No, I'm Not Psychic

You don’t have to be psychic to depend on the fact that past behavior is a good predictor of future behavior.

In late November, at the beginning of the Christmas shopping season, I cited a few statistics about how not enough people had even the recommended amount of emergency savings.  We also know and are reminded frequently that for so many Americans college debt is high, retirement savings are non-existent and credit card debt is thousands of dollars.  Though this is old news, well publicized and well understood, still I agreed with the published predictions in the NY Times and Wall Street Journal that instead of saving their windfall from low gasoline prices Americans would spend it on extra trips and gifts for Christmas, once again trading their long-term security for short-term satisfaction.  I suggested that people should look to the future and start saving those few dollars or pay down a little of the debt to make their lives less stressful.

Now we are on the other side of the holiday season and what do we find?  Here’s what the USA Today says about the situation:  “Retailers' fourth-quarter results are riding on high expectations that cheaper gas led consumers to splurge during the important holiday shopping season.”  Furthermore they go on to quote a senior vice president at Nielsen, the research company.  “People are less concerned about saving or paying down debt and more willing to spend overall.”  The Nielsen survey did find that most reported saving some of the windfall, but “almost a third said they'd spent it on entertainment or clothes.”

That most did pay down their debt, or at least told the pollsters that they did, is a very good sign, but we should still be concerned about the rest.  It took far less than one-third buying houses they couldn’t afford to set up the housing bubble of the last decade; and when the future arrives for the non-savers, it is likely they will be looking for someone to bail them out.  We hear today about those unable to live on Social Security alone, which was never the intent of the program, but no one ever asks why they didn’t save money during their working years or retire so soon.  To do so would be labeled as being heartless.

Economic understanding tells us that we are all interconnected and there is no magic money tree.  Do we want to be on the hook for others’ lack of discipline today and irresponsible behavior tomorrow?