From the "I need' to the "I gotta have"

Since the Great Depression Americans’ relationship with money has evolved. The nation has  “progressed” from rugged individualism (to each according to his abilities) toward egalitarianism (to each according to his need).

The ideal has slowly morphed from independence from governmental largesse to dependence on social programs.  Some advocate a more interdependent relationship between the citizen and the State.

A recent study of Americans’ retirement plans revealed that 48% of Americans have less of $ 10,000 put away.  As a result, most are dependent on Social Security benefits for their old age needs. Many struggle financially at a time when they should be enjoying the “golden years,” forcing many to move to low cost States or to cheap foreign domiciles.

Most Americans live from paycheck to paycheck. They are burdened by heavy mortgages or rents, car loans, insurance premiums, ballooning credit card balances, and the “gotta haves” of modern day living.  This continual juggling between money inflows and outflows makes it for a precarious existence.

What ever happened to the values of post Great Depression to be thrifty, self-reliant, and prudent? How did we get hooked on entitlements? How did we morph into an immediate gratification society? And most importantly, where do we go next?

I suggest that we re-visit the wise principles of our predecessors:

·      You do not buy things if  you don’t have the money to pay for them.

·      You should set aside 10-15% of your net income for future needs and contingencies.

·      You should not charge anything to your credit card if you couldn’t pay off the balance when the monthly bill arrives.

·      You should clearly separate those things you need from those things it would be nice to have.

·      You should stay away from getting personal loans, especially payday loans that charge usury interest.

·      Perhaps the most important, you should live within your means.

Frugal people don’t go and spend thousands of dollars for a big flat TV, if they do not have the money. They are content with one car, if that is all they can afford. Smart people do not run out and spend a thousand dollars or more on a fancy cellular phone just to use it for social media nor do they sign up for contracts costing hundred of dollars for so-called convenience.

Smart people resist the urge to:

·      Buy an R.V., timeshare, second home or boat because everyone else is doing it. These purchases will require money to maintain that you might not be able to afford. Depreciation wipes out much of the value immediately after the purchase.

·      Do not charge dinner outings, travel and vacation to their credit card unless they have the ability to pay off the credit card balance at the end of the billing cycle.

·      Do not buy a home if the mortgage payments will eat up more than 1/3 of their take home pay. Home ownership costs more than just the mortgage: property taxes, insurance, maintenance and repairs, just to name a few.

·      Stop keeping up with Joneses. The Joneses might have more money that them or they might be more foolish. Either way not a good decision.

Stop listening to false prophets:

·      California House Representative Maxine Waters, for example, pushed for easier mortgage loans in the late 1990’s saying that “even poor people” should be able to buy a home.” We all know what happened when the economy went south in 2007-2008. Poor people and illegal (although ineligible) aliens were the first to lose their homes.

·      Madison Avenue bombards us with a variety of come-ons, some for non-essential and luxury items. Do not get trapped in the cycle of materialism. They will try to make you feel that if you don’t get on the bandwagon, you might fall behind your peers.

Cash flow management and household budgeting are important skills we should all learn in high school. Many successful people and business go into bankruptcy every year because they do not know how to manage their cash flow. Some people, tongue in cheek, attribute happiness to a positive cashflow.

Prudent and frugal financial management reduces the pressure and stress of modern day living. It is also an important ingredient to household harmony and peace of mind.

Lessons for Our Political Leaders

The shift in our values post WWII was aided and abetted by populists in our political milieu. Some might even go as far as blaming our politicians for having taken us astray from the fundamental principles of our ancestors. Others might suggest that politics is merely a reflection of prevailing values and customs – a sort of chicken and egg question.

Regardless of what came first, the egg or the chicken, our politicians, the stewards of the nation’s checkbook, would be wiser if they took time to reflect on what the long term consequences of their fiscal actions will be on the nation and its progeny. For example:

·      What is the long-term impact of periodically lifting the national borrowing limits? On our currency and our standing in the world?

·      What are the long-term effects for the nation to live beyond its means? Monetarily and politically?

·      What would the benefits be of generating small annual surpluses? A kind of rainy day fund?

·      How can we best prioritize our expenditures and separate essential from not essential expenditures? Increase the discretionary while reducing the mandatory spending?

·      How do we help the constituency get back to the “what I need” and away from the "gotta-have” mentality?

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Footnotes

Many Americans have burdens that others do not have. If you have more than one family to support, you will undoubtedly be burdened by the financial consequences. It is quite expensive to raise one family. Raising more than one can leave you destitute.

College students are encouraged to get student loans. Properly executed these loans can make the difference between finishing and graduating or dropping out. However, many students frit the benefit away by spending the loan money to buy a car, a TV, take a vacation or other non-essential items.