Q&A Friday #58: If You Can’t Afford It, You Don’t Deserve It

Question: “In the midst of the greatest affluence the world has ever seen, Americans are saving less money than they did during the Great Depression.

What do you think the consequences will be if Americans keep living like there’s no tomorrow? What do you think can be done to fix the problem?” — President_Friedman

Answer: The more responsibilities the government takes on, the less responsibilities people take on for themselves. Back in the thirties, much of the safety net that we have today didn’t exist or was just being created, so people knew they better save money or they’d be in a world of hurt.

Now the attitude is, “Well, with Medicare and Social Security, even if I save almost nothing, I can still scrape by if worse comes to worse.” Combine that with changing attitudes towards spending, the proliferation of credit cards, and people getting to see how the rich and famous live on TV (and wanting a piece of that), and you don’t get people saving money like they should.

But, will there be consequences to be paid? You bet, because Social Security and Medicare are not financially secure programs, especially with the population getting older. In the next decade or so, Social Security will start running in the red and Medicare is incredibly expensive and getting more so by the year.

Eventually, what’s going to happen at some point is that the younger population isn’t going to be willing or perhaps even able to pay the sort of taxes required to keep the old folks on the dole (No money paid in for Social Security or Medicare has been saved. It’s spent every year) — and the government will end up having to make major cuts in the programs. When that happens, the people who didn’t save anything are going to be the hardest hit.

The best thing we have going for us on that front is that Europe’s population is older than ours and their benefits are much more generous, so some European country will get into a horrible crunch before us and hopefully, that’ll convince people we can’t go running these deficits forever.

PS: As far as getting individuals to save money, that’s tough duty once you go beyond programs like the 401k and company pensions. The best thing I can suggest for people (and I’m a piker when it comes to saving money compared to a lot of people) is to never carry a balance on a credit card and live by the motto, “If you can’t afford it, you don’t deserve it.”

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