@Anonymous wrote:FWIW -- I disagree with your point on collections. Up until this current recession, where long-term unemployment (people unemployed longer than one and two years) has started to become more common, the average period of unemployment has been less than six months. We should all have at least six months of cash reserves (at our current spend rate).
Your above statement is based on a generalization of what 'people' should have as reserves as well as the average length of unemployment. When you say we 'should' all have 6 months of reserves; note that not everyone has the ability to save that much in reserves. I did have some reserves but at that time I couldn't have saved that much. Although to your point it's good to have such reserves, in reality many cannot save that much.
Between unemployment, which averages 60% of your income, and your cash reserves you should be able to get yourself out to a year without tapping additional credit or other resources (such as retirement accounts).
Again another generalization. Wouldn't help if one was unemployed for longer time. Situation varies.
For example: If DW or I were to lose our job, our six months cash reserves would immediately stretch out to 9 months (or more) by making a few adjustments to our spending (no eating out, better meal planning, no cable TV, no student loan payments until we reach the next due date in 2013, etc.). We could stretch that out to at least two years by tapping our ROTH IRAs -- even if there were no unemployment.
There was just me and no one else. And adjustments were made. Heck, I didn't have cable back then since I was rarely home. Your scenario is that of an ideal situation and beleive me I did all the cuts even sold my car back then (which was not worth much).
With unemployment (which you can get for up to 99 weeks right now), I'm confident that if we both lost our jobs that we'd be able to go over three years without missing a payment if we needed to. Not that I expect either of us to be out of work for long (DW got a job offer last week, for a job she didn't even apply to).
Your situation is different that others. While it's good that you're pointing out your example I will stress that such ideal condition didn't exist for me. I'm glad that you guys bounced back really good.
My point is that if you are financially responsible, you should be able to survive a financial emergency for 6 months without missing a single bill payment. Our credit rating system should reward those able to weather a personal emergency without missing a financial beat.
That's a pretty bold statement there considering all the generalizations you have made above. I will have to respectfully disagree with your we could, we should, we would scenarios.
In a perfect situation we would all have enough money to save for a 6 months reserve but that doesnt always happen.
In a perfect situation, we would all get a job within the 6 month period or earlier,
In a perfect situation we should have enough in our ROTH ot tap should we need it but how many people have enough nevermind a ROTH or IRA?
In a perfect world, we could all tap into our reserves and pay all of our bills for 2 or plus years; reality, not many would have such funds.
Just like in a perfect world, I would have a 100 million dollars in the bank with a mansion overlooking Chesapeake Bay and Megan Fox as my girlfriend (meant in a joking way)
The credit system was made without regards to any of these. It was made black on white. While I agree that we should pay our bills on time, a number of factors come into play where one is unable to do so and some of those factors are sometimes beyond the person's control. So why penalize someone for 7 years? Maybe as a tactic to share the profit with the subprime industry?
Other than that I have no hard feelings about the credit rating system
