8/2/2011 12:40 PM ET|
More in debt than Uncle Sam
As Americans ridicule their government for running up huge deficits, household balance sheets are in their worst shape in 80 years. But investment discipline can start to repair the damage.
You may remember J. Wellington Wimpy, more commonly known simply as Wimpy, Popeye's beloved friend from the iconic comic strip. Wimpy was soft-spoken and intelligent, but also cowardly, lazy, stingy and gluttonous. A true scam artist, Wimpy usually finagled his favorite meal, a hamburger, from some unsuspecting patron at the local diner. Wimpy's parsimonious ways included his famous con line, "I'll gladly pay you Tuesday for a hamburger today."
Decades later, this character, created in 1932 during the Great Depression, has become a symbol of fiscal irresponsibility.
Today, the United States is facing its own Wimpy-esque moment in the form of the debt ceiling. The free burgers have flowed for some time now, but the patrons have grown wise to the scam. The pitch of pushing off today's payment until some future Tuesday has become a bit haggard and worn thin for many in America.
Simply look to Greece, Portugal, Spain and other countries to see what it is like to have one's hamburgers taken away. The forced diet does not look pretty.
Strangely, as the U.S. citizenry passionately criticizes its government for running up a budget deficit, a greater irony is afoot: When it comes to debt management, Americans are, sadly, worse than their government.
While government debt sits at 94% of national revenue, U.S. household debt sits at a whopping 107% of personal income.
The household balance sheets of Americans are in worse condition than at any time since the Great Depression. The ratio of household debt to gross domestic product is greater than at any time since 1929. And while we all are trying to comprehend what life will be like as a poorer nation, many Americans have not yet comprehended their own personal poverty.
The point of saving
From the early 1940s through the late 1960s, an ethos of saving before spending ruled the roost. If you sought to buy a house, a 20% down payment was required. Similarly, substantial savings were required to buy a car. Home furnishings, clothing and more were purchased primarily with cash.
By the 1970s, however, rampant inflation helped form a debt culture that found footing and gained steam.
If you saved, inflation threatened to erode the value of your savings, while the price of your desired purchases continued to rise. What was the point of saving when you could buy with little to nothing down, deduct interest from your federal tax obligations and have those things you longed for?
Over the coming decades, American household debt ballooned, eventually doubling from $7 trillion to $14 trillion between 2001 and 2007. Debt fears, however, were assuaged by the rapidly growing value of real estate; homeowners used equity lines to buy more property and cars, as well as pay for vacations and toys. Burgers were flowing for all.
Then in 2008, the sudden and violent decline in home prices revealed just how bad the debt binge had been. Tuesday had finally arrived, and, like Wimpy, our wallets were a bit too thin to meet our obligations.
Wise and disciplined investors
A renewed focus on government fiscal irresponsibility should lead us to honest self-examination. At the heart of this audit should be confronting personal debt and embracing basic investing disciplines.
Each person must make a decision to feed the debt furnace or build a retirement engine.
Like Wimpy, we all experience the gnawing hunger to consume more than we need. Each time we reach out, through credit, for a burger today, we take our future dollars and throw them into the blazing furnace of consumption. The heat of the moment is delightful, but the result is the poverty that's unfolding before our nation.
When we behave like wise and disciplined investors, we resist our pulsing appetites, take our hard-earned dollars and direct a predetermined portion to smart, long-term investments. In doing so, such investors build an engine through the miraculous power of compounding interest.
Unlike Wimpy and other debtors, this interest works in your favor. Ben Franklin understood that for such savers, "money can beget money, and its offspring can beget more." Albert Einstein called compounding the "eighth wonder of the world."
Those who reject debt and invest wisely create a powerful engine, so that Tuesday's obligations can be fully met on time, leaving a few burgers to spare.
This article was reported by Steve Beck for U.S. News & World Report.
VIDEO ON MSN MONEY
If the competitive trend continues,
most of the jobs here in US will only pay about $ 10 / Hour.
Just try to support a family on this income.
Pay taxes - income is too low - I will probably get more $ than I paid in Fed Taxes.
Buy a home on this income ?
Buy a new car on this income ?
Send your children to college ?
Build any degree of security for my family ?
We must stop companies from outsourcing all these jobs that
could sustain our families, fund our government through income taxes,
support our infrastructure and ensure future competition in this global economy.
I'm fascinated by the people that believe the 'rich' don't pay enough taxes.
25 years ago (1986), the rich (top 10%) paid about 26% of all taxes. Now they pay over 70% of all taxes.
And in 1986 Roughly 18% of the 'income earners', (people getting paycheck) didn't pay taxes, or got paid by the government (more back than they paid in). That's about 1 worker in 6. Now, over HALF of the people that get a paycheck do not pay income taxes.
In a nutshell, the rich are paying 3 TIMES as much as they were 25 years ago. And that isn't enough?
And for those we really don't know what they are talking about and say the Bush tax cuts hurt revenue.....................From 2003 (the first full year of the cuts being in effect) till 2007 revenue grew by over 40%. That's right. The fastest increase in tax revenue in U.S. history. But congress spent it faster than it came in.
And like I always say: GO TO THE GOVERNMENT (.gov) WEBSITES AND SEE FOR YOUR SELF!
It's interesting how politically everyone has sided up, with the Democrats using the same tag line that Republicans are bailing out the rich, and the Republicans calling out the unions and public employees, etc.
Well, you know, they are all right in a sense. GREED has permeated our society in every corner. Athletes make ungodly sums of money, but it is not enough. Bankers, investment firms, etc. give million dollar bonuses but it is not enough. Many times public unions "bargain" for more pay, cadillac insurance and other benefits, well above those in the private sector who pay for it, but it is not enough. It is considered a right, along with collective bargaining, that treats al employees the same, good or bad. Private firms pay their top people ungodly sums, so they can compete they say, but it is never enough.
My Father went bankrupt when I was seven. He rose out of it, did quite well, and then died broke at the young age of 58, He was much more of a risk-taker than I, but he taught me a great lesson. From early on I decided that my main goals were to be a good husbnd and father, and to be out of financial debt as soon as possible by being responsible. I did that, and today have no debt, even though my average pay over 30 years was probably $30,000.
Every American needs to stop pointing fingers, but instead, look in the mirror. We can blame greedy others, those who gave us mortgages, cars or toys we coudln't afford, the wealthy, the government who bailed out the "too big to fail" companies (which I feel was wrong) but really. Come on! We sign the papers, we buy beyond our means, we use the credit cards, and we vote in people who are there only to perpetuate their being. . Wake up people, we are all responsible for our own destiny ultimately.
I hate unclear statistics like this one "U.S. household debt sits at a whopping 107% of personal income", which seems to be the basis of this article. Does this include mortgage debt? How does this relate to household net worth?
Take this hypothetical for example. Say someone makes an average $40K/yr. Say they owe $43K on a house that is worth $143K, have no other debt, and have $50K in their IRA. You could say their debt is 107% of of their personal income. Of course, you could also say that their net worth is $150K, or nearly 4 times their personal income. Both statements are true.
If the article is saying that most people have a negative net worth, that is a very serious problem. But, just saying people have a certain percentage of debt really isn't saying anything at all.
The author just breezes by the unfunded wars (not on the books), the Bush tax cuts that mainly benefited the rich, the medicare handout to pharmacological companies, the big three rating agencies saying that garbage was gold so the banks/investment investment institutions could push them on unsuspecting others, and then sleazy hawkers started pushing mortgages to people that had NO ability to handle the payments on the elderly, uneducated, marginal just to get their fees and then package up these risky loan to camouflage them and pass them on to others!!!!!!!!!!!!!!!!!!
Edit: I forgot the financial sector bailout
Worse, these garbage agencies are now threatening the USA's AAA rating because the the teabaggers (not a sexual insult, lookup the original meaning of the the term as it is a very valid usage of the term) held the American economy hostage like uneducated,spoiled children. The President bent over backwards (or was that forwards) with his $4trillion somewhat balance approach that he and Boehner almost came to terms on before the teabaggers blew it up.
Having beliefs is fine for religion, not for science, finance and other things that can have such dire consequences across ALL spectrum, ie all religious beliefs including atheism!!!!!!!!!!!!!
IM Young: You haven't spoken about the 50% more revenue we could get if the rich paid the same they did in the 1970's, 1980's and 1990's. We had plenty of growth during each of those decades and tax rates were higher.
We don't have a deficit issue. We have an economic issue, caused by the housing balloon that bursted in 2008. GDP is down and spending is up as a greater percentage of GDP.
BTW, we, as Americans decide on what we want to do with tax revenues, however, If we want services, we must pay for them.
"tudognight" says capitalism is gambling and that America's wealth has been redistributed to the wealthiest 2% of Americans.
You are either completely misinformed or a worse. In other words you just make up stuff and then you get to vote based on your fantasies. It's your right, but, stupidity still makes me mad.
First off: Life is a gamble. Security at the cost of others is cowardice. When American was great, we used to disdain and shun cowards - and in the military, we shot them.
Secondly, here are the facts about WHO gets the goodies from governement: (found at http://www.usgovernmentspending.com/us_welfare_spending_40.html#usgs30280 )
23% of our federal budget goes to welfare/entitlement healtcare programs: medicare, medicaid, etc.
13% goes to welfare programs.
23% goes to various social security retirement plans.
So far, that makes up 59% of our spending which does NOT go to the wealthiest 2%.
The rest goes to PUBLIC military defense (25%) public services (fire, police etc: 15.8%) PUBLIC transportation (2.4%) interest on our debt and our federal deficit (over 43% - which means we are spending MORE than we take in)
All of this is spent on the PUBLIC. And over 59% goes to those NOT in the wealthiest 2% and the remaing 41%+ benefits all Americans.
Although I am not in the wealthiest 2% catagory, I earn over $150,000 per year by working very hard and by working many long hours. I pay over $30,000 a year in taxes so you can sit on the sofa and type your non-sense on sites like this. So, don't spread your bull about WHO gets the freebies from Barry Hussien Obama and his merry band of thieves!
ALL Americans benefits somewhat from goverment's out-of-control spending binge. But the vast majority who get the goodies are the UNDER $100,000 folks.
Now we ALL are getting ready to pay big! So, get ready roach. You are 'bout to get stepped on by your buddies in Washington!
I hope this clarifies your thinking on this matter.
This blame the victim bit is getting really, really old.
@ Stromprophet- Corporations ARE your government. If you think anything else, you are sorely mistaken.
What garbage!!!. People have a right to spend their own money how they wish. Politicians and bureaucrats have no right to spend other people's money profligately or on non-essentials.
Also, the govt has no busn being a significant percentage of the American economy. It's debt should not have been incurred at all. The current national debt is over 4900 times what it was when the income tax was legalized in 1913. The income tax is the power of immoral politicians and bureaucrats to spend other people's money to gain personal power.
u know-all my stuff is paid for-
im lucky and i know it-maybe not so lucky but thats just the way i choose to live-
heres the rub-
every time i go out to get grocreies,gas, drive thru lunch, whatever-its cost me more than if i went to work or stayed home-
whats up with that?
i need to make more money apparently-cuz i cant even afford to go out on my days off
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