Lessons from the Shutdown

Whatever your political views about the recent partial government shutdown, the five-week layoff of 800,000 federal workers offered a powerful lesson on the state of family finances in America.  Seemingly within days of the shutdown, the media were running stories of the newly jobless lining up for food stamps, pawning jewelry, and taking out payday loans to cover essential expenses.

 

When we got tired of that, reporters should have done us all a service and started running stories about how much debt these same workers had incurred before the shutdown, how they had not saved anything for a rainy day, what nice things they had bought themselves on maxed out credit cards.  Maybe that would have awakened the rest of us.  After all, study after study shows that 40% of Americans are “just one missed paycheck away from poverty”.   I would argue that they are already poor.  Being that close to financial crisis is not living rich, no matter how many and how nice the things with which you surround yourself.  And government jobs are stable and come with good benefits, yet so many of them fell into hard times by the time they missed their first paycheck.

 

I don’t mean to blame and shame all the unfortunate furloughed workers.  It seems everyone goes through tough financial times at some point and lives paycheck to paycheck, or even without a paycheck for a period of time.  But that number should not be four out of every ten of us, consistently, even in good economic times because the studies show that even among those making $75,000 or more per year a high percentage still would have trouble accessing enough cash to even cover a $400 emergency expense—essentially a minor car repair, these days.

 

History should teach us how to avoid financial trouble and not be caught off-guard when the inevitable hard times come our way.  Yet here we are, still not saving money and still charging everything on plastic.  Consumer debt stands at an all-time high, just as it did before the Great Recession.  And “institutions” (I use quotation marks because aren’t businesses just collections of people with a collective purpose?) are no better.  I just read this week that banks are back to writing more unconventional home loans, including no-doc loans, where the borrower doesn’t have to demonstrate income from a steady job.  It’s little wonder those loans came to be called “liar loans” in the industry and were ridiculed as a contributing factor to the housing crisis of the last recession.  But again, here we are, giving them new respectability.

 

It’s a fragile situation and bound to eventually collapse and cause national financial angst.  I hope you are regularly saving not only for retirement but for a rainy day.  Think twice before putting a purchase on credit.  Is it really essential?  Are you living above your means?  Do you have too much “stuff”?  Now is the time to prepare, not after the stock market crashes again, unemployment shoots back up, and home values fall.  The recession will come, and we’ll cycle back out of it once again.  But wouldn’t it be nice not to have to fret while we’re on the downside?

 

Until next time,

 

Roger

 

“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock.  The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock.” Matthew 7:24,25 NIV®*

 

*Scripture quotations taken from the Holy Bible, New International Version® NIV®

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