© 2008 by Michael Swickard, Ph.D.
Listening this week to the media fear-mongering about the economy I thought of the words of Gertrude Stein: “Everybody gets so much information all day long that they lose their common sense.”
Some people are very afraid of a bad collapse of our economy, while others are merely worried. So many assumptions are wrong that I do not know where to start other than to agree with President Franklin Roosevelt, who said, “The only thing we have to fear is fear itself.”
This is especially true today, when we have such prosperity amid fears. Throughout most of my adult life there has always been some media flack saying that we are all going to the poorhouse. The truth is that some Americans are getting wealthier while others are falling farther behind. This is because some people do the right things while others do not.
Most Americans are utterly clueless about wealth creation and preservation. Wealth creation is easy to find out about, but it takes the right frame of mind to make it work.
Should you fear a recession? No, because you essentially cannot do anything about it. What you should fear is not building wealth when you can and also not teaching your children the secret of building wealth. If a recession hits, those who have built wealth will be fine.
Many of us who are of the 1960s thought our kids would do better than we did. Now our kids hope their kids can do well enough that they will not have to support them forever. We dreamed of our kids making enough money to support us in our sunset years. That is getting less likely as our kids and grandkids go into consumer purgatory with few ever building wealth.
A penny saved…
An interesting experiment was described to me in a psychology class years ago. Researchers threw a shiny, new penny on the ground and watched what people did when they spotted it. Some picked the penny up while others did not.
Who picked up the penny? After the observed subject either picked up the penny or did not the researchers asked them a general question about their wealth. Counter-intuitively, the wealthier a person, the more likely he or she was to pick up the penny, while the less wealth people had, the less likely they were to pick up the penny.
You might ask why someone who really did not need a penny would pick it up while someone who did need it passed it by. The answer: It is a habit for both. The wealthy always pick up pennies and, more importantly, watch their pennies. The less wealthy are often less wealthy because of how they do not watch pennies.
The prime example was noted by President Thomas Jefferson, who wrote, “Never spend your money before you have it.”
Wealthy people usually do not spend money before they have it, while less financially secure people do just that. The issue is that, in
Spend less than you make
A credit card is not instant credit, it is instant debt. We appear unlikely to be able to roll back taxes but we individually can roll back our debts. How? By spending less than we make each and every week.
Will that make us wealthy? Eventually. Will spending more than we make each and every week make us wealthy? Never. In fact, it is the road to ruin, though the road runs a long way before some people are ruined.
I see young people who wear the finest designer clothes in high school while driving a late-model car and talking on their cell phones, no, cancel that, while texting constantly on their cell phones to the tune of hundreds of dollars a month. That disposable money, which could be used to go to college debt-free, is spent while these students are in high school.
What happens is that when they go to college they do not do so with money in hand. They have spent that money, so they go into debt. Upon successfully completing a college degree they start their professional lives tens of thousands of dollars in debt. They spend much of their lives paying other people for the use of their money.
Spending less than you make every week is difficult for impulse buyers. It is also difficult for young people who have never really denied themselves what they wanted. They have no clear idea of their needs versus their wants. That is where the frugal habit is handy. You can think of a thousand reasons at any moment to spend money you do not have. There is only one reason not to do it. You will always remain financially challenged if you do not build wealth.
If the news about the economy scares you, you can start building wealth today. Maybe it is only a penny saved, but there is a big difference between saving a penny and spending money you do not have.
Swickard is a weekly columnist for this site. You can reach him at michael@swickard.com.