Credit Where Credit Is Due

According to this USA Today article, household debt in the US is shrinking.  “Consumers went into the recession carrying debt of nearly double the nation's gross domestic product. That's down to below 85% now, and on pace to approach 75% by late next year.”  My first reaction was, “Good for us!”  Americans are showing more discipline with their spending.  This is a good, long-term sign.  Being overextended affects our physical and mental health as well as our ability to cope with financial emergencies.  As we found out not too many years ago, when too many people take on too much risky debt, we face serious societal consequences.

The article states that this debt reduction is a good short-term sign; because when we once again get comfortable with our debt level, spending will increase, leading to more consumption, more jobs and higher economic growth beginning as early as next year.  The slow recovery in home equity is seen as the only problem.

I don’t have anything against economic recovery, but let’s not be too hasty.  First, disregard home equity.  As I have argued in the past, you will always need a place to live.  Regardless of what we hear from realtors, loan officers, investment advisors, and others who profit from the transaction, to think of home equity as an investment is self-deceptive.  Second, let's try to minimize other debt.  There are simple ways to minimize or eliminate auto loans, and people who pay off their credit cards every month are the banks’ worst nightmare.

How many times do we have to be hit over the head before we are more careful about borrowing money by delaying gratification, prioritizing wants over needs, and treating debt as an obligation or burden rather than as a convenience?  It’s only been a few years since bad borrowing decisions and pursuit of extravagance plunged us into a recession, whose negative effects still linger.

Yes, when I saw that news, I was encouraged about the potential for improved behavior in financial discipline.  I was not even discouraged by another article telling how a big chunk of the decrease in debt is attributable to defaults and foreclosures.   When the bank writes it off, the debt goes away – but comes back to haunt the rest of us as higher fees and restrictive lending policies.  (Remember, we are all connected by that economic web; there’s no magic money tree.) 

Long-term, a new sense of financial discipline can be a very good thing for America.  It will take willpower and patience, but it’s worth it to avoid the well-known consequences.  (If you still think the last recession can be blamed on banks and Wall Street, you missed this.)  And once we get our personal houses in order, perhaps we can force our government to do the same.

Responsibility, Popcorn and High School Graduation

People have asked if I will ever run out of material for this blog.  Maybe someday I will be lucky enough to find only examples of favorable behavior in the five dimensions and it will get boring, but so far I’m still in business.

Last Thursday was a big day for responsibility, with two examples in the news.  The first concerned a lawsuit over microwave popcorn and the second was about new data on high school graduation rates for black males.

Responsibility is about taking control of your life, recognizing your role in the consequences you face and not blaming another or expect someone else to pay for your problems.  It often goes hand in hand with discipline.  If I can’t stop smoking, I may want to call it an addiction, blame the tobacco companies and make them pay me.  If I am overweight, I may want to blame the fast food restaurants for tricking me into eating a poor diet and get the government to require extra labeling or warnings.  Where there is no responsibility, problems are not solved, because the only one who can solve them refuses to own them.

The first example is of a man who blames microwave popcorn for his respiratory problems.  The resulting lawsuit promises him over $7 million in compensation (plus a side settlement).  Reading the article we find that he ate 2 bags of microwave popcorn a day (over 20 times the average*) for 10 years and sued the store selling it and the maker for not warning him of the dangers.  Microwave popcorn already has seven or eight warnings on the side of the package.  What’s one more?  (For a humorous view of this Google “Pearls Before Swine” for September 23, 2012.)

When hearing a story like this, most people roll their eyes and pass it off as yet another outrageous example of “jackpot justice” – out of our control.  Someone got hurt and found a lawyer, a big company to blame and a sympathetic jury.  The last line of the article reads, “CNBC predicts the recent verdict will spark a rash of future lawsuits.”  Who will be on those juries?  Will they understand that lawsuits against grocery stores (or even threats of them) will push up grocery prices for everyone?  Will they consider that 14 bags of popcorn a week might be a little extreme, not exactly the definition of moderation, and that no company should be expected to account for every possible extraordinary behavior by their customers?  (You can overdose on anything, even water!)  Can we stop this by expecting more responsibility from each other or do we condone it as members of those juries?

The second article brings good news of an increased high school graduation rate among black, male students, from 47% in 2008 to 52%, though it’s still not high enough and continues to lag behind whites.  The CEO of the Schott Foundation for Public Education that conducted the study is quoted as saying, "These outcomes are not evidence of flaws of young men, but evidence of willful neglect by federal, state, local elected policymakers and leaders."  The implication, of course, is that the low rate is due to actions of others, not those of the students.  But graduation is something done by an individual not done to him, and since 2008 five percent figured it out.  To excuse these “young men” and pass the blame on to policymakers and leaders is placing the burden of fixing the problem in the wrong place – typical of responsibility issues.  To achieve his aims this CEO should instead take the approach that Bill Cosby has taken for years, challenging the parents and children to work hard and succeed, and not accept such excuses.

*Calculations:  Average popcorn consumption = 52 quarts per year.  That’s one per week.  Popcorn eaten at home = 70%.  Uncooked sales for home use = 90%.  Therefore cooked and eaten at home = 70% x 90% = 63%, 63% x one quart (bag) per week = 63%.  14 bags per week / 63% = 22.2 – and that’s not all microwave.

Education as Entertainment

I pointed out in the last two entries how expectations can turn luxuries into necessities, what we once only wished for, we now must have or feel we have a right to.  I cited many examples:  home air conditioning or color television, the demand by Australian welfare recipients that they be allowed to spend unconditionally what is really other people’s money, even my own changing standards about what I consider a successful day.  Without perspective today’s pleasant surprises become tomorrow’s expectations, and gratitude is replaced with feelings of entitlement.

Accordingly, as my local newspaper printed a number of back to school stories, I was forced to consider how we may, with the best of intentions, be developing in our children highly unrealistic expectations, expectations that later in life may lead to disappointments or failure.

First, there were two articles featuring experienced middle school teachers and their plans for the new school year. (Unfortunately, the website is subscriber-only so I cannot provide a link.)  Both teachers emphasized the need to build relationships with the students and excitement around the subject.  One did this through the use of pop culture in classroom décor and knuckle bumps with students to elicit a sense of high energy.  The other used a “pleasant and encouraging” voice and emphasized the need to build trust.  This approach seems fine as it stands.  Get the kids fired up to learn.

On the same day, another local article described a county-wide grant program providing $12,000 per year “to foster creativity in the classroom and help them get excited about learning, generate enthusiasm…”

Finally this national article told of the scheme to award prizes to try to improve school attendance.

It important to get kids excited about learning, but I wonder, in light of our recent discussions on the nature of expectations, what will happen when these students move from school to the world of employment.  Will they expect bosses to spend their time entertaining, high-fiving, generating enthusiasm, energy and excitement to keep their workers engaged?  Will they be disappointed to find that the prize for attendance is your paycheck and the ability to keep your job?  Will there be a new round of management seminars about how to connect with this next generation that has developed different expectations and never been weaned from the external stimulus?  What will the consequences be for customers receiving service from those workers who didn’t get their daily dose of enthusiasm or who don’t find the transaction particularly entertaining?  What is the parents’ and teachers' role in ensuring that children can differentiate themselves by displaying some level of self-discipline to carry on when things get boring, when extra effort is required or when gratification must be delayed?   Is there a point in a child's education when the cheerleading stops and some internal motivation is expected, or will this become the new model for both school and work? 

Learning from Australia

The wise learn not only from their own errors, but also from the experience of others.  Back in December I suggested learning from Italy, where the citizens became so accustomed to what were described as “lavish social benefits” that they took their outrageously generous government programs for granted, never stopping to be grateful or to wonder where the money was coming from.  The same could be said for several other European countries.  Now the day of reckoning has arrived and they find themselves facing painful consequences.

Continuing with the theme of perspective from last time but looking west, we find a new law in Australia regulating welfare payments.  Rather than sending checks or ordinary debit cards to recipients, the new program offers a special, restricted card that can be used only for priority items such as food, housing, clothing, education and healthcare, and only at approved businesses.  It cannot be used for alcohol, tobacco, gambling or other discretionary expenditures.  This has sparked protests, people marching in the streets objecting to what they perceive as restrictive, paternalistic and embarrassing treatment.

There are two important lessons here for Americans represented by two citizens interviewed for the article.   The first portrays herself as a victim.  It’s not her fault that she must rely on government payments and she resents any interference with how she spends the money.  But if we give up responsibility, in this case the responsibility to provide for ourselves and our families, we may be required to give up the freedom to decide how and where to spend that money.  The second citizen seems grateful for the help.   She recognizes that this is not her money and not something to be expected.  She has not slipped into the faulty assumption of turning a helping hand into an entitlement.  She has the perspective to appreciate the help and not complain about reasonable conditions.

Fortunately, the way their system is set up, it’s possible to get back that lost freedom.  As one government representative puts it, "Welfare should not be a destination or a way of life. The government is committed to progressively reforming the welfare system to foster individual responsibility.”  We all know that change comes only in response to some level of discomfort.

I wonder what the reaction would be to such a program in the US.  Are we long on victimhood and short on gratitude, or vice versa?  The first represents low levels of responsibility; the second, strong perspective.  We can learn from others the importance of gratitude and that responsibility neglected means freedom lost.  We can see living examples of how behavior has consequences.  If we don’t understand these basic facts, we may soon face consequences similar to those challenging other countries around the world today.

Great Expectations

We all do it.  We develop expectations, which may lead to a lack of gratitude.  I’ve written about this as perspective – appreciating and being satisfied with what we have rather than always grasping for more.  We get caught up in overspending to satisfy the insatiable need to keep up with neighbors, to show how successful we are or to convince ourselves that we are more important.  In this rush to acquire, we fail to appreciate what we already have.

The passage of time plays a role.  We quickly forget the past and compare our situation to more recent memories.  I remember growing up in a house with no air conditioning, trying to figure out how to get to sleep on a hot summer’s night.  Sometimes I recall those times and try not to take for granted the ability to be comfortable in the summer without having to go to the mall or to a movie just to cool off.  I remember when it was unusual for a family to own more than one car and when color TV was a new innovation.  Today, a family with only one vehicle might be considered poor, and virtually everyone owns at least one color TV.  If tomorrow a gallon of gasoline costs $3, we would be thrilled.  Several years ago we would have been shocked.  In the healthcare field we see new lifesaving procedures and  life expectancy increasing, but complain about the rising cost.  Sure you want the best for your health, but when did we begin to expect every doctor to have a state-of-the-art clinic, and when did we begin to assume that someone else should pay for it – and that it's our right to have it that way?

An extreme example of expectations gone awry is the Chinese Olympic athletes who apologize for winning (only) a silver medal.  We scratch our heads in wonder at this behavior without remembering that we all do the same thing to a lesser extent, routinely replacing gratitude with disappointment.

Even I do it.  When I started writing this blog, I was lucky to get 4 or 5 page views in a day.  Not that long ago I was happy when the day-count reached double digits.  The first time I got over 20, I walked around with a big smile.  Now, for the past month this blog has averaged over 150 page views per day, and I feel disappointed if I get less than 100 in a single day.  What happened to the guy who could be satisfied, even excited, with 10 or 12?  My expectations have changed and I must remind myself to appreciate and be grateful for every reader.  No one is forcing you to spend your time reading what I write.

So I will try to take my own advice, to stop from time to time to “smell the roses” and to thank you for visiting.  That doesn’t keep me from trying to make this as interesting as I can, hoping you will tell your friends and neighbors.  Growth and progress in spreading good ideas is what will keep this country great.  Let’s just remember to be grateful and know that we can temper many of our disappointments with a little perspective.