In the summer of 1998, HarperÁ¢€â„¢s Magazine published one of its most talked-about stories, Vince PassaroÁ¢€â„¢s narrative of how his family accumulated $63,000 in credit card debt. He and his wife had academic jobs bringing in a combined $100,000 per year as well as a rent-controlled apartment in New York City, but they also had three children in private school. Passaro attracted opprobrium back then, and the story remains one of the key works of the personal finance confessional genre.
Until Sunday, that is. Edmund Andrews, who covers economics for the New York Times, wrote a story for the magazine about how he dug more than $500,000 into debt because he wanted to buy a nice house for his new blended family, even though much of his $120,000 annual salary was claimed by his ex-wife for alimony and child support.Á‚
IÁ¢€â„¢m the kind of person who clips coupons and rides the Megabus. While printing presses all over this great land were rolling out Edmund AndrewsÁ¢€â„¢s tale of woe, I was at the grocery store loading my cart with $0.88 packs of cream cheese and $2.00 boxes of raisin bran. Then I swung past the Junior LeagueÁ¢€â„¢s annual second-hand clothing sale, where I bought some shirts for my husband and me, just $3.00 each, some still with tags on them. I want to smack Passaro and Andrews around, then pack them into my nine-year old-car and show them what a thrift shop looks like. I want to teach them to make their own pizza dough and mend socks and use tie-dying to turn stained school uniform shirts into fun playclothes.
I have a teeny bit of sympathy for people like Passaro and Andrews, because IÁ¢€â„¢m not a pure tightwad. I have a fancy watch, some nice jewelry, and a much-stamped passport. My husband and I have a good combined income; our thrift makes it go further, but itÁ¢€â„¢s more a game than a matter of survival. It would be hard to be 48 years old, making $120,000 per year at a prestige job and living in a little rental apartment. It would be hard to work in academia and send your children to sub-standard schools. But neither is impossible, and both can be made to work.
Franco Modigliani won the Nobel Prize for his work on how savings affect financial markets. He said that people try to keep a set level of consumption over their lifetimes. When people start out, they spend far more money than they make: children have no income and live off their parents; people often borrow money to pay for college or start a business; and new workers need apartments, office clothes, and cars. Eventually, though, people start to make enough money that they make more money than they can spend, so they pay off their accumulated debts and save for the future. Finally, people retire and again spend more than they make, but they spend from their savings. If there is anything left over, it is given to the next generation.
Modigliani developed his life-cycle theory in 1954. Thanks in part of the rising costs of education and an expanded consumer market, many people take a longer time paying off debt than saving for retirement. Life expectancies are so much longer now than in 1954 that it takes a lot more money to save for retirement, and 2008Á¢€â„¢s stock market debacle didnÁ¢€â„¢t help.
One solution for getting out of debt and accumulating savings could be a longer working career, which is great for people who have jobs that they love, not so good for people who have physically demanding or dreadfully dull jobs. Another, of course, would be to make thrift fashionable. ItÁ¢€â„¢s effective, and it can be fun if planned carefully. (What, like packing a picnic and going to see a free movie in the park isnÁ¢€â„¢t fun? Of course it is!) Thrift is contagious: if you have your friends over for a potluck dinner instead of meeting them at a restaurant, everyone saves money. A shopping excursion with a friend can involve a trip to Nordstrom and a manicure at a fancy salon, or it can mean going to the thrift shop and getting the manicure at a utilitarian walk-up where no one speaks English. And, as much as I want people to buy books (seeing as I am a published author and all) , libraries are huge buyers. I wonÁ¢€â„¢t complain if you check mine out there.
I expect that Andrews will be skewered in letters to the editor and on discussion boards. ThereÁ¢€â„¢s nothing good about borrowing far more money than you can afford to repay, even if someone offers it to you. But if we donÁ¢€â„¢t talk about the effects of too much debt and how to avoid it, others will make the same mistakes in the future. I wonder if Andrews had read PassaroÁ¢€â„¢s article back in 1998, or ever watched an episode of The Sopranos.