Here is a brief clip from Elizabeth Warren, who has been tasked to overlook the TARP bailout by the government, is talking about how those individuals who file bankruptcy are just like us. They work hard and spend rationally. It is just the debt piles up too fast.
Certainly, there are folks who end up in bankruptcy due to medical expenses, divorce, or other personal issue. Her explanation doesn’t make sense. If you are spending rationally, then you shouldn’t be piling on debt. Warren receives all kinds of love from anti-establishment folks because she is pointing out the ineffectiveness and political shenanigans associated with the TARP. And, I am glad she is.
However, this populism needs a dose of reality. Sure, the banks are bad and should not have been bailed out like they were, but painting folks who mismanaged their finances as victims is wrong. Consumer debt is one of the reasons we are in this mess. You can argue the average Americans are too ignorant or the Madison Avenue marketers entice us to spend, but until all Americans acknowledge their fault (and correct them), we will never get better. Worse, we will experience this again.
I never got any financial education in school (we need to cut useless courses like geometry and add personal finance), and my parents weren’t financial wizards. They were school teachers who figured they just needed to bide their time to get their pensions. However, they imparted two simple rules on me that I have found practically guarantees success:
1. Never spend more than you make.
2. Always save 10% of your earnings.
That’s it. For rule number one, this meant if I wanted a new stereo or tv, I saved for it before I bought it. I never spent more than I brought it unless I had savings set aside. With the 10% rule, that provided me with lots of options.
If we could teach all Americans these simple rules, including our government, life would be much better across the board.