I think I learned basic budgeting, and finance, at age 7.
On a weekly basis, I received a $.25 allowance (back in the mid-sixties), so long as my chores were done, homework completed. At an impressionable age, I learned "ins" need to equal "outs." On Saturday mornings, I'd accompany my father to the local Savings and Loan. It was a treat that I looked forward to. The routine went like this.
More often than not, I donned an A-line skirt and a white crisp cotton blouse, sleeves to the elbow with a ruffle. I had but one dress-up outfit for each season. To match the sleeves, the quintessential white anklets with lace trim. Like a dame, with a black patent purse slung over my arm to match my Mary Jane shoes, I was ready to meet the teller; all gussied up!
In a swirl of grown-ups, I'd walk up confidently to the teller window, albeit a bit dizzy from the "merry-go-round" with the bank entry revolving doors. My head barely reached the teller counter, but I'd slip my coins forward on my tippy toes if need be, followed by handing over my passbook. I'd wait for the teller to mark the deposit into my passbook, checking to make sure it was correct -- loving the fact that month to month the number grew. Eventually, the deposits added up to pay for part of my MBA school tuition.
I remember thinking along the following lines. If I were to buy five $.05 dip-top ice cream cones a week from Tastee-Freeze, no money left. I'd have to borrow from my brother or sisters against my future. I loved those cones so much so, I dreamed about them. Yet, I recall the words, "don't let money burn a hole in your pocket, save a little even if just a nickel."
I listened.
The US was "debt-free," but once, back in 1835 under Andrew Jackson.
So Jackson decided to pay off the debt.
To do that, he took advantage of a huge real-estate bubble that was raging in the Western U.S. The federal government owned a lot of Western land -- and Jackson started selling it off.
He was also ruthless on the budget. He blocked every spending bill he could.
Fast forward to today. The world's awash in debt -- $40 trillion in global public debt. What's more, the interconnectedness of the global financial system, the concentration of banking, places the domino-like contagion on the front stoop of just about any nation, any institution, any individual.
Easy to get lost in the detail surrounding the worldwide debt crisis, but what's it saying, what's to be learned?
Seems to me, when taking on debt, two questions matter. First, can the debt be serviced based on realistic assumptions -- as in analyzing debt service under best, middle-of-the-road, and worst-case scenarios. Second, is the ratio of debt to asset value reasonable -- as in best, middle-of-the-road and worst-case scenarios.
How was basic credit analysis so overlooked, or maybe restraint diminished, by sovereign governments, banks, institutions, individuals? Is it a Shakespearean-like pursuit of returns, wants, profit and power? Can we assume that economies could grow to keep up with debt?
Here's the other part of the story. Nowadays, we have fancy tools at our disposal with capabilities that may either bring out the best or the worst in human behavior, with potentially dire or yet unimagined consequences. Take the phony mortgage securities (in the trillions) as one example. Don't know how many of you caught a recent headline about groups of hackers trying to outdo one another in cyberspace.
Technological know-how reminds me of when the Greeks developed bronze weaponry. They went up against armies who still wore wicker armor. Those armies were decimated.
Potent technology and the facility it brings, requires updated tactics, ethics. It's not technology per se, it's who uses it and how. If the financial crisis teaches us anything, maybe it's this -- the need to stay informed, updated, active and adaptive, yet undistracted (in a world of ever-increasing distraction and technological innovation). There's something to vigilance, to weaving together what is going on around us. Look what happened -- one of the most heart-wrenching financial "decimations" in our nation's history, and, at taxpayer expense.
The cash flow engine now needed to service a mammoth $14.3 trillion national debt remains the "wild card" (with joblessness spawned by the crisis, corporate cost-cutting, technological automation...). As you well know, the consumer accounts for some 70% of the US $14 trillion or so economy. How long can we resort to debt (for every $1.00 we spend, we borrow $.40) to keep the economy afloat? And, can we build a sustainable economic revenue bedrock in time to support indebtedness of this magnitude? Are we at a point where the staggering interest payments alone on US national debt may keep replicating the debt?
Do we hear the sound of the clarions? Is this an opportunity, to re-evaluate what is real, what is unreal, as the headlines unfold. What is truly meaningful, and what is meaningful in our own individual and family lives? What's the difference between wants and needs? Do wants merit indebtedness? Do we act from within ourselves to shape our future or will it be imposed upon us?
The unscrupulous exist, sharpening their "bronze weaponry," eager to exploit wants.