Money
and
Personal Finance

Overview & Connection to a New Dream

"I’m definitely a shopaholic!" proclaims a carefree young woman gleefully. The camera then pans away as the announcer hawks a credit card with twice the credit limit of her old card and dubs it "the solution" to her problem.

That commercial typifies our consumer culture.⁽¹⁾ Society looks down on most compulsive behavior, yet laughs off "stuff" addiction and loose fiscal discipline. "Consuming to excess is no big deal," the dominant line of thought rationalizes, "plenty of people buy lots of 'stuff,' go into debt, and pay it off over time so everyone’s happy." Unfortunately the math doesn’t compute to support this fairy tale. Let’s say our gleeful friend from the ad doubles her credit line from $5,000 to $10,000, maxes it out, then swears off credit and cuts up her card. If she suddenly found discipline and stuck to a monthly $350 payment at 16% interest, 36 months would pass before she’d be in the clear (even if she played "credit card roullete" and averaged 6% rates, she’d pay down the debt for 31 months).

Needless to say, addictions are not generally that easily broken. National debt statistics paint a grim picture. In 1998, Americans’ personal savings rate was 0.5% of disposable personal income, the lowest savings rate since the heart of the Great Depression in 1933.⁽²⁾ By the second quarter of 1999, it had fallen to –1.1%, meaning Americans spent more than they earned.⁽³⁾ In 1997, despite our booming economy, credit card debt climbed 6% to $529 billion nationally. Roughly 60 million families carried an average credit card debt load of over $7000. Throw an average of more than $1000 in fees and interest into the mix and, rather than paying it off over time, families are getting buried.⁽⁴⁾ In 1998, 1.4 million Americans declared personal bankruptcy;⁽⁵⁾ that’s five times as many as 1980 and more than graduated from college!

The problem, analysts explain, lies in Americans’ profound lack of personal financial literacy. A 1999 survey revealed that nearly two-thirds of Americans did not know that money loses value in times of inflation and only one-third realized society must make choices about how to use resources. Only sixteen states require high schools to offer economic classes and a mere two states require high school students to take a personal finance course before graduating.⁽⁶⁾

Fortunately, several organizations are springing up to rectify this problem. Some national programs aim to teach students the value of saving while others focus on helping adults plan for retirement. At the local level, hundreds of study circles based on the book Your Money or Your Life offer community supports while developing fiscal discipline and practical tools for weighing prospective purchases and life decisions.

Once you’ve successfully balanced your checkbook, you’re faced with a whole new problem – where can you safely and profitably invest your savings without perpetuating the injustices and environmental degradation associated with our hyperconsumptive economy? Unfortunately, there’s no easy answer. The good news is that socially responsible investing is growing by leaps and bounds and profits are often comparable to "irresponsible" funds. In 1995 $639 billion was invested in responsible funds. Two years later that figure nearly doubled, hitting $1.2 trillion.⁽⁷⁾ The not-so-great news is that many companies who pass these screens are still firmly addicted to the "more is better" philosophy and some even relentlessly advertise to kids. Your best bet is to review the holdings, screens, and principles of various funds and select those with screens most in line with your personal values. You can also tell fund managers that you’d love to see them start a fund that screens for companies in accordance with a new American dream! Remember, just as you vote with your dollars when buying a local organic apple over a pesticide-intensive fruit that was flown 3000 miles to your grocery store, deciding where to invest your hard-earned dollars helps decide what type of companies will thrive in our society.

Individuals aren't alone in suffering from debt and unsustainable consumption. Want to see how these issues relate to the government and the macroeconomy? Then continue on to the puzzle tour’s Government Policy and Economics puzzle piece.

1. See the Commercial Culture puzzle piece.
2. U.S. Department of Commerce; Bureau of Economic Analysis as quoted by the American Savings Education Council, http://www.asec.org/
3. U.S. Department of Commerce; Bureau of Economic Analysis, http://www.bea.doc.gov/
4. Consumer Federation of America report, December 1997.
5. American Bankruptcy Institute, http://www.abiworld.org/
6. National Council on Economic Education, "The Standards in Economics Survey" 1999. http://www.nationalcouncil.org/
7. CNAD Interview with Co-op America Executive Director Alisa Gravitz, February 1999.