Money decisions and Morality part II

 

Last week I attempted to lay the ground work for the relationship that monetary decisions have with morals.  To review a couple of the key concepts from past posts

Threshold: The household income at which all basic needs are met.  If your household income is at the threshold you are addressing your basic needs such as shelter, food, health care, child care etc.  You do not have any funds remaining for vacations, savings or emergencies.  Threshold values vary from state to state and city to city.  My focus is on households that have earnings in excess of the threshold.

Money and morality.  In the Judeo-Christian teachings money (aka wealth) is a gift from god and should be treated with humility and gratitude.  Other religions also view wealth as a gift.  The Buddhist view is that money itself is neither good nor evil and that its qualities are reflected in how we use it.  In short we can get a better sense of an entity's character by looking at their budget rather than their mission statement.  That entity could be a family, company, city, state, country or any organization.

Monetary decisions: Any decision that affects funds above the threshold should be based on good and sound morals and character.  By basing these decisions we exemplify the gratitude and humility that we all have a desire to depict.

Delving deeper into this last point; where are we now as a society and why are we in that current state.  Most importantly what to do about it.  It is a lot to digest.  One of the biggest indicators of our current state is something I have discussed previously.  That is that people that are considered "high income" are living paycheck to paycheck (CNBC article).  You do not have to look very hard to find articles supporting this claim.  Another prevalent indicator is retirement savings (Forbes article about retirement savings).  Once again you do not have to look very hard for evidence to support this claim.  Lets pause and address the morality of these two indicators.

I admit that I do find this difficult.  Who am I to stand in judgement of how others spend there money.  I have my own faults to deal with.  Why should anyone listen to what I say?  My only defense in speaking out about this is how it may affect me, my family especially my children and grandchildren.  If a population is not saving adequately for retirement and that cohort retires, who supports them?  Do my savings get taxed to support them.  Do the younger generations support them?  If so who will support future generations when they retire?  By not saving for retirement you are putting the burden on others.  That to me constitutes the moral of these societal phenomena.  Plain and simple by spending beyond your means and not saving for retirement you are expecting others to support you.  More personally you are expecting me and my family to support you.  I mentioned that I have faults as well.  I do take some things too personally sometimes.  I also tend to think that what is mine is mine and this does factor into my response to all this.  It still does not alter the basic idea that if you have no money saved for retirement you will need help from somewhere.

How did we get here?  Once again not much work is needed to find thousands of "experts" that will explain this to you.  Here is one from the famous Dave Ramsey.  While I do not share his level of passion regarding this topic I have to admit I do agree with the basic premise,  that is that we simply buy to much stuff.  Why do we as a society buy too much stuff?  I will let Dave Ramsey and others speak for themselves.  I am interested in looking at this from a completely different angle.  The Gross domestic product is a broad measure of economic output.  If the GDP is growing that is good if it is shrinking we call it a recession (which is bad).  GDP is the sum of four basic inputs.  The inputs are: consumer spending, business investment, government spending and net exports.  In the US consumer spending is 70% of the GDP.  So 70% of total economic output is us buying stuff GDP explained.  Is it possible to imagine any politician messing with this sector of the economy?  I do not think it matters whether the politician is liberal or conservative, democrat or republican they are not going to mess with this sector of the economy.  In fact they are going to do everything possible to support this sector.  I love this quote from the link above:

Why does personal consumption make up such a large part of the U.S. economy? America is fortunate to have a large domestic population within an easily accessible geographic location. It's almost like a huge test market for new products. That advantage means that U.S. businesses have become excellent at knowing what consumers want. 

There is this huge economic engine telling us what we need and it is aided by easy money policies from the US government.  In short the government wants us to spend.  Here is a quick example of easier lending policies New mortgage policy.  This is just one example of making it easier to spend money (or "consume").

What should we do?  Government and business have a very large stake in us consuming goods.  I feel it is even more important that we as individuals make moral decisions regarding our money.  Just because large organizations want us to spend it does not mean that we have to.  We need to make decisions that will benefit not only ourselves but those around us as well.  To start with we need an overall dialing down of consumption.  Do we really need every new iphone?  If buying something means incurring debt that should be avoided (other than a house).  Just because it is easy to get money doesn't mean we should.  Lastly what we do not spend we should save and invest.  It is only by making these decisions with good character that we can begin to weather the ups and downs of our lives.

Interesting chart:  consumption as a percent of gdp of countries

USA is clearly the highest G7 country.