I’ve been pretty excited about rising home values. Conventional wisdom holds that the average home has appreciated 15% or more in recent years while homes in hotbed areas like parts of California and Boston have gone up much more than that. It’s likely that the surge in home prices has peaked and leveled off. Nonetheless, a 15% increase is not too shabby. Plus, most stock indexes are back up to their pre-2001 level.
Just as I’m being giddy over the value of my house and stocks, I get a report from the Federal Reserve Bank of St. Louis that rains all over my parade. “Most Americans aren’t putting enough money away to ensure the rising living standards to which they’ve become accustomed and, unfortunately, rising asset values are not going to bail most people out either,” according to a recent news release. The release was heralding the recent issue of The Regional Economist, a quarterly publication from the St. Louis Fed which is available online at http://www.stlouisfed.org.
Though all of us are happy when our stocks and houses go up in value, the Fed lacks our enthusiasm. Its rationale is complex and theoretical. However, it seems to me they have a valid point. With houses, for example, increasing value also means houses are more expensive to live in, whether one is buying a house or just considering the opportunity cost of having one’s capital tied up in a home.
In short, the Fed economist concluded that, “rising household asset values are not a substitute for savings and should not encourage us to ignore the danger signal associated with low savings and investment in our future prosperity.” Well, that pretty much says it all.
If all this is not depressing enough, another article in the same issue of The Regional Economist hammered away further at our management of family finances. In an article titled “Survey Says Families Are Digging Deeper into Debt,” economist Kevin L. Kliesen reported that, according to the latest Survey of Consumer Finances report, median household debt rose by almost 34% between 2001 and 2004, while net worth went up by just 1.5%. Debt up by 34%, net worth up by 1.5% is discouraging, to say the least.
Just to add a final nail in our financial coffin, the survey found that, consistent with previous surveys, nearly half of all families did not save any portion of their incomes. In what I consider was a somewhat simplistic observation, the author concluded that, “over time, this is expected to become a serious liability for those families.” Well, duh!
All of us hear people saying that “these days” people can’t save any money, have to work two jobs and are constantly “stressed out.” Hogwash, pure hogwash! We’re living in the best of times in all of recorded history. We have more wealth, more timesaving conveniences and better health than ever before with the possible exception that we’re eating ourselves to death. Things are not going to get any slower or better. So, in the common expression of the day, “just get over it.”
People who don’t save any part of their incomes for emergencies and retirement are either in dreamland thinking that Social Security will suffice for their financial needs or counting on children to take care of them in their declining years. Unless their children’s attitudes toward taking care of dear old Dad are different than my children, they’re in for a rude awakening.
What we’re lacking is not more time saving devices or even higher incomes. No, it’s much simpler than that. What we need is a healthy dose of self-discipline. Save at least 10% of your income before you pay the first bill and your financial future will be assured. If you can’t make it on what’s left, you’re spending too much. And, for goodness sake, cut those credit cards up and toss them away.
Thought for the Moment
Mediocrity is a sin. Don’t do your bit; do your best.
— U.S. Navy Admiral
William F. Halsey Jr. (1882-1959)
Joe D. Jones, CPA (retired), is publisher of the Mississippi Business Journal. Contact him at firstname.lastname@example.org.