When I was a child, I loved to hoard money. I didn’t usually have an allowance, but I’d get money one way or another, here and there, and I was loath to spend it. I didn’t have a bank account, either—I kept my cold-hard cash where I could see and admire it, always. I had a preference for small bills to make my wad of cash thicker and, in my mind, more impressive. But then my cousin told me that by whipping out a $50 or $100 bill, I’d look cooler than having a huge stack of ones, and I listened to him. Besides, by the time I was in the fifth grade in 1990, my wallet was bursting with greenbacks.
My friends were always shocked by my “wealth.” They thought that my parents must be rich—they weren’t—and spoiling me. In truth, the only thing my parents ever did was allow me to do whatever I wanted with the money I earned or received, and as a result, I viewed the money as mine. My peers, by contrast, were typically forced to “save” a portion of any cash windfalls, and thus, the money was never even real to them. What money they did get and were allowed to spend, they blew immediately.
My good money habits stayed with me through the early part of my college years. I was into music, and there were two pieces of musical equipment I had my heart set on. Earning just above minimum wage in a ten-hour per week job, my arch-conservative parsimony allowed me to drop $2,500 in 1998 money—about $3,400 by today’s standards—on these objects of adoration after two years of diligent saving. Sadly, this was among the last of my penny-pinching triumphs.
Adult Realities Make it Hard to Save
What was responsible for my conversion from miser to spendthrift? Well, I’d like to blame it on credit card companies, and they are partly to blame, but mostly it was just the realities of adulthood. For when I was a youngster, my food and clothing and lodging were taken care of, leaving me to use my money for things I wanted rather than needed. But when I got out on my own, hoarding cash became impractical, what with the cable bill, the cell phone charges and whatnot. Saving was not an option because the interest rates paid by banks were, and are, laughable, and instead of delaying gratification as I had as a youngster, credit cards now gave me the ability to have what I wanted now and pay later—if ever.
America’s national prosperity was built on individual savings. But our national savings rate has now turned negative. It seems logical to suggest that children who save—or more accurately, children who decide (as opposed to being forced) to save—are more likely to become adults who save, but what of my story? I was a cheeseparing child but became a credit-cardaholic as a young adult. What went wrong with me?
So then, we have two questions to answer: 1) What can we, as parents, do to inspire our children to become savers, and 2) What can we, as a democratic nation, do to encourage saving by the adult populace? Let’s start with the first.
How to Encourage Your Kids to Be Savers
I grew up in an era where cash was king. The vast majority of purchases were paid for in cash because credit cards had not yet achieved critical mass, debit cards were unheard of and paying for everything with checks earned you cold glares from the people behind you in line. Thus, my parents—like most—had cash in the house. I saw it all the time’ and I knew what it symbolized. I wanted to have it!
Kids today, however, see a lot less of cash. Their parents use plastic to pay for goods and services, and they do, too—just think of all the iTunes downloads, World of Warcraft subscriptions, etc., that kids today purchase. So while I liked to hoard physical cash, there’s no such attraction for kids today. Physical money is so…totally eighties. It’s all about the electronic Benjamins, baby.
The above is my sociological observation and hypothesis. One thing that is more rightly treated as fact, however, is that kids’ perception of time is radically different from that of adults. When you’re eight years old, your living memory might stretch back four years. One year, then, is equivalent to 25% of your living memory. The idea of putting $100 in the bank so that he might earn $3.50 over the course of an entire year is not appealing to an eight-year-old, and thus, he’s extremely unlikely to willingly put money into a savings account. Forced savings undermine his legitimate ownership of the money and, thus, make him more likely to be a spendthrift with whatever money he gets that’s really his—i.e. the money that he can spend if he chooses to do so.
For kids, saving cold-hard cash is unappealing and outdated, earning miniscule annual interest rates over long periods of time is unattractive and being forced into saving is most damaging of all. So how can you encourage kids to save? The answer: bribe them.
Seriously: make saving line up better with their time preference. Instead of having them put their money in a bank that pays 3.5% annual interest, set up your own faux-accounts for them that pay 3.5% monthly interest—or more. Telling a kid that if he saves that $100 birthday present from grandma, he can have $110 in two months sounds a lot better than $103.50 in one year. The lessons you’re teaching them are to delay gratification and to give more careful thought to purchasing decisions.
The Culprit, As Always: The Fed
Now on to the bigger question: what can be done about American adults’ horrible savings behavior? The answer: only radical recomposition of our monetary system is likely to encourage savings. Fractional reserve banking and fiat money discourage saving since banks don’t need your money to lend—they can create it out of thin air. The Federal Reserve System keeps interest rates artificially low, which by definition encourages borrowing and discourages saving. The responsible thing for adults to do, of course, is stay out of debt and accumulate hard assets—such as gold—while maintaining a diversified portfolio of financial instruments designed to outperform inflation and generate a “real” return.
This, of course, is a lot trickier than simply hoarding money, as I did as a child, or buying bonds, like our grandparents did. Is it any wonder, then, that the divide between the rich, who can afford financial advice, and the poor, who cannot, has grown so wide? Teaching your children to be responsible with money is the most important thing you can do to ensure that they’re on the right side of the growing economic gulf.
Autos are short for auto rickshaws. They are just like taxis, with the exception that they are much smaller and can seat only three people behind the driver.
In the city of Chennai, autos play a very important role. Public transport is often so crowded, that people who are not used to it often find it impossible to travel. In addition, there is a large segment of people that cannot or will not use their own conveyance. This could be for reasons like simply not owning a car or bike, to not having the patience to find parking space, etc.
Autos are ubiquitous in Chennai. There are approximately 70,000 autos. However, their distinguishing factor is the prices they charge. Legally, they are supposed to charge by the electric meter, depending upon the distance. However, this law isn’t enforced. As a result, the autos charge whatever they can get away with. This often ends up being 4-5 times the cost of the electric meter.
This is the surprising bit. There is no dearth of autos in Chennai. According to the laws of economics, the intense competition should ensure that an auto driver does not outrage the customer with high prices, thereby driving the customer into the arms of another driver. Yet auto drivers continue to charge ridiculous prices, confident in the knowledge that no other auto will charge a reasonable price.
In all my years of living in Chennai, I am yet to come across an auto driver who charges by the electronic meter. How is this? If I was an auto driver, I would get more business by charging all my customers by the meter. I would get all the delighted customers who would regard me as an honest driver. The relatively lower pay per customer would be compensated by the fact that I would never be out of work, as no customer would refuse to travel with me. In fact, I would put a sign on my auto openly claiming that I charge only by the meter!
Seeing me, all other auto drivers would be forced to do the same if they want to keep up with me, and soon any driver who doesn’t charge by the meter will be out of work.
Image Credit: mikecogh
But this doesn’t happen. With all my expertise in economics, I’m unable to understand how this is so. As of now, an auto driver will refuse to carry a passenger if he doesn’t get his outrageous price. Why? Is he so confident that he will be able to get another passenger in that time who will be willing to pay the high price?
It’s a cartel of immense proportions that seems to contradict the economic theory that large cartels are unstable. 70,000 drivers have somehow come to an agreement that they will all charge outrageous prices. The public, for it’s part, has lost hope. They know that refusing one auto’s demands doesn’t mean that they will get a better deal anywhere else. The result is that each customer is forced to pay the high prices that the very first auto demands, knowing that he will have no better luck elsewhere.
Customers do try and ask two or three autos one after the other in the hope that one of them will charge a lower price (though still not by the meter). But this never happens.
The drivers do not seem to be behaving rationally. By not lowering his prices or charging by the meter, an individual driver is being stupid since he would get all the customers. But by doing this, the auto drivers collectively side step the prisoner’s dilemma.
A classic case where being irrational benefits the group as a whole. The result being that the city of Chennai is being taken for a very expensive ride by a bunch of stupid irrational drivers! Government regulation prevents a private player from entering the auto market and offering reasonable rates, thus cutting off the only hope of some real competition entering the market and rescuing the city.
Brandy Brady and Rick Huggins of Lake Charles, Louisiana, met in February at a Mardi Gras party and fell in love. They both feel certain they would have eventually married each other regardless of their current circumstances, but the fact that they decided to marry each other by April, after dating for only two months, was so that Brandy could be added to Rick’s Blue Cross/Blue Shield health insurance policy.
Brandy Brady has end-stage renal disease. After a kidney transplant last year left her with lots of medical bills, an unpredictable medical future, no job, and no healthcare, she met Rick, and the rest was a no-brainer. According to a recent New York Times feature article which tells Brandy and Rick’s story and others, more and more couples are marrying, divorcing, or staying together when they want to divorce because of health insurance issues.
A recent poll conducted by the Kaiser Family Foundation (a health advocacy group) found that 7% of all participants had at least one family member who had recently arranged marriage or divorce around issues of insurance coverage. More and more often, marriage is becoming a financial necessity driven by factors of health, legality, and the constraints imposed upon a financially struggling society by the insurance industry.
I can personally validate that poll, if not scientifically, at least in my own gut reaction. I personally know of at least three people who would obtain a divorce today were it not for the fact that the partner with a chronic, serious illness would be instantly thrown into such dire straights that not even Rasputin would have the heart to go through with it. So they carry on separate lives, married in name only, so one of them can stay alive.
On the other end of the spectrum are married people with medical debt who divorce so that the one carrying the debt can file bankruptcy and they can continue with their lives with a roof over their heads, the only difference being a document saying they are no longer man and wife. It doesn’t take much to pile up unfathomable medical debt anymore, even with insurance. A triple bypass or a bout with cancer will do it quickly. But even a lesser emergency can cause a financial strain severe enough to leave people throwing romance aside and shuffling through their legal options just to stay afloat.
With recent data showing inflation at 17 year highs and real wages dropping like SUVs pushed off a faulty infrastructure bridge, considerations of marriage are once again drifting back to the practical and the necessary. Today’s healthcare crisis adds a final straw to the already crushing financial weight pushing against the lofty principals of love, affection, and holiness we used to demand in matrimony.
Let’s not kid ourselves: it takes two incomes, sometimes three or four, to successfully run a household these days, and somebody in that household better have some health insurance that covers all the members. Frost that with a love story if you can. Love makes it all more palatable, but it doesn’t change the fundamental reality facing today’s families.
I’m reminded of something I learned as a freshman psychology student: Maslow’s hierarchy of needs. Abraham Maslow, a famous humanist, posited that in order for human beings to self-actualize (become their own best true selves), they first had to have basic needs met. In other words, people who spend 18 hours a day hunting and gathering don’t create art or philosophy; that sort of elevated activity only comes about in a society that is well-fed, sheltered, and healthy.
Reading Maslow in college in the 1970s left all of us feeling sad for the third world unfortunates who were so busy pounding taro root in the hot sun that they would never get to, well, read Maslow. Who knew that thirty years later we’d be looking for books on how to pound taro root? Actually, those old psychology texts are heavy enough to pound grain, and they’d also keep a small household warm for several nights if that household is lucky enough to have a pellet stove.
All kidding aside, we need a single payer national healthcare plan and we needed it yesterday. I’m under no illusions that such a plan will materialize quickly if ever. In the meantime, lonely hearts with great insurance plans are in luck!
At least say you like long walks on the beach, though. It makes the whole thing a little less awkward.