Cheers.

It’s about each of us taking responsibility for our own lives and our own actions.

Cheers.

If everybody was personally responsible for their own mess, the world would be one big harmonious place to live!

I can agree to some of what you are saying. However, values and monitary knowlege had changed since the 1980’s. A person who is just getting out of High School is less educated on money matters, not to meniton less focused on how to manage the fincial aspects of their lives. This can be seen in how those who get out of High School are so focused on status symbols… let’s call it what most call it, “bling.” With credit cards drawing contracts with universities, to make students “pay attention” to their (the bank’s/lender’s) ads, as they walk in the halls, does not help either. The “free gifts” entice them too.

Marketing conditions what people think. Something “free” helps, since “TINSTAAFL” is no longer taught… you remember, the free lunch thing, not really being free, as advertised.

A student nowdays is forced to think about personal image and wants. Back in the day, we didn’t think that way. We knew the value of a dollar, even if we were poor. I just do not se that in the 40 somethings and under.

In other words, people are not forced (or taught) to think about money or their future, 20 minutes in front of them.

I personally blame lazy (yes, i said lazy..as in welfare too) and overworked parents, as well as schools not teaching this, as in the past. Funny how the parents are in charge of the school systems, through tax dollars. Makes you think if the parents even care, if schools are still funded, for not teaching the basics of life.

With the onset of this socialized “welfare” system, consisting of people not having to educate themselves about money, some parents will never learn how to keep out of debt, learn about fincial aspects in the future (or personal financial preservation), or learn from their mistakes. Make no note that we just saw many examples in the housing/banking sector… in the form of “Foreclosures.”

Now people learn “something for nothing.” I find cleaning explosive bowel disorder mess less disgusting than that.

Mikel Grenier
Toledo, Ohio

First of all, personal finance was a much simpler enterprise during the 1950s and 1960s. Most people were highly averse to taking on personal debt due to the “freshness” of the Great Depression. Also, high interest rates and tight credit were “self-limiting” to taking on personal debt. Most people looked forward to working for 40-45 years, then retiring with pension income (defined benefit plan), Social Security and Medicare.

Fast forward to today. Personal finances today can be as complex as the finances of a small business. Personal debt has been cheap for many (until recently), widely available and marketed heavily. And, instead of defined benefit pension plans, most people today are in 401k plans where they have to manage their own “pension”.

Succeeding in today’s personal financial environment requires a much higher level of sophistication and much more work than in the past. But, the ability of most people to navigate this “new world” has not increased.

The additional “opportunities” that we have today mean more chances for bad financial decisions.

Excellent point.

The mantra of “personal responsibility” is usually just rational-actor economics turned into a morality.

Both the morality and the economic theory fail to address that people aren’t inherently rational. It’d be nice if they were, but they aren’t, and that’s why we look to institutions bigger than ourselves to help regulate our lives.

It’s nice that you and I can consistently make rational financial choices, but we both probably had unique experiences and temperaments that made it so. I know I did.

People who choose, for example, to give up rights to a home owner’s association, *are* taking responsibility in their own way.

At 15, he says: “government should be spending MORE money to create MORE jobs and help MORE people who have lost theirs get by,” and then at 23, after telling us he’s on unemployment (which is intended to help tide you over WHILE you look for other work), he says, “I don’t really *have* to get another job any time soon and have explored a number of alternatives to another soul-crushing corporate job.”

On personal finance blogs, we see daily examples of this kind of thinking – that working “soul-crushing corporate jobs” is something OTHER people should do so that WE can find our true passion and still have the services those corporations provide (like the airline corporation David will fly to Ecuador with and the corporation that built that airplane, and the cell phone corporation that will keep him connected and the IT corporations that allow him to post his comment).

David may not realize it, but what he’s saying is that I should work harder and longer, so that my tax dollars and unemployment premiums can support him while he finds himself. Not surprisingly, I find that pretty darned annoying, far more annoying than my credit card companies, who have never done me a bit of harm and provided me lots of convenience.

Sometimes this is good (creates great discussion), sometimes it can severely detract from the article (irrelevant &/or hyper-critical comments).

It is also true that a lot of commentators do not take the time to read the full article along with all the comments, leaving their comment partially disassociated from the discussion.

I guess it will always happen…I just wish they would start taking personal responsibility for their comments!

Can you elaborate?

Personal responsibility will always be balanced against societal rights and duties. If you are looking for excuses to feel superior, there will always be people out there to give you good reason, but the vast majority of human beings are doing just fine and feeling quite responsible.

Actually, I am not accusing you of anything wrong in selling your house. But do you get my point that the bank scam has destroyed trust and confidence in the value of housing? You can extend that problem of valuation to the dollar, to the rate of interest being charged and to the value of all commodities.

Commodities generally go up with inflationary expectations. However, commodities purchased with credit are not subject to that expectation, especially when the interest rates for future buyers could go through the roof, further diminishing the value of the house you are trying to sell.

That brings up another point, the person who buys your house with a low interest rate could end up being in trouble if he needs to sell. Interest rates are being kept artificially low.

So, I am saying that trust in the value of things has been undermined by the banks and the Bush administration. This destroys the fabric of society. Hope you can sell your house!

Be careful, don’t spill your coffee!

I just stumbled across your blog from J. Money and I love it. Very well written and thought out. I totally agree with what you have to say, and to sum it up we are lazy. We live in a country where we don’t have to assume responsibility for our actions (ex. spilling hot coffee), it is always someone else’s problem.

By “righting a wrong with a wrong” I meant that we should not shrug our personal responsibility and walk away from our commitments, regardless of what others have done. We committed to our loans and we need to fulfill our committments.

That said, I am all for against protesting against a gov’t and a banking system of corruption.

What I am trying to do is to sell my home to get out of my mortgage, and paying all my other debts off, never to enter into debt again.

Even though they have done what they have done, I still need to do what is right for myself. That way, when I pillow my head at night, I can rest easy knowing that despite being attacked from all sides, I did the right thing.

Decisions like this allow me to stay off all the anxiety & anti-depression medications so rampant in our society today.

Others may not agree, but this is the right decision for me.

Thanks for your comment.

I guess the whole root of the problem really is “live and let live.” I say this because people are too into “let them be them,” while not opposing the values behind what other’s do. This is for everything from disrespect, to not doing what your employer made to be your duties. It’s not just in the neighborhood associations.

I have opposed that kind of thinking, but been called a “hater,” “psycho,” “too ugly to live,” “racist,” etc. I have been there. So i think it needs to be said by more people, other than me.

This country had gone into a wimpy state of the passive “I’m not doing that!” Back when I was a child, VALUES SHOWED RESPECT FOR SELF AND OTHERS. Where did this go? Did we really lose ourselves enough to lose our own respect and self-pride?

I know that people are dying because of this apathy towards work, respect and others. The few people who do recognise this, are considered “haters” by default, because they do not agree with the attitudes of one’s own pride being a hallmark of what a person is….REGARDLESS OF COLOR (which tends to get stuck in the hater mix, even though it’s nothing to do with the topic).

Wake up America! If you don’t get some self respect and pride, you are going to kill yourself and others.

My personal quote, that I find very true… “Live and let live only goes so far.” I point this out to you, because you cannot live and let live as someone drives home from the bar drunk, and kills someone, or themselves. Now how do you live and let live on that? Where was the respect and responsibility?

Mikel Grenier
Toledo, Ohio

It doesn’t sound like you “”fully understand the time value of money”. Your argument is essentially saying that I am just as likely to buy a TV on my 0% introductory interest credit card as I am my 25% interest credit card.

I have to quibble with the basic premise of your point, though. Even if Fed’s target rate does not affect credit card interest rates (which I strongly disagree with), that doesn’t mean that individuals are not more likely to put items on their credit card when the Fed’s target rate drops.

I am not disagreeing that there are psychological aspects to spending.To disagree with my point saying that human behavior influences spending completely misses the point I am making. This post and many people here are saying that people need to “man up” and save anyway, even though they watch their savings get eaten away by inflation (even a mild 3% inflation rate ends up in a 56% decrease in spending power over 15 years!) is just plain odd. Rational people, including myself, will either attempt to find ways to invest with an expected rate of return above inflation (and that necessarily means more risk) or be more likely to spend.

I’m not sure how you can quibble with the statements “if you punish savers, savers will save less” and “if you lessen the punishment on debt, people will take on more debt”. Your value judgment of whether individuals “should” do these things are irrelevant. They are necessary collective consequences to the actions. If you increased punishments for savings and savings rates did NOT drop, people would rightfully make the argument that consumers were not acting rationally. Similarly, if you decreased the price of debt, and debt rates did not increase, people would rightfully make the argument that consumers were not acting rationally.

So, both available options are irrational?

My point is, sometimes the financial aspects go out the window and can only be explained by the fact that humans are involved.

The answer is simple and is explained by econ 101 topics (not “my logic”)… http://en.wikipedia.org/wiki/Time_value_of_money

Low interest rates may induce SOME additional consumption, but I don’t believe it causes the level we are currently seeing.

All in all, this was a damn good post and unfortunately rings too true in today’s “gotta have it” society.

All very well and good, and our understanding of behavioral economics and individuals’ tendency to spend is only more reason that further encouraging the behavior with monetary policy is irresponsible.

If you’d like debate on the Great Depression or your interesting theory on why individuals don’t contribute to 401k, I would be more than happy to give my thoughts over email.

While the availability of money at very low rates is a major influence in purchase decisions, I am a firm believer that myopia has far more to do with our current economic situation than simple low interest rates or low spreads between savings vehicles and inflation. It is the failure to consider long-term opportunity costs coupled with a short-term penchant for spending on perceived needs that has really put us in a mess. Fundamentally, economics does a very good job of explaining the macro, but one must also consider consumer psychology and resulting behavioral patterns before the picture can become more complete.

I reject the notion that money supply is the only–or even the most important–consideration when it comes to explaining consumer behavior. While it is an enabler, consumer psychology is much more important.

Consider the generation that endured the Great Depression. They were avid savers, shunned the stock market, and were incredibly skeptic of banks as a result of the psychological toll that was levied during this difficult period. Personal responsibility was at an exceptionally high rate because government safety nets were few and far between. As the next generation came up, times were better. They were better because banks weren’t failing, the market was still the market, but people weren’t wiped out the way they were in ‘29 or through the ’30s. Finally we get to the next generation that really didn’t see anything close to a tough time compared to the Depression generation.

It is this latest generation that has fallen victim to our economic problems as a direct result of not knowing that things can unravel at what some feel are unprecedented rates. The fact is that these times are not unprecedented and we aren’t feeling the full amount of pain that we would have prior to having a more enlightened monetary and fiscal policy. Is our government handling things as well as they possibly could? Certainly not, but I for one am thankful that TARP passed last year because we were literally weeks away from a complete collapse of our financial system. Fortunately for the citizens of Iceland, they were small enough to be rescued in the end. The United States is not in that kind of position and if we would have failed last year, I don’t know that we’d be having much of a conversation today.

My point is that consumers have made trillions of bad purchase decisions. While they may have made good decisions when weighing the costs of one purchase compared to another, they have not made good decisions when weighing purchases versus savings, present value versus future value, etc. How else could you explain failure to contribute to employer sponsored retirement plans offering a match? For most of the plans offer a 50% or 100% match on contributions and surely this is a better deal than a depreciating flat screen television, an extra night’s stay on vacation, or even furniture for a new and bigger home.

Seriously, economics is great, but it is inept in explaining consumer behavior at the personal finance level without adding information from other disciplines such as behavioral psychology, history, etc.

You’re giving economics far more credit than it deserves. It’s an important part of personal finance, but it is still a part and not the whole.

Perhaps I overstated it with my words. I certainly did not mean to imply that everyone chose not to save. The point is that individual transactions are heavily influenced by interest rates, and the results are that people save less.

Here’s the data for personal savings rate as percentage of disposable income: http://research.stlouisfed.org.....SAVERT.txt

Here is the data for Fed’s various measures, of which I’ll allow you to choose: http://www.federalreserve.gov/.....5/data.htm

You need only look at the Fed’s own words. One of the primary reasons they adjust interest rates it to affect spending. Greenspan and Bernanke both call this “putting the foot on the pedal” of the economy. We had a great boom because we WERE a nation of savers (at least in the 10-11% range), but we eventually burnt through our savings, mostly in the 90s.

If interest rates were higher, I would save more. If debt cost more, I would take on less and choose to pay down existing debt.

That being said… Not everyone made the decision to go on a spending binge over the past several years. Were we irrational for not recognizing this ‘opportunity’ to spend instead of save? No, I don’t think so. The interest rate environment didn’t make saving a bad (or irrational, as you put it) option, it simply made it ‘less good’.

I don’t have the numbers in front of me (and would love to be proven wrong with hard data), but I’d be willing to be that the spread between savings account interest rates and the inflation rate hasn’t been much different over the past several years vs. periods when we were a nation of savers.

I am so sick of the “blame game”! Please stop whining and just do something to help yourself!

BTW, What I love is when even criminals claim to be the real “victim” . . .

My point may be ‘out there’ in the unending fount of wisdom that springs from the depths of the personal finance blogosphere, but it seems to be pretty on target in the relatively irrelevant world of economics. For instance, Hayek was awarded the Nobel Prize for his work showing that market interest rates coordinate rates of investment with the market’s willingness to spend in the short- and long-term in a free economy.

Now, you seem like a smart guy, which leads me to believe that you intentionally left any mention of ‘opportunity cost’ out of your list of things individuals base purchases on. The suggestion that individuals buy things when they want them and can afford them is simply wrong and would lead to an incredibly inefficient economy. The truth, which you surely will dismiss as subtly different, is that individuals act in a way that maximizes what they get for their money. In other words, if they want tickets for $12, they will only buy those tickets if they want them more than anything else they could buy for $12.

You need only take my example to the extreme to remove the subtlety which apparently makes you disagree with me. Consider a scenario where you make 25% interest on your money. You could buy a bike today for $100 or a better bike later for $125. Some will buy the bike today, because they value the bike immediately, while others don’t care whether they have the bike right now (perhaps they have a decent bike already and are just looking to upgrade) and will wait for the $125.

People do this all the time. Indeed, this is the whole point of saving: forgoing current pleasures in order to save up to buy something later that will be better. Are you more likely to save if it will take you 1 year to meet your goal than you are if it will take you 10 years to meet the same goal? Then, clearly the rate at which you can meet your savings goals influences your personal valuation of the time value of money. Therefore, interest rates very much DO influence the decision of whether to spend now or spend later.

Is it a conscious decision? Not for most people, because they are not trained in economics. But economics did not make this up; economics only modeled how the market works. And while most of us cannot explain with specifics why we want to save instead of spend and what the parameters of that decision might be, the decision is nevertheless there and nevertheless made.

Manipulations to the time value of money, deflating it or inflating it from where the market would assign it, has very drastic effects on individual spending/investment decisions. I beg to differ with you when you say I am giving it too much credit; if anything, I do not fully appreciate the ramifications of doing this, and I’d bet the farm our policymakers don’t either.

@David – Digging holes and refilling them does nothing but grow economic problems. It’s kind of like taking a cash advance from one credit card to pay for another. The bigger problem is still there and it’s made just a little worse with the additional costs involved–whether to the credit card company or to the guy digging holes–the real problem doesn’t go away.

@IO – your point about a lack of motivation for saving versus spending is pretty far out there. Anyone wishing to invest above inflation can log on to TreasuryDirect.gov and pickup some I Bonds or TIPS. Besides, rational…errr…normal people don’t make a decision to buy concert tickets, purses, or whatever based on whether or not returns on savings are higher than inflation, they make purchases based on whether or not they (a) want it and (b) are able to afford it either (1) now with cash or (2) with payments to creditors.

Also, monetary policy is a powerful force, but you’re giving it far more credit than it deserves.

Just one sentence!

Betsy

I apologize for any misunderstanding. The points you raise concerning anti-consumer interest rates & faulty monetary policy are excellent, and spot-on. It is uber apparent that our “leaders” clearly do not have our best interest at heart, which has undoubtedly played a major role in the financial position of the citizenry!

That said, the points made in the article still stand as well and are also accurate, just presented from a distinctive perspective.

Yes, you are wrong in your interpretation of my comment. The point of the article is that individuals are being irresponsible by racking up debt. Is that really so? What should individuals do… save money in a savings account? That would be pretty irrational if interest rates are lower than inflation. You would be richer after 1 year by transferring that $100 into a stable asset than putting it in a savings account at 1% when inflation is 5%.

What is personal responsibility if not acting rationally in one’s best interest? If the government manipulates interests rates and inflation rates such that it is not in one’s best interest to save, and therefore no one saves, are we really going to pin the blame on individuals?

The problem is not some fault in our own ability to take responsibility for our actions. The fault is in monetary policy. This is not a deflection of blame; it is rational assessment of responsibility. Allow interest rates to return to market valuation of capital. Stop inflating the money supply and allow the market to return to the slow, gradual price deflation that is supposed to happen in a growth economy. Then see whether people start saving more and spending less.

You can’t create punishments for saving and then criticize people who stop saving. That’s ludicrous.

Correct me if I’m wrong, but it sounds as if you are asking who we can blame for our lack of personal responsibility?

As eluded to in the post & comments, if the gov’t, or any other outside entity attempts and/or succeeds to lead us astray, regardless…it still does not trump the fact that we just need to accept responsibility for our own decisions, no matter what our circumstances. Which is the core message of this article.

I hope this addresses your concern.

You list how we shouldn’t point our fingers at others, because everyone is being irresponsible with their finances. But you don’t ask why? There has to be a reason. It’s not just random.

What could possibly coordinate everyone in our economy to save less, spend more, and take on debt? How about the entity responsible for setting interest rates? Low interest rates punish savers, especially if the rates are below inflation (the rate of which this entity also controls, by the way). Low interest rates also make it cheaper to take on debt. And a situation that discourages savings and encourages debt means the money has to go somewhere… spending.

In addition to helping my finances, finally “manning up” 3-4 years ago and cleaning up the fiscal wreckage turned around my perspective on a number of things, chiefly related to career and community involvement. Much of that stems from approaching financial independence (close, and I was laid off in Feb so that income stream is gone) and realizing that, even though I’m not working and am now collecting unemployment, I don’t really *have* to get another job any time soon and have explored a number of alternatives to another soul-crushing corporate job, e.g. Peace Corps, teaching, etc. I don’t need much money anymore, so to hell with the rat race. I’m done. Even on UI I’m still able to save and when that runs out, it won’t matter anymore. I’ll be teaching English in Ecuador or something else useful to others besides bosses and shareholders by then.