Tuesday, June 10, 2008

On Saving

I'll probably post some depressing thoughts on gas prices in the next couple days.

Today, I wanted to point everyone to David Brooks' column. Brooks writes about a new study by the Institute for American Values that shows how the last 30 years have seen Americans seduced into debt by the prospect of wealth. For most of the life of America, thrift was something espoused as a value. Now that idea is archaic. Some excerpts:

The deterioration of financial mores has meant two
things. First, it’s meant an explosion of debt that inhibits social mobility and
ruins lives. Between 1989 and 2001, credit-card debt nearly tripled, soaring
from $238 billion to $692 billion. By last year, it was up to $937 billion, the
report said...


State governments have played a role. They aggressively
hawk their lottery products, which some people call a tax on stupidity. Twenty
percent of Americans are frequent players, spending about $60 billion a year.
The spending is starkly regressive. A household with income under $13,000
spends, on average, $645 a year on lottery tickets, about 9 percent of all
income. Aside from the financial toll, the moral toll is comprehensive. Here is
the government, the guardian of order, telling people that they don’t have to
work to build for the future. They can strike it rich for
nothing...

Credit card companies have played a role. Instead of
targeting the financially astute, who pay off their debts, they’ve found that
they can make money off the young and vulnerable. Fifty-six percent of students
in their final year of college carry four or more credit cards.


Congress and the White House have played a role. The
nation’s leaders have always had an incentive to shove costs for current
promises onto the backs of future generations. It’s only now become respectable
to do so.


The report recommends:
Foundations and churches could issue short-term loans to cut
into the payday lenders’ business. Public and private programs could give the
poor and middle class access to financial planners. Usury laws could be enforced
and strengthened. Colleges could reduce credit card advertising on campus.
KidSave accounts would encourage savings from a young age. The tax code should
tax consumption, not income, and in the meantime, it should do more to encourage
savings up and down the income ladder.



Some would argue of the explosion in credit card debt and low-interest loans began in the late 1970s as a result of high oil prices giving Middle Eastern sheiks and governments a lot of money with no place to go but to Western banks which recycled the money in the form of aggressive lending. There just weren't enough customers for all the money that was out there, so banks began targeting future income-earners like college students.

Couple this house of cards on a new round of high oil & high gasoline prices, and we might have a seriously bad decade coming. More on that later.

1 comment:

Keith Walters said...

"Couple this house of cards on a new round of high oil & high gasoline prices, and we might have a seriously bad decade coming."

I agree and am excited to hear your thoughts. I think this discussion has a lot to do with your post addressing scarcity over at (economicsandfaith.wordpress.com). Only here what is scarce is not a particular commodity but the income to purchase a commodity. So this “virtual” market is created where individuals can purchase commodities using their future income (via credit card debt).

In the past you had individuals with limited funds purchasing limited amounts of limited commodities. Now you have individuals with limited present funds and unlimited future funds (via credit) purchasing excessive amounts of limited commodities. All of this has me thinking of James 4:13-16.