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The financial crisis should be a wake up call for everyone


jbooma

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With the economy not in great shape right now this should be a good time for all of us to take a look on how we handle our personal finances.

What I mean is americans have been living off credit for way too long. It is hard for many of us right now with homes losing value for some of us to pay the mortgage. This is a good time for all of us to undestand exactly what are we spending on and what is our current total debt.

The other question is how much are you saving? Not just retirement but savings, one rule of thumb with a savings account is you should have at least 3 months of expenses saved in case you lost your job.

Americans always want everything, so what we do is well if i pay this x amount of month i can afford it, but honestly if you have to look at it that way can you really afford it?? If you buy a car and you try and make the loan go more then 5 years, is that a car you can afford?

One thing that helps to fully understand what you pay for on daily, monthly basis is using software like quicken or microsoft money etc... you might be surprised to find out you spend $100 a month on starbucs :)

Even though these are rough times for many, all of us can still get a complete undestanding of what we pay for and find ways to cut back so you don't have to worry that much and be prepared if it does get worse.

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I'd like to point out that you're right that people should save more. Real capital comes from savings.

But the Federal Reserve is cutting interest rates creating further disincentives to save.

you can still get good rates with a savings account from ingdirect, which can be linked to your checking i think right now it is at 2.75% and earlier this year it was at 4%

the thing with a savings though you need to make sure it is liquid and you can get to when you need it, tying that money up with long investments is a mistake

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But the Federal Reserve is cutting interest rates creating further disincentives to save.

?????

Uhh your incentive to save is to have money in the bank first and foremost. So because rates are low, your saying americans incentive is to spend the cash vise bank it?

Americans should have 6 months of their monthly expeses saved at a MINIMUM regardless of what interest rates are.

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?????

Uhh your incentive to save is to have money in the bank first and foremost. So because rates are low, your saying americans incentive is to spend the cash vise bank it?

Americans should have 6 months of their monthly expeses saved at a MINIMUM regardless of what interest rates are.

you are right 6 months would be ideal, 3 months is at least the minimum

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It seems to me not a freely made conscious decision, but an unconscious abdication of responsibility for ones finances is real driver.

1. We are bombarded with images of excess,

2. Shown a constant media barrage of the uses of credit in everyday life,

3. Surrounded by offers of credit,

4. Seldom given an education regarding basic finances and evaluating the true cost of an item, and getting the best value from what we buy.

I was born in the early 60's, and if it hadn't been for my parents honest explanations about "why we couldn't afford such and such", "how to keep a checkbook", and "how to save money for emergencies", I am sure I would be hip deep in credit problems. I had to figure out the credit trap on my own, because my parents (other than a home mortgage) didn't use credit. Fortunately, I did so before I married, and was free and clear of debt when I met my wife at 23.

At no time was personal finance or economics offered as part of my education, and I attended a large public HS in Southern California. Five years in the Military didn't teach me (although I learned on my own).

I think it is incumbent for both parents and public education to offer a course or two covering such vital topics, otherwise one is dependant entirely upon avoiding the national media exposure, and learning by sticking their hands in the frying pan. I strongly suspect that our current state of affairs will make learning by experience a painful lifelong issue.

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Uhh your incentive to save is to have money in the bank first and foremost. So because rates are low, your saying americans incentive is to spend the cash vise bank it?

Americans should have 6 months of their monthly expeses saved at a MINIMUM regardless of what interest rates are.

Obviously you make a sound argument. But why make an argument when prices can do the talking?

The price (interest rate) banks should pay for your savings should be going up. This makes your argument for you. And it increases the amount of loanable funds available during a credit crunch.

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I think it is incumbent for both parents and public education to offer a course or two covering such vital topics, otherwise one is dependant entirely upon avoiding the national media exposure, and learning by sticking their hands in the frying pan. I strongly suspect that our current state of affairs will make learning by experience a painful lifelong issue.

:applause::applause:

This would be good in your senior year of HS and also in college. If I knew then what I know now I would never have gotten into that credit mess in my early 20's.

The sad thing is everyone wants to blame the governement and banks for this financial mess. When all you have to do is look at the family that has two nice cars, a nice house, tv, living on credt etc..... and can't afford healthcare, that is the problem.

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Obviously you make a sound argument. But why make an argument when prices can do the talking?

The price (interest rate) banks should pay for your savings should be going up. This makes your argument for you. And it increases the amount of loanable funds available during a credit crunch.

Interest rates cant go up when they keep dropping the prime.

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I think consumer education and responsibility is a great thing, but I just want to throw in here that we can't ignore the supply side of this problem. Indexed against inflation, average productivity has gone up and median income has gone down. Food and gas prices are through the roof. People aren't going broke buying iphones, they are going broke feeding their families. And three months worth of savings is nothing if you don't have healthcare and fall ill for whatever reason.

These are the things that are driving real people into debt, and the images of excess aren't seducing the poor into outspending their earnings, they are seducing the rich into thinking it's okay to leave the poor on their own so that you can drive a faster car.

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I think consumer education and responsibility is a great thing, but I just want to throw in here that we can't ignore the supply side of this problem. Indexed against inflation, average productivity has gone up and median income has gone down. Food and gas prices are through the roof. People aren't going broke buying iphones, they are going broke feeding their families. And three months worth of savings is nothing if you don't have healthcare and fall ill for whatever reason.

These are the things that are driving real people into debt, and the images of excess aren't seducing the poor into outspending their earnings, they are seducing the rich into thinking it's okay to leave the poor on their own so that you can drive a faster car.

Typical ignore the truth posts.

American families spend more now on cell phones, home phones, texting, high speed internet, big screen tv's, etc than your parents ever could imagine. There are families that can't afford a home because their car loans are so large that home ownership isn't an option. Most americans are in seemingly insurmountable credit card debt. Yet you want to ignore their irresponsible spending habits and call out rich for wanting a faster car.

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I think consumer education and responsibility is a great thing, but I just want to throw in here that we can't ignore the supply side of this problem. Indexed against inflation, average productivity has gone up and median income has gone down. Food and gas prices are through the roof. People aren't going broke buying iphones, they are going broke feeding their families. And three months worth of savings is nothing if you don't have healthcare and fall ill for whatever reason.

These are the things that are driving real people into debt, and the images of excess aren't seducing the poor into outspending their earnings, they are seducing the rich into thinking it's okay to leave the poor on their own so that you can drive a faster car.

What is driving people into debt is poor decisions, sorry but thats the truth. Oil is going down now, food prices have increased but you can creative about that. Health costs are rising because people are not taking care of themselves, that is the one thing people refuse to talk about. Yes healthcare has increased over the years but so has the % of obesity, there is a connection there.

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JLG, you're mistaken to assume that a savings account is the only vehicle for building wealth. Certainly one needs cash investments as an emergency financial backstop. However, once that basic requirement is met, the next goal is to maximize the return on one's investment. That could take the form of equities, bonds, real estate, etc. The Fed has some indirect control over those returns, however there's still plenty of return there to incent those willing to put forth the effort.

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Isn't that my point?

MY point was saving for reserves, regardless of interest rates.

Your point involved saving for investments which is a different discussion.

In terms of THIS thread and financial crisis, I say you should have 6 months expenses in savings, I don't care if its in an account that gets 0% interest.

Once that happens, we can talk about where to save your extra $$$$.

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JLG, you're mistaken to assume that a savings account is the only vehicle for building wealth. Certainly one needs cash investments as an emergency financial backstop. However, once that basic requirement is met, the next goal is to maximize the return on one's investment. That could take the form of equities, bonds, real estate, etc. The Fed has some indirect control over those returns, however there's still plenty of return there to incent those willing to put forth the effort.

Savings leads to investment (i.e. the purchase of capital). Good investment requires knowledge, research and information; savings does not. The average citizen should be able to save their money and build wealth without having to use their own savings and become an investor.

Of course the average person is theoretically capable of investing their own savings, but are they really competent?

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MY point was saving for reserves, regardless of interest rates.

Ok. So people should save for microeconomic insurance. Fine.

But if you want people to save as a matter of policy, you need to have the proper incentives: higher interest rates. You can't just rely on a nice pep talk.

People should be justly compensated for deferring consumption.

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Ok. So people should save for microeconomic insurance. Fine.

But if you want people to save as a matter of policy, you need to have the proper incentives: higher interest rates. You can't just rely on a nice pep talk.

People should be justly compensated for deferring consumption.

If people actually require an incentive to do the best thing for themselves, then we should let nature select humans out and move along.

Seriously, do people need an incentive to buy something to store their food in, or an incentive to buy something to cook their food with?

The issue here is basic self-rewarding actions, not investment.

Only risky things require an incentive.

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Ok. So people should save for microeconomic insurance. Fine.

But if you want people to save as a matter of policy, you need to have the proper incentives: higher interest rates. You can't just rely on a nice pep talk.

People should be justly compensated for deferring consumption.

The economy gains nothing by people deferring consumption.

The economy crashes if no one spends. Hence, no reward.

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Ok. So people should save for microeconomic insurance. Fine.

But if you want people to save as a matter of policy, you need to have the proper incentives: higher interest rates. You can't just rely on a nice pep talk.

People should be justly compensated for deferring consumption.

how can you complain about a 2.75 rate for a basic savings account???? :doh:

honestly if lower rates means more people can pay their bills and homes and not forclose, then i am fine with that

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This country is built on credit...We hardly own anything here the banks do. America Economy is built on borrowing from the rest of the world and spending it back into the economy. Now that the rest of the world doesn't trust us anymore, they might also stop lending to us and that will totally derial our economy even if it hasn't done so already.

I meet so many people that make over 100K a yr but have no savings??? In the US you make $1, you borrow $2 and spend $3...like its nothing. It sucks what happneing to us, but I think we deserve it and will come out much better even though its gonna be tough for a long long time.

This problem of ours will take yrs to fix so I hope everyone out there struggling or not starts a lifestyle chanage on how you run yr own finances.

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