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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: Re: Pointless to Save? Date: 12/6/2010 3:33 PM
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Specifically, just because an individual or family does not default on their credit or other debt obligations does NOT mean that they have managed debt responsibly.

OK. I'm not sure what other measure would be more accurate.

You must look past defaults and see how well funded individuals/families are as they approach retirement. If you believe the studies, the majority of American's retirement savings are woefully inadequate. Maybe some of those with inadequate savings had planned to work until they die, unfortunately that is not an option for many/most now because of health problems and/or because of the high employment rate going forward. Sounds like bad planning to me.

While that's unquestionably true, I wonder what "debt" has to do with that. In the 1930's, prior to the arrival of credit cards, before Social Security existed, and when a small fraction of Americans owned their own house, before easy money, payday loans, and all the rest, it was the exact same story. The appearance of credit, even easy credit, hasn't changed that at all. I submit that's because of human nature, which abhors planning and thrives on the present tense (the ant and the grasshopper), not on anything having to do with "debt."

I look at my neighborhood friends and co-workers, including those that make substantially more money than myself (or used to). Until recently, they had all of the latest gadgets, they have continually had very nice, new cars, and their kids drove BMW's and the like to high school. None of these people had defaulted on their debt.....but guess what they are in serious trouble now.

Yes, and if they hadn't used that "debt" their lot would be the same. Statistics from the 1930's indicate that about half of elder Americans lived in (what we would now define as 'poverty'). If Social Security did not exist, the proportion today would be virtually identical. The use of "debt" has changed nothing. I therefore conclude that Charlie's statement that most people can 't handle it is simply wrong. Most people can, and most people do, and if they do not plan for retirement, well, that's nothing new, and has nothing to do with "debt."

Let's go a little further, the US Gov't has never defaulted our debt but does that mean we have managed our debt well?

For most of the history of the republic, yes. For the period between 1980 and 1995, no. For the period between 2000 and 2008? No. It is, however, the adoit use of debt in the past two years which has kept the economy from crumbling. (It remains to be seen whether the fix is temporary or not, I happily acknowledge.) Without the use of that debt, I can safety say we would have had an economic cataclysm.

Let me ask you this: if you lose your job and then your car breaks down, are you more virtuous because you don't take a loan to fix your car so you can look for work? Or is it smarter to use debt to fix the car and find a new job? Or should I plan on selling my house out here where no mass transit exists, expect to take a loss on the house, incur moving expenses which I cannot pay, and find somewhere where a car is not necessary? Or would a little debt be a smarter answer?

So it is with our economy these past two years.
 
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