What if we all got money-smart?

[kittykatstrong]

I didn't see this posted and I thought it was interesting. What IF we all got on the band wagon and starting saving instead of spending would it hurt or help? http://articles.moneycentral.msn.com...oneySmart.aspx

[missmanny]

this is a very interesting article and thanks for posting it.

My personal thought is that it would probably be bad in the short term but good overall in the long term.

Its hard to say but I don't think that it would ever happen.

In the mean time I am happy to be one of the few that are making a dedicated effort to pay down debt, contribute to retirment and put savings away for an emergency.

That way what ever happens I will be ok.

[JanieD]

Thanks for the link. Many valid points made in the article that gets you thinking. Checking out a few other articles while I'm there!

[Greebo]

There's something else they didn't factor in.

The value of the dollar would go up. Substantially.

Why? Borrowed money is created money. We have an economy based on a Fractional Reserve System. That means when a bank receives $1.00 in deposit, it can lend out $9.00 based on the $1.00 it received. In other words, when you borrow money from a bank, the bank creates money from thin air.

Creating money from thin air increases the pool of money available, which in turn lowers the value of the existing money. At any given moment, there is only a fixed amount of "stuff" in the economy, so when you put more money into the economy, compared to the (momentarily) fixed amount of stuff, the value of the dollar drops.

Note: From day to day, there is more stuff available in the economy - because we keep growing, producing, mining, and manufacturing the stuff, and we don't use it all up. (Food is consumed for example, but things like concrete and steel are not consumed, they are *converted* into fixed assets.)

We're not alone - most nations do this - but if we stopped borrowing money, or at least reduced the the rate at which we did it, then we'd have more stuff added to the economy faster than we add money, so the money value would buy more and more by comparison. (IE: Deflation - stuff gets cheaper.)

So yeah, there would be negative ripples - BIG negative ripples if we all stopped living beyond our means at once - followed by BIG positive ripples. However - if we slooowly get out of debt, converting people one or two at a time to the debt free mindset, the net positive would vastly outweigh the mild negatives.

About the only industries that would really hurt if we did that? The banks...

[Russ]

oooo I Know, I know...

We wouldn't need CC companies.!!!

[Cricketlegs]

Frankly I am just worried about MY family and my fellow frugal villager families and the rest can do whatever they want.

I don't think we can sink the entire economy by not carrying a credit card balance!

[missmanny]

Here here cricket legs - I can't worry about the rest of the world, they will do what they want, as long as we are all on the right path then we can reap the rewards of our own futures.

personally I can't see this ever happening, too many people think of debt as a tool (I just see it as a noose around my neck)

I think that it would take a mjor catastrpophe like the great depression for this to become a reality - having said that I have read that had credit been so prevalent back then that the great depression may have never been. (and that truely says something)

[Luv2BeFrugal]

Wow! Really interesting article! I had my Dh read it, too...he found it interesting... Now I'm reading more articles on that site!

Thanks for sharing!

[elphie]

I think in the long term our economy would become more stable, yes we would buy less stuff but much of the what we buy isn't produced in the US anyway so the manufacturing aspect wouldn't be terribly detrimental. I do think stores would suffer, and some small business owners would probably go out of business if we all stopped using credit at the same time. However at the rate we are going a much bigger disaster could befall us than a few businesses going under... like a crash that would leave many more people scrambling.

I believe the end result of more financial responsiblity, from both citizens and the government, would be a truly stable market place instead of the appearance of stability we have right now. When the government is severely in the red, yet mails checks to its citizens in order to "stimulate" the economy we are living in a house of cards. IMHO

[RaineyDaye]

I believe the end result of more financial responsiblity, from both citizens and the government, would be a truly stable market place instead of the appearance of stability we have right now. When the government is severely in the red, yet mails checks to its citizens in order to "stimulate" the economy we are living in a house of cards.

Did you see The Limits of Power with Andrew Bacevich on PBS (Bill Moyers journal)? This is exactly what he was talking about. He calls our nation "an empire of consumption". As a government and as individuals we are not able (or willing) to live within our means. Our foreign policy, for many years, has been the result of our dependency on imported goods, imported oil and consumer credit, pushing our country into ever greater debt. The government refuses to balance the budget because they fear the political repercussions of trying to reign in consumption that we can't afford. They believe that we would not be willing to save, spend less, cut back on consumption of oil, etc... A very good show but very depressing.

[Cricketlegs]

I am going to say this and I don't mean to TICK anyone off but if we used more cash and less credit, maybe more Mama's who wanted to be home with their kiddos taking care of home and family instead of out there making a paycheck to pay the babysitter could be home.

If a woman WANTS to work then more power to her but I think alot of working mamas just want to be home.

Being a stay at home Mama is a HARD job!

[Greebo]

I am going to say this and I don't mean to TICK anyone off but if we used more cash and less credit, maybe more Mama's who wanted to be home with their kiddos taking care of home and family instead of out there making a paycheck to pay the babysitter could be home.

AMEN sister. How the hell can anyone expect to live on one income when they have a financed house, 2 financed cars, financed tv, financed furniture, financed bed, financed life!

Pay cash, live on one income, live with less until you can actually afford it!

[mommy4ever]

That's an interesting article.

There would be ripples for sure, but most of this is based on an IMMEDIATE change. People aren't going to just stop, even the people here, myself included, slide a little, indulge alittle. It won't happen overnight.

All the finance companies will hurt. But I don't know that the banks will, there will still be mortgages, but perhaps more modest. There will still be some loans too, business loans, etc. Yes the payday loan places would close down, they need to, they aren't the place to go, it creates a vicious cycle for them. I read an article recently about GM, they earn more with the finance division than their vehicles. Scary thought!

If I could get out of debt, I'd be a happy happy camper. I would likely be spending more in the sense that I'd be using cash and not paying interest. That'll be a huge savings. That's my goal!!

North America needs to stop living as they are, the debt is ruining marriages, putting families on the street. Keeping food from the children that need it most. Enough is enough! We all need to be responsible, and rein in our rampant desires of a two year old demanding it NOW and pay later. It's time to be grown ups and work towards our goals. Pay in cash, and live free of the fear of the debt collectors.

I feel for people whose jobs may be in jeopardy if times came that finance companies were failing(ironic isn't it?), but they could use their skills for other financial jobs. Accounting, investment banking. Their skills are portable. But the fact is, it'll NEVER happen where everyone lives that way. only a precious few realize the benefit of that. And a good chunk visit right here at FV.

[Wendy99]

I agree with the SAHM. I work around my kids school hours so it works out perfectly (no daycare & I still feel like a SAHM because when they are home I'm home ~ except holidays ), but if we had everything on credit I would have to work more to pay it off AND pay for daycare