Note: I'm not trying to argue the actions we took were right or wrong, I've trying to look at this from a financial perspective just from things I see.
Taking scope of some arguments about the current environment, a lot has been argued about re-opening the economy. The reason most need it to be re-opened is to get back to work to collect paychecks; essentially they are living paycheck to paycheck.
I know we need to be careful with COVID, but my question is, is the real problem that people are mis-managing their money? I know personal finance is a topic that is discussed across all spectrums of the media, but I think its at the forefront here. Really, if everyone in the US had enough savings to float themselves for 10 months (or 3,4,5, or 6), would we be approaching this differently?
As an example: I saw on TV that casinos did a "drive" for casino workers, where being casinos are shut down, the casino workers could drive through the valet parking and receive a $100 gift card to the grocery store. As I watched the news, which they showed this going on, I noticed a lot of newer type cars/SUVs driving through to get the gift cards. Just made me think, seems like a disconnect if you're a casino worker that you should have a newer/leased car. Would enjoy everyone's thoughts.
It's far more complicated than that - if our savings rate picked up, to the levels you suggest, our economy would slump as it's so heavily consumer driven... >75% of GDP. People just don't keep cash reserves and, frankly, for most people it's literally unrealistic for them to even consider scrimping down to build up enough savings - they literally cannot do it. We can moralize all we want about life choices and McDonalds not being intended to support a family of 4 - the reality is simply more challenging than platitudes. Same goes for companies - blast every executive who bought back stock all you'd like, but they often aren't nearly as stupid as we'd like to think. Sure - airlines probably could have held back payouts, stocked cash for a 'rainy' day - but why? You've no other way to reward shareholders as you have a notoriously fragile industry, rampant with bankruptcies, running on thin margins on a good day... i could go on and on. If you were an airline that built up those reserves - you'd be skewered by shareholders, an activist would jump in, you'd lose your job and - surprise - right back around we are.
That was a tangent - but it follows to personal balance sheets much the same way. Consumer spending falls, companies pull back, blah, blah, blah. We've largely engineered our society to not accept the business cycle, adopt a growth at all costs - literally, all costs - mentality and in the process made the margin for error razor thin on a good day. Just read about small business margins - god bless.
This is, largely speaking, a disaster of our own making. We, as a society, refuse to make the hard decisions and continue to kick the can down the road. Well this - this is the mother of all can kicks. We'll have $5 trillion out the door in roughly three months if we are lucky - more if we aren't. That won't have solved any issues, taken out any student debt, built any roads - in fact it's not even enough to start to cover consumer spending on food, clothing and housing. The real kicker in all of this is that - it just got started.
So my view of the underlying issue? Risk. Simply risk. We don't understand it, we can't comprehend it, can't manage it and certainly can't withstand it. We've gotten complacent, fat and happy with how things are. Is COVID serious? Yes - anything that's new, highly communicable and/or simply unknown that starts killing people is nothing to take lightly. Is it worth what we are doing to ourselves? I don't know - I hope to god I'm wrong, deficits don't matter and we all look back and laugh at how silly we were to be worried about this.
Now i'm full on rambling - so i apologize - but it's one of those days. That's all I got. I've hit the stage where I simply don't know what to think of all of this - it's so much to take in, that I'm really just focusing on my day to day life... which oddly might make us all a lot happier.
I agree with what you said.
Might be more of a pipe dream for me. I hear all the talk about "the economy vs lives" when I think, if the economy/people were more sured up we wouldn't have to make that decision. But I agree with you, pipe dream vs reality.
To get there though I think we would have to reshape the entire economy. We all live a life of over abundance if you think about it, a lot of restaurants, clothing, and entertainment. I'm not saying we don't need those things, I just think we have too much that is easily accessible that eats people's money who don't necessary have it.
I think a lot about what it means to live paycheck to paycheck. I think that terms needs to be more defined in terms of what we consider essential and want we consider luxury, basically, wants vs needs.
Are the majority of American's terribly financially illiterate? Yes. Even if they were taught would they actually become more responsible and save/use their money wisely? Hard to say. You can lead a horse to water. In all likeliness no matter what sort of financial literacy education we implement or try to get across to masses we will always have a large portion of people who are unprepared and don't take the advice.
I come from an area where people couldn't even get bank accounts, let alone credit cards, loans etc. Its sad to see but yes, financial literacy is non-existent in a lot of the US. I chalk it up to the poor environment that they are raised in as children and grow up to continue to live in.
However, to the people who grew up in that middle class (or even higher) status that have resources and still are stupid with money, that...makes me cringe so hard. Unfortunately i know tons of people like this. Its quite disappointing, but come on. No excuse.
I feel that second paragraph big time. Growing up middle class in a small southern town, I had a lot of middle class friends whose parents liked to live their life on credit to appear rich, and when the hard times hit it hit extra hard.
I always go back and forward on this in my head. It all depends what we consider financial literate. Does that mean you don't know what an ADR stock is, you don't know what an income statement is, don't know how compound interest works, don't have a bank account? It's all levels.
I think financial literate is different from financial discipline, which I think people tend to lump together. Its really just, if you have $10 in your pocket, don't spend $11. Or saving for a rainy day. I agree that's not as fun as having an experience. I also understand some people just plain don't make enough money, that's an income problem. However, I think there is a large group of people in the middle, who, could survive on what they make, have experiences (not every experience, but some), and save, and lead a fulfilling life. The main problem is there are systems that allow people to spend $11 when they only have $10.
I tend to think of people as more or less smart, just not as disciplined. It's like losing weight. Most people could probably tell you a proficient way to do it(not the absolute best, but a good way to do it), don't eat too much, cut out sweets/sugar. But how many really do it? Same with finance, I think people generally know how to save money, they might not know the absolute best way to get return, but they know how to save, they just chose not to.
Repellendus aut sed earum voluptates iure. Quasi aliquid aut quas perferendis vel.
Ut ut iure molestiae quam omnis rem quia. Quo omnis impedit reiciendis et neque perspiciatis. Nesciunt provident iusto nihil culpa. Qui dolorum mollitia delectus porro ea aspernatur. Iste quod quaerat amet assumenda perferendis ullam. Est sit non necessitatibus quo qui asperiores ullam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...