If you have ever wondered how this nation managed to ring up $15 trillion in debt with no big objection, one good answer might be found in the fact that it does little to educate the masses on how to manage their money.
Efforts to mandate the teaching of economics alongside English, math and science usually get sidetracked. At best, economics becomes an elective, bypassed by many students as an optional torture best avoided.
The result is that lots of people acquire credit cards but not the knowledge of how to use them, and end up going deep into consumer debt. Or they make a major purchase like a car or a house without recognizing the risks of borrowing or how repayment will affect their spendable cash. They buy two Power Ball tickets for every drawing plus a $5 Triple Expresso Latte every work day, without realizing that over the course of one year, those two items cost them $1,500. Throw in a case of beer, a 12-pack of pop and a carton of cigarettes each week, and you’re talking serious money, even before food, shelter and clothing are considered.
A couple of years ago, my sister-in-law, who once taught in the inner city schools of Cleveland, Ohio, told me that I would be surprised how many Americans don’t even have a bank account.
From the time I was a small child, my parents had me open a passbook savings account at a local savings and loan. When I had a paper route, I was expected to put a portion of what I earned in that account — even though I thought candy, gum and baseball cards were more worthwhile investments. I’ve always thought of banking as just a part of life without realizing how lucky I was to learn that little lesson.
But my sister-in-law was onto something. Thanks to the miracle of the Internet, I came across a study reported by CNN in 2009. It found that 17 million Americans are “unbanked.” That means they don’t have a savings or a checking account.
These people are living hand-to-mouth, the study found, and not surprisingly many of them are in the lower income groups and often turn to loan sharks when they need to borrow money, paying interest rates far above that charged by banks.
When I worked in Duluth some years ago, I served on the board of the local Salvation Army. I learned one of the best programs it has for helping people is economics education. It teaches them how to budget, a foreign concept to many Americans, and gets them to cut up their credit cards and live within their means.
We live in a society that seems to lavish conspicuous consumption. The TV networks are full of reports on the famous and seemingly rich. Many of TV’s plots and sets give one the impression that everyone is wealthy — except you.
But the truth is something different. In the 1996 book by Thomas Stanley and William Danko, “The Millionaire Next Door,” the habits and characteristics of the real U.S. millionaire were revealed.
One might assume that the neurosurgeon driving the Lamborghini or Jaguar is a millionaire. More likely, that doc is living paycheck to paycheck.
The authors found that the most popular selling vehicle among U.S. millionaires is the Ford F-150 pickup.
The typical U.S. millionaire is 57 years old, married with three children. About two-thirds of them are self-employed, and of those, 75 percent consider themselves to be entrepreneurs while the remainder are professionals like doctors or accountants. Many are in businesses some would consider dull like welding, auctioneering, farming, owning a mobile-home park, pest control, coin and stamp dealing or paving contracting.
About half of them have wives who work outside the home, most likely as a teacher. Most male millionaires agree that their wives are planners and meticulous budgeters. Most say their wives are more conservative with money than they are.
Most of them recommend that their children should consider careers providing affluent people with a valuable service, like accounting or legal advice.
Their median taxable income — remember this was 1996 — was $131,000. Their median net worth was $1.6 million (meaning half of millionaire households have net worth less than that and half have more).
Contrary to popular belief, most did not inherit their wealth.
However, for almost all of U.S. history, the government has spent more than it took in through taxes. For a long time, Americans believed, however, that it was important to keep such spending under control. That began to change in the 1980s.
Republican Ronald Reagan was elected president and he persuaded the Democrat-controlled Congress to cut tax rates to get the economy moving. It worked. The economy did kick into gear, but the Congress and Reagan didn’t use the revenue to pay down the national debt. Instead, government spending skyrocketed and the debt kept climbing.
With the growing economy, it seemed that the debt could still be kept under control. That worked for a while, until the Great Recession hit six years ago. After 30 years of holding taxes down, but not reining in spending, today we are facing the possibility that the debt is truly out of control. The economy is too flimsy to pay for all the goodies the politcians have given us. Unfortunately, too many Americans have so little understanding of economics, they don’t realize how perilous the situation is, how just a little rise in interest rates could burst this bubble for a long, long time.
Tom West is the editor and general manager of the Record. Reach him at (320) 632-2345 or by e-mail at [email protected]