Wednesday, February 27, 2013

Fear of a Black (Ink) Planet

We have another indication this week just how far we have to go to change the norms that have been accepted for far too long in our economy.  The Pew Research Group is out with a new study showing Americans under the age of 35 are carrying considerably less debt than previous generations following the "Great Recession".  As a devotee of Dave Ramsey and the debt-free lifestyle, this news warms my heart.  It would appear that the next generation is realizing that they cannot afford to overextend themselves like those before them did--leading us down the path of economic turmoil that we are now dealing with.

However, those grasping to the "conventional wisdom" of "borrow to the max and work the rest of your life to pay it off" are decrying this trend.  None other than Fortune Magazine (how ironic is that) says reduced debt among young consumers is a HORRIBLE thing for the economy.  Their argument is that if young adults "can't afford to borrow" when interest rates are practically zero--how will they ever be able to buy a house or new cars or all of those clothes at Macy's?

I would counter, that it was the myopic focus on getting young adults (and middle aged ones as well) to spend more than they make year after year after year that got us into our current malaise.  The "recovery" following 9/11 wasn't based on actual income growth of consumers--it was entirely an increase in the availability of credit--and people's willingness to dive head-first into the ocean of red ink.  But once all of those bills came due--especially the "creative home financing"--the entire system collapsed.

By putting off borrowing--either until they are more secure in their jobs or until they have paid off all of their current debt or until they see that Uncle Sam isn't saddling them with huge bills to pay further down the road--today's Young Americans are building the base for a (I can't believe I'm using this term) "more sustainable" economy in the future.  You know who doesn't default on their mortgages?  People who can actually afford the payments--even in a financial pinch.  You know who will have more money for retirement and health care?  People who don't pay 18% interest on every tank of gas, meal at a restaurant and article of clothing they buy.

Will such a financial strategy mean slower economic growth for the next few years?  It could.  But those who fail to learn from the past are doomed to repeat it.  So if you're one of those people rejecting the temptations of debt, I applaud you for your strength and your wisdom.  We are all counting on you to stay the course--no matter what the "economic experts" may tell you.

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