Some people may view a $1 million windfall as a ticket to adventure, philanthropy, or future financial security. But Investor Uprising readers are apparently a more practical bunch. More than half the participants in our recent poll indicated they would pay down debt with such a windfall.
More than 100 people took the poll, which asked respondents to name the first thing they would do with lottery winnings or an inheritance of $1 million. That pesky debt evidently weighs heavily on the minds of many, because 51% named paying it down as their priority.
The second largest group of respondents (28%) said the first thing they would do is make an investment.
Donating to charity and sharing with family and friends lagged far behind. In fact, none of the first 50 respondents selected those options. And it was only after editor in chief Scott Raynovich acknowledged that he would make a charitable donation before doing anything else with the money that a few others joined in. Whether out of shame or altruism, 11% eventually selected "donate a portion to charity."
Far fewer were interested in helping family and friends. Only 2% were willing to share the love with those closest in their lives, and one respondent even suggested that any money parents give to their children should count as charity.
About 8% didn't like any of the poll options and chose "other." Most of them remained vague about what they would do, but one poll taker was crystal clear -- as in the "large panoramic sapphire crystal" of an Urwerk timepiece.
Urwerk U-110
This isn't your father's Timex...
"Prior to paying off my student loans, before considering a new house or even throwing everything into an investment, I would track down a gorgeous Urwerk-110 timepiece. Of course, limiting myself to just one piece would be a difficult decision," our respondent said.
The Urwerk U-110 Torpedo Watch uses a revolving satellite complication featuring three parallel markers that rotate to display the time while aiming at a metered scale on the right. Those "torpedo" time hands rotate throughout the day, while the hour and minute markers revolve in concert to display the current time.
Urwerk makes various versions of the U-110, but it limits worldwide production to 55 of each model. Prices start at $120,000, and several U-110 models are already sold out.
Perhaps the thought of spending six figures on a watch will make you feel less depressed about the price of gasoline. Take our new quick poll, and let us know how you plan to cope with gas costing more than $4 a gallon.
Interesting but not surprising poll results, @Noreen! For those of us with kids and mortgages, a million dollars is, sadly, not as much as it sounds like. I suspect that when most people who aren't encumbered by student loans talk about paying off debt they mean paying off their mortgages and owning their homes free and clear.
In this climate of near-zero interest rates, that scenario certainly would tempt me! But I'm a bleeding heart for charity, too. I'd give a bundle to animal rescue and it would tickle me down to my bones to be able to do so!
well, people want to pay off debt, that's good... It's also what's weighing on the economy as people try to repair their balance seets. Washington D.C. doesn't like this cause it slows growth but isn't it a good thing?
It seems to me that most people will only start to feel really confident again when they feel some sense of security, and that means having manageable debt and a reasonable nest egg. Given the disparity between the interest on savings and the finance charge on debt. it's logical that people are attacking the debt first. Better return on their investment.
The other struggle is that real incomes are not keeping up with inflation. We have to figure out a way to get more of those S&P 500 earnings to spill into worker's pockets. C'mon, corporados, give us a raise!
You are right about the debt Noreen. I'm sure people would want the security of not having to worry about loosing assets such as housing. So it's not surprising they would want to pay off any remaining debt. And it also makes sense to invest in order to make the money grow. It tells how sad the economic situation really is when we realise that although people may want to give to charity and friends that want taken a back seat to the immediate needs of feeding their own family and putting a roof over their heads.
Yes, @Pheonix...we've reached the point -- or so many of us have anyway -- where the old saying about "charity starts at home" takes on extra meaning. It's like when an airplane starts to crash--you are always warned to put your own oxygen mask on before you try to help someone else.
It is not surprising that paying down debt came first. It is logical to do that before giving to charity, etc. An interesting question would be what would you do next? If you got your debt to zero or at least a "reasonable" level what would you do then?
If you're already in debt, how could you not pay that off first before moving on to one of the other options. If you pay off your debt first, you will now be able to use the money that was going to the debt for whatever endeavors you see fit - including giving to charity.
Noreen, does this mean that most of Investor Uprising's readers are up to their necks in Greek-like debt? Next time you do a poll like this, get some socioeconomic figures from your respondents. Otherwise, you might start scaring off some potential advertisers from your site....after all, who wants to advertise to a bunch of deadbeats ; )
I think it suggests that we're a prudent bunch of investors, who want to pay down debt no matter how reasonable the levels are in comparison to the norms -- so we can be even healthier consumers of those advertised products!
Ironically, financially, paying down debt may actually be the worst thing you can do right now. Some of the most savvy financial types are taking on MORE debt. Why? Cause it's so cheap!
What do I mean? Well, there are many hedge funds that are borrowing at low rates and putting the money into higher-yielding bets. This is known as the "carry trade."
Or what about Microsoft? Microsoft for the first time ever started issuing debt in the past couple years as rates got so cheap.
So why would you do this? Simple -- you think that rates are unnaturally low and you want to take advantage of it.
Of course, it's tricky for individuals. They should pay off debt if it's adjustable-rate debt or high-rate debt like credit card debt. But you should NOT pay down a fixed mortgage if it is at a rate under 4 1/2%. Remember, the Fed is trying to create lots of inflation. They have the same problem you do: Too much debt. They want to be able to pay off that debt down the road in depreciated dollars which is why they are doing everything to pump some inflation into the system.
Imagine the dollar depreciates 20% over the next five years (actually, the dollar has been depreciating at this rate for 20 years). If you keep your debt fixed, your debt load will essentially be reduced by 20% with inflation.
Yea, that's all well and good. But it seems to me that few people think of paying down a mortgage when you say "debt." More often, they mention credit cards or auto loans. Sometimes the rates on the auto loans are pretty low -- but those teasers on credit cards are usually short, and the rates (even with good credit) are high.
And take student loans: despite today's low interest rates, you know what rates they are offering on education loans? Fixed rate loans are going for about 8.5% (for good credit). Variable rates start around 3.5%, but they rarely offer that best rate. they know students are desperate, rarely read all the disclosures and take advantage of them (and their parents). Plus the paperwork is worse than a mortgage app.
So dumping some of that debt is a good thing, both emotionally and financially.
I'm going with Noreen on this Scott. The only time I feel comfortable taking on debt is when I have assets to offset it, like those companies you cite. If I have more debt than equity, I don't care how cheap the debt is. It weighs me down and no I'm not counting my mortgage.
The other thing with personal debt is that the more you have, the harder it is to borrow more at reasonable rates. They've gotten very aggressive about debt to income ratios in the past few years.
Most of the poll answers fall in line with what you'd expect as a nation slowly crawls out of the most recent economic down-turn. The one piece of info that I did find shocking (and personally, I doubt the validity) was that the number of people who would give to charity was higher than the number who would give to family. I would give anything to see this hypothetical scenario actually take place and see what the poll responders actually did :)
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