Guest Post by Monty Pelerin
We are now well into the ME and NOW generation. They grew up believing saving was unimportant and debt was a proper way to gain access to the pleasures that they couldn’t afford, didn’t really need but believed they were due.
The insanity of this entitlement mentality wasn't born in a vacuum. Government encouraged it every step of the way. You see, if you can convince people to spend, the GDP accounting reflects this spending as a boost for the economy. How can the economy be improving if the gains are from consumption financed by debt? All debt does is allow future consumption to occur earlier. Conversely, it means that future consumption will be lower by the amount of the debt service necessary to honor the obligation.
None of this was accidental. Every politician responsible for the economy has an incentive to “juice” the numbers. Modifying the statistical measures used in the calculation is one way to achieve this. By far, however, an easier way is to encourage citizens to use more debt. Lower interest rates below where markets would set them. Then lower the lending standards to qualify for a loan. Set up government agencies to guarantee loans that should not be made. All of these efforts pleased the financial industry and converted much of the population to debt slavery.
Want a new car? No problem, finance it over six or so years.
Want the latest and electronics — a large screen TV, the newest cell phone, etc? Again, buy the stuff on on credit. No problem.
Credit card line being exceeded. Get another credit card and use it to make payments on the first. Repeat by adding new credit cards whenever necessary.
Want to go to college? That’s free, for a time. Just borrow the money to pay for the overrated experience. It keeps you out of the workforce and provides great opportunity for partying, meeting sex partners, etc. Don’t worry, you know how much more college graduates make.
Haven’t been to Europe yet? What better time to go than when you have no job or other responsibilities. Just borrow the money and go.
This is the environment that government has created for the country. The young don’t understand the implications. The government is no better than the pimp used by a loan shark. Get em’ hooked while they are young and you will have them for life.
We are at least a generation into this foolishness. There are consequences beyond the occasional defaults and bankruptcies declared along the way. Much of society has been corrupted by the belief that debt is normal and necessary to live the good life. Few understand that a good life cannot be borrowed; it must be earned.
Now the consequences for those who followed the siren’s song are becoming evident. As these people approach retirement, they have wasted the most productive years for saving. They have put themselves into a box from which there is no escape. Many are oblivious to the mathematics and to the retirement poverty they have consigned themselves. Many are unaware that Social Security, as presently constituted, will be broke when they count on it.
Reader RFII sent the email below showing the inadequacy of savings. Even if these people suddenly woke up, many have too little time to create the nest egg necessary. Sadly, those who were prudent are unlikely to escape the fate of the profligate. That some have money while others don’t is not “fair” in our Brave New World. The government will likely plunder the prudent to further reinforce the behavior they encouraged.
THE RETIREMENT CUPBOARD IS BARE FOR MANY.
When we were growing up, retirement dreams were based on corporate pensions. They started to disappear in the late 1980's because corporate finance officers saw pensions promises as being a possible large liability (many underfunded already). Some law changes from Congress, and the stampede out of defined benefit plans to IRA type plans encouraged this as well. The defined contribution plans were switched to employee directed IRAs , etc.
Now we are seeing the savviness of those with IRAs in the 55-64 age group. Of those 50 to 64, in the prime years before retirement, half have nothing saved up. You would think those with higher incomes would be doing much better but the figures don’t look so promising here either. You would have to go to the top one percent of the country to see where the real wealth gains have gone in the last generation.
Comments
Log in or sign up to join the conversation.