When the Recession Hits, What Will You Cut from Your Budget?
ABC's weekly show, Wide World of Sports, began with a phrase: "the thrill of victory and the agony of defeat." Which will it be for you when the recession hits? Will it be this?
It is going to be a worldwide phenomenon. The Western industrial countries will get hit, but so will mainland China. India may even take a hit.
This is going to create havoc in the lives of a couple of hundred million people, minimum. Everyone will worry about losing his job. People who live on sales commissions will be scrambling to meet their monthly sales quotas and their monthly home budgets. People who work in the construction trades will once again find that nobody wants their services. That is what they found out a decade ago, and they are going to find it out once again. They are going to have to do home repairs, not home construction. Their income will fall.
Everyone will get involved once again in that agonizing procedure known as "taking control of the budget." This is going to be true in businesses. This is going to be true of housewives around the world. That old devil Spending is going to have to be put on a chain.
Nobody likes to do this. We get used to a particular level of expenditure, and we persuade ourselves that it is our natural right as natural-born citizens of the utopian world that we live in. Our world really is utopian by the standards that have prevailed among humanity from the beginning. We keep inching our way into a higher level of utopia.
In terms of communications, the world that we live in today was utopian by the standards that prevailed 25 years ago. The Internet really has changed everything. We get online everything. If only I had bought $1,000 worth of Amazon shares when they were first offered. But who would have thought that a discount bookstore would turn into the victor over Sears, JCPenney's, Kmart, and other anchor stores in malls we no longer shop in? Next on Amazon's targeted list: supermarkets.
NO MORE HUNGER
I suppose the most astounding victory is the victory over hunger. Because of the rate of economic growth in Third World countries, it is likely that in 2030, the percentage of people who live in near-starvation conditions will be down to single digits. In 2050, it will be low single digits. We are seeing the answer to an ancient prayer: "Give us this day our daily bread."
In a recession, there will be symbolic relevance of that ancient prayer, but it still will not be taken literally by those who pray it. It has not been taken seriously in the West, except during the Great Depression and during wartime, since the Irish potato famine of the late 1840's.
My wife spends very little money to feed me on my anticancer (I hope) vegan diet. It costs quite a bit to buy the vitamin supplements, but it does not cost much to buy the food. My breakfast is simple: half a cup of organic oatmeal, a handful of organic raisins, and a few tablespoons of vegetable-based protein: hemp seeds. On top of it I pour some flax milk. For lunch, I have a medium-size organic potato or two small organic potatoes, a couple of tablespoons of flax oil, and a healthy heaping of no-fat yogurt. For dinner, I have two slices of Ezekiel bread, a couple of slices of organic tomatoes, and a couple of slices of organic onions. I top it off with organic mustard. I snack on unsalted organic nuts during the day. Believe it or not, I do not lose weight on this diet. My weight has stabilized.
People do not need as much to eat as they enjoy eating. They do not need to eat out. They do not need packaged foods. They do not need frozen foods. It does cost more to shop at Sprouts than it does at a Walmart Supercenter, but I figure it is worth the money to get the organic vegetables.
If a family in a ghetto stopped buying all packaged foods, and it substituted eggs for meat, it could cut its food budget easily by 30% or more. Families do not do this. It is difficult to change our dietary habits. Dieters are well aware of this. My guess is that the grocery budget will not be the first budget to get cut in the recession. It probably should be.
Here was the typical household budget in the USA in 2013. The economy was slowly recovering.
Take a look at food costs by household income. It's still low as a percentage of income. This is why we do not think much about it.
In the year 1800, before the invention of the railroad, when the steam engine was used mainly to pump water out of coal mines, the typical family anywhere on earth spent at least 80% of its working hours getting food out of the ground. This labor began for children no later than the age of six. Most families lived on farms. Here was how Americans earned their livings--a much richer nation than most nations.
This was not true subsistence agriculture. Farmers traded with townspeople for goods and services, but mainly goods. Farmers have always traded with people in local towns. But there were not many people in local towns in 1800. So, most of all families' labor time was poured into the ground in order to extract food out of the ground.
That world does not exist in our day. Even in sub-Saharan Africa, when we see photographs of residents, they are wearing mass-produced clothing. They are wearing jeans and colored shirts. A man may save up for a bicycle, but a bicycle did not exist in 1800. The bicycle that we would recognize as a bicycle did not get invented until about 1880.
A BUDGETING COURSE
The public schools do not teach budgeting to students. If students began to get lessons in personal budgeting by the time they reach the age of 12 or 13, they would not be targets of predator banks that give away credit cards to people as soon as they hit the age of 18. We would have a generation of students who know how to negotiate and shop effectively by the time they are legal adults. But schools do not require such courses. They did not require them when I was in school. My mother never spoke of such a course in the 1930's. Neither did my father.
My school did offer a home economics course. It targeted girls who were not college-bound. I never knew anyone who took it. As the Bible says, pride goes before the fall.
I do not know if you taught your children budgeting. My three children are exceptionally frugal. They do not waste any money. My wife was frugal, and so was I. We provided guidelines for the kids. They never forgot. Habits inculcated at an early age tend to stick with people for the rest of their lives.
Here is a way to get started. This is from Prof. Timothy Terrell, an economist.
Teens face a lot of money problems. Many say they do not manage their own money at all.
According to a 2012 Junior Achievement USA/Allstate Foundation survey, over 1/4 of teens do not expect to be able to support themselves financially until after the age of 25. According to the same survey, only 56 percent of teens think they will be financially as well off, or better off, than their parents. Many students will wind up in hundreds of thousands of dollars of debt in the few years after graduating from high school, with a combination of student loans, credit cards, car loans, and mortgages.
Nationally, few high schools offer courses in personal finance. The statistics are here. This curriculum is different. It offers an economics course and a personal finance course.
Teens do not have confidence in their ability to handle their finances and their time, and this course is directed at changing that. Instead of working without goals, students will learn how to develop goals and achieve them. Instead of habitually over-spending, students will learn the techniques of managing their finances with longer-term goals. Instead of thinking about how to spend resources they did not earn, students will learn how to imaginatively create wealth. Instead of joining the 30% percent of student loan borrowers who are delinquent on their payments (and that's not counting those in deferment or grace periods), students will learn to avoid debt traps.
I teach this course from the point of view of a parent of teenagers, and I show students how the real world works. In parts of the course, I bring my 15+ years of experience as a teacher of college economics to bear, to show students how broader economic events can affect their personal finances.
Lesson 1
Lesson 2
Lesson 3
Lesson 4
Lesson 5
The course is here: https://www.ronpaulcurriculum.com/public/226.cfm