I recently moved to US (from India) and I was shocked to see how the "free market" economy is structured to bankrupt the middle class and poor. Indians have far less income than Americans but are somehow able to save more.
Here are some basic problems I see with economy:
1) Rent: When people are paying half their paycheck to rent a studio apartment, there is something seriously wrong. The monthly rent in most areas is more than 1% of the property value, which is insane. Why pay $2,000 per month to rent, when you can buy it for $1,500 per month mortgage which won't increase every year and will build value towards your equity. In India, most people own houses or spend around 10% to 20% for rent; despite the property being far expensive than US. Example: it costs $500k to $1 million to buy a 2 bedroom apartment in Delhi, but you can rent it for $600 to $1,200.
2) Healthcare: Our healthcare expense in India was less than $500 per year (without insurance). It is more than $20,000 in US, and we are still held hostage by medical practices and insurance companies. Examples: wait 3 weeks to schedule an appointment with your doctor; $this is not covered by your insurance; pre-existing conditions.
The drugs I bought in India for $10, costs $200 in US; there are drugs created by Indian pharmaceutical companies and sold to US pharmacies for $1 (they still make good profit on it), but it is sold for $100 in US. The prices are artificially inflated so high that it is not affordable by 99%, so they are forced to buy insurance. This isn't free market economy, this is extortion by monopoly; there should be no place for middle man in healthcare.
3) Banks are designed to screw consumers in every possible way and suck every penny out of your account. It's is not much different in India; just the amounts are lower and banks are regulated by Government.
3) Service & Utility companies: most people pay around $100 per month phone and $100 per month for cable. In India it costs $5 per month for cable, and most people pay between $5 to $15 for phone. Moreover, there are no draconian contracts and service is much better; phones work in remote villages and even in lower basement of concrete buildings. It is silly how a company's 'Terms of Service' can hold consumers hostage and even super seed the law.
4) Consumerism: Americans are obsessed with credit cards and buying everything they can't afford. Why does a minimum wage worker spend $100 a month to buy an iPhone when there are prepaid Android alternatives available for much less? Why do people making $30,000 to $40,000 buy BMWs and $2,000 purses?
1) Those are false choices. If rent is $2,000/month, a mortgage would be far more than $1,500. Just an example, my rent is near $2k in SF, an equivalent sized unit on my block just sold for $700k. If you could put 20% down (just save $140,000!), a 30-year mortgage would be $3,500/month -- 75% more than renting.
2) Get a new healthcare plan through Healthcare.gov. The out-of-pocket maximum is $12,700 for a family plan.
3) Find a credit union, no fees, no shenanigans.
4) Call around and get a deal, my phone plan is $65/month and my cable (25mb internet + digital 'starter' TV) is $65/month
1) My uncle lives in a suburb in New York. He was paying $900 per month to rent a small 2 bedroom apartment. He bought a 3 bedroom house for $130,000; it is much bigger, nicer and monthly payment (including taxes and insurance) is less than his previous apartment. Moreover, he is not just giving that money away; it is contributing towards the equity. At some point, he will have no rent and own the house out right.
2) How about the cost of Insurance? Let's add that to the expenses as well. Thanks to Obamacare, we are now able to get healthcare; Insurance company previously denied our treatment due to pre-existing condition despite charging $1,500 per month.
3) I am exploring that option, but most people still use big banks.
4) Of course, I got deals. I own my phone outright, and pay $50 per month for pre-paid data plan. My 50 mbps internet + digital TV (mid-package) is $55 per month. No contracts. But most people are still paying $100 for phone and $100 for cable.
> If rent is $2,000/month, a mortgage would be far more than that
Typically, the rent is covering an existing mortgage + taxes + insurance + maintenance + profit. If the mortgage were higher than the rent, the building owner wouldn't be making any money renting it out.
No, it doesn't work like that, because it doesn't take the house's capital gain into account.
Given the ability to grow the housing supply, there is typically a fixed return for a property. That return will be split between capital gain and rent. Rent no longer covers the mortgage because it is the total return that determines if it is a good investment. There are also the tax benefits of renting out a house in some locations (maintenance and insurance would be deductible).
When we rented out our house, we were told that the typical return on capital was 8%, where 2-3% would be capital gain, and the rest in rent. We priced our rent at 5% to get a quick rental. Mortgage rates in that location are 6%.
If it is hard to gather a down payment, then rents can exceed mortgages because renters cannot easily swap between the two.
Admittedly, lessons from the SF housing market aren't broadly applicable, but due to rent control, the booming home prices, and bizarre property tax rules, it's much cheaper to rent.
You can get a phone plan for $10/month (unlimited talk and text no internet though) and $25/month(unlimited talk, text and data) from Republic wireless. Only caveat is, the plan is limited to android and you have to buy the phone for $299.00 upfront.
That is a Sprint plan, they've been trying to wean people off the discounted rates, but many companies give fairly significant discounts. I think I'm on a 25% discount currently through my girlfriend's place of business.
Here are some basic problems I see with economy:
1) Rent: When people are paying half their paycheck to rent a studio apartment, there is something seriously wrong. The monthly rent in most areas is more than 1% of the property value, which is insane. Why pay $2,000 per month to rent, when you can buy it for $1,500 per month mortgage which won't increase every year and will build value towards your equity. In India, most people own houses or spend around 10% to 20% for rent; despite the property being far expensive than US. Example: it costs $500k to $1 million to buy a 2 bedroom apartment in Delhi, but you can rent it for $600 to $1,200.
2) Healthcare: Our healthcare expense in India was less than $500 per year (without insurance). It is more than $20,000 in US, and we are still held hostage by medical practices and insurance companies. Examples: wait 3 weeks to schedule an appointment with your doctor; $this is not covered by your insurance; pre-existing conditions.
The drugs I bought in India for $10, costs $200 in US; there are drugs created by Indian pharmaceutical companies and sold to US pharmacies for $1 (they still make good profit on it), but it is sold for $100 in US. The prices are artificially inflated so high that it is not affordable by 99%, so they are forced to buy insurance. This isn't free market economy, this is extortion by monopoly; there should be no place for middle man in healthcare.
3) Banks are designed to screw consumers in every possible way and suck every penny out of your account. It's is not much different in India; just the amounts are lower and banks are regulated by Government.
3) Service & Utility companies: most people pay around $100 per month phone and $100 per month for cable. In India it costs $5 per month for cable, and most people pay between $5 to $15 for phone. Moreover, there are no draconian contracts and service is much better; phones work in remote villages and even in lower basement of concrete buildings. It is silly how a company's 'Terms of Service' can hold consumers hostage and even super seed the law.
4) Consumerism: Americans are obsessed with credit cards and buying everything they can't afford. Why does a minimum wage worker spend $100 a month to buy an iPhone when there are prepaid Android alternatives available for much less? Why do people making $30,000 to $40,000 buy BMWs and $2,000 purses?