Be Thrifty – Or Else

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We'll need a lot more than that...Image via Wikipedia

Being cheap is the new black, writes Daniel Akst in the Wilson Quarterly (you have to pay for on-line access), quoted in The New York Times:

To be thrifty, after all, is to save, and to save is not only to keep but to rescue. Thrift is thus a way to redeem yourself not just from the unsexy bondage of indebtedness but also from subjugation to people and efforts that are meaningless to you, or worse. Debt means staying in a pointless job, failing to support needy people or worthwhile causes, accepting the strings that come with dependence, and gritting your teeth when your boss asks you to do something unethical (instead of saying “drop dead”). Ultimately, thrift delivers not just freedom but salvation — which makes it a bargain even Jack Benny could love.

Margaret Wente, writing in The Globe and Mail, wonders how anyone — save the fortunate few with defined-benefit pensions — will actually survive retirement without a pile ‘o cash:

Because of imprudence, misfortune, a vast shift in cultural habits, or the sheer financial drain of supporting their kids until age 28, they are facing their old age with no savings, no pension and few assets. I have no idea what they’re going to do. All I know is that there are plenty of them. For the first time since we introduced old age pensions, millions of people who’ve led comfortable, middle-class lives are facing a big drop in their standard of living when they stop working. No more salmon teriyaki for them.

“A large chunk of the baby-boom generation is on the verge of retirement with only the state to depend on for a retirement period that will be, on average, the longest in Canadian history,” writes consultant Robin Sears in the magazine Policy Options. “We were pension pioneers. But we’ve lost our way.”

Whose fault is it that we don’t save like Grandma did? Is it ours, for crashing our savings rate below zero, and not being disciplined enough to resist the siren call of easy debt that’s been relentlessly marketed to us for a generation? Whose fault is it that we’re living longer than anybody has before, and screwing up the actuarial tables? Whose fault is it that the vast majority of us fail to save at least 10 per cent of our earnings starting at the age of 30, the way we’re supposed to? What about the single mom who’s put her kid through university, or the highly creative guy who is stupidly hopeless with his money, or the manager who got laid off at 57 and has to dip into his savings, or the millions of conscientious people who pay shocking fees to the investment industry to mismanage their RRSPs? Should we blame them, too?

You can see the problem here. Saving up for your old age is an individual responsibility. But helping you do it is a social one.

It would be nice if we could be more like the Chinese, who save 40 per cent of their money. That’s because they know they might starve or die from lack of health care if they don’t. The danger is that we’ll wind up like the Japanese, who suffered a huge economic hit in the ’70s and ’80s. Millions of retired folks were forced back into employment to support themselves. Former doctors took jobs as parking-lot attendants.

As someone self-employed, it’s not an issue I take lightly.

It’s a big pile of ifs: If my partner and I stay together, married or not, I’ll be OK, if his pension is still there; if Social Security pays out to us both what our statements tells us it will; if we keep saving 15% -plus percent of our incomes every single year; if our carefully chosen and diversified investments don’t tank; if , when we finally tap our accumulated capital, interest rates aren’t where they are now — a smack-in-the-face 1-2 percent on safe, secure holdings like CDs.

Now there’s a fair recompense for all that thrift!

If we bust up, it’s Friskies and a cardboard box for me! If I still own my home, and the mortgage is paid off, and if I can afford the monthly co-op maintenance fee, my only possible salvation from penury will be a reverse mortgage. Because my writing income isn’t nearly where I want it to be, and I can’t see suddenly doubling or tripling it for the next decade consistently, (believe me, I’m trying), my projected SS income wouldn’t get me through a month right now. There’s a comfy thought.

The old three-legged stool: SS, pension and savings is missing a leg — the pension — for most of us now. The second leg, savings, is a perpetual challenge when gas is $3/gallon and wages are stagnant or, in my industry falling to 1970s rates. Hey, change careers! Assume $10,000 to $75,000+ in student loan debt and cross your fingers that shiny new job market is all perky and welcoming when you graduate, competing with people willing and able to work at half the wages because they’ve still got five decades to save.

If they do save.

I recently interviewed, for my book, a single 51-year-old with a Master’s degree and $40,000 of student debt. Canned from her non-profit job a few years ago, she makes — wait for it — $7.25 an hour working retail. She couldn’t possibly save a dime and lives thanks to hand-outs from her 82-year-old mother. Her life is not quite what she planned.

One friend, 16 years my junior, is scrambling harder and harder and harder, like a hamster on a speeding wheel, to earn what she needs. Like us, she and her partner don’t even have kids. They are stylish and fun, but live very frugally.

Our “old age” is now.

Only Losers Save Money — Look At Current Interest Rates!

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Might as well put your money under the mattress..Image by AFP via Daylife

A thoughtful column on this by Floyd Norris in today’s New York Times:

Aren’t low short-term interest rates wonderful?

If you are a bank, the answer is yes, particularly because the low rates are accompanied by somewhat higher longer-term rates.

If you are a saver, however, your view might be very different.

This month some interest rate spreads have reached record levels. The difference between what the Treasury pays on a one-year bill — less than half a percentage point — and what it pays on 10-year bonds — a little below 4 percent — expanded to the largest on record this month. In banking jargon, that is a very steep yield curve.

For banks, that is a license to make money with very little risk, particularly since they can get people to open savings accounts that pay close to nothing.

This week I checked the Web sites of the four largest banks in the country — Bank of America, JPMorgan Chase, Citigroup and Wells Fargo — to see what they were offering on an ordinary savings account, say, one with $5,000 in it.

Chase, the retail operation of JPMorgan Chase, and Wells Fargo were offering 0.05 percent. That $5,000 would produce monthly interest of almost 21 cents. If you left such an account untouched for 20 years, and rates stayed where they are, the glories of compound interest would lead to a profit of $50. Before taxes, of course.

Yesterday I finally wrote a check to sock away the absolute maximum allowed to me as a self-employed person, 15 percent, for my 2009 IRA. I do it every year.

I earn a lot less than I did in my last staff job, sorry to say. I’ve never been in a staff job long enough (where they had one) to qualify for their 401 (k) so, like millions of Americans, whatever I save is all up to me, as is figuring out how to safely invest it. As Norris points out in today’s column, anyone who is diligent and self-disciplined enough — yes, I am being judgmental — to save a significant portion of their income, whatever that income, now feels like a Big Fat Sucker.

Why exactly should I give anyone, anywhere, access to my hard-earned cash to re-sell at usurious rates while giving me nothing? Oh, right, that’s banking.

I was only spared the bloodbath of the last Wall Street meltdown because the bulk of my investments, (due to my fiscal fears of loss, which are typically female), were in cash. But I want to retire and I don’t want to eat cat food because I’m so broke I won’t have a choice. This forces a lot of unamusing choices, and we don’t even have the added and significant costs of raising children.

If you want money in the future you have to save it now and make sure it grows. The first decision is driven by the implicit agreement that there is a point to this! Without growth of your hard-earned and carefully saved capital, the point is…? I see what suckers the banks are making of us all, all of us except for the wealthy.

That’s still most of us.

My mother is now spending her savings, like many others, simply to survive. Luckily — and because she has been both strategic and frugal as hell — her home and car are paid for. She lives in Canada, so neither of us fears a medical bankruptcy. But her main medication is $162 a month, a significant hit to her monthly income, which was derived from interest on her lifelong savings. She has no work-related pension; like me, she was self-employed as a journalist or worked for companies that did not offer a pension scheme. Nor does she have a husband whose pension, savings or Social Security income would help.

Why should the frugal and cautious have to take the hit for the careless and greedy? It’s too bad banks made liar loans to people who had no ability to re-pay them. As we drive our nine-year-old vehicle, as I am stalled in my career mid-recession, as we try to figure out how to help my mother while saving 15 percent or more of our own incomes for our own future, it all seems a little pointless. Saving money.

How does this make you feel? Are you still saving? Are you able to?

Cheap-o's Rejoice. It's Genetic!

day in the life: lunch money
Image by emdot via Flickr

Maybe being cheap is genetic?

So suggests writer Adam Sternbergh in the current issue of New York magazine. It’s a theory, since some people spend money so fast and so insanely — and with so little remorse — it makes the rest of us feel a little ill. I’ve been accused many times of being tight/frugal/cheap, but sometimes it’s in the eye of the beholder. To my mom, who lives on a fixed income and who saves money like no one I know, I’m like a crazy person. A trip to Paris?  Travel is indeed one place I will blow my scrimped-up bucks. Yet she has a cleaning lady once a week and I can’t imaging paying someone else to do what I can do so quickly and easily for free. She found it obscene I spent $100 for a pair of consignment shop suede loafers — except they’re Ferragamos, which, new, would have cost five times that price. And I’ll be wearing them for years to come.

So if I’ve inherited my mom’s cheap gene, maybe it’s recessive?

I’m usually the saver and my sweetie is the spender; typical of most couples, we’re different in this respect which makes for interesting moments. We wear cashmere and drink decent wine, yet sit on a 20+ year-old loveseat, (slipcovered when I had a salary to pay for it) and I’m typing this on a “table” we built of fiberboard covered with a piece of mattress ticking found, yes, at the Paris flea market.

Where do you cheap out? When and where do you (still?) splurge? Who taught you to pinch — or blow — your pennies?