ximena Aleman, founder of Prometeo. Here’s one of my favorite quotes:
“I always think that education is our own infrastructure, as human beings.”
We could all stand to use this reminder every now and then.
Here’s a few other things I’m keeping an eye on:
Frequent flyer programs are losing their appeal among Millennial and Gen Z travelers. As someone who uses her travel card for lounge access while flying Spirit airlines, this makes me feel seen.
I first wrote about the mobile money boom in Africa almost 5 years ago. Check out my revised exploration here.
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