Friday, October 31, 2008
The Price of Toys
Of the Sunday news programs the one I have always enjoyed the most is George Stephanopoulos. The roundtable discussions on the show facilitated by Stephanopoulos are some of the most politically informative and balanced news sources available.
In this week's "Green Room" discussion. George Will, along with Peggy Noonan, Cokie Roberts, and Sam Donaldson give some very interesting opinions on the global fiasco we find ourselves in. George Will lays a lot of the blame on the American people, much to the chagrin of Donaldson. He mentions that 25 years ago Americans saved 9 cents of every tax dollar whereas today we save less than a penny, "they stopped saving, they ran up their credit card debt, they treated their homes as ATMs, and then they (the American people) look around and say, 'gosh, we're innocent'".
For years I have been saying, "When did our homes go from being places we raise our families and shelter us from the elements, to investments in our portfolio?" People always are complaining, "Oh if you put up such and such a place, that will decrease my home value." I respond, "Will your house protect you any less from the rain?" Now we have the term "starter home". You start as a young couple with a 1200 -1600 sq.ft house and then in 3-7 years when the second kid comes along we'll move up to a 2500+ sq. foot house. As if the first house was not big enough for a family of four.
Why do house sizes get bigger in America as our family sizes decrease? Greed. As houses grew and technology increased the number of "toys" that we now seen as needs , grew dramatically. Second incomes went from being an option to make life easier to a necessity to feed the machine. When the economy hits a blip, as it has now, and one spouse loses a job, the results go from being an inconvenience to catastrophe.
Some time ago a friend of mine who is a financial planner told me a lesson she learned quick. She said when she first started, she'd go to a client, see the big house, fancy car and high end furniture and think, "Wow, they will have a lot to invest." Then find out that everything is a smokescreen. All of it is bought on credit and they are spending all they have just to pay it off with little to nothing to put towards investment. On the flipside, she'd go to a modest home with a Ford Tempo in the driveway and discover they are sitting on a hoard of savings they needed help investing.
When I was a kid growing up in 1970's Detroit we had one car, one phone, and one TV. The programs that came on the TV were free and the single telephone line had a modest charge. You know what... we enjoyed life. Now there are cell phone bills, cable bills, and internet bills. We are so desperate to keep up with the Joneses we'll max our credit cards beyond what we know we could pay back...and then declare bankrupcy.
We have president who in a time of National crisis basically says, "OK we'll all get through this, just keep spending". We get a tax credit from the government (that is in huge debt itself) and told not to save it, its to stimulate the economy so be a patriotic American and spend...spend...spend.
As bad as the Great Depression was it produced a charecter in that generation of Americans that has become all but a shadow now. I think that ultimately this financial crisis could be good for America if we can learn our lesson.