Living for Today Can Lead to Paying for the Past

October 10, 2009 by  
Filed under Debt and Credit

A frequently uttered battle cry of our borrow-and-spend culture is “live for today.” This phrase is often used to rationalize a questionable purchase, because “you never know what can happen tomorrow.” Actually, for lots of the “live for today” folks, we do know what will happen tomorrow: You will pay a huge price for your spendthrift ways.

In a Wall Street Journal article titled “The ‘Democratization of Credit’ Is Over — Now It’s Payback Time“, the author highlights the current struggles of the lower and middle economic classes. These folks are paying a severe price for freely using credit so that they could adopt the lifestyle of those above them on the economic scale. It’s likely that the upper income spenders they were emulating were also living above their means. The difference is that the “bigger” big spenders are finding it slightly easier to recover from their mistakes.

The article cites some scary statistics about credit cards and the lower economic classes:

By 2007, 35% of Americans in the bottom two-fifths of income had a credit card with a balance, up from just over 21% in 1989. And use of these cards increased. The median balance on the cards, adjusted for inflation, grew 180% over that period for people in the bottom fifth of income and 80% for those in the next higher fifth.

I enjoyed this quote from one young woman regretting her prior ways and her $36,000 consumer debt load:

Years ago, I lived for now. It was so stupid. It’s depressing, but I can’t live that life anymore. I basically want to live for the future.

I recommend that you read the entire article.  It will make you re-think making credit available to everyone as if it were an inalienable right of a democratic society.

Maybe this is what the high income “borrow and spenders” should be telling those beneath them on the economic ladder:

  1. Don’t do what I do; and
  2. The pain of financial discipline is much less than the pain of spending regret.

For some other interesting reads this week:

Over on my Go To Retirement blog, I wrote about dollar cost averaging and retirement investing. There are some hard truths about dollar cost averaging that maybe you haven’t considered.

Moolanomy published a comprehensive list of financial lessons we all can learn from the economic events of 2008-2009. Will we let history be a good teacher of financial lessons?

Mighty Bargain Hunter found an excellent online resource for free computer help. It’s a geekfest that can benefit all of us.

If you want to read a summary of the “new math” arguments behind the cost-savings in the Senate health care reform bill, read this post from the Director of the Congressional Budget Office.

Steadfast Finances lists 10 excellent reasons why you should not be investing in gold. It’s another bubble. If you are a gold investor, tell me this: When are you going to take your profits? What are you waiting for? More bad news?

Finally, check out this week’s Carnival of Pecuniary Delights.

Enjoy the rest of your weekend.


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13 Responses to “Living for Today Can Lead to Paying for the Past”
  1. Terry says:

    The dollar is near collapse. In what should one invest now, if not gold?

    • Terry: Let’s assume you are right and the dollar “collapses.” What will you use to purchase goods and services? Will you demand that you be paid in gold? Will you insist that stores take payment in gold? Or will you sell gold for dollars? If the latter, when will you do that? Remember that, adjusted for inflation, gold was much more valuable in 1980 than it is today. So if you don’t take your profits at some point, you will lose most of your gains when the dollar “uncollapses.”

  2. Terry says:

    Yes, I remember the gold bubble of 1980…and chuckling in ridicule of the president of my alma mater, who at the time was being ridiculed by liberals for having invested in Krugerrands (what with apartheid and all).

    Buying an inflated investment at the top of the market…tsk tsk.

    Certainly I would keep my liquid day-to-day money in dollars. No, I have no desire to buy bread and milk with gold.

    But if I had any long-term money to invest, I’d hold some of it through the coming (hyper?)inflation in gold

  3. kitty says:

    @Terry: Back in Russia in the days of Leningrad blocade – which my mom’s cousin’s wife survived – people used to were able to exchange some expensive gold items for say a sack of potatoes or a loaf of bread. But then any item that is of use to anybody who had this sack of potatoes worked just as well.

    In terms of inflation — I don’t see why gold would be better than any commodities or stocks in international companies or companies that produce things people cannot do without. As to gold – I am just not sure if it’s current price is not already incorporates anticipation of future inflation.

  4. MasterPo says:

    Kitty – Clearly the price of gold has a big inflation expectation factored in. Plus, as of now anyway, physical gold is an unregistered/untracable asset the gov can’t tax or confiscate. Don’t think that aspect is lost of people afraid of the loosing their life-long hard earned savings (you hear that Rick? Life-long of hard work for savings!) to a bankrupt government that has a spending addiction.

    However, TML, I question the accuracy of the figures about CC balances. While I totally agree waaaaaaay many people are carrying a balance these days, how that figure was arrived at may skew the number. IOW, was it based on observations over a period of time? Or a snap-shot on a particular date? The former would tend to show people carrying a balance. But the latter doesn’t include people that *will* pay off their balances when the bill comes.

  5. Rick Beagle says:

    “(you hear that Rick? Life-long of hard work for savings!) to a bankrupt government that has a spending addiction”

    The wonder of that statement MasterPo is your inability to hold those you voted for, and support here accountable for their efforts regarding that fear. Greatest gap between the rich and poor since the corrupt “gilded” age. Please remember it was Bush who sent trillions to the wealthy, and bailed out the banks. And then remember that it was people like you that screamed when Democrats wanted to impose restrictions…. You made your bed, quit whining about how it turned out.

    Peace.
    Rick Beagle

  6. MasterPo says:

    With all the tens of TRILLIONS of dollars spent on helping “the poor” since the war on poverty started, just tell me how many people previously poor people have become “rich” because of some new government policy or just passed law?

    I didn’t notice your Nobel Prize winning lad reversing the bailout trend. Hell – he bought GM!

    BTW, how much of that “greatest gap” do you blame the slackers for? Money just doesn’t fall out of the sky (wish it did). You have to go out and get it, not sit on your butt all day playing Xbox and WOW.

  7. This is absolutely correct. I was stupid 6 years ago and paid $80,000 cash for a car which I thought was good value b/c Mercedes bought the import rights to the G500. The G5hundo was selling for $150,000 previously, and I thought I had a good deal.

    I could have turned the $80K intil $120K+ over the next couple years since the markets ripped.

    At least I had my fun for a while!

  8. Terry says:

    Ah, MasterPo should know, government War on Poverty spending is not at all designed to help poor people become rich.

    Indeed, the programs are designed so that recipients lose eligibility once they escape poverty, and long before they are able to become rich.

    The programs can at best be considered subsistence maintenance.

    And of course vast proportions of resources are skimmed off by government workers, so most of the expenditures to not reach the poor directly.

    Not to mention that a considerable amount of the expenditure enriches the middle and higher classes.

    Consider the Community Development Block Grant (CDBG) program, ostensibly intended for the benefit of low and moderate income households.

    CDBG money is distributed to local governments based on local population of low and moderate income households.

    So when I lived in a town with a lot of CDBG money, it was mostly spent on subsidizing home purchase in targeted neighborhoods, and street work in the same targeted beighborhoods.

    Since the low/mod residents of the targeted neighborhoods didn’t earn enough to be able to BUY homes, ALL of the CDBG home-buying subsidies went to newcomers who moved in from elsewhere, driving up property values (an explicit intention of the middle-class decisionmakers who allocated the funds) and displacing the low/mod existing residents of the targeted neighborhoods.

    Since money is fungible, the CDBG funds spent on street work in the targeted neighborhoods merely replaced the funds which would have otherwise come from the town’s general fund…thereby allowing those not-spent general fund dollars to be used for other purposes in other neighborhoods.

    So I strongly reject the premise that “War on Poverty” dollars are spent on the poor and consequently wasted.

    No, the CDBG dollars (at a minimum) were spent for the benefit of the middle class, and the middle class got a high return on those dollars.

    The poor lost bigtime, but calling those dollars money spent on the poor does not make them so.

  9. MasterPo says:

    Terry – The poor are still poor *inspite* of 30 years and tens of TRILLIONS of dollars spend on this and that government program.

    The point being that NO government program can EVER make someone “rich” who is currently poor. The INDIVIDUAL has to *work* at it. At best they can get a leg-up on the process but it may take them a life time of their own work to garner success. But it won’t happen waiting for yet another government program to get started.

    Individual hard work is the ONLY way someone will achieve success even close to being “rich”. Not just for the gains from hardwork but the more important IMO lesson learned of the value of the achievement earned! IOW, someone who works for $1 million will appreciate it and manage it much more wisely than someone who is just given $1 million.

  10. Terry says:

    MasterPo:

    I stand by my previous statement:

    The ["anti-poverty"] programs can at best be considered subsistence maintenance.

    Name an anti-poverty program that is designed to turn poor people into rich people. I am unable to do so, perhaps some other reader can.

    The food stamp program is classic subsistence maintenance. Incremental individual financial improvements result in incremental loss of food stamp benefits.

    This is the Reagan approach, which ‘rewarded’ work by reducing welfare benefits dollar for dollar of earned income.

    (Talk about exorbitant effective tax rates!)

    And then conservatives were either dumbfounded or (more likely) considered it cultural failure when welfare recipients did the math and decided that working for ZERO marginal income was irrational.

    Time and time again, the American people have proven themselves smarter than liberal politicians…and conservative ones too.

  11. MasterPo says:

    Terry – All the anti-poverty programs were designed to get “the poor” on a track to becoming un-poor (defined however you want). Guess what? The poor took the money and *still* sat on their asses! So more was spent. And still nothing happened.

    Getting yourself out of poverty may take a life time. Maybe even generational. If it’s your claim that people chose not to work because they could get more from the gov for not working, then who’s fault is it?

    My first job out of school was for $8/hr and I had to drive 50 miles each way every day!! But it was a start. I knew I wouldn’t be there as a career but needed a bit of time on the resume. With that I got a better job, much better pay and commutte. And it snowballed from there. Along the way I had to deal with waaaaaay to much BS, insane bosses, conditions that today would be called pyschological torture (no exaggeration!), back stabbing co-workers, etc etc. But I kept at it knowing there was better things to come. That’s what a career is – the constant pursuit of doing better tomorrow than you did today.

    Don’t cry about food stamps. When I was in HS I worked in a supermarket. I would see food stampers buy eggs and milk and bread on food stamps. Then buy cases of beer and soda, bags of chips and candy etc. paid for with a wad of cash to this day I have never held in my hands!! :-O

  12. mbhunter says:

    Thanks for the link TML!

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