Academic journal article Journal of the International Academy for Case Studies

Homeownership Is Not Always a Blessing

Academic journal article Journal of the International Academy for Case Studies

Homeownership Is Not Always a Blessing

Article excerpt


This versatile case is designed for use in Accounting or Finance courses. It is designed (a) to introduce beginning students to some important aspects of financial literacy, including personal budgeting and financial planning and (b) as an entry point for a discussion of real estate law.

Financial Literacy Of The Schmidts.

The Schmidts lacked a basic understanding of planning and budgeting when they decided to buy a house, while car payments, unexpected medical bills, and credit card debt were getting out of control. They did not understand or did not think about the consequences of falling behind or skipping payments on their obligations. Business students contemplating graduation and the beginning of their first real careers and jobs may not appreciate the magnitude of deductions for Federal and state income taxes, social security, group insurance, retirement plan contributions, donations to charities, and so on, on their net pay. Students should consider the benefits in their own lives of simple financial planning steps, including (a) establishing a rainy day fund of roughly six months' net pay, and (b) making a simple budget of net pay compared to known expenses. These two simple steps could alert them to the delaying or foregoing the purchase of new furniture or sports cars until they have provided for their financial security. Buying less expensive cars and living in neighborhoods just below their income level, instead of living just above their means, can make a big difference to couples like Fred and Megan.

First time homeowners may not understand that the costs of home maintenance can be far different from the costs of apartment living. In a bills-paid apartment, Fred and Megan would have been used to paying just rent. As homeowners, they had to purchase hammers, saws, ladders, garden hoses, lawn mowers, shovels, and on and on. Inside the house they would soon learn that their apartment vacuum was too small to be useful, and their small screen television would soon be replaced with a big screen HD set. Large houses are expensive to furnish with the latest Mid Century Modern Furniture and Energy Star appliances.

Beside their mortgage payment, Fred and Megan may not have anticipated the taxes and insurance costs that would be part of their house payment, and they may not have accurately predicted the costs of electricity, water and sewerage, trash pickup, natural gas, water softening, telephone, cable TV, Internet service, and on and on. With apartment living, when the hot water heater leaks one Sunday morning, the tenant just calls the landlord. As a homeowner, Fred and Megan would have to call a plumber (double rates on Sunday), and then maybe have to buy a new water heater, pay a carpenter to replace or paint the wet ceiling, and have the carpet professionally dried. These are among the many "joys" of homeownership. …

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