Personal choices factor into credit crisis

By Caroline May     10/23/08 7:00pm

In the wake of the recent economic meltdown, Americans are eager to assign blame and hold the guilty parties accountable for, at best, their poor judgment and, at worst, malevolent greed. To be sure, there is more than enough culpability to go around, from reckless mortgage brokers to politically correct lending practices to inadequate oversight. While institutional glitches bear a great deal of responsibility, the tendency for individuals to allocate any and all misfortune, even that which is self-inflicted, on external scapegoats is a troubling trend in our society.Indeed, the majority of financial failures in America these days are the consequence of poor decision making on the part of the individuals themselves - not the lenders, not the banks and not the stores. Ours is a credit culture, and far too many people have grown accustomed to living outside their means. This is a mistake and one that lends itself to negligence and poor judgment. As the markets seem so erratic, and we struggle to maintain stability, a return to personal responsibility is imperative. And living within one's means is the number one requirement for such accountability.

The lure of credit - buy now, pay later - is as sweet as the Siren's call from Anthemusa, but it is a debt trap and a cause for future financial ruin. My grandfather used to advise, "Stay out of banks. You may never get as rich as you would with other people's money and some luck, but the trade-off is sleeping at night." If you financed a house you can't afford or cannot pay back the debt on that expensive Jaguar you had to have last year, you have nobody to blame but yourself. In the end, all we really need is food, clothing and shelter; all the rest is just gravy, and gravy that is more than attainable in this country with a bit of hard work and elbow grease. We live in the most opportunity-rich nation on earth, and it is up to us to take advantage of it and earn enough to afford all the luxuries about which we dream.

As responsible citizens we are advised, in most instances, to save at least 10 percent of our after-tax income. Sadly, in 2007, The Associated Press reported a study by the Commerce Department which showed the average personal savings rate was an anemic negative one percent. This is its lowest level since the Great Depression. "The negative rate means people are spending all of the money they have left after paying taxes - and then some. They are dipping into savings or increasing their borrowing to finance current spending."

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The citizenry is not alone in this; the government also needs to get a grip. The spending on Capitol Hill is out of control, and the tentacles of the state have well exceeded any acceptable range of influence. Like the rest of us, Uncle Sam needs to learn to keep to a budget and avoid outlandish excess. Notwithstanding the familial nickname of Uncle Sam, the American government ought not be obligated to rescue and care for those whose decisions have caused their downfall. Our wants are not needs; our needs are not rights; and our rights ought not be deemed entitlements. Tighten your belt, Uncle Sam, and we will take care of ourselves!

To be sure, it is hard to teach old dogs new tricks, and the deterioration of financial responsibility has been a gradual process. We must, however, reverse the tide and work toward a more willingly accountable populace.

In closing, I shall pass on a sage piece of advice my father gruffly used to, and still does on occasion, tell me if ever I go shopping: "Don't be a reverse alchemist! You know what a reverse alchemist is, don't you? ... Turning good solid money into shit!" In other words, the majority of things you buy, once purchased, are worth next to nothing. Better to keep the cash and not be a reverse alchemist.

Caroline May is a Will Rice College senior.

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