The greatest lessons about saving money hit us when we're kids, especially from nursery rhymes, like Simple Simon, who never had money.
Always spending, never saving.
Then there was the Old Lady who had to live in a shoe because she relied totally on Social Security. And of course Humpty Dumpty would have fared much better had he put aside a little cash for his long term health care.
Hey, good lessons to remember. Saving for your financial future is no fairy tale, because if you don't have a goose that lays the golden eggs, you better "Choose to Save."
While driving recently, I heard a public service announcement (PSA) from the U.S. Treasury, which seems to fit very well with what I had planned to say in this op-ed. When I went to the Internet to try to find the text, I found that it was one of the Treasury's "Choose to Save Public Service Announcements." (http://www.choosetosave.org/psaplayer/index.html)
What particularly struck me about the ad was that it was 100 percent out of phase with the insanely irresponsible deficit spending coming from Washington. It gave me at least an iota of hope that somebody in Washington understands that buying-on-time ("deficit spending") is incompatible with saving for a secure future. Indeed, the PSAs on the site sounded a lot like my father and mother.
The Great Depression taught my parents a number of lessons that they practiced for the rest of their lives, and taught their boys.
On many occasions, my dad said that the cause of the stock market crash was the "buying of stocks on margin." Before "Black Friday," a person could buy a stock by putting 10 percent "down," and owing the rest. It was a way of buying stock "on time."
People who bought on 10 percent margin, made fortunes — as long as stock prices rose, and as long as they were able to sell at the appreciated prices! But when the market precipitously dropped on Black Friday, and when margin calls went out for the other 90 percent, few people could come up with it. Those that couldn't, lost the 10 percent they had put "down," and found themselves liable for the other 90 percent.
From their Depression experiences, dad and mom formulated rules designed to allow them to survive next depression.
Rule No.1: Never buy on time.
Rule No. 2: If you can't pay cash for it, don't buy it! Wait until you can pay cash.
Rule No. 3: Never pay interest. If you have to spend money paying interest, you will have that much less money to spend on things you really want.
Dad and mom made one exception to their rule. When they bought a house after World War II, they took out a mortgage.
They made a judgment that they could, on dad's income, afford to pay that mortgage. But to protect themselves as far as possible, Dad bought mortgage insurance to insure the house would be paid for in the event of his death.
For all other purchases, including automobiles, my parents saved and paid cash.
Mom was proud to tell how she bought their first radio with pennies she had saved. Dad, being a businessman, understood that business expansions generally required borrowing. But borrowing, even for that, was never dad's first option.
He frequently said, "there are two ways to make money: earn more, or spend less.
Mom and dad both believed in "putting something away for a rainy day."
Having survived the Depression, mom and dad always operated on the theory that they wanted things to be better for their boys. They never would have asked us to pay for their home, their car or even their medical expenses.
Throughout my life, I have followed their advice. I have always found paying cash for something makes you think twice before you buy it. To this day, I always ask myself if I want it badly enough to deplete my savings. It is amazing how many "things" I haven't bought over the years because I felt that I would be better off not depleting my savings.
These are old-fashioned notions. I suppose that at least half the people in the country would reject them as antiquated. They follow a modern precept: "If you want it, buy it and pay for it later." The treasury seems to disagree:
Announcer. And now, another adventure with Savingsman!
Attractive Young Woman. (Shopping) Oh dear! I can't afford that!
Evil Credit Card Guy. Charge it! You can pay it off later
Savingsman. Not so fast Credit Card Guy.
Attractive Young Woman. Savingsman!
Savingsman. Don't let him entice you ma'am, Credit Card Guy can lead you to big trouble ... you need a savings plan!
Attractive Young Woman. You're right Savingsman!
Savingsman. Get this Ballpark Estimate worksheet at choosetosave.org. It will help you get started!
Attractive Young Woman. Gee, thanks Savingsman!
Posted Online: Sept. 13, 2011, 3:00 pm - Quad-Cities Online
by John Donald O'Shea
Copyright 2011, John Donald O'Shea
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