My two high-schooler daughters asked me the other day how it was that the financial crisis was supposedly affecting “Main Street” and becoming a widespread economic crisis, when it sounded like it was mostly a stock market thing that was only affecting investors. I explained that businesses rely on credit to be able to maintain the cash flow needed to buy inventory and pay their workers, and households rely on credit to be able to pay some of their biggest bills, and that that’s what can create that “vicious cycle”/”downward spiral” where businesses cut worker pay or even layoff workers, households can’t get the credit they need to keep up their consumption, consumer demand falls further, which reduces businesses’ profits and cash flow even further, and so on and so on. My daughters then asked: “well, that’s not affecting our family at all, is it? …I mean, you and Dad just do government-type work, so your jobs are safe, and you don’t have to worry about the government going out of business…” And I said, well, that’s true (and we’re very lucky), but our savings and wealth have just gone way down, and we still have debts, and I’m genuinely worried that even with our pretty high household income, that “we’ve been living beyond our means.”
So, like many other families around the country, even higher-income ones, our family is definitely scaling back lately. (See this article from today’s Washington Post.) Suddenly I find myself pouring through my cookbooks trying to plan to cook more meals rather than carrying out. Suddenly I’m paying cash for more things rather than putting it on my credit card and risking that I might not pay it off right away (which, yes, I’ll admit I’m bad and irrational about). Suddenly I’m really worried that my oldest is a junior so that we have just one more year to figure out how we’re going to pay for her college (and with daughter #2 just one year behind), if she doesn’t get that merit scholarship we’re hoping for. Suddenly that plan that we can always borrow from our retirement fund or from the equity in our home doesn’t sound like such a great plan. (See this other article from today’s Washington Post.) So suddenly, I’m not doing much “online” or any other kind of “fun” shopping. Suddenly, I’m not being such a exuberant “consumer.”
And yet, in just the past week I’ve managed to spend a lot of money, on things that I consider “emergencies” or “investment” spending. First, my old, adopted/rescued beagle, Roscoe, got sick and needed to see the vet for what was an obvious infection in his urinary system (sorry if TMI). While we were seeing the vet, I didn’t just get the antibiotics but mentioned that Roscoe’s had symptoms for months that might indicate something more serious/chronic. So the vet decided to send out for all this lab work, and before I knew it, I had spent $515 for a trip to the vet for amoxicillin (which itself was just about $30). (We don’t have pet health insurance.) Tomorrow I will find out the lab results and what diseases they may have ruled out, but I was told no guarantees they’ll know what’s wrong with him by tomorrow. All this expense is “worth it” to me, because I love that old (10-12 year old) beagle who was found last fall along some rural road in VA with a bullet wound in his leg and infested with fleas (turned out to have lime disease)… I mean, just look at him (photo at top, taken by second daughter, Emily). I’ve written about this phenomenon in health care spending before; it works that way even with one’s pets’ health care.
Then it turns out that this week is my oldest daughter’s 17th birthday. She told me she only wants one present, but it happens to be a MacBook. Not cheap. But she ends up pleading the case that her PC is old and keeps going into “blue screen of death” mode and that if she got a MacBook that would help her be more productive with her school work and would be the computer she brings with her to college, etc., etc…. Basically she was arguing that this was no frivolous consumption; this was a worthwhile investment. Now, because she might actually read this post between now and her birthday, and because I don’t want to give away any surprise, I won’t say if I bought it or not… but you can probably figure it out.
So what does “living within our means” mean for my family? I think it’s trying to avoid getting into debt, or at least making sure we don’t go into debt for frivolous consumption, but only for things that we consider “emergencies” or “investments.” But the point is that those emergencies and investments alone are enough to take up all of our (pretty high) household income. (I mean, when you have four kids and three dogs, essential spending is already a LOT of spending and takes a LOT of income.) And I think there’s an analogy to the federal government there, because obviously there are also a lot of emergency and investment demands on the federal budget, and obviously the government will be running pretty serious budget deficits for quite awhile longer. But just as my family’s “sobering up” a bit about our personal consumption and our occasionally frivolous purchases, I’m hoping that the next Administration and Congress will start to more thoughtfully consider what is worth getting into deeper debt for, so that over the longer run all of us will be closer to “living within our means.”