Finances in the Golden Era and today

[57plymouth]

For your consideration:

http://graphics8.nytimes.com/packages/flash/business/DEBT_TRAP/media/interactives/timeline.swf

It seems to me that the general populace has forgotten how to save, but is quick to borrow. As a person who has eschewed credit and is debt free other than my house (grumble grumble grumble...) and keeps about 6 months of living expenses in a reserve account, I am saddened by these sorts of statistics. Yes, I made big mistakes and had a lot of debt; but I've paid it all off except the mortgage (grumble grumble grumble...) It is true that I don't work full time. I am 95% stay at home dad, and 5% home inspector. Still, we live quite comfortably within my wife's salary, and we save every month for retirement and any large expenses. Right now we are saving for a new dining room table. We have already set aside money to replace the next car, but our highest mile car has only 107K miles.

So, am I abnormal? This chart would say that I am. Who's on board with me? Who would like to be in a debt free position? (I'll be glad to council anyone who would like some guidance, shoot me a PM.) Who has always been debt free?

 

[MissHannah]

I would LOVE to be debt-free! Living alone in London is very pricey. I don't have expensive tastes at all and don't shop much but I always run out of money before the end of the month. Any advice would be much appreciated!

 

[Undertow]

Interesting graph, thanks for posting.

 

[Paisley]

Where did the data come from? I'm having some difficultly believing that average annual saving in 1944 was over $12,000, inflation adjusted.

 

[vintage68]

So, am I abnormal? This chart would say that I am. Who's on board with me? Who would like to be in a debt free position? (I'll be glad to council anyone who would like some guidance, shoot me a PM.) Who has always been debt free?

Yes, you're a freak But my hat's off to you anyway. I aspire to be debt free and live your frugal lifestyle, but the economy isn't cooperating.

 

[Undertow]

Where did the data come from? I'm having some difficultly believing that average annual saving in 1944 was over $12,000, inflation adjusted.

It appears to be from the NYTimes. Any feedback 57plymouth?

 

[LizzieMaine]

The figures for 1944 would be severely skewed for a two-word reason: war bonds. Many families followed an unofficial quota of ten percent of their gross income going into war bond savings, which would have unnaturally elevated the total. A secondary contributing factor would be the fact that there were no heavy consumer goods available for sale during the war -- no cars, major appliances, radios, etc, and a very restricted, unpredictable supply of light consumer items. There was simply much much less to spend income on, so there was nothing much else to do *but* save.

There's also a third factor: public pressure to save. The war years were pretty much the only time in our history when it was considered dangerous, unpatriotic, and stupid to spend money. There was incessant official propaganda encouraging people to *not* spend money unless there was absolutely no choice, because in an economy with a restricted supply of goods and an excess of income, too much spending would create deadly inflation. Under these conditions, anyone strutting around flashing a big roll and throwing it around irresponsibly was seen not just as a fool, but also as a likely fifth columnist.

 

[Paisley]

According to this document from the U.S. Census, median (not average) total income of urban and rural nonfarm families and individuals in private households was $2,410 in 1944.

According to this calculator, that translates to $29,077 in 2009 dollars. Twelve thousand dollars is almost half that.

However, the $12,000 is an average not a median. Assuming the $12,000 figure is correct, a small portion of wealthy households may have skewed the figure way up.

Similarly, the graph notes that in 1957, 42% of households had no debt, yet the average debt is $24,000 for that year. Again, assuming the figure is correct, a small portion of wealthy households may have skewed the figure. The median may be a lot closer to $0.

 

[LizzieMaine]

However, the $12,000 is an average not a median. Assuming the $12,000 figure is correct, a small portion of wealthy households may have skewed the figure way up.

Quiite likely. These were the people who did the majority of big spending before the war -- but there was nothing for them to spend it on, no more than there was for the factory hands and scrubwomen. The rich were hit very hard by wartime austerity on both ends -- on the one hand, no luxury goods were manfactured at all between early 1942 and late 1945. Big spenders had nothing to big-spend on. And from the other end, tax rates for the top earners were higher than they'd ever been, or have ever been since. But war bond purchases were deductible -- so a lot of upper-income types loaned their money to Uncle Sam rather than have him simply take it away from them.

 

[Paisley]

^Good points. Maybe Ben Graham picked up a lot of bargains that year, too.

 

[Paisley]

Big spenders had nothing to big-spend on.

Terrible problem!

 

[Undertow]

There's also a third factor: public pressure to save. The war years were pretty much the only time in our history when it was considered dangerous, unpatriotic, and stupid to spend money. There was incessant official propaganda encouraging people to *not* spend money unless there was absolutely no choice, because in an economy with a restricted supply of goods and an excess of income, too much spending would create deadly inflation. Under these conditions, anyone strutting around flashing a big roll and throwing it around irresponsibly was seen not just as a fool, but also as a likely fifth columnist.

Which brings to mind the WWII-era Donald Duck cartoon in which Donald is tempted to spend his dough at the bar, while his Uncle Scrooge tries to keep him patriotic. It was a dark cartoon for Disney, but quite interesting.

 

[jamespowers]

^Good points. Maybe Ben Graham picked up a lot of bargains that year, too.

You value investor you.
Good points about the War being responsible for the skew in investing and debt numbers. The cost of big ticket items such as housing and applainces that did not even exist then has also taken quite a toll on the debt structure of households today.
A house sold here in the 1940s for $4,000 will bring around $300,000 today. Even adjusted for inflation, that 4 grand would be $51,000 today. Good luck in finding something for that.

 

[vintage68]

The figures for 1944 would be severely skewed for a two-word reason: war bonds. Many families followed an unofficial quota of ten percent of their gross income going into war bond savings, which would have unnaturally elevated the total. A secondary contributing factor would be the fact that there were no heavy consumer goods available for sale during the war -- no cars, major appliances, radios, etc, and a very restricted, unpredictable supply of light consumer items. There was simply much much less to spend income on, so there was nothing much else to do *but* save.

There's also a third factor: public pressure to save. The war years were pretty much the only time in our history when it was considered dangerous, unpatriotic, and stupid to spend money. There was incessant official propaganda encouraging people to *not* spend money unless there was absolutely no choice, because in an economy with a restricted supply of goods and an excess of income, too much spending would create deadly inflation. Under these conditions, anyone strutting around flashing a big roll and throwing it around irresponsibly was seen not just as a fool, but also as a likely fifth columnist.

Well check out the big brain on LizzeMaine!!:eusa_clap That was a very interesting factoid I did not know. Thanks for posting that. Gotta love the Lounge!

 

[Paisley]

Housing is one factor; education is another.

Even if a person wants to be frugal, it can be hard today. In some cases, they may have to move to a different part of the country or make hard decisions about where or whether to go to college.

 

[vintage68]

What about cars? I find transportation costs to be very high, one reason being that one needs to drive everywhere these days. Communities just are not as small as they once were.

I went without a car for 12 years in San Francisco and loved it. When I lived outside Denver in Boulder however I just couldn't run all my errands walking, I had to drive since everything is so spread out. Same goes for Reno where I've temporarily relocated. No one walks here or takes public transportation since it's so bad.

 

[jamespowers]

Housing is one factor; education is another.

Even if a person wants to be frugal, it can be hard today. In some cases, they may have to move to a different part of the country or make hard decisions about where or whether to go to college.

Yes, that is a factor. Moving can make a huge difference in housing costs as well as education costs.

 

[Paisley]

This reminds me of an episode of the Cosby Show, where Theo's family was pretending he was on his own.

Dr. Huxtable: (Takes some Monopoly money from his son, Theo) "You'll have to pay rent."
Theo: (Takes some money back) "I'll live in New Jersey."
Dr. Huxtable: (Takes the money back) "You'll need a car if you live in New Jersey."

There are people in or near downtown Denver who get along without cars. I live just outside the Denver city limits and two of my neighbors don't have one (they're blind). However, a car makes getting around here a whole lot easier.

Whether it was cheaper to get around decades ago than it is now, whether it would take up more of your income and/or time, I have no idea.

Re: the original topic, yes, I save and avoid debt.

 

[57plymouth]

The article is from the NY Times. My wife found it originally. I cannot speak to it's accuracy or the inflation correction.

I'd hardly call myself frugal. Money conscious is a more accurate term.

As far as transportation: last fall we had to replace my wife's car. I bought her a 2002 Chevy Cavalier. It replaced her 1995 Pontiac Sunfire. Several reasons we bought the Cavalier. First, I only buy General Motors or Chrysler vehicles. I had a Triumph once, I have never owned any other foreign car, and I never will. Working on imported cars for family and friends from both Europe and Japan has taught me that I do not need one. Second, the Sunfire is essentially a Cavalier, and we have had four of those cars before the one we just bought. History has proven that I can push a Cavalier to 200K miles without a major repair with regular maintenance. Third, an automatic transmission Cavalier gets 32-34 real world mpg. A standard shift gets 36-40 real world mpg. The car we bought had 58K miles, and we bought it for $3200 cash. It is not flashy. It is not fast. It is stone solid reliable and economical and we have no payments. Taxes and tag for this car are $70 in South Carolina, I paid them last month. This is a long term car for short term money. This Cavalier is the most expensive one of the five (including the one Sunfire) we have owned. I bought the Sunfire for $600 and we drove it for two years. It had 165K when I bought it, and it had 220K when we gave it to my mother in law. Cars are cheap. You must be patient to find a good one.

My nearest neighbor is 2 miles away. My wife drives 45 minutes each way to work. It is absolutely mandatory that we own two cars. Of course, the two antiques in the garage that we own in addition are superfluous toys that have no justification. But I'm not selling either one, they don't cost us much for the amount of fun we have with them as the toys they are.

 

[57plymouth]

I would LOVE to be debt-free! Living alone in London is very pricey. I don't have expensive tastes at all and don't shop much but I always run out of money before the end of the month. Any advice would be much appreciated!

Please clear out a spot in your PM box so I can shoot you a message.