How families can talk about financial crisis
Parents are likely facing some questions from their children about the growing financial crisis and the failed bailout plan - and for that matter, many adults may need a simple explanation for the complex issues.
Local financial advisers and academics say the best thing to do is to talk openly about the crisis and how it may impact your family.
Here are some questions you may have heard and how to answer them.
Q. Can we afford to buy anything?
A. Joann Huber, applied arts and technology department chairwoman, Maine West High School in Des Plaines, suggests saying this to your child: This is how much we have. How will we decide together what we need? We will include you in our decision-making and help you to learn about money management. ... This is about a credit crisis in our country and how if affects all of us around the world. Credit is getting something now with the promise to pay later. But for many, things have lost value, prices have increased on food and gasoline, and it's becoming very difficult for many people to fulfill their promises.
Q. How does this financial crisis affect our family?
A. Many banks cannot provide loans to other banks, and banks are making it harder for people and businesses to get loans, said Getachew Begashaw, economics department chairwoman at Harper College in Palatine. As a household, we cannot spend as much as before because we may not get credit. Some people may have lost their jobs and won't have the money to buy groceries, gasoline, toys or clothes.
Q. How long will this last?
A. It all depends on how good our government is at creating a good plan and how that plan is accepted. But the banks are failing, unemployment is rising, foreclosures on homes are rising - meaning more families have to give up their homes because they can't afford them anymore - and families cannot do what they used to do. The government won't give people money directly, but their plan is to help the financial institutions. That means, the government would take over the loans and work with families to repay their loans or mortgages, Begashaw said.
Q. Will we lose our home?
A. We will not lose our home because we are still working and are able to pay the mortgage. But some families are not as fortunate. Some people are losing their jobs and they cannot pay their bills and they could lose their homes, Begashaw said.
Q. I'm afraid. What should we do?
A. Huber advises saying: You should be reassured that we as parents and other adults and lawmakers are wrestling with this and trying to figure out what to do for everyone. We're working together to solve the problems and make good decisions.
Q. How will this affect me?
A. Loans could be tougher to get in the future, including college loans and car loans. Banks make money by lending money and collecting interest. But many banks have failed and loans have failed and those assets are tied up. There's no financial freedom to move products and loans around like they should move. It's like a gridlock on the financial system, said Jay Wachtel, instructional coordinator for the career and technical education department, Naperville North High School.
Q. What is this financial crisis all about?
A. This is fundamentally a liquidity crisis. The lack of liquidity is caused by having too many sellers and too few buyers. There is a cascading effect of investors selling good assets to cover bad assets. We see borrowers having to repay debt due to loan violations or defaults, and financial institutions selling assets to protect their reserves, said William E. Dever Jr., financial adviser for JMG Financial Group Ltd in Oak Brook.
<div class="infoBox"> <h1>More Coverage</h1> <div class="infoBoxContent"> <div class="infoArea"> <h2>Related documents</h2> <ul class="morePdf"> <li><a href="/pdf/dhbailout2.pdf">Full text of bailout plan</a> </ul> <h2>Stories</h2> <ul class="links"> <li><a href="/story/?id=239369">Bailout revival sought; better deposit safety seen <span class="date">[09/30/08]</span></a></li> <li><a href="/story/?id=239190">European stocks volatile after bailout rejection <span class="date">[09/30/08]</span></a></li> <li><a href="story/?id=239159">Asian stocks plunge after rejection of bailout<span class="date">[09/30/08]</span></a></li> <li><a href="/story/?id=239130">Bailout is fresh fodder for Congressional challengers <span class="date">[09/30/08]</span></a></li> <li><a href="/story/?id=239160">House vote wounds McCain <span class="date"> [09/30/08]</span></a></li> </ul> <h2>Video</h2> <ul class="video"> <li><a href="javascript:void(window.open('http://video.ap.org/vws/search/aspx/ap.as px?t=s62&p=ENAPbusiness_ENAPbusiness&g=0930b_wall_looklive&f=ILARL','_blank' ,'width=788,height=598,status=1,scrollbars=1,resizable=1'));">Traders optimistic on market rebound </a></li> <li><a href="javascript:void(window.open('http://video.ap.org/vws/search/aspx/ap.as px?t=s1179980883147&p=ENAPus_ENAPus&g=0930dv_obama_bailout&f=ILARL','_blank' ,'width=788,height=598,status=1,scrollbars=1,resizable=1'));">Obama calls on Americans to support bailout </a></li> <ul class="video"> <li><a href="javascript:void(window.open('http://video.ap.org/vws/search/aspx/ap.as px?t=s1179980883147&p=ENAPus_ENAPus&g=0930dv_bailout_wrap&f=ILARL','_blank', 'width=788,height=598,status=1,scrollbars=1,resizable=1'));">Bush: Congress must act </a></li> </ul> <div class="moreSubHead"> Problems getting a loan or mortgage? </div> <div class="moreText"> Have you recently tried to get a loan or mortgage and were turned down? Are you seeking a loan and now are worried because of the current financial crisis? Daily Herald Business Writer Anna Marie Kukec would like to hear about it. Contact her at <a href="mailto:akukec@dailyherald.com">akukec@dailyherald.com</a> or 847-427-4544. </div> </div> </div> </div>