Tuesday, July 21, 2009

Spending versus Saving

So, I don't know how generations of Americans through around 1970 knew how to save money and retire comfortably on a single income with a family. But I do know that since about that time, Americans have chosen to skip that in large quantities. And it's becoming a serious economic problem we need to fix. The best idea I've heard is that we need to be educating everyone at the high school level on money management.

My idea is to call the class "how to get rich." Hey, it's what most people want and certainly gets your attention. The reality is there is no easy answer to the question of how to get rich, but what I do know is that if you can get yourself a steady middle class job and maintain a reasonable lifestyle such that you can save 10% from a fairly early age, well, you can retire before you're too old to enjoy life and live off your money. You will have to know exactly how to live responsibly and how to invest money wisely (and no, that doesn't mean how to "beat" the stock market nor does it involve knowing ANYTHING about the stock market, really). But it can be done. It can even be done in today's "normal" life of a two income family with kids.

A friend pointed me to this article that refutes some of what Elizabeth Warren has to say. As you might expect, I don't agree with the article. Warren is just trying to level the playing field somewhat so that consumers have a chance. Right now, most don't because they can't even understand what the products are that are offered. They're so complex because we can't understand them and the banks can hide ways to benefit themselves and not us. But my argument here is that once those things are simplified then consumers have a better chance of understanding the impact of choosing a particular product will be on their bottom line. It's not the entire solution, I admit. People are still CHOOSING to spend themselves into debt they can't satisfy. But it's a start, and education is the next logical step.

But think about this. If current Americans are spending level or negatively from now until retirement age, how do they retire? And if they can't retire, do they work until death? Someone is going to have to not only take care of the old people, but will have to absorb that debt sometime. It could get very ugly.

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