Why Bigger and Better Isn't Best
by Mitch Anthony
A friend who has been in the mortgage business for many years made an interesting point about purchasing homes. "Why do we call it a 'starter' home?" he asked. "Why can't we just buy a 'home?'" Apparently, the term originated after the end of the second world war when home ownership became increasingly popular. As my broker friend intimated, the term assumes a home owner would, at some point, trade up. He wondered why people always have to think about moving on and up, instead of being satisfied with what they have.
It's a fair observation—and one with lots of different explanations, but I suspect the most common is affordability. People buy the most they can afford, until they can afford more. My daughter once told me that her dream house was a simple little bungalow we had driven past in a "starter neighborhood." She commented that it was "so simple and small, but elegant in a way." I wondered to myself if that sentiment was the wave of the future—millennials seem to be more focused on housing for practical reasons instead of a trophy. They've seen their parents saddled—or ruined—by mortgage debt and are smart enough not to want to repeat those mistakes. "Bigger," "better" and "more" have been unquestioned cultural drivers for millions of people.
Ten years ago, I was amazed and aghast whenever I would see a newbie in the financial services world putting on pretenses of wealth—thinking it would somehow attract wealth to them. They drove luxury cars, with payments sometimes equal to a two-week check, joined country clubs where they couldn't pay their tab, bought McMansions with empty rooms and orange crates for furniture. These people looked impressive as long as they were being viewed from a distance. They were following a central rule for money-centered living: "To attract wealth, give the appearance of wealth." Really? Somehow, along the way, those folks forgot something important—they actually have to pay for all those things.
Even years after the "Great Recession" has officially ended, close to a million homes are in some stage of foreclosure, according to RealtyTrac. While clearly most foreclosures are in the $300,000 or less price range, there are still hundreds of thousands that are above that price range—including over a million dollars. Biting off more mortgage than one could handle is not sole purview of middle class neighborhoods. These foreclosures include mini-mansions in upscale suburban communities, as well as houses on the water, behind exclusive gated communities, and in tiny elite towns where one wouldn't expect to see such financial embarrassments. The disease that created this crisis was thinking we needed better, bigger, and more—and entire industries exist for that purpose.
Unfortunately, the "better, bigger, more" bug doesn't run its course and leave the system once people get all the money they need. Experience proves the phrase "all the money you need" oxymoronic when put to the test. For these folks, there is no end of wanting more. Simply wanting will always leave one wanting.
With global markets and currencies continuing to be in vulnerable states of trepidation, it is probably as good a time as any to help your clients examine how much they really need. How much house, how much car, and how much of everything they need is part of that conversation. The markets will adjust to the realities. The real estate market isn't going to fall apart if they decide that they don't need a bigger, more expensive home.
I suspect your clients would rather have less, and be happy—than more with a lot of debt. In fact, based on the response I've received to my series, The Financial Lit-Kit, I know they would. Have you ever met people who spent their lives in one house and were content to be there? They understood that having less gave them more—they were grateful to have a place of their own, and the freedom to enjoy life without being bogged down by excessive debt.
We may see more of that phenomenon if the "less is more" approach continues to take root in our culture. After all, "having more" is really about having more peace of mind and more time for people and activities we love…and having less to worry about.
April is Financial Literary Month—a great time to revisit this message with your clients (and perhaps even yourself)!
© 2016 Mitch Anthony
Mitch Anthony is the founder and president of Advisor Insights Inc. and the Financial Life Planning Institute, the leading provider of financial life planning tools and programs for the financial services industry.
For almost two decades, Mitch and his team have provided training and development for both individual advisors and major organizations throughout the world. Mitch personally consults with many of the largest and most-recognizable names in the financial services industry on both financial life planning and relationship development.
Mitch is a consistently top-rated presenter who has spoken to groups ranging from 10 to more than 10,000. He has been named one of the financial services industry's top "Movers & Shakers" for his pioneering work. Through the Institute, he has partnered with Texas Tech University, the University of Georgia, and Utah Valley University to develop financial life planning programs for their undergraduate programs.
Mitch is a sought-after expert for the media, and a regular columnist for Financial Advisor magazine. His columns have appeared on CBS MarketWatch and in the Journal of Financial Planning. His original comic strip "Stanley Brambles, CFG (Certified Financial Guru)" appears monthly in the print edition of Research magazine. Mitch is also host of the daily radio feature, The Daily Dose, heard on over 100 radio stations nationwide.
Mitch is also the author of many groundbreaking books for advisors and consumers, including perennial bestseller StorySelling for Financial Advisors, cited by "Financial Advisor" magazine as the number one "must-read" book for financial professionals. Mitch's other books include The New Retirementality (now in its 4th edition), From the Boiler Room to the Living Room, Your Clients for Life, Your Client's Story, and The Financial Lit-Kit: The Cash in the Hat, The Bean is Not Green, and Where Did the Money Go?. For information on these books and more resources, click here. Contact Mitch at firstname.lastname@example.org.
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THE E.P.I.C. RETIREMENT
In The E.P.I.C. Retirement, Mitch moves the "retirement" conversation to the next level by challenging advisors to step up, broaden their capacity, and embrace a new role—retirement coach. Retirement coaching is the future of retirement planning—this new approach represents the value proposition that will separate successful advisors from the rest.
The E.P.I.C. retirement is one that is engaging, purposeful, integrated, and challenging. More than 15 years ago, Mitch broke through the ceiling of retirement planning with his groundbreaking book, The New Retirementality. He continues to change the dialogue about retirement from one focused solely on money to one focused on purpose. View a preview here.